UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~September~~June 30, ~~2017~~

2020



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

For the transition period from ____ to ____

Commission File Number: ~~0-16772~~000-16772

PEOPLES BANCORP INC.

(Exact name of Registrant as specified in its charter)

Ohio

31-0987416

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

138 Putnam Street, P.O. Box 738, ~~Marietta, Ohio~~

~~45750~~

Marietta,

Ohio

45750

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(740)

373-3155

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, without par value

PEBO

The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

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



Large accelerated filero	o	Accelerated filerx	☒
Non-accelerated filero ~~(Do not check if a smaller reporting company)~~	o	Smaller reporting companyo	☐
		Emerging growth companyo	☐

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

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

~~APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:~~

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:~~18,281,112~~19,919,990 common shares, without par value, at ~~October 25, 2017.~~

July 28, 2020.

Table of Contents


Table of Contents

~~Table of Contents~~

PART I – FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS		3
CONSOLIDATED BALANCE SHEETS (Unaudited)		3
CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS (Unaudited)		4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)		5
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)		56
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)		67
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		78
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		3239
SELECTED FINANCIAL DATA		3340
EXECUTIVE SUMMARY		3847
RESULTS OF OPERATIONS		4049
FINANCIAL CONDITION		5263
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		6478
ITEM 4. CONTROLS AND PROCEDURES		6478
PART II – OTHER INFORMATION		6578
ITEM 1. LEGAL PROCEEDINGS		6578
ITEM 1A. RISK FACTORS		6578
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		6681
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		6681
ITEM 4. MINE SAFETY DISCLOSURES		6681
ITEM 5. OTHER INFORMATION		6681
ITEM 6. EXHIBITS		6682
SIGNATURES		6984

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PEOPLES BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS ~~(Unaudited)~~


	June 30, 2020		December 31, 2019

(Dollars in thousands)	(Unaudited)
Assets
Cash and cash equivalents:
Cash and due from banks	$	58,257	$	53,263
Interest-bearing deposits in other banks	161,017		61,930
Total cash and cash equivalents	219,274		115,193
Available-for-sale investment securities, at fair value (amortized cost of $853,072 at June 30, 2020 and $929,395 at December 31, 2019) (a)	877,851		936,101
Held-to-maturity investment securities, at amortized cost (fair value of $39,338 at June 30, 2020 and $32,541 at December 31, 2019) (a)(b)	37,367		31,747
Other investment securities	42,656		42,730
Total investment securities (a)(b)	957,874		1,010,578
Loans, net of deferred fees and costs (b)(c)	3,361,019		2,873,525
Allowance for credit losses (b)	(54,362)		(21,556)
Net loans (b)	3,306,657		2,851,969
Loans held for sale	17,009		6,499
Bank premises and equipment, net of accumulated depreciation	61,771		61,846
Bank owned life insurance	70,665		69,722
Goodwill	165,805		165,701
Other intangible assets	10,820		11,802
Other assets	175,944		60,855
Total assets	$	4,985,819	$	4,354,165
Liabilities
Deposits:
Non-interest-bearing	$	1,005,732	$	671,208
Interest-bearing	3,019,152		2,620,204
Total deposits	4,024,884		3,291,412
Short-term borrowings	177,912		316,977
Long-term borrowings	112,536		83,123

Accrued expenses and other liabilities (b)	101,310		68,260
Total liabilities	4,416,642		3,759,772
Stockholders’ equity
Preferred shares, no par value, 50,000 shares authorized, no shares issued at June 30, 2020 and December 31, 2019	—		—
Common shares, no par value, 24,000,000 shares authorized, 21,173,862 shares issued at June 30, 2020 and 21,156,143 shares issued at December 31, 2019, including shares held in treasury	421,236		420,876
Retained earnings (b)	173,572		187,149
Accumulated other comprehensive income (loss), net of deferred income taxes	4,634		(1,425)
Treasury stock, at cost, 1,299,219 shares at June 30, 2020 and 504,182 shares at December 31, 2019	(30,265)		(12,207)
Total stockholders’ equity	569,177		594,393
Total liabilities and stockholders’ equity	$	4,985,819	$	4,354,165

September 30,
2017 December 31,
2016
(Dollars in thousands)
Assets
Cash and due from banks $ 53,585
$ 58,129
Interest-bearing deposits in other banks 16,458
8,017
Total cash and cash equivalents 70,043
66,146
Available-for-sale investment securities, at fair value (amortized cost of $792,810 at September 30, 2017 and $777,017 at December 31, 2016) 797,021
777,940
Held-to-maturity investment securities, at amortized cost (fair value of $42,808 at September 30, 2017 and $43,227 at December 31, 2016) 42,163
43,144
Other investment securities, at cost 38,371
38,371
Total investment securities 877,555
859,455
Loans, net of deferred fees and costs 2,327,035
2,224,936
Allowance for loan losses (18,992 ) (18,429 )
Net loans 2,308,043
2,206,507
Loans held for sale 3,653
4,022
Bank premises and equipment, net 51,777
53,616
Bank owned life insurance 61,696
60,225
Goodwill 132,631
132,631
Other intangible assets 11,228
13,387
Other assets 35,786
36,359
Total assets $ 3,552,412
$ 3,432,348
Liabilities
Deposits:
Non-interest-bearing $ 724,846
$ 734,421
Interest-bearing 1,939,836
1,775,301
Total deposits 2,664,682
2,509,722
Short-term borrowings 193,717
305,607
Long-term borrowings 195,890
145,155
Accrued expenses and other liabilities 40,737
36,603
Total liabilities 3,095,026
2,997,087
Stockholders’ equity
Preferred stock, no par value, 50,000 shares authorized, no shares issued at September 30, 2017 and December 31, 2016 —
—
Common stock, no par value, 24,000,000 shares authorized, 18,948,358 shares issued at September 30, 2017 and 18,939,091 shares issued at December 31, 2016, including shares in treasury 344,831
344,404
Retained earnings 128,465
110,294
Accumulated other comprehensive income (loss), net of deferred income taxes 51
(1,554 )
Treasury stock, at cost, 703,530 shares at September 30, 2017 and 795,758 shares at December 31, 2016 (15,961 ) (17,883 )
Total stockholders’ equity 457,386
435,261
Total liabilities and stockholders’ equity $ 3,552,412
$ 3,432,348
(a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $0 and $6,000, respectively, as of June 30, 2020.

(b) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the current expected credit loss ("CECL") model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million; the addition of a $1.5 million unfunded commitment liability included in accrued expenses and other liabilities; and a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.

See Notes to the Unaudited Consolidated Financial Statements

Table of Contents

PEOPLES BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS (Unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
(Dollars in thousands, except per share data)	2017			2016			2017		2016			(Dollars in thousands, except per share data)	2020		2019		2020		2019
Interest income:												Interest income:
Interest and fees on loans	$	26,370		$	23,493		$	76,133	$	69,850		Interest and fees on loans	$	34,483	$	36,660	$	69,071	$	70,713
Interest and dividends on taxable investment securities	5,615			4,456			15,280		13,875			Interest and dividends on taxable investment securities	4,141		5,969		9,524		11,779
Interest on tax-exempt investment securities	701			771			2,257		2,332			Interest on tax-exempt investment securities	634		729		1,289		1,266
Other interest income	42			10			83		37			Other interest income	48		263		284		439
Total interest income	32,728			28,730			93,753		86,094			Total interest income	39,306		43,621		80,168		84,197
Interest expense:												Interest expense:
Interest on deposits	1,865			1,427			5,081		4,531			Interest on deposits	3,284		5,719		7,913		10,563
Interest on short-term borrowings	369			109			853		301			Interest on short-term borrowings	574		1,233		1,613		2,406
Interest on long-term borrowings	1,274			1,071			3,564		3,064			Interest on long-term borrowings	588		620		1,146		1,265

Total interest expense	3,508			2,607			9,498		7,896			Total interest expense	4,446		7,572		10,672		14,234
Net interest income	29,220			26,123			84,255		78,198			Net interest income	34,860		36,049		69,496		69,963
Provision for loan losses	1,086			1,146			2,657		2,828
Net interest income after provision for loan losses	28,134			24,977			81,598		75,370
Provision for credit losses (a)												Provision for credit losses (a)	11,834		626		28,803		363
Net interest income after provision for credit losses												Net interest income after provision for credit losses	23,026		35,423		40,693		69,600

Non-interest income:												Non-interest income:
Electronic banking income												Electronic banking income	3,523		3,267		6,803		6,254
Trust and investment income												Trust and investment income	3,316		3,401		6,578		6,513
Insurance income	3,345			3,137			10,861		10,934			Insurance income	3,191		3,486		7,321		8,107
Trust and investment income	2,838			2,692			8,497		7,850
Electronic banking income	2,544			2,765			7,692		7,867
Deposit account service charges	2,407			2,833			7,130		7,999			Deposit account service charges	1,909		2,977		4,729		5,318
Net gain (loss) on investment securities	1,861			(1		)	2,219		862
Commercial loan swap fees												Commercial loan swap fees	955		516		1,199		662
Mortgage banking income	535			427			1,389		852			Mortgage banking income	938		1,000		1,688		1,788
Bank owned life insurance income	482			491			1,471		911			Bank owned life insurance income	470		490		1,052		975
Commercial loan swap fees	76			569			995		997
Net (loss) gain on asset disposals and other transactions	(25		)	(224		)	81		(1,024		)
Net gain (loss) on investment securities												Net gain (loss) on investment securities	62		(57)		381		(27)
Net loss on asset disposals and other transactions												Net loss on asset disposals and other transactions	(122)		(293)		(209)		(475)
Other non-interest income	383			624			1,499		1,549			Other non-interest income	422		502		859		1,603
Total non-interest income	14,446			13,313			41,834		38,797			Total non-interest income	14,664		15,289		30,401		30,718
Non-interest expense:												Non-interest expense:
Salaries and employee benefit costs	15,141			14,584			45,686		42,881			Salaries and employee benefit costs	17,985		20,824		37,903		40,026
Net occupancy and equipment expense	2,619			2,768			7,980		8,155			Net occupancy and equipment expense	3,151		3,132		6,305		6,110
Electronic banking expense	1,448			1,650			4,487		4,568			Electronic banking expense	1,879		1,693		3,744		3,270
Professional fees	1,393			1,661			4,532		5,243			Professional fees	1,834		2,344		3,527		3,620
Data processing and software expense	1,092			741			3,330		2,503			Data processing and software expense	1,754		1,567		3,506		3,112
Franchise tax expense												Franchise tax expense	881		772		1,763		1,477
Amortization of other intangible assets	869			1,008			2,603		3,023			Amortization of other intangible assets	728		824		1,457		1,518
Franchise tax expense	583			529			1,750		1,550
Marketing expense	488			380			1,122		1,192			Marketing expense	632		490		1,105		1,084
FDIC insurance expense	449			549			1,339		1,706
Foreclosed real estate and other loan expenses												Foreclosed real estate and other loan expenses	335		469		913		724
Communication expense	334			518			1,134		1,730			Communication expense	294		317		574		595
Foreclosed real estate and other loan expenses	214			189			589		540
FDIC insurance premium												FDIC insurance premium	152		381		147		752
Other non-interest expense	1,928			2,265			6,017		6,538			Other non-interest expense	2,180		6,063		5,186		8,448
Total non-interest expense	26,558			26,842			80,569		79,629			Total non-interest expense	31,805		38,876		66,130		70,736
Income before income taxes	16,022			11,448			42,863		34,538			Income before income taxes	5,885		11,836		4,964		29,582
Income tax expense	5,127			3,656			13,393		10,789			Income tax expense	1,136		2,238		980		5,615
Net income	$	10,895		$	7,792		$	29,470	$	23,749		Net income	$	4,749	$	9,598	$	3,984	$	23,967

Earnings per common share - basic	$	0.60		$	0.43		$	1.62	$	1.31		Earnings per common share - basic	$	0.24	$	0.47	$	0.19	$	1.20
Earnings per common share - diluted	$	0.60		$	0.43		$	1.61	$	1.31		Earnings per common share - diluted	$	0.23	$	0.46	$	0.19	$	1.19
Weighted-average number of common shares outstanding - basic	18,056,202			17,993,443			18,043,692		18,015,249			Weighted-average number of common shares outstanding - basic	19,720,315		20,277,028		20,043,329		19,824,035
Weighted-average number of common shares outstanding - diluted	18,213,533			18,110,710			18,199,959		18,123,660			Weighted-average number of common shares outstanding - diluted	19,858,880		20,442,366		20,183,222		19,972,350
Cash dividends declared	$	4,020		$	2,912		$	11,299	$	8,564		Cash dividends declared	$	6,814	$	7,035	$	13,852	$	12,903
Cash dividends declared per common share	$	0.22		$	0.16		$	0.62	$	0.47		Cash dividends declared per common share	$	0.34	$	0.34	$	0.68	$	0.64

(a) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model. Prior to the adoption of the CECL model, the provision for (recovery of) credit losses was the "provision for (recovery of) loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans (which includes purchased credit deteriorated loans), held-to-maturity investment securities, and the unfunded commitment liability.

See Notes to the Unaudited Consolidated Financial Statements

Table of Contents

PEOPLES BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended						Nine Months Ended							Three Months Ended						Six Months Ended
	September 30,						September 30,							June 30,						June 30,
(Dollars in thousands)	2017			2016			2017			2016			(Dollars in thousands)	2020		2019		2020		2019
Net income	$	10,895		$	7,792		$	29,470		$	23,749		Net income	$	4,749	$	9,598	$	3,984	$	23,967
Other comprehensive income:													Other comprehensive income:
Available-for-sale investment securities:													Available-for-sale investment securities:
Gross unrealized holding (loss) gain arising in the period	(236		)	(4,068		)	5,448			14,681
Gross unrealized holding (loss) gain arising during the period													Gross unrealized holding (loss) gain arising during the period	(3,814)		12,947		18,454		21,672
Related tax benefit (expense)	83			1,424			(1,906		)	(5,139		)	Related tax benefit (expense)	801		(2,719)		(3,875)		(4,551)
Less: reclassification adjustment for net gain (loss) included in net income	1,861			(1		)	2,219			862
Reclassification adjustment for net (gain) loss included in net income													Reclassification adjustment for net (gain) loss included in net income	(62)		57		(381)		27
Related tax expense (benefit)													Related tax expense (benefit)	13		(12)		80		(6)

Net effect on other comprehensive (loss) income													Net effect on other comprehensive (loss) income	(3,062)		10,273		14,278		17,142
Defined benefit plans:													Defined benefit plans:
Net (loss) gain arising during the period													Net (loss) gain arising during the period	(156)		—		(521)		2
Related tax benefit													Related tax benefit	33		—		109		—
Amortization of unrecognized loss and service cost on benefit plans													Amortization of unrecognized loss and service cost on benefit plans	36		20		64		37
Related tax expense													Related tax expense	(8)		(4)		(14)		(8)
Recognition of loss due to settlement and curtailment													Recognition of loss due to settlement and curtailment	151		—		519		—
Related tax expense	(652		)	—			(777		)	(302		)	Related tax expense	(32)		—		(109)		—
Net effect on other comprehensive (loss) income	(1,362		)	(2,643		)	2,100			8,982			Net effect on other comprehensive (loss) income	24		16		48		31
Defined benefit plans:
Cash flow hedges:													Cash flow hedges:
Net loss arising during the period	(1		)	—			(1		)	—			Net loss arising during the period	(734)		(3,134)		(10,464)		(4,967)
Amortization of unrecognized loss and service cost on benefit plans	25			21			72			66
Related tax expense	(9		)	(9		)	(25		)	(22		)
Net effect on other comprehensive income	15			12			46			44
Cash flow hedges:
Net (loss) gain arising during the period	(63		)	68			(832		)	(184		)
Related tax benefit (expense)	22			(24		)	291			64
Related tax benefit													Related tax benefit	154		658		2,197		1,043
Net effect on other comprehensive (loss) income	(41		)	44			(541		)	(120		)	Net effect on other comprehensive (loss) income	(580)		(2,476)		(8,267)		(3,924)
Total other comprehensive (loss) income, net of tax expense	(1,388		)	(2,587		)	1,605			8,906
Total other comprehensive (loss) income, net of tax													Total other comprehensive (loss) income, net of tax	(3,618)		7,813		6,059		13,249
Total comprehensive income	$	9,507		$	5,205		$	31,075		$	32,655		Total comprehensive income	$	1,131	$	17,411	$	10,043	$	37,216

See Notes to the Unaudited Consolidated Financial Statements

Table of Contents

PEOPLES BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)


					Accumulated Other Comprehensive Income (Loss)				Total Stockholders' Equity
	Common Stock		Retained Earnings								Treasury Stock
(Dollars in thousands)
Balance, December 31, 2019	$	420,876	$	187,149	$	(1,425)	$	(12,207)	$	594,393

Net income	—		3,984		—		—		3,984
Other comprehensive income, net of tax	—		—		6,059		—		6,059


Cash dividends declared	—		(13,852)		—		—		(13,852)

Reissuance of treasury stock for common share awards	(2,262)		—		—		2,262		—

Reissuance of treasury stock for deferred compensation plan for Boards of Directors	—		—		—		59		59
Repurchase of treasury stock in connection with employee incentive plan and under compensation plan for Boards of Directors	—		—		—		(986)		(986)
Common shares repurchased under share repurchase program	—		—		—		(20,000)		(20,000)
Common shares issued under dividend reinvestment plan	243		—		—		—		243
Common shares issued under compensation plan for Boards of Directors	20		—		—		253		273
Common shares issued under performance unit awards	41		—		—		138		179
Common shares issued under employee stock purchase plan	(17)		—		—		216		199
Stock-based compensation	2,335		—		—		—		2,335
Impact of adoption of new accounting standard, net of taxes (a)	—		(3,709)		—		—		(3,709)


Balance, June 30, 2020	$	421,236	$	173,572	$	4,634	$	(30,265)	$	569,177

Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity
Common Shares Retained Earnings Treasury Stock
(Dollars in thousands)
Balance, December 31, 2016 $ 344,404
$ 110,294
$ (1,554 ) $ (17,883 ) $ 435,261
Net income —
29,470
—
—
29,470
Other comprehensive income, net of tax —
—
1,605
—
1,605
Cash dividends declared —
(11,299 ) —
—
(11,299 )
Exercise of stock appreciation rights (6 ) —
—
6
—
Reissuance of treasury stock for common stock awards (1,467 ) —
—
1,467
—
Reissuance of treasury stock for deferred compensation plan for Boards of Directors —
—
—
500
500
Repurchase of treasury stock in connection with employee incentive plan and under compensation plan for Boards of Directors —
—
—
(411 ) (411 )
Common shares issued under dividend reinvestment plan 385
—
—
—
385
Common shares issued under compensation plan for Boards of Directors 72
—
—
168
240
Common shares issued under employee stock purchase plan 81
—
—
192
273
Stock-based compensation expense 1,362
—
—
—
1,362
Balance, September 30, 2017 $ 344,831
$ 128,465
$ 51
$ (15,961 ) $ 457,386

(a) On January 1, 2020, Peoples adopted ASU 2016-13, which resulted in a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.

See Notes to the Unaudited Consolidated Financial Statements

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PEOPLES BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended							Six Months Ended
	September 30,							June 30,
(Dollars in thousands)	2017			2016			(Dollars in thousands)	2020		2019
Net cash provided by operating activities	$	45,730		$	42,195		Net cash provided by operating activities	$	30,042	$	18,821
Investing activities:							Investing activities:
Available-for-sale investment securities:							Available-for-sale investment securities:
Purchases	(140,791		)	(95,481		)	Purchases	(89,445)		(116,433)
Proceeds from sales	7,381			30,622			Proceeds from sales	11,582		72,481
Proceeds from principal payments, calls and prepayments	111,315			93,172			Proceeds from principal payments, calls and prepayments	147,546		70,728
Held-to-maturity investment securities:							Held-to-maturity investment securities:
Purchases	(1,310		)	—			Purchases	(8,404)		—
Proceeds from principal payments	1,997			1,747			Proceeds from principal payments	2,667		1,984
Net increase in loans	(99,829		)	(94,149		)
Net expenditures for bank premises and equipment	(3,016		)	(4,893		)
Other investment securities:							Other investment securities:
Purchases							Purchases	(5,470)		(376)
Proceeds from sales							Proceeds from sales	5,516		3,872
Proceeds from insurance claim							Proceeds from insurance claim	—		26
Net (increase) decrease in loans held for investment							Net (increase) decrease in loans held for investment	(479,619)		29,219
Net expenditures for premises and equipment							Net expenditures for premises and equipment	(2,722)		(1,233)
Proceeds from sales of other real estate owned	494			148			Proceeds from sales of other real estate owned	56		143
Purchase of bank owned life insurance	—			(35,000		)

Proceeds from bank owned life insurance contracts							Proceeds from bank owned life insurance contracts	109		—
Business acquisitions, net of cash received	(450		)	(244		)	Business acquisitions, net of cash received	(96,973)		7,795
Return of (investment in) limited partnership and tax credit funds	6			(2,954		)
Net cash used in investing activities	(124,203		)	(107,032		)
Investment in limited partnership and tax credit funds							Investment in limited partnership and tax credit funds	(15)		(44)
Net cash (used in) provided by investing activities							Net cash (used in) provided by investing activities	(515,172)		68,162
Financing activities:							Financing activities:
Net (decrease) increase in non-interest-bearing deposits	(9,575		)	27,529
Net increase (decrease) in non-interest-bearing deposits							Net increase (decrease) in non-interest-bearing deposits	334,524		(23,318)
Net increase in interest-bearing deposits	164,513			12,040			Net increase in interest-bearing deposits	398,838		173,571
Net (decrease) increase in short-term borrowings	(111,890		)	2,421
Net decrease in short-term borrowings							Net decrease in short-term borrowings	(159,065)		(207,329)
Proceeds from long-term borrowings	54,403			55,000			Proceeds from long-term borrowings	50,000		—
Payments on long-term borrowings	(3,823		)	(21,899		)	Payments on long-term borrowings	(667)		(849)

Cash dividends paid	(10,855		)	(8,215		)	Cash dividends paid	(13,473)		(12,467)
Repurchase of treasury stock under share repurchase program	—			(4,965		)
Repurchase of treasury stock in connection with employee incentive plan and compensation plan for Boards of Directors to be held as treasury stock	(411		)	(369		)
Purchase of treasury stock under share repurchase program							Purchase of treasury stock under share repurchase program	(20,000)		—
Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock							Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock	(986)		(684)
Proceeds from issuance of common shares	8			15			Proceeds from issuance of common shares	40		6
Net cash provided by financing activities	82,370			61,557
Net increase (decrease) in cash and cash equivalents	3,897			(3,280		)
Contingent consideration payments made after a business acquisition							Contingent consideration payments made after a business acquisition	—		(102)

Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	589,211		(71,172)
Net increase in cash and cash equivalents							Net increase in cash and cash equivalents	104,081		15,811
Cash and cash equivalents at beginning of period	66,146			71,115			Cash and cash equivalents at beginning of period	115,193		77,612
Cash and cash equivalents at end of period	$	70,043		$	67,835		Cash and cash equivalents at end of period	$	219,274	$	93,423

Supplemental cash flow information:							Supplemental cash flow information:
Interest paid							Interest paid	11,334		13,765
Income taxes paid							Income taxes paid	—		6,150

Supplemental noncash disclosures:							Supplemental noncash disclosures:
Transfers from loans to other real estate owned							Transfers from loans to other real estate owned	81		49
Lease right-of-use assets obtained in exchange for lessee operating lease liabilities							Lease right-of-use assets obtained in exchange for lessee operating lease liabilities	27		—

See Notes to the Unaudited Consolidated Financial Statements

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PEOPLES BANCORP INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Summary of Significant Accounting Policies

Basis of Presentation: The accompanying Unaudited Consolidated Financial Statements of Peoples Bancorp Inc. and its subsidiaries ("Peoples" refers to Peoples Bancorp Inc. and its consolidated subsidiaries collectively, except where the context indicates the reference relates solely to Peoples Bancorp Inc.) have been prepared in accordance with accounting principles generally accepted in the United States (“("US ~~GAAP”~~GAAP") for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not contain all of the information and footnotes required by US GAAP for annual financial statements and should be read in conjunction with Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016 (“2016~~2019 ("Peoples' 2019 Form ~~10-K”~~10-K").

The accounting and reporting policies followed in the presentation of the accompanying Unaudited Consolidated Financial Statements are consistent with those described in ~~Note~~"Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ ~~2016~~2019 Form 10-K, as updated by the information contained in this Form 10-Q. Management has evaluated all significant events and transactions that occurred after ~~September~~June 30, ~~2017~~2020 for potential recognition or disclosure in these unaudited consolidated financial statements. In the opinion of management, these unaudited consolidated financial statements reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Such adjustments are normal and recurring in nature. ~~All intercompany~~Intercompany accounts and transactions have been eliminated. The Consolidated Balance Sheet at December 31, ~~2016,~~2019, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ ~~2016~~2019 Form 10-K.

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year, due in part to seasonal variations and unusual or infrequently occurring items. Peoples' insurance income includes performance-based insurance commissions that are recognized by Peoples when received, which typically occurs, for the most part, during the first quarter of each year.

New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by Peoples as of the required effective dates. The following should be read in conjunction with "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 2019 Form 10-K. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on Peoples' financial statements taken as a whole.

Accounting Standards Update ("ASU") ~~2017-12~~2020-04 - ~~Derivatives~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and ~~Hedging (Topic 815): Targeted improvements~~exceptions for applying US GAAP to accounting for hedging activities. The amendments in this ASU better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifyingcontracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This update is effective as of March 12, 2020 through December 31, 2022. Peoples is assessing the ~~presentation~~impact of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impactASU 2020-04 on Peoples' consolidated financial statements.

ASU 2017-11 - Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for certain financial instruments with down round features and (Part II), Replacement of the indefinite deferral for mandatory redeemable financial instruments of certain nonpublic entities and certain mandatory redeemable non-controlling interests with a scope exception. Part I of the update addresses the complexity of accounting for certain financial instruments with down round features such as warrants or convertible instruments and will be effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.

ASU 2017-09 - Compensation - Stock Compensation (Topic 718): Scope and Modification Accounting. An entity may change the terms or conditions of a share-based payment award for many different reasons, and the nature and effect of the change can vary significantly. Modification is currently defined as "a change in any of the terms or conditions of a share-based payment award." The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in accordance with Topic 718. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.

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ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.

ASU 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this ASU require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments will improve the consistency, transparency, and usefulness of financial information and will be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Peoples will adopt this new accounting guidance as required, and it will have no impact on Peoples' consolidated financial statements as the accrual for pension plan benefits for all participants was frozen as of March 1, 2011.

ASU 2017-04 - Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU is to simplify how an entity is required to test goodwill for impairment by eliminating the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.

ASU 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill and consideration. Phase 2 of the project will not impact Peoples' consolidated financial statements. ASU 2017-01 will become effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Peoples will adopt Phase 1 of this new accounting guidance as required and management will apply this guidance to future transactions upon adoption. Phase 2, which was released as ASU 2017-05 will not impact Peoples' consolidated financial statements.

ASU 2014-09 - Revenue from Contracts with Customers (Topic 606). There are many aspects of this new accounting guidance that are still being interpreted and the FASB has issued updates to certain aspects of the guidance to address implementation issues. The FASB issued updates in March, April, May and December of 2016, and September of 2017, clarifying several areas of the guidance. These clarifications included:

•~~Principal versus agent considerations,~~

•~~Collectibility, sales tax and non-cash consideration, practical expedients for contract modifications and~~

~~completed contracts,~~

•~~Identification of performance obligations~~

•~~Licensing implementation guidance, and~~

Transition provisions for public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include, or the inclusion of, its financial statements or financial information in another public business entity's filing.

This accounting guidance can be implemented using either a full retrospective method or a modified retrospective approach. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Early adoption is permitted but only for interim and annual reporting periods beginning after December 15, 2016. Peoples will adopt this new accounting guidance in 2018, as required, and expects to adopt the new guidance using the modified retrospective approach. The modified retrospective approach uses a cumulative-effect adjustment to retained earnings to reflect uncompleted contracts in the initial application of the guidance. Peoples' preliminary analysis indicates that certain non-interest income financial statement line items contain revenue streams that are in the scope of this update, the most substantial of which is insurance income. Based on Peoples’ evaluation to date, Peoples does not expect the adoption of this accounting guidance to have a significant impact on Peoples’ financial condition or results of operations; however, the review is ongoing. Peoples will continue to evaluate the impact of this accounting guidance, including any additional guidance issued, during the completion of this internal assessment.

~~ASU~~ 2016-13 - Financial ~~Instruments-Credit~~Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This accounting guidance replaces the ~~current “incurred loss”~~"incurred loss" model for recognizing credit losses with an ~~“expected loss”~~"expected loss" model, referred to as the Current Expected Credit Loss ~~(“CECL”~~("CECL") model. Under the CECL model, Peoples ~~will be~~is required to present

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certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity ~~debt~~investment securities, at the net amount expected to be collected. ASU 2018-19 clarified that receivables arising from operating leases are not within the scope of Accounting Standards Codification ("ASC") 326-20, and should be accounted for according to ASC 842.

The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ~~This~~The measurement ~~will~~is to take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the ~~“incurred loss”~~"incurred loss" model ~~required~~ under ~~current~~previous US GAAP accounting guidance, which ~~delays~~delayed recognition until it iswas probable a loss ~~has~~had been incurred. ~~Accordingly,~~

Peoples ~~expects that~~adopted ASU 2016-13 using the ~~adoption of the CECL model will materially affect how the allowance~~modified retrospective method for loan losses is determined and could require significant increases to the allowance for loan losses. Moreover, the CECL model may create more volatility in the level of Peoples' allowance for loan losses. If required to materially increase the level of allowance for loan losses for any reason, such increase could adversely affect Peoples' business,all financial ~~condition and results of operations.~~

~~The new CECL standard will become effective for interim and annual reporting~~assets measured at amortized costs on January 1, 2020. Reporting periods beginning after December ~~15,~~31, 2019 ~~(effective~~are presented as required by ASU 2016-13, while prior period amounts continue to be reported in accordance with previously applicable US GAAP requirements. Peoples is using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchased credit impaired assets and accounted for under ASC 310-30. Peoples did not reassess whether purchased credit impaired assets met the criteria of purchased credit deteriorated assets as of the date of adoption.

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As of January 1, 2020, ~~for Peoples).~~ Peoples ~~is currently evaluating the impact that the CECL model will have on Peoples' financial statements and expects to recognize~~recorded a one-time cumulative-effect adjustment to reduce retained earnings by $3.7 million, net of statutory corporate federal income taxes, an increase in allowance for credit losses of $5.8 million and an increase in unfunded commitment liability of $1.5 million. On January 1, 2020, the amortized cost basis of the purchased credit deteriorated assets was adjusted to reflect the addition of $2.6 million to establish the allowance for ~~loan loss provision as of the beginning of the first reporting period in which the new standard~~credit losses. The remaining interest-related discount is ~~effective, consistent with regulatory expectations set forth in interagency guidance issued~~being accreted into interest income at the ~~end~~effective interest rate beginning on January 1, 2020. As of ~~2016.~~January 1, 2020, Peoples ~~has~~did not ~~yet determined the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard~~record an allowance for credit losses for available-for-sale investment securities, as all unrealized losses on ~~Peoples' financial condition or results of operations.~~

ASU 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU require all excess income tax benefits or tax deficiencies of stock awardsthese securities were deemed to be ~~recognized~~non-credit in ~~the income statement when the awards vest or are settled. The amendments also allow~~nature, with no credit deterioration upon review by Peoples. Peoples recorded an ~~employer to repurchase more~~allowance for credit losses for held-to-maturity securities of an employee’s shares than it could under previous guidance for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. Peoples adopted this pronouncement$7,000 as of January 1, ~~2017, and will continue using an estimated forfeiture rate. In~~2020.

The following table illustrates the ~~first nine months of 2017, Peoples recorded a tax benefit of $123,000 associated with~~impact on the allowance for credit losses from the adoption of ~~this~~ ASU ~~for~~2016-13:



(Dollars in thousands)	As Reported Under ASC 326 January 1, 2020		Pre-ASC 326 Adoption December 31, 2019		Impact of ASC 326 Adoption
Assets:
Loans, at amortized cost	$	2,876,147	$	2,873,525	$	2,622

Allowance for credit losses on loans:
Construction	651		1,188		(537)
Commercial real estate, other	8,549		6,560		1,989
Commercial and industrial	5,820		8,568		(2,748)
Residential real estate	4,360		1,296		3,064
Home equity lines of credit	1,572		612		960
Consumer, indirect	5,389		2,942		2,447
Consumer, direct	890		296		594
Deposit account overdrafts	94		94		—
Allowance for credit losses on loans	27,325		21,556		5,769
Liabilities:
Allowance for credit losses for unfunded commitments	$	1,495	$	—	$	1,495

Investment Securities: Investment securities are recorded initially at cost, which includes premiums and discounts if purchased at other than par or face value. Peoples amortizes premiums and accretes discounts as an adjustment to interest income on a level yield basis. The cost of investment securities sold, excluding equity investment securities, and any resulting gain or loss, is based on the ~~tax benefit~~specific identification method and recognized as of ~~awards~~the trade date. The cost of equity investment securities is based on the weighted-average method.

Peoples determines the appropriate classification of investment securities at the time of purchase. Held-to-maturity securities are those securities that ~~settled or vested during~~Peoples has the ~~year, with the majority~~positive intent and ability to hold to maturity and are recorded at amortized cost. Available-for-sale securities are those securities that would be available to be sold in the ~~first quarter of 2017.~~

~~ASU 2016-02 - Leases (Topic 842): This ASU was issued~~future in response to ~~improve the financial reporting of leasing activities~~Peoples' liquidity needs, changes in market interest rates, and provide a faithful representation of leasing transactions and improve understanding and comparability of a lessee's financial statements. Under the new accounting guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. This ASU will require both finance and operating leases to be recognized on the balance sheet. This ASU will affect all companies and organizations that lease real estate. This ASU will become effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.

~~ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU~~asset-liability management strategies, among other considerations. Available-for-sale securities are ~~intended to enhance the reporting model for financial instruments to provide users of financial statements with more useful information. The amendments require equity investments to be measured~~reported at fair value, with ~~changes~~unrealized gains and losses reported in ~~fair value recognized in~~total stockholders' equity as a separate component of accumulated other comprehensive income or loss, net ~~income. However, a reporting organization may choose to measure~~of applicable deferred income taxes.

Certain restricted equity ~~investments~~investment securities that do not have readily determinable fair values and for which Peoples does not exercise significant influence, are carried at cost. These cost ~~minus impairment (if~~method securities are reported in other investment securities on the Unaudited Consolidated Balance Sheets and consist primarily of shares of the Federal Home Loan Bank of Cincinnati (the "FHLB") and the Federal Reserve Bank of Cleveland (the "FRB").

Peoples evaluates available-for-sale investment securities on a quarterly basis to determine how much, if any, allowance for credit losses is required. Peoples reviews available-for-sale investment securities at an unrealized loss position, with potential exposure to a credit event (which excludes U.S. government and U.S. government sponsored agency securities) to determine if the unrealized loss was credit-related. An allowance for credit losses is recorded to the extent that the unrealized losses are credit-related and likely to be permanent.

Peoples evaluates held-to-maturity investment securities on a quarterly basis in determining an allowance for credit losses. Peoples has determined that the loss given default for U.S. government sponsored enterprise investment securities is zero, due to the fact that it is unlikely the ultimate guarantor (the U.S. government) would not perform on its implicit guarantee in the event of default. The remaining securities are included in the calculation of the allowance for credit losses for held-to-maturity investment securities.

Loans: Loans originated that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, purchase premiums and discounts, charge-offs

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and an allowance for credit losses. The foreseeable future is based upon current market conditions and business strategies, as well as balance sheet management and liquidity. As the conditions change, so may management's view of the foreseeable future.

Peoples considers loans 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. Upon detection of the reduced ability of a borrower to meet cash flow obligations, consumer and residential real estate loans are typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Loans deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged off amounts are credited to the allowance for credit losses.

Loans acquired in a business combination that have evidence of more than insignificant credit deterioration, which includes loans that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" loans. These loans are recorded at the purchase price, and an allowance for credit losses is determined using the same methodology as for other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The total of the purchase price and allowance for credit losses is the initial amortized cost basis of these loans. The variance between the initial amortized cost basis and the par value of the loan is considered an interest premium or discount, which is amortized or accreted into interest income on a level yield method over the life of the loan.

Loans acquired in a business combination that are not considered purchased credit deteriorated are recorded at the fair value and the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the discount or premium to a loan's cost basis and is accreted or amortized to interest income over the loan's remaining life using the level yield method.

Allowance for Credit Losses: The allowance for credit losses is a valuation reserve established through the provision for credit losses charged against income. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The allowance for credit losses is measured on a pool basis, with loans collectively evaluated when similar risk characteristics exist. Peoples evaluated risk characteristics, including but not limited to: internal or third-party credit scores or credit ratings, risk ratings or classifications, financial asset type, collateral type, size, effective interest rate, term, geographical location, industry of the borrower, vintage, historical or credit loss patterns and reasonable and supportable forecast periods. Peoples identified 16 segments for which it believes there are similar risk characteristics and utilized a discounted cash flow methodology in determining an allowance for credit losses for each segment.

In estimating credit losses, Peoples uses a loss driver method, which analyzes one or more economic variables to the change in default rate using a regression analysis. Variables that had a strong correlation were selected as economic factors, or variables, for the model. If a single variable was not found to be strongly correlated, additional variables were included. Peoples utilized the U.S. unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic factors in modeling.

Probabilities of default are used in the loss driver model, and are analyzed on a quarterly basis to assess reasonableness. Current conditions probabilities of default is a credit performance metric, with default defined as loans being 90 days or more past due, nonaccrual loans, troubled-debt restructurings and loans with a partial or entire charge-off.

Peoples measured loss given default at the segment level due to statistical considerations using historical information. Peoples also utilized peer data due to somewhat volatile loss history in certain segments to normalize default curves, which provided more meaningful results.

Peoples modeled amortizing loans with a prepayment rate annualized to one year. The prepayment rates were calculated using Peoples' historical data, at the segment level.

Peoples models extensions of contractual terms in the following situations: when a loan is 60 days or more past due, when a charge-off has occurred, if the loan is in non-accrual status, if a troubled debt restructuring ("TDR") ~~from~~has occurred, or if the loan is grade 5 or higher. When any of these criteria are met and the loan matures within the next 12 months, the loan will be modeled to extend for an additional 12 months.

In general, Peoples completes a quarterly evaluation based on several qualitative factors to determine if there should be adjustments made to the allowance for credit losses. These factors include economic conditions, collateral, concentrations, troubled assets, Peoples' loss trends, peer loss trends, delinquency trends, portfolio composition and loan growth, underwriting and other certain risks.

The allowance for credit losses related to specific loans was based on management's estimate of potential losses on impaired loans as determined by (1) the present value of expected future cash flows, (2) the fair value of collateral if the loan is determined to be collateral dependent, or (3) the loan's observable ~~price~~market price.

Peoples categorized loans involving commercial borrowers into risk categories based upon an established grading matrix. This system was used to manage the risk within Peoples' commercial lending activities, evaluate changes in ~~orderly transactions for similar investments~~the overall credit quality of the

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loan portfolio and evaluate the appropriateness of the ~~same issuer. This ASU will~~allowance for credit losses. Loan grades are assigned at the time a new loan or lending commitment is extended by Peoples and may be ~~effective~~changed at any time when circumstances warrant. Loans to borrowers with an aggregate unpaid principal balance in excess of $1 million are reviewed at least on an annual basis for ~~fiscal years beginning after December 15, 2017 (effective January 1, 2018 for Peoples).~~possible credit deterioration. Loan relationships whose aggregate credit exposure to Peoples is ~~currently evaluating~~equal to or less than $1 million are reviewed at least on an event driven basis. Triggers for review include knowledge of adverse events affecting the ~~impact~~borrower's business, receipt of ~~adopting the new accounting guidance on Peoples' consolidated~~ financial statements indicating deteriorating credit quality or other similar events. Adversely classified loans are reviewed on a quarterly basis.

The primary factors considered when assigning a risk grade to a loan include (1) reliability and sustainability of the primary source of repayment, (2) past, present and projected financial condition of the borrower, and (3) current economic and industry conditions. Other factors that could influence the risk grade assigned include the type and quality of collateral and the strength of any guarantors. The primary source of repayment for commercial real estate loans and commercial and industrial loans is normally the operating cash flow of the business available to repay debt. Management's analysis of operating cash flow for commercial real estate loans secured by non-owner occupied properties takes into account factors such as rent rolls and vacancy statistics. Management's analysis of operating cash flow for commercial real estate loans secured by owner occupied properties and all commercial and industrial loans considers the profitability, liquidity and leverage of the business. The evaluation of construction loans includes consideration of the borrower's ability to complete construction within the established budget.

The primary factors considered when classifying residential real estate, home equity lines of credit and consumer loans include the loan's past due status and declaration of bankruptcy by the borrower(s). The classification of residential real estate and home equity lines of credit also takes into consideration the current value of the underlying collateral.

Peoples has elected the practical expedient not to measure allowance for credit losses for accrued interest receivables.

Unfunded Commitments: Peoples also completes a quarterly evaluation for unfunded commitments for loans that are not conditionally cancellable, which includes construction loans, floor plan lines of credit, home equity lines of credit, other credit lines and letters of credit. Peoples performed a study to determine the historical funding rates of unadvanced portions of loans, and applied these funding rates to the unfunded commitments at period end. The loss rates, including qualitative factors, in determining the allowance for credit losses were applied at the segment level to the unfunded commitment amount to determine the allowance for credit loss liability for unfunded commitments.

Troubled Debt Restructuring ("TDR"): The restructuring of a loan is considered a TDR if both (1) the borrower is experiencing financial difficulties and (2) the creditor has granted a concession. Loans acquired that are restructured after acquisition are not considered TDRs if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools of purchased credit deteriorated loans.

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 (1) the borrower is currently in payment default on any of the borrower's debt; (2) a payment default is probable in the foreseeable future without the modification; (3) the borrower has declared or is in the process of declaring bankruptcy; and (4) 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 loans with similar risk characteristics, the significance of the modification relative to the unpaid principal loan balance or collateral value underlying the loan, 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 loan, such as (1) a reduction in the interest rate for the remaining life of the loan, (2) an extension of the maturity date at an interest rate lower than the current market rate for a new loan with similar risk, (3) a temporary period of interest-only payments, and (4) a reduction in the contractual payment amount for either a short period or the remaining term of the loan. All TDRs are evaluated individually to determine if a write-down is required and if they should be on accrual or nonaccrual status.

On March 22, 2020, federal and state banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not in the scope of ASC 310-40.

Nonaccrual loans: Peoples discontinues the accrual of interest on a loan when conditions cause management to believe collection of all or any portion of the loan's contractual interest is doubtful. Such conditions may include the borrower being 90 days or more past due on any contractual payments, or current information regarding the borrower's financial condition and repayment

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ability. All unpaid accrued interest deemed uncollectable is reversed, which reduces Peoples' net interest income. Interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured.

Under the Coronavirus Aid, Relief and Economic Security ("CARES") Act, borrowers who were making payments as required and were not considered past due prior to becoming affected by COVID-19 and then receive payment accommodations as a result of the effects of COVID-19 generally would not be reported as past due. If Peoples agrees to a payment deferral for a borrower under the CARES Act, this may result in anno contractual payments being past due, and the loans are not considered past due during the period of the deferral. During the time that Peoples maintains these short-term arrangements with borrowers, under the guidance, it is not to report the loans as nonaccrual.

Interest Income Recognition: Interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding. This includes yield adjustments resulting from the amortization of premiums on investment securities, loan costs and premiums, and accretion of discounts on investment securities, loan fees and discounts. Loans that have been placed on nonaccrual, and are subsequently returned to accruing status, recognize interest income similar to other accruing loans once they return to accruing status. Prior accrued interest that was reversed when the loan was placed on nonaccrual is recognized when received, after all of the principal of the loan has been paid. Since mortgage-backed securities comprise a sizable portion of Peoples' investment portfolio, a significant increase in principal payments on those securities can impact interest income due to the corresponding acceleration of premium amortization or discount accretion.

Under the CARES Act, Peoples has made certain modifications that include the short-term deferral of interest for certain borrowers. In these cases, Peoples recognizes interest income ~~statement on~~as earned. The deferred interest will be repaid by the borrower in a ~~quarterly~~future period, and ~~annual basis, as market values fluctuate.~~will be evaluated by Peoples ~~will adopt this accounting guidance as of the required effective date. As of September 30, 2017, Peoples had net unrealized gains on equity securities of $6.5 million.~~for collectibility.

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Note 2 Fair Value of Assets and Liabilities

Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or a non-recurring basis in the Consolidated Financial ~~Instruments~~Statements. Those assets and liabilities are presented below in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis.”

Depending on the nature of the asset or liability, Peoples uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under US GAAP uses a hierarchy, which is described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2019 Form 10-K.

~~Available-for-sale securities~~Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis ~~were comprised~~between levels of the ~~following:~~fair value hierarchy during the periods presented.

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Fair Value Measurements at Reporting Date Using
(Dollars in thousands)
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Fair Value
September 30, 2017
Obligations of:
States and political subdivisions $ 104,560
$ —
$ 104,560
$ —
Residential mortgage-backed securities 672,106
—
672,106
—
Commercial mortgage-backed securities 7,128
—
7,128
—
Bank-issued trust preferred securities 5,154
—
5,154
—
Equity securities 8,073
7,914
159
—
Total available-for-sale securities $ 797,021
$ 7,914
$ 789,107
$ —
December 31, 2016
Obligations of:
U.S. government sponsored agencies $ 1,000
$ —
$ 1,000
$ —
States and political subdivisions 117,230
—
117,230
—
Residential mortgage-backed securities 626,567
—
626,567
—
Commercial mortgage-backed securities 19,291
—
19,291
—
Bank-issued trust preferred securities 4,899
—
4,899
—
Equity securities 8,953
8,734
219
—
Total available-for-sale securities $ 777,940
$ 8,734
$ 769,206
$ —
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis

~~Held-to-maturity securities~~The following table provides the fair value for assets and liabilities required to be measured and reported at fair value ~~were comprised~~on a recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy.


	Recurring Fair Value Measurements at Reporting Date
	June 30, 2020										December 31, 2019
(Dollars in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

Assets:
Available-for-sale investment securities:
Obligations of:

U.S. government sponsored agencies	$	—	$	5,396	$	—	$	—	$	8,209	$	—
States and political subdivisions	—		107,032		—		—		114,104		—
Residential mortgage-backed securities	—		748,867		—		—		791,009		—
Commercial mortgage-backed securities	—		12,157		—		—		18,088		—
Bank-issued trust preferred securities	—		4,399		—		—		4,691		—

Total available-for-sale securities	—		877,851		—		—		936,101		—
Equity investment securities (a)	97		208		—		123		198		—
Derivative assets (b)	—		32,981		—		—		11,419		—
Liabilities:
Derivative liabilities (c)	$	—	$	47,136	$	—	$	—	$	15,116	$	—

(a) Included in other investment securities on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 3 Investment Securities" of the ~~following:~~Notes to the Unaudited Consolidated Financial Statements.

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

Fair Value 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)
September 30, 2017
Obligations of:
States and political subdivisions $ 4,463
$ —
$ 4,463
$ —
Residential mortgage-backed securities 33,690
—
33,690
—
Commercial mortgage-backed securities 4,655
—
4,655
—
Total held-to-maturity securities $ 42,808
$ —
$ 42,808
$ —
December 31, 2016
Obligations of:
States and political subdivisions $ 4,041
$ —
$ 4,041
$ —
Residential mortgage-backed securities 33,762
—
33,762
—
Commercial mortgage-backed securities 5,424
—
5,424
—
Total held-to-maturity securities $ 43,227
$ —
$ 43,227
$ —
(c) Included in accrued expenses and other liabilities on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 9 Derivative Financial Instruments" of the Notes to the Unaudited Consolidated Financial Statements.

Available-for-Sale Investment Securities:The fair values used by Peoples are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level ~~1 inputs)~~1) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.

Equity Investment Securities:The fair values of Peoples' equity investment securities are obtained from quoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2).

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~~Certain financial~~Derivative Assets and Liabilities: Derivative assets and ~~financial~~ liabilities are ~~measured~~recognized on the Unaudited Consolidated Balance Sheets at their fair value within other assets and accrued expenses and other liabilities, respectively. The fair value for derivative instruments is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters (Level 2).

Assets and Liabilities Required to be Measured and Reported at Fair Value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on a non-recurring basis included the following:Non-Recurring Basis

~~Impaired Loans:~~ Impaired loans are measured and reported at fair value when the amounts to be received are less than the carrying value of the loans. One of the allowable methods for determining the amount of impairment is estimating fair value using the fair value of the collateral for collateral-dependent loans. Management’s determination ofThe following table provides the fair value for ~~these loans uses a market approach representing the estimated net proceeds to be received from the sale~~each class of the collateral based on observable market prices or market value provided by independent, licensed or certified appraisers (Level 2 inputs). At September 30, 2017, impaired loans with an aggregate outstanding principal balance of $33.0 million were measured and reported at a fair value of $27.0 million. For the three and nine months ended September 30, 2017, Peoples recognized $83,000 and $408,000 of recoveries on impaired loans, respectively, through the allowance for loan losses.

~~The following table presents the fair values of financial~~ assets and liabilities ~~carried on Peoples’ Unaudited Consolidated Balance Sheets, including those financial assets and financial liabilities that are not~~required to be measured and reported at fair value on a ~~recurring~~non-recurring basis ~~or non-recurring basis:~~

September 30, 2017 December 31, 2016
(Dollars in thousands) Carrying Amount Fair Value Carrying Amount Fair Value
Financial assets:
Cash and cash equivalents $ 70,043
$ 70,043
$ 66,146
$ 66,146
Investment securities 877,555
878,200
859,455
859,538
Loans (1)
2,311,696
2,252,054
2,210,529
2,152,544
Bank premises and equipment, net 51,777
51,777
53,616
53,616
Bank owned life insurance 61,696
61,696
60,225
60,225
Financial liabilities:
Deposits $ 2,664,682
$ 2,664,513
$ 2,509,722
$ 2,512,647
Short-term borrowings 193,717
193,717
305,607
305,607
Long-term borrowings 195,890
195,857
145,155
145,106
Cash flow hedges (2)
916
916
1,779
1,779

~~(1) Includes loans held for sale.~~

~~(2) For additional information, see~~ ~~Note 9~~ ~~of the Notes to~~on the Unaudited Consolidated ~~Financial Statements.~~

~~The methodologies for estimating~~Balance Sheets by level in the fair value hierarchy.


	Non-Recurring Fair Value Measurements at Reporting Date
	June 30, 2020										December 31, 2019
(Dollars in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3


Other real estate owned ("OREO")	$	—	$	—	$	236	$	—	$	—	$	227

Other Real Estate Owned: OREO, included in other assets on the Unaudited Consolidated Balance Sheets, is comprised primarily of ~~financial assets~~commercial and ~~liabilities that are measured~~residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or ~~non-recurring basis~~a combination of approaches including the comparable sales approach and the income approach. Adjustments are ~~discussed above.~~routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available (Level 3).

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Financial Instruments Not Required to be Measured or Reported at Fair Value

The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Unaudited Consolidated Balance Sheets.


	Fair Value Measurements of Other Financial Instruments
(Dollars in thousands)	Fair Value Hierarchy Level	June 30, 2020							December 31, 2019
						Carrying Amount	Fair Value				Carrying Amount	Fair Value

Assets:
Cash and cash equivalents	1	$	219,274	$	219,274		$	115,193	$	115,193




Held-to-maturity investment securities:
Obligations of:
States and political subdivisions	2	3,538		4,029			4,346		4,791
Residential mortgage-backed securities	2	28,075		29,120			21,494		21,569
Commercial mortgage-backed securities	2	5,754		6,189			5,907		6,181
Total held-to-maturity securities		37,367		39,338			31,747		32,541


Other investment securities:
Federal Home Loan Bank ("FHLB") stock	2	27,095		27,095			27,235		27,235
Federal Reserve Bank ("FRB") stock	2	13,311		13,311			13,310		13,310
Nonqualified deferred compensation	2	1,580		1,580			1,499		1,499
Other investment securities	2	365		365			365		365
Other investment securities (a)		42,351		42,351			42,409		42,409
Net loans	3	3,306,657		3,697,052			2,851,969		3,147,190
Loans held for sale	2	17,009		18,471			6,499		6,553
Bank owned life insurance	3	70,665		70,665			69,722		69,722
Servicing rights (b)(c)	3	2,482		2,890			2,742		3,881
Liabilities:
Deposits	2	$	4,024,884	$	3,939,885		$	3,291,412	$	3,292,950
Short-term borrowings	2	177,912		181,773			316,977		317,973
Long-term borrowings	2	112,536		118,542			83,123		82,701

(a) Other investment securities, as reported on the Unaudited Consolidated Balance Sheets, also includes equity investment securities at June 30, 2020 and December 31, 2019, which are reported in the Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis table above and not included in this table.

(b) Included in other intangible assets on the Unaudited Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or market value.

(c) There were 0 write-down of servicing rights during the second quarter of 2020. Peoples recognized a write-down on servicing rights of $182,000 during the first quarter of 2020 as the fair value of the servicing rights was less than the carrying value.

For certain financial assets and liabilities, carrying value approximates fair value due to the nature of ~~the~~each financial instrument. These instruments include cash and cash equivalents, demand and other ~~non-maturity~~non-fixed-maturity deposits, and overnight borrowings. Peoples used the following methods and assumptions in estimating the fair value of the following financial instruments:

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and due from banks is a reasonable estimate of fair value. (Level 1).

Held-to-Maturity Investment Securities:The fair values used by Peoples are obtained from an independent pricing service and represent fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.

Other Investment Securities: Other investment securities are measured at their respective redemption values due to restrictions placed on their transferability (Level 2).

Net Loans:The fair value of portfolio loans assumes sale of the notes to a third-party financial investor. Accordingly, this value is not necessarily the value to Peoples if the notes were held to maturity. Peoples considered interest rate, credit and

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market factors in estimating the fair value of loans (Level ~~3 inputs)~~3). InFair values for loans are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the ~~current whole~~credit risk associated with the loan and other market ~~financial investors~~factors, including liquidity.

Loans Held for Sale:Loans originated and intended to be sold in the secondary market, generally 1-4 family residential loans, are ~~generally requiring~~carried, in aggregate, at the lower of cost or estimated fair value. The use of a ~~higher rate~~valuation model using quoted prices of ~~return~~similar instruments represents significant inputs in arriving at the fair value (Level 2).

Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 3). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits.

Servicing Rights: The fair value of the servicing rights is determined by using a discounted cash flow model, which estimates the present value of the future net cash flows of the servicing portfolio based on various factors, such as servicing costs, expected prepayment speeds and discount rates (Level 3). Peoples recognized a write-down on servicing rights of $182,000 during the first quarter of 2020 as the fair value of the servicing rights was less than the ~~return inherent in loans if held to maturity given the lack of market liquidity. This divergence accounts for the majority of the difference in~~ carrying ~~amount over fair~~ value.

Deposits: The fair value of fixed maturity certificates of deposit ("CDs") is estimated using a discounted cash flow calculation based on current rates offered for deposits of similar remaining maturities (Level ~~2 inputs)~~2).

Short-term Borrowings: The fair value of short-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2).

Long-term ~~borrowings:~~Borrowings: The fair value of long-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level ~~2 inputs)~~2).

~~Cash flow hedges:~~ ~~Cash flow hedges~~Certain financial assets and financial liabilities that are ~~recognized in the Unaudited Consolidated Balance Sheets~~not required to be measured or reported at ~~their~~ fair value ~~within other assets. The~~can be subject to fair value ~~for derivative instruments~~adjustments in certain circumstances (for example, when there is ~~determined based on market prices, broker-dealer quotations on similar products, or other related input parameters (Level 2 inputs)~~evidence of impairment).

~~Customer~~These financial assets and liabilities include the following: customer relationships, the deposit base, ~~banking center networks,~~ and other information required to compute Peoples’ aggregate fair value that are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of Peoples.

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Note 3 Investment Securities

Available-for-sale

The following table summarizes Peoples' available-for-sale investment securities:


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2020
Obligations of:

U.S. government sponsored agencies	$	4,956	$	440	$	—	$	5,396
States and political subdivisions	102,638		4,452		(58)		107,032
Residential mortgage-backed securities	728,760		21,668		(1,561)		748,867
Commercial mortgage-backed securities	12,022		250		(115)		12,157
Bank-issued trust preferred securities	4,696		13		(310)		4,399

Total available-for-sale securities	$	853,072	$	26,823	$	(2,044)	$	877,851
December 31, 2019
Obligations of:

U.S. government sponsored agencies	$	7,917	$	292	$	—	$	8,209
States and political subdivisions	111,217		3,018		(131)		114,104
Residential mortgage-backed securities	787,430		7,763		(4,184)		791,009
Commercial mortgage-backed securities	18,135		88		(135)		18,088
Bank-issued trust preferred securities	4,696		137		(142)		4,691

Total available-for-sale securities	$	929,395	$	11,298	$	(4,592)	$	936,101

(Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
September 30, 2017
Obligations of:
States and political subdivisions $ 102,415
$ 2,343
$ (198 ) $ 104,560
Residential mortgage-backed securities 676,576
3,965
(8,435 ) 672,106
Commercial mortgage-backed securities 7,105
40
(17 ) 7,128
Bank-issued trust preferred securities 5,188
147
(181 ) 5,154
Equity securities 1,526
6,611
(64 ) 8,073
Total available-for-sale securities $ 792,810
$ 13,106
$ (8,895 ) $ 797,021
December 31, 2016
Obligations of:
U.S. government sponsored agencies $ 1,000
$ —
$ —
$ 1,000
States and political subdivisions 115,657
1,836
(263 ) 117,230
Residential mortgage-backed securities 633,802
3,758
(10,993 ) 626,567
Commercial mortgage-backed securities 19,337
41
(87 ) 19,291
Bank-issued trust preferred securities 5,169
91
(361 ) 4,899
Equity securities 2,052
6,969
(68 ) 8,953
Total available-for-sale securities $ 777,017
$ 12,695
$ (11,772 ) $ 777,940

~~Peoples' investment in equity~~The unrealized losses related to residential mortgage-backed securities ~~was comprised largely of common stocks issued by various unrelated bank holding companies~~ at ~~both September~~June 30, ~~2017~~2020 and December 31, ~~2016. At September 30, 2017, there~~2019, were noattributed to changes in market interest rates and spreads since the securities were purchased.

Table of ~~a single issuer that exceeded 10% of stockholders' equity.~~Contents

The gross gains and ~~gross~~ losses realized by Peoples from sales of available-for-sale securities for the periods ended ~~September~~June 30 were as follows:


	Three Months Ended					Nine Months Ended					Three Months Ended						Six Months Ended
	September 30,					September 30,					June 30,						June 30,
(Dollars in thousands)	2017		2016			2017		2016		(Dollars in thousands)	2020		2019		2020		2019
Gross gains realized	$	1,877	$	—		$	2,235	$	863	Gross gains realized	$	65	$	30	$	384	$	60
Gross losses realized	16		1			16		1		Gross losses realized	3		87		3		87
Net gain (loss) realized	$	1,861	$	(1	)	$	2,219	$	862	Net gain (loss) realized	$	62	$	(57)	$	381	$	(27)

The cost of investment securities sold, and any resulting gain or loss, ~~was~~were based on the specific identification method and recognized as of the trade date.

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The following table presents a summary of available-for-sale investment securities that had an unrealized loss:


	Less than 12 Months										12 Months or More					Total
(Dollars in thousands)	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss			No. of Securities	Fair Value		Unrealized Loss
June 30, 2020
Obligations of:


States and political subdivisions	$	1,287	$	13	1	$	2,067	$	45	��	1	$	3,354	$	58
Residential mortgage-backed securities	90,635		1,098		37	20,495		463			18	111,130		1,561
Commercial mortgage-backed securities	—		—		—	1,502		115			2	1,502		115
Bank-issued trust preferred securities	2,189		8		1	1,698		302			2	3,887		310

Total	$	94,111	$	1,119	39	$	25,762	$	925		23	$	119,873	$	2,044
December 31, 2019
Obligations of:


States and political subdivisions	$	6,226	$	74	2	$	2,441	$	57		1	$	8,667	$	131
Residential mortgage-backed securities	284,096		2,527		62	88,993		1,657			39	373,089		4,184
Commercial mortgage-backed securities	970		21		1	2,409		114			3	3,379		135
Bank-issued trust preferred securities	—		—		—	1,858		142			2	1,858		142

Total	$	291,292	$	2,622	65	$	95,701	$	1,970		45	$	386,993	$	4,592

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, 2017
Obligations of:
States and political subdivisions $ 7,622
$ 62
6
$ 3,957
$ 136
1
$ 11,579
$ 198
Residential mortgage-backed securities 300,639
3,348
77
163,685
5,087
51
464,324
8,435
Commercial mortgage-backed securities 3,875
17
2
—
—
—
3,875
17
Bank-issued trust preferred securities —
—
—
2,818
181
3
2,818
181
Equity securities —
—
—
112
64
1
112
64
Total $ 312,136
$ 3,427
85
$ 170,572
$ 5,468
56
$ 482,708
$ 8,895
December 31, 2016
Obligations of:
States and political subdivisions $ 23,501
$ 263
28
$ —
$ —
—
$ 23,501
$ 263
Residential mortgage-backed securities 427,088
8,495
108
46,631
2,498
22
473,719
10,993
Commercial mortgage-backed securities 7,770
87
4
—
—
—
7,770
87
Bank-issued trust preferred securities —
—
—
2,637
361
3
2,637
361
Equity securities 263
3
1
110
65
1
373
68
Total $ 458,622
$ 8,848
141
$ 49,378
$ 2,924
26
$ 508,000
$ 11,772

Management ~~systematically~~ evaluates available-for-sale investment securities for ~~other-than-temporary declines in fair value~~an allowance for credit losses on a quarterly basis. At ~~September~~June 30, ~~2017,~~2020, management concluded nothat 0 individual securities ~~were other-than-temporarily impaired since~~at an unrealized loss position required an allowance for credit losses. At June 30, 2020, Peoples did not have the intent to sell, nor was it more likely than not that Peoples would be required to sell, any of the securities with an unrealized loss prior to recovery. Further, the unrealized losses at both ~~September~~June 30, ~~2017~~2020 and ~~December 31, 2016~~June 30, 2019 were largely attributable to changes in market interest rates and spreads since the securities were ~~purchased.~~purchased, and were not credit related losses. Accrued interest receivable is not included in investment securities balances, and is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Interest receivable on investment securities was $3.2 million at June 30, 2020 and $3.6 million at December 31, 2019.

At ~~September~~June 30, ~~2017,~~2020, approximately 99% of the mortgage-backed securities with a market value that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1%, or ~~four~~2 positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. ~~Two~~NaN of the ~~four~~2 positions had a fair value of less than 90% of ~~their~~its book value, with an aggregate book and fair value of ~~$0.7 million~~$59,000 and ~~$0.4 million,~~$53,000, respectively. Management analyzed the underlying credit quality of these mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low remaining number of loans ~~remaining in~~underlying these securities.

~~Furthermore, the~~The unrealized losses with respect to the ~~three~~2 bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at ~~September~~June 30, ~~2017~~2020 were primarily attributable to the ~~floating-rate~~subordinated nature of ~~those investments,~~ the ~~current interest rate environment and spreads within that sector.~~

debt.

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The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at ~~September~~June 30, ~~2017~~.2020. The weighted-average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. ~~Rates are calculated on a fully tax-equivalent basis using a 35% federal income tax rate.~~


(Dollars in thousands)	Within 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total
Amortized cost
Obligations of:

U.S. government sponsored agencies	$	—		$	4,956		$	—		$	—		$	4,956
States and political subdivisions	4,237			24,943			40,933			32,525			102,638
Residential mortgage-backed securities	4			5,061			72,411			651,284			728,760
Commercial mortgage-backed securities	4,486			3,640			967			2,929			12,022
Bank-issued trust preferred securities	—			—			4,696			—			4,696

Total available-for-sale securities	$	8,727		$	38,600		$	119,007		$	686,738		$	853,072
Fair value
Obligations of:

U.S. government sponsored agencies	$	—		$	5,396		$	—		$	—		$	5,396
States and political subdivisions	4,259			25,730			43,521			33,522			107,032
Residential mortgage-backed securities	4			5,097			73,713			670,053			748,867
Commercial mortgage-backed securities	4,511			3,743			1,017			2,886			12,157
Bank-issued trust preferred securities	—			—			4,399			—			4,399

Total available-for-sale securities	$	8,774		$	39,966		$	122,650		$	706,461		$	877,851
Total weighted-average yield	2.44		%	2.63		%	2.61		%	2.31		%	2.36		%

(Dollars in thousands) Within 1 Year 1 to 5 Years 5 to 10 Years Over 10 Years Total
Amortized cost
Obligations of:
States and political subdivisions $ 995
$ 11,339
$ 28,293
$ 61,788
$ 102,415
Residential mortgage-backed securities 13
15,029
37,213
624,321
676,576
Commercial mortgage-backed securities —
5,725
—
1,380
7,105
Bank-issued trust preferred securities —
—
2,190
2,998
5,188
Equity securities 1,526
Total available-for-sale securities $ 1,008
$ 32,093
$ 67,696
$ 690,487
$ 792,810
Fair value
Obligations of:
States and political subdivisions $ 1,002
$ 11,451
$ 28,743
$ 63,364
$ 104,560
Residential mortgage-backed securities 13
14,998
37,274
619,821
672,106
Commercial mortgage-backed securities —
5,762
—
1,366
7,128
Bank-issued trust preferred securities —
—
2,337
2,817
5,154
Equity securities 8,073
Total available-for-sale securities $ 1,015
$ 32,211
$ 68,354
$ 687,368
$ 797,021
Total weighted-average yield 3.48 % 3.61 % 3.55 % 3.36 % 3.39 %

Held-to-Maturity

The following table summarizes Peoples’ held-to-maturity investment securities:


(Dollars in thousands)	Amortized Cost		Allowance for Credit Losses (a)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2020
Obligations of:
States and political subdivisions	$	3,544	$	(6)	$	491	$	—	$	4,029
Residential mortgage-backed securities	28,075		—		1,045		—		29,120
Commercial mortgage-backed securities	5,754		—		435		—		6,189
Total held-to-maturity securities	$	37,373	$	(6)	$	1,971	$	—	$	39,338
December 31, 2019
Obligations of:
States and political subdivisions	$	4,346	$	—	$	445	$	—	$	4,791
Residential mortgage-backed securities	21,494		—		169		(94)		21,569
Commercial mortgage-backed securities	5,907		—		275		(1)		6,181
Total held-to-maturity securities	$	31,747	$	—	$	889	$	(95)	$	32,541

(Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
September 30, 2017
Obligations of:
States and political subdivisions $ 3,812
$ 651
$ —
$ 4,463
Residential mortgage-backed securities 33,648
448
(406 ) 33,690
Commercial mortgage-backed securities 4,703
—
(48 ) 4,655
Total held-to-maturity securities $ 42,163
$ 1,099
$ (454 ) $ 42,808
December 31, 2016
Obligations of:
States and political subdivisions $ 3,820
$ 221
$ —
$ 4,041
Residential mortgage-backed securities 33,858
432
(528 ) 33,762
Commercial mortgage-backed securities 5,466
—
(42 ) 5,424
Total held-to-maturity securities $ 43,144
$ 653
$ (570 ) $ 43,227
(a) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities.

There were no0 gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for either of the three ~~or nine~~and six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~

2019.

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At June 30, 2020, there were 0 held-to-maturity investment securities that had an unrealized loss. The following table presents a summary of held-to-maturity investment securities that had an unrealized ~~loss:~~loss at December 31, 2019:


	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





December 31, 2019

Residential mortgage-backed securities	$	7,731	$	67	1	$	890	$	27	1	$	8,621	$	94
Commercial mortgage-backed securities	1,666		1		1	—		—		—	1,666		1
Total	$	9,397	$	68	2	$	890	$	27	1	$	10,287	$	95

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, 2017
Residential mortgage-backed securities $ 2,993
$ 90
1
$ 9,361
$ 316
2
$ 12,354
$ 406
Commercial mortgage-backed securities 4,655
48
1
—
—
—
4,655
48
Total $ 7,648
$ 138
2
$ 9,361
$ 316
2
$ 17,009
$ 454
December 31, 2016
Residential mortgage-backed securities $ 12,139
$ 476
3
$ 963
$ 52
1
$ 13,102
$ 528
Commercial mortgage-backed securities 5,424
42
1
—
—
—
5,424
42
Total $ 17,563
$ 518
4
$ 963
$ 52
1
$ 18,526
$ 570
Management evaluates held-to-maturity investment securities for an allowance for credit losses on a quarterly basis. The majority of Peoples' held-to-maturity investment securities are issued by U.S. government sponsored agencies. The remaining securities were obligations of state and political subdivisions. Peoples analyzed these securities using cumulative default rate averages for investment grade municipal securities and determined that the potential credit losses of the securities was $6,000. As a result, at June 30, 2020, Peoples recorded $6,000 of allowance for credit losses for held-to-maturity securities, compared to $7,000 at January 1, 2020.

The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at ~~September~~June 30, ~~2017~~.2020. The weighted-average yields are based on the amortized ~~cost.~~cost and are computed on a fully taxable-equivalent basis using a statutory federal corporate income tax rate of 21%. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. ~~Rates are calculated on a fully tax-equivalent basis using a~~ ~~35%~~ ~~federal income tax rate.~~


(Dollars in thousands)	Within 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total			(Dollars in thousands)	Within 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total
Amortized cost																Amortized cost
Obligations of:																Obligations of:
States and political subdivisions	$	—		$	314		$	2,980		$	518		$	3,812		States and political subdivisions	$	—		$	—		$	3,544		$	—		$	3,544
Residential mortgage-backed securities	—			450			6,379			26,819			33,648			Residential mortgage-backed securities	—			—			3,253			24,822			28,075
Commercial mortgage-backed securities	—			—			—			4,703			4,703			Commercial mortgage-backed securities	—			386			3,790			1,578			5,754
Total held-to-maturity securities	$	—		$	764		$	9,359		$	32,040		$	42,163		Total held-to-maturity securities	$	—		$	386		$	10,587		$	26,400		$	37,373
Fair value																Fair value
Obligations of:																Obligations of:
States and political subdivisions	$	—		$	320		$	3,598		$	545		$	4,463		States and political subdivisions	$	—		$	—		$	4,029		$	—		$	4,029
Residential mortgage-backed securities	—			452			6,508			26,730			33,690			Residential mortgage-backed securities	—			—			3,377			25,743			29,120
Commercial mortgage-backed securities	—			—			—			4,655			4,655			Commercial mortgage-backed securities	—			397			4,183			1,609			6,189
Total held-to-maturity securities	$	—		$	772		$	10,106		$	31,930		$	42,808		Total held-to-maturity securities	$	—		$	397		$	11,589		$	27,352		$	39,338
Total weighted-average yield	—		%	4.18		%	3.10		%	4.01		%	3.81		%	Total weighted-average yield	—		%	2.29		%	2.80		%	2.49		%	2.57		%

Other Investment Securities

Peoples' other investment securities on the Unaudited Consolidated Balance ~~Sheet~~Sheets consist largely of shares of ~~the Federal Home Loan Bank~~FHLB of Cincinnati ~~(the “FHLB”)~~ and ~~the Federal Reserve Bank~~FRB of Cleveland ~~(the "FRB").~~stock.

The following table summarizes the carrying value of Peoples' other investment securities:


(Dollars in thousands)	June 30, 2020		December 31, 2019
FHLB stock	$	27,095	$	27,235
FRB stock	13,311		13,310
Nonqualified deferred compensation	1,580		1,499
Equity investment securities	305		321
Other investment securities	365		365
Total other investment securities	$	42,656	$	42,730

Peoples redeemed FHLB stock in order to be in compliance with the requirements of the FHLB of Cincinnati. These redemptions totaled $4.5 million during the second quarter 2020 and $700,000 during the first quarter 2020. Peoples purchased 0 additional FHLB Stock during the second quarter 2020 and purchased $5.0 million of additional FHLB stock during the first quarter 2020, as a result of the FHLB of Cincinnati's capital requirements on FHLB advances during the quarter.

During the three and six months ended June 30, 2020, Peoples recorded the change in the fair value of equity investment securities held at June 30, 2020, in other non-interest income, resulting in unrealized gain of $16,000 and unrealized loss of $15,000, respectively. During the three and six months ended June 30, 2019, Peoples recorded the change in the fair value of equity investment

Table of Contents

securities held at June 30, 2019, in other non-interest income, resulting in 0 unrealized loss and unrealized gain of $22,000, respectively. Net realized gains on sales of equity investment securities, included in other non-interest income during the first six months of 2019, consisted of a realized gain of $787,000 related to the sale of restricted Class B Visa stock, which had been held at a carrying cost and fair value of 0 due to the litigation liability associated with the stock.

At June 30, 2020, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies. There were 0 equity investment securities of a single issuer that exceeded 10% of Peoples' stockholders' equity.

Pledged Securities

Peoples had pledged available-for-sale investment securities ~~with carrying values of $543.1 million and $517.9 million at September 30, 2017 and December 31, 2016, respectively,~~ and held-to-maturity investment securities ~~with carrying values of $19.0 million and $20.0 million at September 30, 2017 and December 31, 2016, respectively,~~ to secure public and trust department deposits, and repurchase agreements in accordance with federal and state requirements. Peoples also pledged available-for-sale investment securities ~~with carrying values of $7.9 million and $9.2 million at September 30, 2017 and December 31, 2016, respectively,~~ and held-to-maturity securities ~~with carrying values of $20.9 million and $22.2 million at September 30, 2017 and December 31, 2016, respectively,~~ to secure additional borrowing capacity at the FHLB and the FRB.

The following table summarizes the carrying value of Peoples' pledged securities:


	Carrying Amount
(Dollars in thousands)	June 30, 2020		December 31, 2019

Securing public and trust department deposits, and repurchase agreements:
Available-for-sale	$	559,756	$	527,655
Held-to-maturity	18,848		12,975
Securing additional borrowing capacity at the FHLB and the FRB:
Available-for-sale	115,742		44,618
Held-to-maturity	12,849		14,155

~~Table of Contents~~

Note 4 Loans

Peoples' loan portfolio consists of various types of loans originated primarily as a result of lending opportunities within Peoples' primary market areas of northeastern, central, southwestern and southeastern Ohio, central and eastern Kentucky and west central West ~~Virginia, and northeastern Kentucky.~~Virginia. Acquired loans consist of loans purchased in 2012 or ~~thereafter in a business combination.~~thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit).

The major classifications of loan balances (in each case, net of deferred fees and costs) excluding loans held for sale, were as follows:


(Dollars in thousands)	June 30, 2020		December 31, 2019
Construction	$	109,953	$	88,518
Commercial real estate, other	914,420		833,238
Commercial and industrial	1,070,326		662,993
Residential real estate	613,084		661,476
Home equity lines of credit	123,384		132,704
Consumer, indirect	450,334		417,185
Consumer, direct	78,926		76,533
Deposit account overdrafts	592		878
Total loans, at amortized cost	$	3,361,019	$	2,873,525

Commercial and industrial loan balances grew significantly compared to December 31, 2019. Peoples began participating as a Small Business Administration ("SBA") Paycheck Protection Program ("PPP") lender during the second quarter of 2020, and originated approximately $488.1 million of PPP loans during the first six months of 2020. At June 30, 2020, the PPP loans had an amortized cost of $457.7 million, and were included in commercial and industrial loan balances. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which totaled $13.6 million at June 30, 2020. During the second quarter of 2020, Peoples recorded amortization of net deferred loan origination fees of $1.9 million on PPP loans. The remaining net deferred loan origination fees will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income.

Table of Contents

(Dollars in thousands) September 30,
2017 December 31, 2016
Originated loans:
Commercial real estate, construction $ 111,187
$ 84,626
Commercial real estate, other 573,256
531,557
    Commercial real estate 684,443
616,183
Commercial and industrial 407,468
378,131
Residential real estate 304,094
307,490
Home equity lines of credit 88,421
85,617
Consumer, indirect 335,436
252,024
Consumer, other 68,286
67,579
   Consumer 403,722
319,603
Deposit account overdrafts 507
1,080
Total originated loans $ 1,888,655
$ 1,708,104
Acquired loans:
Commercial real estate, construction $ 8,565
$ 10,100
Commercial real estate, other 174,157
204,466
    Commercial real estate 182,722
214,566
Commercial and industrial 36,462
44,208
Residential real estate 194,950
228,435
Home equity lines of credit 22,366
25,875
Consumer, indirect 408
808
Consumer, other 1,472
2,940
   Consumer 1,880
3,748
Total acquired loans $ 438,380
$ 516,832
Loans, net of deferred fees and costs $ 2,327,035
$ 2,224,936

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 wouldAccrued interest receivable is not ~~be collected. The carrying amounts of these purchased credit impaired loans~~ included inwithin the loan balances, ~~above are summarized as follows:~~

(Dollars in thousands) September 30,
2017 December 31,
2016
Commercial real estate, other $ 8,235
$ 11,476
Commercial and industrial 818
1,573
Residential real estate 20,497
23,306
Consumer 41
76
Total outstanding balance $ 29,591
$ 36,431
Net carrying amount $ 20,581
$ 26,524

~~Table of Contents~~

~~Changes~~but is presented in the ~~accretable yield for purchased credit impaired loans for the nine months ended September 30, 2017 were as follows:~~

(Dollars in thousands) Accretable Yield
Balance, December 31, 2016 $ 7,132
Reclassification from nonaccretable to accretable 1,285
Accretion (1,279 )
Balance, September 30, 2017 $ 7,138

Peoples completes annual re-estimations of cash flows on acquired purchased credit impaired loans in August of each year. The above reclassification from nonaccretable to accretable related to the re-estimation of cash flows on the purchased credit impaired loan portfolio, coupled with the loans performing better than expected. The majority“Other assets” line of the ~~reclassification related to prepayment speeds decreasing in the residential portfolio, resulting in higher total expected cash flows.~~

~~Cash flows expected to be collected~~Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Interest receivable on ~~purchased credit impaired~~ loans ~~are estimated by incorporating several key assumptions, similar to the initial estimate of fair value. These key assumptions include probability of default,~~was $9.2 million at June 30, 2020 and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly the principal expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary.

Peoples pledges 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 $490.1$9.1 million ~~and~~ ~~$542.5 million~~at ~~September 30, 2017~~ ~~and~~ December 31, ~~2016, respectively. Peoples also pledges commercial loans to secure borrowings with the FRB. The outstanding balances of these loans totaled $84.0 million and~~ ~~$152.0 million~~ at ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively.~~2019.

Nonaccrual and Past Due Loans

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or not such loan is considered past due.

~~Table~~The amortized cost of ~~Contents~~

~~The recorded investments in~~ loans on nonaccrual status and loans delinquent for 90 days or more and accruing were as follows:


	June 30, 2020						December 31, 2019
(Dollars in thousands)	Nonaccrual ^(a)(b)		Accruing Loans 90+ Days Past Due		Nonaccrual ^(a)		Accruing Loans 90+ Days Past Due ^(b)
Construction	$	4	$	—	$	411	$	—
Commercial real estate, other	9,678		130		6,801		907
Commercial and industrial	4,745		—		2,155		155
Residential real estate	8,905		1,618		6,361		2,677
Home equity lines of credit	687		46		1,165		108
Consumer, indirect	802		57		840		—
Consumer, direct	208		29		48		85
Total loans, at amortized cost	$	25,029	$	1,880	$	17,781	$	3,932

Nonaccrual Loans Loans 90+ Days Past Due and Accruing
(Dollars in thousands) September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016
Originated loans:
Commercial real estate, construction $ 776
$ 826
$ —
$ —
Commercial real estate, other 6,675
9,934
374
—
    Commercial real estate 7,451
10,760
374
—
Commercial and industrial 780
1,712
739
—
Residential real estate 3,437
3,778
231
183
Home equity lines of credit 344
383
15
—
Consumer, indirect 154
130
—
10
Consumer, other 16
11
—
—
    Consumer 170
141
—
10
Total originated loans $ 12,182
$ 16,774
$ 1,359
$ 193
Acquired loans:
Commercial real estate, other $ 982
$ 1,609
$ 898
$ 1,506
Commercial and industrial 498
390
93
387
Residential real estate 2,210
2,317
1,184
1,672
Home equity lines of credit 330
231
—
—
Consumer, indirect —
—
—
13
Consumer, other 17
4
8
—
    Consumer 17
4
8
13
Total acquired loans $ 4,037
$ 4,551
$ 2,183
$ 3,578
Total loans $ 16,219
$ 21,325
$ 3,542
$ 3,771
(a) There were $1.4 million of nonaccrual loans for which there was no allowance for credit losses as of June 30, 2020 and $3.1 million at

~~During~~December 31, 2019.

(b) The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the ~~first nine months~~movement of ~~2017,~~$3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020. At December 31, 2019, these loans were presented as 90+ days past due and accruing,

As of June 30, 2020, Peoples had made short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment for borrowers, which were insignificant. Under the CARES Act, borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. As such, these modifications made under the CARES Act are not included in Peoples' nonaccrual or accruing loans ~~declined largely~~90+ days past due as of June 30, 2020.

The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020. As of December 31, 2019, these loans were presented as 90+ days past due and accruing. Although they were not accruing contractual interest income, they were accreting income from the discount that was recognized due to acquisition accounting. The additional increase in nonaccrual loans compared to December 31, 2019 was due to a $1.5 million commercial relationship and several ~~payoffs~~smaller commercial relationships being placed on ~~larger relationships.~~nonaccrual. The amount of interest income recognized on nonaccrual loans during the three and six months ended June 30, 2020 was $392,000 and $850,000, respectively.

1820

Table of Contents

The following table presents the aging of the ~~recorded investment in~~amortized cost of past due loans:


	Loans Past Due												Current Loans	Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
June 30, 2020
Construction	—		—		4		$	4	$	109,949	109,953
Commercial real estate, other	595		1,097		9,235		10,927		903,493		914,420
Commercial and industrial	1,842		35		4,710		6,587		1,063,739		1,070,326
Residential real estate	1,641		3,417		5,576		10,634		602,450		613,084
Home equity lines of credit	511		540		472		1,523		121,861		123,384
Consumer, indirect	1,580		208		219		2,007		448,327		450,334
Consumer, direct	158		24		185		367		78,559		78,926
Deposit account overdrafts	—		—		—		—		592		592
Total loans, at amortized cost	$	6,327	$	5,321	$	20,401	$	32,049	$	3,328,970	$	3,361,019
December 31, 2019
Construction	$	5	$	—	$	411	$	416	$	88,102	$	88,518
Commercial real estate, other	376		337		7,501		8,214		825,024		833,238
Commercial and industrial	2,780		312		1,244		4,336		658,657		662,993
Residential real estate	10,538		2,918		5,872		19,328		642,148		661,476
Home equity lines of credit	642		510		1,033		2,185		130,519		132,704
Consumer, indirect	3,574		714		370		4,658		412,527		417,185
Consumer, direct	619		117		112		848		75,685		76,533
Deposit account overdrafts	—		—		—		—		878		878
Total loans, at amortized cost	$	18,534	$	4,908	$	16,543	$	39,985	$	2,833,540	$	2,873,525

Loans Past Due
Current
Loans
Total
Loans
(Dollars in thousands) 30 - 59 days 60 - 89 days 90 + Days Total
September 30, 2017
Originated loans:
Commercial real estate, construction $ —
$ —
$ —
$ —
$ 111,187
$ 111,187
Commercial real estate, other 1,693
229
6,573
8,495
564,761
573,256
    Commercial real estate 1,693
229
6,573
8,495
675,948
684,443
Commercial and industrial 1,292
155
1,396
2,843
404,625
407,468
Residential real estate 2,076
1,368
1,777
5,221
298,873
304,094
Home equity lines of credit 346
184
145
675
87,746
88,421
Consumer, indirect 1,731
358
33
2,122
333,314
335,436
Consumer, other 158
89
14
261
68,025
68,286
    Consumer 1,889
447
47
2,383
401,339
403,722
Deposit account overdrafts —
—
—
—
507
507
Total originated loans $ 7,296
$ 2,383
$ 9,938
$ 19,617
$ 1,869,038
$ 1,888,655
Acquired loans:
Commercial real estate, construction $ —
$ —
$ —
$ —
$ 8,565
$ 8,565
Commercial real estate, other 544
176
1,089
1,809
172,348
174,157
    Commercial real estate 544
176
1,089
1,809
180,913
182,722
Commercial and industrial 17
24
463
504
35,958
36,462
Residential real estate 1,498
1,141
2,436
5,075
189,875
194,950
Home equity lines of credit 112
—
280
392
21,974
22,366
Consumer, indirect 2
—
—
2
406
408
Consumer, other 13
18
24
55
1,417
1,472
    Consumer 15
18
24
57

1,823
1,880
Total acquired loans $ 2,186
$ 1,359
$ 4,292
$ 7,837
$ 430,543
$ 438,380
Total loans $ 9,482
$ 3,742
$ 14,230
$ 27,454
$ 2,299,581
$ 2,327,035
The increase in loans 90+ days past due, compared to December 31, 2019, was mostly due to one $2.5 million commercial relationship. Delinquency trends remained stable, as 99.0% of Peoples' portfolio was considered “current” at June 30, 2020, compared to 98.6% at December 31, 2019.

As of June 30, 2020, Peoples had made short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment for borrowers, which were insignificant. Under the CARES Act, borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. As such, these modifications made under the CARES Act are not reflected as loans past due in the table above as of June 30, 2020.

Pledged Loans

~~Table~~Peoples has pledged certain loans secured by one-to-four family and multifamily residential mortgages, and home equity lines of ~~Contents~~

credit under a blanket collateral agreement to secure borrowings from the FHLB. Peoples also has pledged commercial loans to secure borrowings with the FRB. Loans pledged are summarized as follows:

Loans Past Due
Current
Loans
Total
Loans
(Dollars in thousands) 30 - 59 days 60 - 89 days 90 + Days Total
December 31, 2016
Originated loans:
Commercial real estate, construction $ —
$ —
$ 826
$ 826
$ 83,800
$ 84,626
Commercial real estate, other 1,420
225
9,305
10,950
520,607
531,557
    Commercial real estate 1,420
225
10,131
11,776
604,407
616,183
Commercial and industrial 1,305
700
1,465
3,470
374,661
378,131
Residential real estate 7,288
1,019
1,895
10,202
297,288
307,490
Home equity lines of credit 316
45
248
609
85,008
85,617
Consumer, indirect 2,080
273
77
2,430
249,594
252,024
Consumer, other 346
38
—
384
67,195
67,579
    Consumer 2,426
311
77
2,814

316,789
319,603
Deposit account overdrafts —
—
—
—
1,080
1,080
Total originated loans $ 12,755
$ 2,300
$ 13,816
$ 28,871
$ 1,679,233
$ 1,708,104
Acquired loans:
Commercial real estate, construction $ —
$ —
$ 40
$ 40
$ 10,060
$ 10,100
Commercial real estate, other 1,220
208
2,271
3,699
200,767
204,466
    Commercial real estate 1,220
208
2,311
3,739
210,827
214,566
Commercial and industrial 148
3
777
928
43,280
44,208
Residential real estate 5,918
2,496
2,974
11,388
217,047
228,435
Home equity lines of credit 208
65
178
451
25,424
25,875
Consumer, indirect 4
—
—
4
804
808
Consumer, other 51
—
13
64
2,876
2,940
    Consumer 55
—
13
68
3,680
3,748
Total acquired loans $ 7,549
$ 2,772
$ 6,253
$ 16,574
$ 500,258
$ 516,832
Total loans $ 20,304
$ 5,072
$ 20,069
$ 45,445
$ 2,179,491
$ 2,224,936


(Dollars in thousands)	June 30, 2020		December 31, 2019
Loans pledged to FHLB	$	464,770	$	458,227
Loans pledged to FRB	521,094		172,693

During the ~~first nine months~~second quarter of ~~2017, Peoples' delinquency trends improved compared~~2020, Peoples pledged additional collateral to the ~~balances at December 31, 2016,~~FRB to secure potential funding needs in light of the COVID-19 pandemic, as ~~total loans past due declined in both~~well as to fund the ~~originated and acquired~~PPP loan ~~portfolios.~~originations that occurred during the quarter.

Credit Quality Indicators

As discussed in ~~Note~~"Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' ~~2016~~2019 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk grading matrix using a scale of 1 to 8. Loan grades are assigned at the time a new loan or lending commitment is extended by Peoples and may be changed at any time when circumstances warrant. Loans to borrowers with an aggregate unpaid principal balance in excess of $1.0 million are reviewed at least on an annual basis for possible credit deterioration. Loan relationships whose aggregate credit exposure to Peoples is equal to or less than $1.0 million are reviewed on an event driven basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or

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other similar events. Adversely classified loans are reviewed on a quarterly basis. A description of the general characteristics of the risk grades used by Peoples is as follows:

“Pass” (grades 1 through 4): Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the loan if required, for any weakness that may exist.

“Special Mention” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned.” Loans in this risk category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and/or reliance on a secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the loan or in Peoples' credit position.

“Substandard” (grade 6): Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or the collateral pledged, if any. Loans so classified have one or more well-defined weaknesses that jeopardize the orderly repayment of the loan. They are characterized by the distinct possibility that Peoples will sustain some loss if the deficiencies are not corrected.

“Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of

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certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, classification of the loan as an estimated loss is deferred until its more exact status may be determined.

“Loss” (grade 8):Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean a loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for ~~loan~~credit losses are taken induring 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.”~~“pass" for disclosure purposes.

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The following table summarizes the risk category of loans within Peoples' loan portfolio based upon the most recent analysis ~~performed:~~performed at June 30, 2020:



(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Construction
Pass	$	14,934	$	52,867	$	3,463	$	34,080	$	1,406	$	705	$	444	$	35,426	$	107,899
Special mention	$	—	—		415		—		—		146		4		—		565
Substandard	—		—		—		404		—		1,085		—		—		1,489


Total	14,934		52,867		3,878		34,484		1,406		1,936		448		35,426		109,953
Commercial real estate, other
Pass	72,717		135,406		107,372		101,444		110,664		233,262		96,499		23,043		857,364
Special mention	—		3,600		1,132		4,407		558		7,073		4,848		124		21,618
Substandard	—		1,574		68		2,209		2,016		25,323		4,153		47		35,343
Doubtful	—		—		—		—		—		95		—		—		95

Total	72,717		140,580		108,572		108,060		113,238		265,753		105,500		23,214		914,420
Commercial and industrial
Pass	462,493		106,252		82,797		39,273		50,439		72,763		224,744		42,925		1,038,761
Special mention	401		398		417		230		1,657		1,445		12,199		1,469		16,747
Substandard	2,118		2,069		289		2,161		368		4,373		3,226		2,701		14,604
Doubtful	—		—		—		—		7		207		—		187		214

Total	465,012		108,719		83,503		41,664		52,471		78,788		240,169		47,282		1,070,326
Residential real estate
Pass	18,462		46,167		30,246		35,652		52,555		351,179		63,691		—		597,952
Special mention	—		—		—		—		—		1		—		—		1
Substandard	—		—		—		—		—		14,560		—		—		14,560
Doubtful	—		—		—		—		—		363		—		—		363
Loss	—		—		—		—		—		208		—		—		208
Total	18,462		46,167		30,246		35,652		52,555		366,311		63,691		—		613,084
Home equity lines of credit
Pass	7,969		15,083		14,772		14,082		13,372		44,530		13,576		4,173		123,384




Total	7,969		15,083		14,772		14,082		13,372		44,530		13,576		4,173		123,384
Consumer, indirect
Pass	98,210		115,808		94,468		54,703		24,863		10,384		51,898		—		450,334




Total	98,210		115,808		94,468		54,703		24,863		10,384		51,898		—		450,334
Consumer, direct
Pass	17,557		20,942		15,371		6,847		3,966		4,271		9,972		—		78,926




Total	17,557		20,942		15,371		6,847		3,966		4,271		9,972		—		78,926
Deposit account overdrafts	592		—		—		—		—		—		—		—		592
Total loans, at amortized cost	$	695,453	$	500,166	$	350,810	$	295,492	$	261,871	$	771,973	$	485,254	$	110,095	$	3,361,019

During the second quarter of 2020, Peoples downgraded additional credits based upon updated information that became available, and the downgrades were not related to COVID-19. At June 30, 2020, Peoples had a total of $1.6 million of loans secured by residential real estate mortgages that were in the process of foreclosure.

Pass Rated
(Grades 1 - 4)
Special Mention
(Grade 5)
Substandard
(Grade 6)
Doubtful (Grade 7)
Not
Rated
Total
Loans
(Dollars in thousands)
September 30, 2017
Originated loans:
Commercial real estate, construction $ 104,446
$ 5,510
$ 776
$ —
$ 455
$ 111,187
Commercial real estate, other 541,073
21,062
11,121
—
—
573,256
    Commercial real estate 645,519
26,572
11,897
—
455
684,443
Commercial and industrial 382,332
18,943
6,157
—
36
407,468
Residential real estate 18,717
1,033
11,499
182
272,663
304,094
Home equity lines of credit 596
—
—
—
87,825
88,421
Consumer, indirect 59
9
—
—
335,368
335,436
Consumer, other 38
—
—
—
68,248
68,286
   Consumer 97
9
—
—
403,616
403,722
Deposit account overdrafts —
—
—
—
507
507
Total originated loans $ 1,047,261
$ 46,557
$ 29,553
$ 182
$ 765,102
$ 1,888,655
Acquired loans:
Commercial real estate, construction $ 8,513
$ —
$ 52
$ —
$ —
$ 8,565
Commercial real estate, other 157,610
8,057
8,490
—
—
174,157
    Commercial real estate 166,123
8,057
8,542
—
—
182,722
Commercial and industrial 34,651
220
1,591
—
—
36,462
Residential real estate 13,082
604
1,365
—
179,899
194,950
Home equity lines of credit 143
—
—
—
22,223
22,366
Consumer, indirect 19
—
—
—
389
408
Consumer, other 42
—
—
—
1,430
1,472
   Consumer 61
—
—
—
1,819
1,880
Total acquired loans $ 214,060
$ 8,881
$ 11,498
$ —
$ 203,941
$ 438,380
Total loans $ 1,261,321
$ 55,438
$ 41,051
$ 182
$ 969,043
$ 2,327,035
23

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Collateral Dependent Loans

Peoples has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

Pass Rated
(Grades 1 - 4)
Special Mention
(Grade 5)
Substandard
(Grade 6)
Doubtful (Grade 7)
Not
Rated
Total
Loans
(Dollars in thousands)
December 31, 2016
Originated loans:
Commercial real estate, construction $ 73,423
$ —
$ 826
$ —
$ 10,377
$ 84,626
Commercial real estate, other 505,029
11,855
14,673
—
—
531,557
    Commercial real estate 578,452
11,855
15,499
—
10,377
616,183
Commercial and industrial 346,791
15,210
16,130
—
—
378,131
Residential real estate 47,336
957
12,828
304
246,065
307,490
Home equity lines of credit 465
—
135
—
85,017
85,617
Consumer, indirect 15
13
—
—
251,996
252,024
Consumer, other 50
—
—
—
67,529
67,579
   Consumer 65
13
—
—
319,525
319,603
Deposit account overdrafts —
—
—
—
1,080
1,080
Total originated loans $ 973,109
$ 28,035
$ 44,592
$ 304
$ 662,064
$ 1,708,104
Acquired loans:
Commercial real estate, construction $ 10,046
$ —
$ 54
$ —
$ —
$ 10,100
Commercial real estate, other 181,781
12,475
10,210
—
—
204,466
    Commercial real estate 191,827
12,475
10,264
—
—
214,566
Commercial and industrial 42,809
227
978
194
—
44,208
Residential real estate 17,170
709
1,404
—
209,152
228,435
Home equity lines of credit 202
—
—
—
25,673
25,875
Consumer, indirect 51
—
—
—
757
808
Consumer, other 53
—
—
—
2,887
2,940
   Consumer 104
—
—
—
3,644
3,748
Total acquired loans $ 252,112
$ 13,411
$ 12,646
$ 194
$ 238,469
$ 516,832
Total loans $ 1,225,221
$ 41,446
$ 57,238
$ 498
$ 900,533
$ 2,224,936
•Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

~~In the~~•Residential real estate loans are typically secured by first ~~nine months~~mortgages, and in some cases could be secured by a second mortgage.

•Home equity lines of ~~2017, Peoples' classified~~credit are generally secured by second mortgages on residential real estate property.

•Consumer loans ~~which~~ are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans ~~categorized as substandard or doubtful, declined compared to the balances at December 31, 2016 mostly due to loan payoffs.~~

~~Table of Contents~~

~~Impaired Loans~~are unsecured and have no underlying collateral.

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


(Dollars in thousands)	June 30, 2020		December 31, 2019


Commercial real estate, other	$	9,372	$	6,818
Commercial and industrial	4,509		1,962
Residential real estate	1,714		1,847
Home equity lines of credit	411		681
Consumer, indirect	—		713
Consumer, direct	—		94
Total collateral dependent loans	$	16,006	$	12,115

The increase in collateral dependent commercial and industrial loans ~~classified as impaired:~~

Unpaid
Principal
Balance
Recorded Investment
Total
Recorded
Investment

Average
Recorded
Investment
Interest
Income
Recognized

With
Allowance
Without
Allowance
Related
Allowance
(Dollars in thousands)
September 30, 2017
Commercial real estate, construction $ 821
$ —
$ 776
$ 776
$ —
$ 805
$ —
Commercial real estate, other 15,109
5,045
9,180
14,225
136
14,763
727
    Commercial real estate 15,930
5,045
9,956
15,001
136
15,568
727
Commercial and industrial 2,794
2,016
603
2,619
424
2,651
384
Residential real estate 25,974
654
23,724
24,378
151
24,273
1,675
Home equity lines of credit 1,718
65
1,649
1,714
13
1,435
122
Consumer, indirect 171
18
154
172
2
155
11
Consumer, other 92
28
61
89
21
101
7
    Consumer 263
46
215
261
23
256
18
Total $ 46,679
$ 7,826
$ 36,147
$ 43,973
$ 747
$ 44,183
$ 2,926
December 31, 2016
Commercial real estate, construction $ 894
$ —
$ 866
$ 866
$ —
$ 913
$ 3
Commercial real estate, other 20,029
7,474
12,227
19,701
803
18,710
700
    Commercial real estate 20,923
7,474
13,093
20,567
803
19,623
703
Commercial and industrial 7,289
2,732
1,003
3,735
585
3,386
125
Residential real estate 27,703
138
27,393
27,531
24
27,455
1,419
Home equity lines of credit 908
—
908
908
—
717
44
Consumer, indirect 220
—
224
224
—
136
16
Consumer, other 130
—
130
130
—
138
13
    Consumer 350
—
354
354
—
274
29
Total $ 57,173
$ 10,344
$ 42,751
$ 53,095
$ 1,412
$ 51,455
$ 2,320

~~Peoples'~~at June 30, 2020 compared to December 31, 2019 was mostly due to one commercial relationship that became collateral dependent, coupled with some smaller relationships. In addition, the increase in collateral dependent consumer loans was driven by a change in the policy threshold for evaluation of individually impaired loans, ~~shown in~~which was previously $100,000 and on January 1, 2020 was changed to $250,000, thereby reducing the ~~table~~amount of loans considered collateral dependent which were no longer above ~~included loans that were classified as troubled debt restructurings ("TDRs").~~the threshold.

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 loan, such as (i) a reduction in the interest rate for the remaining life of the loan, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new loans 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.

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The following table summarizes the loans that were modified as ~~a TDR~~TDRs during the three months ended ~~September~~June 30:


		Three Months Ended								Three Months Ended
		Recorded Investment (1)								Recorded Investment (a)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment		(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
September 30, 2017
June 30, 2020								June 30, 2020

Residential real estate								Residential real estate	5	303		303		303
Home equity lines of credit								Home equity lines of credit	2	14		14		14
Consumer, indirect								Consumer, indirect	8	62		62		62

Total								Total	15	$	379	$	379	$	379

June 30, 2019								June 30, 2019
Originated loans:	Originated loans:							Originated loans:

Residential real estate								Residential real estate	1	$	37	$	37	$	37
Home equity lines of credit								Home equity lines of credit	2	60		60		60
Consumer, indirect								Consumer, indirect	7	110		110		110
Consumer, direct								Consumer, direct	3	41		41		41
Consumer								Consumer	10	151		151		151
Total								Total	13	$	248	$	248	$	248
Acquired loans:								Acquired loans:

Commercial real estate, other								Commercial real estate, other	7	$	725	$	699	$	700
Commercial and industrial	1	$	36	$	36	$	36	Commercial and industrial	4	1,259		1,259		1,259
Residential real estate	1	90		90		90		Residential real estate	35	$	1,823	$	1,823	$	1,823
Home equity lines of credit	2	22		22		19		Home equity lines of credit	7	113		113		113
Consumer, indirect	5	34		34		34
Consumer, other	2	9		9		9
Consumer	7	43		43		43
Total originated loans	11	$	191	$	191	$	188
Acquired loans:
Residential real estate	2	$	61	$	61	$	61
Home equity lines of credit	1	34		34		34
Total acquired loans	3	$	95	$	95	$	95
September 30, 2016
Originated loans:
Residential real estate	2	$	75	$	75	$	75
Home equity lines of credit	3	23		23		23
Consumer, indirect	7	78		78		78
Consumer, other	3	34		34		34
Consumer	10	112		112		112
Total originated loans	15	$	210	$	210	$	210
Acquired loans:
Commercial real estate, other	1	$	224	$	224	$	224
Residential real estate	2	141		141		141
Total acquired loans	3	$	365	$	365	$	365
(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.

Consumer, direct								Consumer, direct	16	340		340		340

Total								Total	69	$	4,260	$	4,234	$	4,235
(a) 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.								(a) 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.

2425

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		Six Months Ended
		Recorded Investment (a)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
June 30, 2020

Commercial real estate, other	1	$	265	$	265	$	265
Commercial and industrial	1	145		145		145
Residential real estate	8	756		786		783
Home equity lines of credit	4	55		55		53
Consumer, indirect	13	128		128		122
Consumer, direct	3	51		51		49
Consumer	16	179		179		171
Total	30	$	1,400	$	1,430	$	1,417

June 30, 2019
Originated loans:

Commercial and industrial	2	$	38	$	38	$	35
Residential real estate	3	436		440		437
Home equity lines of credit	4	139		139		139
Consumer, indirect	8	123		123		123
Consumer, direct	5	69		69		67
Consumer	13	192		192		190
Total	22	$	805	$	809	$	801
Acquired loans:

Commercial real estate, other	7	$	724	$	699	$	700
Commercial and industrial	4	1,259		1,259		1,259
Residential real estate	36	1,847		1,847		1,842
Home equity lines of credit	9	179		179		178

Consumer, direct	16	340		340		340

Total	72	$	4,349	$	4,324	$	4,319
(a) 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 summarizes~~On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the ~~loans~~FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that ~~were modified as a TDR during the nine months ended September 30:~~

Nine Months Ended

Recorded Investment (1)
(Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment
September 30, 2017
Originated loans:
Commercial real estate, other 1
$ 14
$ 14
$ 14
Commercial and industrial 3
174
174
123
Residential real estate 7
483
483
478
Home equity lines of credit 6
291
291
286
Consumer, indirect 11
127
127
86
Consumer, other 3
10
10
10
   Consumer 14
137
137
96
Total originated loans 31
$ 1,099
$ 1,099
$ 997
Acquired loans:
Commercial real estate, other 2
$ 271
$ 271
$ 265
Residential real estate 8
264
264
263
Home equity lines of credit 5
328
328
323
Consumer, other 2
10
10
9
Total acquired loans 17
$ 873
$ 873
$ 860
September 30, 2016
Originated loans:
Commercial real estate, other 1
$ 57
$ 57
$ 56
Commercial and industrial 6
716
724
685
Residential real estate 5
173
173
173
Home equity lines of credit 3
23
23
23
Consumer, indirect 9
107
107
107
Consumer, other 5
46
46
46
   Consumer 14
153
153
153
Total originated loans 29
$ 1,122
$ 1,130
$ 1,090
Acquired loans:
Commercial real estate, other 1
$ 223
$ 223
$ 223
Residential real estate 11
927
929
923
Home equity lines of credit 3
179
179
173
Consumer, indirect 2
8
8
8
Consumer, other 3
17
17
17
   Consumer 5
25
25
25
Total acquired loans 20
$ 1,354
$ 1,356
$ 1,344
(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.

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~~The following table presents~~are considered current are those ~~acquired loans modified in a TDR during the year~~ that ~~subsequently defaulted (i.e., 90~~are less than 30 days ~~or more~~ past due ~~following~~on their contractual payments at the time a ~~modification) during~~modification program is implemented. In addition, modification or deferral programs mandated by the ~~nine month periods ended September 30, 2017 and 2016:~~

September 30, 2017 September 30, 2016
(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
Acquired loans:
Residential real estate 1
$ 44
$ —
—
$ —
$ —
Consumer, other 1
8
—
—
—
—
Total 2
$ 52
$ —
—
$ —
$ —
(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.
U.S. federal government or any state government related to COVID-19 are not in the scope of ASC 310-40.

Peoples did not have any ~~originated~~ loans that were modified as a TDR during the last twelve months that subsequently defaulted. Peoples had no commitments to lend additional funds to the related ~~debtors~~borrowers whose loan terms have been modified in a TDR.

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Allowance for ~~Originated Loan~~Credit Losses

Changes in the allowance for ~~originated loan~~credit losses for the ~~nine~~three months ended ~~September~~June 30, ~~were as follows:~~2020 are summarized below:



(Dollars in thousands)	Beginning Balance, March 31, 2020		Initial Allowance for Purchased Credit Deteriorated Assets		Provision for (Recovery of) Credit Losses (a)		Charge-offs		Recoveries		Ending Balance, June 30, 2020
Construction	$	1,742	$	—	$	920	$	—	$	—	$	2,662
Commercial real estate, other	12,142		—		7,135		(135)		6		19,148
Commercial and industrial	8,743		—		573		(15)		805		10,106
Residential real estate	5,744		—		552		(16)		100		6,380
Home equity lines of credit	1,695		—		61		(9)		8		1,755
Consumer, indirect	10,878		—		1,679		(336)		72		12,293
Consumer, direct	1,803		—		179		(51)		10		1,941
Deposit account overdrafts	86		—		61		(119)		49		77
Total	$	42,833	$	—	$	11,160	$	(681)	$	1,050	$	54,362

(Dollars in thousands) Commercial Real Estate Commercial and Industrial Residential Real Estate Home Equity Lines of Credit Consumer Indirect Consumer Other Deposit Account Overdrafts Total
Balance, January 1, 2017 $ 7,172
$ 6,353
$ 982
$ 688
$ 2,312
$ 518
$ 171
$ 18,196
Charge-offs (25 ) (165 ) (451 ) (100 ) (1,493 ) (275 ) (767 ) (3,276 )
Recoveries 135
1
128
9
598
152
159
1,182
Net recoveries (charge-offs) 110
(164 ) (323 ) (91 ) (895 ) (123 ) (608 ) (2,094 )
Provision for loan losses 252
226
265
82
1,397
46
507
2,775
Balance, September 30, 2017 $ 7,534
$ 6,415
$ 924
$ 679
$ 2,814
$ 441
$ 70
$ 18,877

Period-end amount allocated to:
Loans individually evaluated for impairment $ 136
$ 424
$ 151
$ 13
$ 2
$ 21
$ —
$ 747
Loans collectively evaluated for impairment 7,398
5,991
773
666
2,812
420
70
18,130
Ending balance $ 7,534
$ 6,415
$ 924
$ 679
$ 2,814
$ 441
$ 70
$ 18,877

Balance, January 1, 2016 $ 7,076
$ 5,382
$ 1,257
$ 732
$ 1,934
$ 37
$ 121
$ 16,539
Charge-offs (12 ) (1,017 ) (524 ) (58 ) (1,502 ) (397 ) (544 ) (4,054 )
Recoveries 1,199
250
193
33
727
183
148
2,733
Net recoveries (charge-offs) 1,187
(767 ) (331 ) (25 ) (775 ) (214 ) (396 ) (1,321 )
(Recovery of) provision for loan losses (773 ) 1,075
194
(21 ) 1,081
769
418
2,743
Balance, September 30, 2016 $ 7,490
$ 5,690
$ 1,120
$ 686
$ 2,240
$ 592
$ 143
$ 17,961

Period-end amount allocated to:
Loans individually evaluated for impairment $ 1,164
$ 506
$ 122
$ —
$ —
$ —
$ —
$ 1,792
Loans collectively evaluated for impairment 6,326
5,184
998
686
2,240
592
143
16,169
Ending balance $ 7,490
$ 5,690
$ 1,120
$ 686
$ 2,240
$ 592
$ 143
$ 17,961
(a)Amount does not include the provision for unfunded commitment liability.

Changes in the allowance for credit losses for the six months ended June 30, 2020 are summarized below:



(Dollars in thousands)	Beginning Balance, January 1, 2020		Initial Allowance for Purchased Credit Deteriorated Assets		Provision for (Recovery of) Credit Losses (a)		Charge-offs		Recoveries		Ending Balance, June 30, 2020
Construction	$	600	$	51	$	2,011	$	—	$	—	$	2,662
Commercial real estate, other	7,193		1,356		10,622		(145)		122		19,148
Commercial and industrial	4,960		860		3,229		(952)		2,009		10,106
Residential real estate	3,977		383		1,997		(134)		157		6,380
Home equity lines of credit	1,570		2		197		(23)		9		1,755
Consumer, indirect	5,389		—		7,764		(1,057)		197		12,293
Consumer, direct	856		34		1,140		(113)		24		1,941
Deposit account overdrafts	94		—		206		(332)		109		77
Total	$	24,639	$	2,686	$	27,166	$	(2,756)	$	2,627	$	54,362

26(a)Amount does not include the provision for unfunded commitment liability.

~~Table~~Peoples increased its allowance for credit losses based on CECL model results, which incorporated economic forecasts at the end of ~~Contents~~

June 2020. These forecasts included higher unemployment rates nationally and in Ohio, and lower Ohio Gross Domestic Product, which are the key assumptions within the CECL model, compared to March 31, 2020. This was similar to the impact that COVID-19 had on economic forecasts at March 31, 2020, which also resulted in higher allowance for credit losses compared to December 31, 2019. The PPP loans originated during the second quarter of 2020 are guaranteed by the SBA, and therefore, had no impact on the allowance for credit losses at June 30, 2020. Peoples recorded lower provision for credit losses during the second quarter of 2020, compared to the linked quarter, driven primarily by the deterioration in the one-year economic forecast used for the first quarter, which was more severe than the deterioration in the one-year economic forecast used for the second quarter.

~~Allowance~~The significant increase in the allowance for ~~Loan Losses for Acquired Loans~~

~~Acquired loans are recorded at their fair value~~credit losses as of June 30, 2020 compared to January 1, 2020 was mostly due to the ~~acquisition date with no valuation~~recent COVID-19 pandemic, and the resulting impact on economic forecasts utilized in the CECL model. Peoples calculates its allowance for credit losses using a discounted cash flow model, and ~~monitored for changes~~incorporates economic forecasts, including U.S. unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic factors. The economic forecast used in ~~credit quality and subsequent increases or decreases in expected cash flows. Decreases in expected cash flows of acquired purchased credit impaired loans are recognized as an impairment, with~~ the ~~amount of the expected loss included in management's evaluation of the appropriateness~~June 30, 2020 calculation of the allowance for ~~loan losses. The methods utilized to estimate~~credit losses included higher unemployment rates and lower Ohio Gross Domestic Product, which drove much of the ~~required~~increase in the allowance for ~~loan~~credit losses at June 30, 2020. Approximately 63% of the increase in the allowance for ~~nonimpaired acquired loans are similar~~credit losses at June 30, 2020, compared to ~~those utilized for originated loans; however, Peoples records a provision for loan losses only when~~January 1, 2020, was related to the ~~computed allowance exceeds~~change in the economic forecast, and the remaining ~~fair value adjustment. During~~increase was attributable to changes in the ~~third quarter of 2017, Peoples completed its reforecast~~composition of the ~~estimated cash flows expected to be collected on purchased credit impaired loans. As a result,~~loan portfolio

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including recent loan growth. In addition, Peoples recorded an ~~additional provision~~increase of $5.8 million in allowance for credit losses on January 1, 2020 related to the implementation of ASU 2016-13.

As of June 30, 2020, the CECL model produced results, based on economic forecasts, that were higher than Peoples believed to be appropriate at the time. Peoples believes the actions taken to provide relief to consumer and commercial customers, which include at least 90 days of payment relief for those customers, coupled with the CARES Act stimulus package and the SBA PPP, indicate that Peoples would not experience the projected credit losses produced by the model. Therefore, Peoples made certain qualitative adjustments to more closely reflect its estimate of the potential losses of its loan ~~losses for acquired loans during~~portfolio at June 30, 2020.

During the ~~third~~second quarter of ~~2017. During the first nine months of 2017,~~2020, Peoples ~~also~~ recognized a recovery of ~~loan losses that was related to an acquired purchased credit impaired~~$750,000 on a commercial and industrial loan that was ~~paid off.~~previously charged-off, and recognized a similar $1.2 million recovery during the first quarter of 2020.

As of June 30, 2020, Peoples had recorded an unfunded commitment liability of $3.1 million, an increase compared to $1.5 million on January 1, 2020. The ~~following table presents activity~~unfunded commitment liability is presented in the ~~allowance for loan losses for acquired loans for~~“Accrued expenses and other liabilities” line of the ~~three and nine months ended September 30:~~Unaudited Consolidated Balance Sheets.

Three Months Ended Nine Months Ended
(Dollars in thousands) September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Purchased credit impaired loans:
Balance, beginning of period $ 90
$ 197
$ 233
$ 240
Charge-offs —
(16 ) —
(67 )
Recoveries —
—
—
—
Net charge-offs —
(16 ) —
(67 )
Provision for (recovery of) loan losses 25
77
(118 ) 85
Balance, September 30 $ 115
$ 258
$ 115
$ 258

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Note 5 Long-Term Borrowings

The following table summarizes Peoples' long-term borrowings:


	September 30, 2017					December 31, 2016						June 30, 2020						December 31, 2019
(Dollars in thousands)	Balance			Weighted- Average Rate		Balance			Weighted- Average Rate		(Dollars in thousands)	Balance		Weighted- Average Rate		Balance		Weighted- Average Rate
FHLB putable, non-amortizing, fixed-rate advances	$	125,000		2.00	%	$	70,000		2.49	%	FHLB putable, non-amortizing, fixed-rate advances	$	95,000	1.52	%	$	65,000	2.18	%
Callable national market repurchase agreements	40,000			3.63	%	40,000			3.63	%

FHLB amortizing, fixed-rate advances	23,862			2.03	%	28,282			2.01	%	FHLB amortizing, fixed-rate advances	$	10,005	1.74	%	$	10,672	1.74	%
Junior subordinated debt securities	7,061			4.78	%	6,924			4.48	%	Junior subordinated debt securities	$	7,531	4.37	%	$	7,451	6.55	%
Unamortized debt issuance costs	(33		)	—	%	(51		)	—	%

Total long-term borrowings	$	195,890		2.43	%	$	145,155		2.81	%	Total long-term borrowings	$	112,536	1.73	%	$	83,123	2.51	%

Peoples continually evaluates its overall balance sheet position given the interest rate environment. During the first ~~nine~~six months of ~~2017,~~2020, Peoples ~~borrowed~~entered into 1 additional $50.0 million FHLB putable, non-amortizing fixed-rate advance with an ~~additional $75.0 million~~interest rate of 0.77%, which matures in 2030, and 2 long-term FHLB non-amortizing advances ~~which have interest rates ranging from 1.20%~~totaling $20.0 million were reclassified to ~~2.03% and mature between 2018 and 2022.~~short-term borrowings during the second quarter of 2020, as the maturity became less than one year.

~~As of September 30, 2017, Peoples'~~The FHLB putable, non-amortizing, fixed rate advances have maturities ranging from one to nine years that may be repaid prior to maturity, subject to the payment of termination fees. The FHLB has the option, at its sole discretion, to terminate the advance after an initial fixed rate period of three months or twelve months, requiring full repayment of the advance by Peoples prior to the stated maturity. If an 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 credit and ~~callable national market repurchase agreements had~~collateral requirements. These advances require monthly interest payments, with no ~~remaining putable~~repayment of principal until the earlier of either an option to terminate being exercised by the FHLB or ~~callable options. Peoples is required to make quarterly interest payments.~~the stated maturity.

The amortizing, fixed-rate FHLB advances have a fixed rate for the term of each advance, with remaining maturities ranging from ~~ten~~6 to ~~twenty~~eleven years. These advances require monthly principal and interest payments, with some having a constant prepayment rate requiring an additional principal payment annually. These advances are not eligible for optional prepayment prior to maturity.

~~Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve~~At June 30, 2020, the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of September 30, 2017, Peoples had seven interest rate swaps with a notional value of $60.0 million associated with Peoples' cash outflows for various FHLB advances. The swaps become effective in 2018,

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~~roughly to coincide with the maturity of existing FHLB advances. Additional information regarding Peoples' interest rate swaps can be found in~~ ~~Note 9~~ ~~of the Notes to the Unaudited Consolidated Financial Statements.~~

Peoples maintains a multi-year unsecured $15.0 million revolving credit facility (the “Credit Facility”) with Raymond James Bank, N.A. that matures on March 4, 2019. Borrowings under the Credit Facility may be used: (i) to make acquisitions; (ii) to make stock repurchases; (iii) for working capital needs; and (iv) for other general corporate purposes. Each loan under the Credit Facility will bear interest per annum at a rate equal to 3.00% plus the one-month LIBOR rate, which rate will reset monthly. As of September 30, 2017, there were no borrowings outstanding under the Credit Facility. Additional information regarding the Credit Facility can be found in Note 9 of the Notes to the Consolidated Financial Statements included in Peoples' 2016 Form 10-K.

~~The~~ aggregate minimum annual retirements of long-term borrowings in future periods are as follows:


(Dollars in thousands)	Balance		Weighted-Average Rate (a)
Six months ending December 31, 2020	$	1,968	1.57	%
Year ending December 31, 2021	1,979		1.52	%
Year ending December 31, 2022	16,521		1.98	%
Year ending December 31, 2023	1,157		1.48	%
Year ending December 31, 2024	869		1.46	%
Thereafter	90,042		1.55	%
Total long-term borrowings	$	112,536	1.61	%

(a) The weighted-average rate includes the impact of accreting the current book value of the junior subordinated debt securities to face value over the period. The weighted-average rates for the FHLB advances are 1.68% in the six months ending December 31, 2020, 1.71% in 2021, 2.00% in 2022, 1.73% in 2023, 1.74% in 2024, and 1.43% thereafter.

(Dollars in thousands) Balance Weighted-Average Rate
Three months ending December 31, 2017 $ 1,866
2.04 %
Year ending December 31, 2018 54,385
3.46 %
Year ending December 31, 2019 33,508
1.37 %
Year ending December 31, 2020 25,564
1.85 %
Year ending December 31, 2021 21,979
1.75 %
Thereafter 58,588
2.62 %
Total long-term borrowings $ 195,890
2.43 %

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Note 6 Stockholders’ Equity

The following table details the progression in Peoples’ common shares and treasury stock during the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2020:


	Common Stock	Treasury Stock
Shares at December 31, 2019	21,156,143	504,182
Changes related to stock-based compensation awards:

Release of restricted common shares	—	26,991
Cancellation of restricted common shares	—	7,997

Grant of restricted common shares	—	(82,338)
Grant of unrestricted common shares	—	(22,982)
Changes related to deferred compensation plan for Boards of Directors:
Purchase of treasury stock	—	5,822
Disbursed out of treasury stock	—	(2,362)
Common shares repurchased under share repurchase programs	—	884,068
Common shares issued under dividend reinvestment plan	17,719	—
Common shares issued under compensation plan for Boards of Directors	—	(6,865)
Common shares issued under performance unit awards	—	(6,127)
Common shares issued under employee stock purchase plan	—	(9,167)


Shares at June 30, 2020	21,173,862	1,299,219

Common Shares
Treasury
Stock
Shares at December 31, 2016 18,939,091
795,758
Changes related to stock-based compensation awards:
Release of restricted common shares —
8,719
Cancellation of restricted common shares (3,344 ) 4,510
Exercise of stock options for common shares —
(266 )
Grant of restricted common shares —
(68,707 )
Grant of common shares —
(300 )
Changes related to deferred compensation plan for Boards of Directors:
Purchase of treasury stock —
4,266
Reissuance of treasury stock —
(24,634 )
Common shares issued under dividend reinvestment plan 12,611
—
Common shares issued under compensation plan for Boards of Directors —
(7,404 )
Common shares issued under employee stock purchase plan —
(8,412 )
Shares at September 30, 2017 18,948,358
703,530
On February 27, 2020, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $40.0 million of its outstanding common shares, replacing the previous share repurchase program which had authorized Peoples to purchase up to an aggregate of $20.0 million of its outstanding common shares. An aggregate of $6.3 million of Peoples' common shares were purchased under the previous share repurchase program from inception through its termination date, which was February 27, 2020. During the first six months of 2020, Peoples purchased an aggregate of $20.0 million of its outstanding common shares, $843,000 of which were purchased under the previous share repurchase program and $19.5 million of which were purchased under the share repurchase program authorized on February 27, 2020.

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 Peoples' Board of Directors. At ~~September~~June 30, ~~2017~~,2020, Peoples had no0 preferred shares issued or outstanding.

On July 20, 2020, Peoples' Board of Directors declared a quarterly cash dividend of $0.34 per common share, payable on August 17, 2020, to shareholders of record on August 3, 2020. The following table details the cash dividends declared per common share during 2020 and the comparable period of 2019:


	2020		2019
First quarter	$	0.34	0.30
Second quarter	0.34		0.34
Third quarter	0.34		0.34

Total dividends declared	$	1.02	$	0.98

Accumulated Other Comprehensive Income (Loss)

The following table details the change in the components of Peoples’ accumulated other comprehensive income (loss) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~:2020:


(Dollars in thousands)	Unrealized Gain on Securities		Unrecognized Net Pension and Postretirement Costs		Unrealized Loss on Cash Flow Hedge		Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2019	$	5,300	$	(3,958)	$	(2,767)	$	(1,425)
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax	(301)		—		—		(301)
Realized loss due to settlement and curtailment, net of tax	—		410		—		410
Other comprehensive income (loss), net of reclassifications and tax	14,579		(362)		(8,267)		5,950
Balance, June 30, 2020	$	19,578	$	(3,910)	$	(11,034)	$	4,634

(Dollars in thousands) Unrealized Gain on Securities Unrecognized Net Pension and Postretirement Costs Unrealized Gain (Loss) on Cash Flow Hedge Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2016 $ 581
$ (3,321 ) $ 1,186
$ (1,554 )
Reclassification adjustments to net income:

Realized gain on sale of securities, net of tax (1,442 ) —
—
(1,442 )
Other comprehensive income (loss), net of reclassifications and tax 3,542
46
(541 ) 3,047
Balance, September 30, 2017 $ 2,681
$ (3,275 ) $ 645
$ 51

Note 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 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 during the years 2003 through 2009, plus accrued interest. Effective January 1, 2010, the pension plan was closed to new entrants. Effective March 1, 2011, the accrual of pension plan benefits for all participants was frozen. Peoples recognized this freeze as a curtailment as of December 31, 2010 and March 1, 2011, under the terms of the pension plan. Effective July 1, 2013, a participant in the pension plan who is employed by Peoples may elect to receive or to commence receiving such person's retirement benefits as of the later of such person's normal retirement date or the first day of the month first following the date such person makes an election to receive his or her retirement benefits.

Peoples also provides post-retirement health and life insurance benefits to certain former employees and directors. Only those individuals who retired before January 27, 2012 were eligible for life insurance benefits. As of January 1, 2011, all retirees who desire to participate in the Peoples Bank medical plan do so by electing COBRA, which provides up to 18 months of coverage; retirees over the age of 65 also have the option to pay to participate in a group Medicare supplemental plan. Peoples only pays 100% of the cost for those individuals who retired before January 1, 1993. For all others, the retiree is responsible for most, if not all, of the cost of the health benefits. Peoples’ policy is to fund the cost of the ~~health~~ benefits as they arise.

The following tables detail the components of the net periodic cost for the ~~plans:~~plans described above:


	Pension Benefits
	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2020		2019		2020		2019
Interest cost	$	82	$	110	$	176	$	219
Expected return on plan assets	(190)		(196)		(390)		(391)
Amortization of net loss	36		20		66		39
Settlement of benefit obligation	151		—		519		—
Net periodic loss (income)	$	79	$	(66)	$	371	$	(133)

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Pension Benefits
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2017 2016 2017 2016
Interest cost $ 112
$ 110
$ 338
$ 329
Expected return on plan assets (138 ) (123 ) (415 ) (369 )
Amortization of net loss 26
23
77
71
Net periodic cost $ —
$ 10
$ —
$ 31


	Postretirement Benefits
	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2020		2019		2020		2019
Interest cost	$	—	$	1	$	1	$	2
Amortization of prior service cost	—		(1)		—		(1)

Amortization of net gain	—		—		(2)		(2)

Net periodic income	$	—	$	—	$	(1)	$	(1)

Under US GAAP, Peoples is required to recognize a settlement gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the unrealized gain or loss existing immediately prior to the settlement. In general, both the projected benefit obligation and fair value of plan assets are required to be remeasured in order to determine the settlement gain or loss.

Postretirement Benefits
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2017 2016 2017 2016
Interest cost $ 1
$ 1
$ 3
$ 3
Amortization of net loss (1 ) (2 ) (5 ) (5 )
Net periodic cost $ —
$ (1 ) $ (2 ) $ (2 )

During the first and second quarters of 2020, the total lump-sum distributions made to participants under the noncontributory defined benefit pension plan caused the total settlements to exceed the recognition threshold for settlement gains or losses. As a result, Peoples recorded settlement charges of $151,000 and $519,000, respectively, in the three and six months ended June 30, 2020. There were no0 settlement charges recorded induring the three ~~or nine~~and six months ended ~~September~~June 30, ~~2017 or September 30, 2016~~2019 under the noncontributory defined benefit pension plan.

The following table summarizes the change in the projected benefit obligation and funded status as a result of the remeasurement and the aggregate settlements for the six months ended June 30, 2020:


	As of			June 30, 2020
(Dollars in thousands)	December 31,			Before			Impact of		After
Funded status:	2019			Settlements			Settlements		Settlements
Projected benefit obligation	$	12,668		$	13,119		$	(321)	$	12,798
Fair value of plan assets	11,865			10,891			(321)		10,570
Funded status	$	(803)		$	(2,228)		$	—	$	(2,228)
Gross unrealized loss	$	5,068		$	6,274		$	(151)	$	6,123
Assumptions:
Discount rate	3.12		%	2.63		%			2.63		%
Expected return on plan assets	7.50		%	7.50		%			7.50		%

2831

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Note 8 Earnings Per Common Share

The calculations of basic and diluted earnings per common share were as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands, except per common share data)	2020		2019		2020		2019
Distributed earnings allocated to common shareholders	$	6,709	$	6,935	$	13,652	$	12,711
Undistributed (loss) earnings allocated to common shareholders	(2,051)		2,568		(9,842)		11,067
Net earnings allocated to common shareholders	$	4,658	$	9,503	$	3,810	$	23,778

Weighted-average common shares outstanding	19,720,315		20,277,028		20,043,329		19,824,035
Effect of potentially dilutive common shares	138,565		165,338		139,893		148,315
Total weighted-average diluted common shares outstanding	19,858,880		20,442,366		20,183,222		19,972,350

Earnings per common share:
Basic	$	0.24	$	0.47	$	0.19	$	1.20
Diluted	$	0.23	$	0.46	$	0.19	$	1.19
Anti-dilutive common shares excluded from calculation:
Restricted shares	77,371		87		57,170		46

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands, except per share data) 2017 2016 2017 2016
Distributed earnings allocated to common shareholders $ 3,972
$ 2,879
$ 11,184
$ 8,471
Undistributed earnings allocated to common shareholders 6,865
4,881
18,134
15,189
Net earnings allocated to common shareholders $ 10,837
$ 7,760
$ 29,318
$ 23,660

Weighted-average common shares outstanding 18,056,202
17,993,443
18,043,692
18,015,249
Effect of potentially dilutive common shares 157,331
117,267
156,267
108,411
Total weighted-average diluted common shares outstanding 18,213,533
18,110,710
18,199,959
18,123,660

Earnings per common share:
Basic $ 0.60
$ 0.43
$ 1.62
$ 1.31
Diluted $ 0.60
$ 0.43
$ 1.61
$ 1.31

Anti-dilutive shares excluded from calculation:
Restricted shares, stock options and stock appreciation rights 163
18,604
270
24,461

Note 9 Derivative Financial Instruments ~~with Off-Balance Sheet Risk~~

~~Derivatives~~

Peoples utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. The fair value of derivative financial instruments is included in the other assets and the accrued expenses and other liabilities lines in the accompanying Unaudited Consolidated Balance Sheets and in the net cash provided by operating activities in the Unaudited Consolidated Statements of Cash Flows.

Derivative Financial Instruments and Hedging Activities - Risk Management Objective of Using ~~Derivatives~~Derivative Financial Instruments

Peoples is exposed to certain risks arising from both its business operations and economic conditions. Peoples principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Peoples manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities, and through the use of derivative financial instruments. Specifically, Peoples enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or expected cash amounts, the ~~value~~values of which are determined by interest rates. Peoples’ derivative financial instruments are used to manage differences in the amount, timing and duration of Peoples' known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. Peoples also has interest rate ~~derivatives~~derivative financial instruments that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in Peoples' assets or liabilities. Peoples manages a matched book with respect to customer-related derivative financial instruments in order to minimize its net risk exposure resulting from such transactions.

~~Fair Values of Derivative Instruments on the Balance Sheet~~

Peoples' fair value of the derivative financial instruments was $4.8 million in an asset position and $3.9 million in a liability position at September 30, 2017, and there was $5.0 million in an asset position and $3.2 million in a liability position at December 31, 2016. The amounts are recorded in other assets, and accrued expenses and other liabilities on the consolidated balance sheet at the periods indicated.

Cash Flow Hedges of Interest Rate Risk

Peoples' objectives in using interest rate ~~derivatives~~derivative financial instruments are to add stability to interest income and expense, and to manage its exposure to interest rate movements. To accomplish these objectives, Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of ~~September~~June 30, ~~2017,~~2020, Peoples had ~~seven~~entered into 17 interest rate swap contracts with an aggregate notional value of $160.0 million. Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The interest received on the floating rate component is intended to offset the interest paid on rolling three-month FHLB advances or rolling three-month brokered CDs, which will continue to be rolled through the life of the swaps. As of June 30, 2020, the interest rate swaps ~~with a notional value~~were funded by $110.0 million of ~~$60.0~~rolling three-month FHLB advances and $50.0 million ~~associated with~~rolling three-month brokered deposits.

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Amounts reported in accumulated other comprehensive income (loss) ("AOCI") related to derivative financial instruments will be reclassified to interest income or expense as interest payments are made or received on Peoples' ~~cash outflows for various FHLB advances.~~variable-rate assets or liabilities. During the three and six months ended June 30, 2020, Peoples had reclassifications of gains to interest expense of $365,000 and $483,000, respectively. During the three and six months ended June 30, 2019, Peoples had reclassifications of losses to earnings of $70,000 and $153,000, respectively.

For ~~derivatives~~derivative financial instruments designated as cash flow hedges, the effective portion of changes in the fair value of each derivative financial instrument is ~~initially~~ reported in ~~accumulated other comprehensive income ("AOCI")~~AOCI (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. Peoples assesses the effectiveness of each hedging relationship by comparing

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the changes in cash flows of the hedging derivative ~~hedging~~financial instrument with the changes in cash flows of the designated hedged transaction.

~~Peoples hedged its exposure~~ The reset dates and the payment dates on the 90-day advances or brokered CDs used to fund the swaps are matched to the ~~variability~~reset dates and payment dates on the receipt of the three-month LIBOR floating portion of the swaps to ensure effectiveness of the cash flow hedge. Effectiveness is measured by ensuring that reset dates and payment dates are matched.

The following table summarizes information about the interest rate swaps designated as cash flow hedges:


(Dollars in thousands)	June 30, 2020			December 31, 2019
Notional amount	$	160,000		$	160,000
Weighted average pay rates	2.18		%	2.18		%
Weighted average receive rates	0.38		%	1.73		%
Weighted average maturity	5.1 years			5.4 years
Pre-tax unrealized losses included in AOCI	$	(13,966)		$	(3,503)

The following table presents net losses or gains recorded in ~~future cash flows for forecasted transactions over a maximum period~~AOCI and in the Unaudited Consolidated Statements of ~~13 months (excluding forecasted transactions~~Operations related to the payment of variable interest on existing financial instruments). Peoples entered into the seven interest rate swap contracts, described above, whereby Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The received floating rate component is intended to offset the rate on the rolling three-month FHLB advances. Amounts reported in AOCI related to derivatives will be reclassified to interest income or expense as interest payments are made or received on Peoples' variable-rate assets or liabilities. During the three and nine months ended September 30, 2017, and September 30, 2016, Peoples had no reclassifications to interest expense. Peoples estimates that no interest expense amount will be reclassified in the fourth quarter of 2017 prior to adoption of the new accounting standards.cash flow hedges:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2020		2019		2020		2019
Amount of loss recognized in AOCI, pre-tax	$	734	$	3,134	$	10,463	$	4,967
Amount of loss recognized in earnings	$	—	$	—	$	—	$	(19)

The ~~amount of accumulated other comprehensive pre-tax income for Peoples'~~following table reflects the cash flow hedges, ~~was $1.0 million at September 30, 2017. There were no pre-tax net losses recorded for the nine months ended September 30, 2017. Additionally, Peoples had no reclassifications to earnings~~which are included in the ~~three months or nine months ended September 30, 2017 or September 30, 2016.~~Unaudited Consolidated Balance Sheets at fair value:


	June 30, 2020						December 31, 2019
(Dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Interest rate swaps related to debt	$	—	$	—	$	55,000	$	644
Total included in other assets	$	—	$	—	$	55,000	$	644
Included in accrued expenses and other liabilities:
Interest rate swaps related to debt	$	160,000	$	14,155	$	105,000	$	4,340
Total included in accrued expenses and other liabilities	$	160,000	$	14,155	$	105,000	$	4,340

Non-Designated Hedges

Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010. Under this program, Peoples ~~provides its customer~~originates variable rate loans with ~~a fixed-rate loan while creating a variable-rate asset for Peoples by~~interest rate swaps, where the customer ~~entering~~enters into an interest rate swap with Peoples on terms that match the terms of the loan. By entering into the interest rate swap with the customer, Peoples Bank effectively provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples Bank offsets its ~~risk~~ exposure in the swap by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative. Peoples had interest rate swaps associated with commercial loans with a notional value of $334.2 million and fair value of $3.5 million of equally offsetting assets and liabilities at September 30, 2017, and a notional value of $247.3 million and fair value of $3.2 million of equally offsetting assets and liabilities at December 31, 2016.derivative financial instrument. These interest rate swaps did not have a material impact on Peoples' results of operation or financial condition.

The following table reflects the non-designated hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:

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	June 30, 2020						December 31, 2019
(Dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Interest rate swaps related to commercial loans	$	390,909	$	32,981	$	321,394	$	10,776
Total included in other assets	$	390,909	$	32,981	$	321,394	$	10,776
Included in accrued expenses and other liabilities:
Interest rate swaps related to commercial loans	$	390,909	$	32,981	$	321,394	$	10,776
Total included in accrued expenses and other liabilities	$	390,909	$	32,981	$	321,394	$	10,776

Pledged Collateral

When the fair value of Peoples' interest rate swaps are in a net liability position, Peoples must pledge collateral and when the interest rate swaps are in a net asset position, the counterparties must pledge collateral. At June 30, 2020 and December 31, 2019, Peoples had $47.1 million and $20.0 million, respectively, of cash pledged, while the counterparties had 0 amount of cash pledged at either date. Cash pledged is included in interest-bearing deposits in other banks on the Unaudited Consolidated Balance Sheets.

Note 10 Stock-Based Compensation

Under the Peoples Bancorp Inc. ~~Second~~Third Amended and Restated 2006 Equity Plan (the "2006 Equity Plan"), Peoples may grant, among other awards, nonqualified stock options, incentive stock options, restricted ~~stock~~common share awards, stock appreciation rights, ~~("SARs")~~performance units and unrestricted common share awards to employees and non-employee directors. The total number of common shares available under the 2006 Equity Plan is ~~1,081,260.~~891,340. The maximum number of common shares that can be issued for incentive stock options is ~~800,000~~500,000 common shares. ~~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 2009, Peoples has granted restricted common shares to employees, and ~~restricted common shares~~periodically to non-employee directors, subject to the terms and conditions prescribed by the 2006 Equity Plan. Additionally, in 2019 and 2020, Peoples granted unrestricted common shares to non-employee directors (in addition to their directors' fees paid in common shares) and to full-time and part-time employees who did not already participate in 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 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 to employees vested ~~three years~~ ~~after the respective grant dates and are to expire~~ ~~ten years~~ ~~from the respective date of grant. The most recent grant of SARs occurred in 2008. The following table summarizes the changes to Peoples' SARs for the nine months ended~~ ~~September 30, 2017~~:

Number of Common Shares Subject to SARs
Weighted-
Average
Exercise
Price
Weighted-Average Remaining Contractual Life
Aggregate Intrinsic
Value
Outstanding at January 1 2,338
$ 27.37

Exercised 2,024
27.93

Outstanding at September 30 314
$ 23.77
0.4 years $ 3,083
Exercisable at September 30 314
$ 23.77
0.4 years $ 3,083

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Restricted Common 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 ~~restricted common shares awarded to non-employee directors expire after six months, while~~ the ~~restrictions on~~ restricted common shares awarded to employees expire after periods ranging from one to ~~three~~five years. Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions. In the first ~~nine~~six months of ~~2017,~~2020, Peoples granted an aggregate of ~~61,547~~80,338 restricted common shares subject to performance-based vesting to officers and key employees with restrictions that will lapse three years after the grant ~~date~~date; provided that in order for the restricted common shares to vest in full, Peoples must have reported positive net income and maintained a ~~well capitalized~~well-capitalized status by regulatory standards for each of the three fiscal years preceding the vesting date. During the first ~~nine~~six months of ~~2017,~~2020, Peoples granted, to certain key employees, an aggregate of ~~4,250 restricted~~2,000 common shares subject to time-based vesting with restrictions that will lapse three years after the grant date. ~~Peoples also granted, to non-employee directors, an aggregate of 3,300 restricted common shares subject to time-based vesting with restrictions that will lapse six months after the grant date.~~

The following table summarizes the changes to Peoples’ restricted common shares for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2020:


	Time-Based Vesting			Performance-Based Vesting				Time-Based Vesting				Performance-Based Vesting
	Number of Common Shares	Weighted-Average Grant Date Fair Value		Number of Common Shares	Weighted-Average Grant Date Fair Value			Number of Common Shares	Weighted-Average Grant Date Fair Value		Number of Common Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1	40,316	$	21.85	142,415	$	21.95	Outstanding at January 1	32,230	$	33.05	253,884	$	33.29
Awarded	7,550	31.36		61,457	32.42		Awarded	2,000	20.85		80,338	32.91
Released	7,150	26.96		21,050	21.74		Released	4,000	31.63		56,827	32.42
Forfeited	2,300	24.69		5,854	24.89		Forfeited	4,200	31.45		3,797	33.02
Outstanding at September 30	38,416	$	22.59	176,968	$	25.51
Outstanding at June 30							Outstanding at June 30	26,030	$	32.59	273,598	$	33.36

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, the total intrinsic value for restricted common shares released was ~~$0.9~~$2.0 million compared to ~~$0.7~~$1.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

~~Stock-Based Compensation~~

Peoples recognizes stock-based compensation expense, which is included as a component of Peoples' salaries and employee benefit costs, based on the estimated fair value of the awards on the grant date. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized for each period:2019.

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2017 2016 2017 2016
Total stock-based compensation expense $ 351
$ 346
$ 1,362
$ 1,009
Recognized tax benefit (123 ) (121 ) (477 ) (353 )
Net expense recognized $ 228
$ 225
$ 885
$ 656

~~Total unrecognized stock-based compensation expense related to unvested awards was $1.8 million~~ at ~~September 30, 2017, which will be recognized over a weighted-average period~~Table of ~~1.9 years.~~Contents

Performance Unit ~~Award Agreement~~Awards

Under the 2006 Equity Plan, Peoples may ~~award~~grant performance unit awards to officers, key employees and non-employee directors. On July 26, 2017, Peoples granted a total of seven performance unit awards to individuals who were then serving as officers, with a maximum aggregate dollar amount of $1.3 million represented by the performance units subject to such awards ~~with~~and each performance unit representing $1.00. During 2019, one of the seven performance unit awards was forfeited as the individual to whom the performance unit award was granted left Peoples before meeting the minimum service requirement to retain the performance unit award. The performance unit awards granted ~~are for~~covered the performance period beginning January 1, 2018 and ending on December 31, 2019, and ~~will be~~were subject to two performance goals. Twenty-five percent of the performance units subject to each award will vest if, but only if, the related target performance goal is achieved. The remaining 75% of the performance units subject to each award will vest based on the relative performance (measured by percentile ranking) with respect to the related maximum performance goal. If for the performance period, the target level of achievement forPeoples achieved the first performance goal ~~and/or the maximum level of achievement for~~by exceeding its target cumulative two-year adjusted earnings per share. However, Peoples failed to achieve the second performance goal ~~is not reached,~~as its adjusted return on average assets for the ~~dollar amount represented by~~measurement period ranked below the target percentile compared to its peer group. As a result, during the first quarter of 2020, the remaining six officers holding performance ~~units associated with each performance goal will be adjusted to reflect the level~~unit awards received an aggregate of ~~performance achieved. After the vesting date, the participant will receive that number of~~9,395 common shares ~~of Peoples equal to~~

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~~(i) the aggregate number of participant's performance units (and dollar value of such performance units) that vested based on the performance achieved under both performance goals (ii) divided by the~~at a fair market value of a$29.26 per common share on the date the performance units were deemed vested, with a related expense of ~~such~~$275,000.

Stock-Based Compensation

Peoples recognizes stock-based compensation, which is included as a component of Peoples’ salaries and employee benefit costs, for restricted and unrestricted common shares and performance unit awards, as well as purchases made by participants in the employee stock purchase plan. For restricted common shares, Peoples recognizes stock-based compensation based on the estimated fair value of the awards expected to vest on the grant date. The estimated fair value is then expensed over the vesting period, which is normally three years. For performance unit awards, Peoples recognized stock-based compensation over the performance period, based on the portion of the awards that was expected to vest based on the expected level of achievement of the two performance goals. Peoples also has an employee stock purchase plan whereby employees can purchase Peoples' common shares at a discount of 15%. The following table summarizes the amount of stock-based compensation expense and ~~rounded down~~related tax benefit recognized for each period:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2020		2019		2020		2019
Employee stock-based compensation expense:
Stock grant expense	$	955	$	903	$	2,335	$	2,056
Employee stock purchase plan expense	15		11		$	30	$	50
Performance unit expense (benefit)	—		16		$	(12)	$	32
Total employee stock-based compensation expense	970		930		$	2,353	$	2,138
Non-employee director stock-based compensation expense	53		50		$	235	$	202
Total stock-based compensation expense	1,023		980		$	2,588	$	2,340
Recognized tax benefit	(214)		(205)		(543)		(491)
Net stock-based compensation expense	$	809	$	775	$	2,045	$	1,849

Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the six months ended June 30, 2020 and 2019. The fair value of restricted common share awards on the grant date is the market price of Peoples' common shares on that date. Total unrecognized stock-based compensation expense related to unvested restricted common share awards was $3.3 million at June 30, 2020, which will be recognized over a weighted-average period of 1.9 years. On April 1, 2020, an aggregate of 18,952 unrestricted common shares were granted as a one-time special award to employees under the level of Vice President, with a related stock-based compensation expense of $396,000 being recognized.

In addition to the ~~nearest whole~~portion of directors' fees paid in common ~~share.~~shares, non-employee director stock-based compensation expense included $120,000 during the first six months of 2020, and $102,000 during the first six months of 2019, reflecting separate grants of unrestricted common shares aggregating 3,680 and 3,200 common shares, respectively.

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Note 11 Revenue

The following table details Peoples' revenue from contracts with customers:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2020		2019		2020		2019
Insurance income:
Commission and fees from sale of insurance policies (a)	$	2,933	$	3,306	$	5,625	$	6,339
Fees related to third-party administration services (a)	120		178		267		347
Performance-based commissions (b)	138		2		1,429		1,421
Trust and investment income (a)	3,316		3,401		6,578		6,513
Electronic banking income:
Interchange income (a)	2,844		2,747		5,244		5,190
Promotional and usage income (a)	679		520		1,559		1,064
Deposit account service charges:
Ongoing maintenance fees for deposit accounts (a)	849		1,012		1,829		1,764
Transactional-based fees (b)	1,060		1,965		2,900		3,554
Commercial loan swap fees (b)	955		516		1,199		662
Other non-interest income transactional-based fees (b)	220		253		428		424
Total revenue from contracts with customers	$	13,114	$	13,900	$	27,058	$	27,278
Timing of revenue recognition:
Services transferred over time	$	10,741	$	11,164	$	21,102	$	21,217
Services transferred at a point in time	2,373		2,736		5,956		6,061
Total revenue from contracts with customers	$	13,114	$	13,900	$	27,058	$	27,278

(a) Services transferred over time.

(b) Services transferred at a point in time.

Peoples records contract assets for income that has been recognized over a period of time for fulfillment of performance obligations, but has not yet been received related to electronic banking income. This income typically relates to bonuses for which Peoples is eligible, but will not receive until a certain time in the future. Peoples records contract liabilities for payments received for commission income related to the sale of insurance policies, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which income is recognized during the period in which the performance obligations are fulfilled. As of June 30, 2020, there were no material changes to Peoples' revenue contracts related to the COVID-19 pandemic, and there were no changes to the likelihood of collectibility under the contracts.

The following table details the change in Peoples' contract assets and contract liabilities for the period ended June 30, 2020:


	Contract Assets		Contract Liabilities
(Dollars in thousands)
Balance, January 1, 2020	$	600	$	5,190
Additional income receivable	291		—
Additional deferred income	—		254

Recognition of income previously deferred	—		(37)
Balance, June 30, 2020	$	891	$	5,407

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Note 12 Acquisitions

After the close of business on June 30, 2020, Peoples closed on a business combination under which Peoples Bank acquired the operations and assets of Triumph Premium Finance (“TPF”), a division of TBK Bank, SSB. Based in Kansas City, Missouri, the division operating as Peoples Premium Finance will continue to provide insurance premium financing loans for commercial customers to purchase property and casualty insurance products through its growing network of independent insurance agency partners nationwide. Peoples Bank acquired approximately $86.5 million in loans. Peoples recorded $96.1 million in the “Other assets” line of the Unaudited Consolidated Balance Sheets, as of June 30, 2020. On July 1, 2020, Peoples completed the acquisition.

On January ~~31, 2017,~~1, 2020, Peoples Insurance acquired a ~~third-party~~property and casualty-focused independent insurance ~~administration company located in Piketon, Ohio~~agency for ~~total cash consideration of $0.5 million,~~a purchase price amount equal to $866,000, and recorded ~~$0.5 million~~$735,000 of customer relationship ~~intangibles. This~~intangibles, and $27,000 of other assets, resulting in $104,000 of goodwill. The acquisition ~~did~~will not materially impact Peoples' financial position, results of operations or cash flows.

On October 2, 2017, Peoples Insurance acquired a property and casualty focused independent insurance agency with annual net revenue of approximately $0.8 million located in the Cleveland, Ohio area. This acquisition did not materially impact Peoples' financial position, results of operations or cash flows.

On October 23, 2017, Peoples entered into an Agreement and Plan of Merger (the "ASB Agreement") with ASB Financial Corp (“ASB”). The ASB Agreement calls for ASB to merge into Peoples and for ASB's wholly-owned subsidiary, American Savings Bank, fsb, which operates 6 full-service branches in southern Ohio and northern Kentucky, to merge into Peoples Bank. As of June 30, ~~2017, ASB~~2020, Peoples had ~~approximately $293.6 million~~$319,000 of contingent consideration payable related to the acquisition.

Note 13 Leases

Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to thirty years. Certain leases may include options to extend or terminate the lease. Only those renewal and termination options which Peoples is reasonably certain of exercising are included in ~~total~~the calculation of the lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in the calculation of the lease liability. Short-term leases of certain facilities and equipment, with lease terms of 12 months or less, are recognized on a straight-line basis over the lease term. At June 30, 2020, Peoples did not have any finance leases or any significant lessor agreements. Right of Use ("ROU") assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement or remeasurement date of a lease based on the present value of lease payments over the remaining lease term. Operating lease ROU assets include lease payments made at or before the commencement date and initial indirect costs. Operating lease ROU assets exclude lease incentives.

Peoples elected certain practical expedients, in accordance with ASC 842. Peoples also made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases subject to ASC 842.

The table below details Peoples' lease expense, which is included ~~approximately $241.5 million~~ in net ~~loans,~~occupancy and ~~approximately $210.4 million~~equipment expense in ~~total deposits. This transaction~~the Unaudited Consolidated Statements of Operations:


	Three Months Ended						Six Months Ended
(Dollars in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Operating lease expense	$	327	$	311	661		618
Short-term lease expense	84		32		160		62
Total lease expense	$	411	$	343	$	821	$	680

Peoples utilizes an incremental borrowing rate to determine the present value of lease payments for each lease, as the lease agreements do not provide an implicit rate. The estimated incremental borrowing rate reflects a secured rate and is ~~expected~~based on the term of the lease and the interest rate environment at the lease commencement or remeasurement date.

The following table details the ROU asset, the lease liability and other information related to ~~close during the second quarter of 2018.~~Peoples' operating leases:


(Dollars in thousands)	June 30, 2020			December 31, 2019
ROU asset:
Other assets	$	7,052		$	7,606
Lease liability:
Accrued expenses and other liabilities	$	7,281		$	7,813
Other information:
Weighted-average remaining lease term	12.5 years			12.4 years
Weighted-average discount rate	3.15		%	3.16		%

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During the three and six months ended June 30, 2020, Peoples paid cash of $319,000 and $640,000, respectively, for operating leases. During the three and six months ended June 30, 2019, Peoples paid cash of $295,000 and $591,000, respectively, for operating leases.

The following table summarizes the maturity of remaining lease liabilities:


(Dollars in thousands)	Balance
Six months ending December 31, 2020	$	711
Year ending December 31, 2021	1,130
Year ending December 31, 2022	1,061
Year ending December 31, 2023	873
Year ending December 31, 2024	629
Thereafter	4,750
Total undiscounted lease payments	$	9,154
Imputed interest	$	(1,873)
Total lease liability	$	7,281

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ITEM 2.2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three and six months ended June 30, 2020 and June 30, 2019. This discussion and analysis should be read in conjunction with the Unaudited Consolidated Financial Statements and the Notes thereto.

SELECTED FINANCIAL DATA

The following data should be read in conjunction with the Unaudited Consolidated Financial Statements and Management’s Discussion and Analysis that follows:

At or For the Three Months Ended At or For the Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
PER COMMON SHARE DATA
Earnings per common share – basic $ 0.60
$ 0.43
$ 1.62
1.31
Earnings per common share – diluted 0.60
0.43
1.61
1.31
Cash dividends declared per common share 0.22
0.16
0.62
0.47
Book value per common share (a) 25.02
24.22
25.02
24.22
Tangible book value per common share (a)(b) $ 17.15
$ 16.14
$ 17.15
16.14
Weighted-average number of common shares outstanding – basic 18,056,202
17,993,443
18,043,692
18,105,249
Weighted-average number of common shares outstanding – diluted 18,213,533
18,110,710
18,199,959
18,123,660
Common shares outstanding at end of period 18,281,194
18,195,986
18,281,194
18,195,986
Closing stock price at end of period $ 33.59
$ 24.59
$ 33.59
$ 24.59
SIGNIFICANT RATIOS
Return on average stockholders' equity (c) 9.47 % 7.07 % 8.80 % 7.36 %
Return on average tangible stockholders' equity (c)(d) 14.58 % 11.54 % 13.77 % 12.17 %
Return on average assets (c) 1.22 % 0.93 % 1.13 % 0.96 %
Average stockholders' equity to average assets 12.88 % 13.19 % 12.81 % 13.05 %
Average loans to average deposits 86.69 % 83.50 % 86.09 % 82.39 %
Net interest margin (c)(e) 3.67 % 3.54 % 3.61 % 3.55 %
Efficiency ratio (f) 60.74 % 64.33 % 62.24 % 64.56 %
Pre-provision net revenue to total average assets (c)(g) 1.71 % 1.53 % 1.65 % 1.52 %
Dividend payout ratio 36.90 % 37.37 % 38.34 % 36.06 %
Investment securities as percentage of total assets (a) 24.70 % 25.10 % 24.70 % 25.10 %
ASSET QUALITY RATIOS
Nonperforming loans as a percent of total loans (a)(h) 0.85 % 1.08 % 0.85 % 1.08 %
Nonperforming assets as a percent of total assets (a)(h) 0.56 % 0.72 % 0.56 % 0.72 %
Nonperforming assets as a percent of total loans and other real estate owned ("OREO") (a)(h) 0.86 % 1.11 % 0.86 % 1.11 %
Criticized loans as a percent of total loans (a)(i) 4.15 % 4.58 % 4.15 % 4.58 %
Classified loans as a percent of total loans (a)(j) 1.77 % 2.48 % 1.77 % 2.48 %
Allowance for loan losses as a percent of total loans (a) 0.82 % 0.84 % 0.82 % 0.84 %
Allowance for loan losses as a percent of nonperforming loans (a)(h) 96.11 % 77.50 % 96.11 % 77.50 %
Provision for loan losses as a percent of average total loans 0.19 % 0.21 % 0.16 % 0.18 %
Net charge-offs as a percentage of average total loans (c) 0.16 % 0.14 % 0.12 % 0.09 %
CAPITAL RATIOS (a)

Common Equity Tier 1 (k) 13.31 % 13.04 % 13.31 % 13.04 %
Tier 1 13.60 % 13.34 % 13.60 % 13.34 %
Total (Tier 1 and Tier 2) 14.49 % 14.24 % 14.49 % 14.24 %
Tier 1 leverage 9.82 % 9.71 % 9.82 % 9.71 %
Tangible equity to tangible assets (b) 9.20 % 9.13 % 9.20 % 9.13 %


~~(a)~~	~~Data presented as of the end of the period indicated.~~


~~(b)~~	These amounts represent non-GAAP financial measures since they exclude goodwill and other intangible assets. Additional information regarding the calculation of these non-GAAP financial measures can be found under the caption “Capital/Stockholders’ Equity.”


~~(c)~~	~~Ratios are presented on an annualized basis.~~


	At or For the Three Months Ended						At or For the Six Months Ended
	June 30,						June 30,
(Dollars in thousands, expect per share data)	2020		2019		2020		2019
Operating Data (a)
Total interest income	$	39,306	$	43,621	$	80,168	$	84,197
Total interest expense	4,446		7,572		10,672		14,234
Net interest income	34,860		36,049		69,496		69,963
Provision for credit losses (b)	11,834		626		28,803		363
Net gain (loss) on investment securities	62		(57)		381		(27)
Net loss on asset disposals and other transactions	(122)		(293)		(209)		(475)
Total non-interest income excluding net gains and losses (c)	14,724		15,639		30,229		31,220
Total non-interest expense	31,805		38,876		66,130		70,736
Net income (d)	4,749		9,598		3,984		23,967
Balance Sheet Data (a)
Total investment securities (e)	$	957,874	$	997,711	$	957,874	$	997,711
Loans, net of deferred fees and costs ("total loans")	3,361,019		2,833,533		3,361,019		2,833,533
Allowance for credit losses (e)	54,362		21,357		54,362		21,357
Goodwill and other intangible assets	176,625		176,763		176,625		176,763
Total assets	4,985,819		4,276,376		4,985,819		4,276,376
Non-interest-bearing deposits	1,005,732		643,058		1,005,732		643,058
Brokered deposits	321,247		326,157		321,247		326,157
Other interest-bearing deposits	2,697,905		2,394,398		2,697,905		2,394.398
Short-term borrowings	177,912		186,457		177,912		186,457
Junior subordinated debentures held by subsidiary trust	7,531		7,367		7,531		7,367
Other long-term borrowings	105,005		78,324		105,005		78,324
Total stockholders' equity (e)	569,177		579,022		569,177		579,022
Tangible assets (f)	4,809,194		4,099,613		4,809,194		4,099,613
Tangible equity (f)	392,552		402,259		392,552		402,259
Per Common Share Data (a)
Earnings per common share – basic	$	0.24	$	0.47	$	0.19	$	1.20
Earnings per common share – diluted	0.23		0.46		0.19		1.19
Cash dividends declared per common share	0.34		0.34		0.68		0.64
Book value per common share (g)	28.57		27.98		28.57		27.98
Tangible book value per common share (f)(g)	$	19.70	$	19.44	$	19.70	$	19.44
Weighted-average number of common shares outstanding – basic	19,720,315		20,277,028		20,043,329		19,824,035
Weighted-average number of common shares outstanding – diluted	19,858,880		20,442,366		20,183,222		19,972,350
Common shares outstanding at end of period	19,925,083		20,696,041		19,925,083		20,696,041
Closing share price at end of period	$	21.28	$	32.26	$	21.28	$	32.26

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	At or For the Three Months Ended									At or For the Six Months Ended
	June 30,									June 30,
(Dollars in thousands, expect per share data)	2020			2019			2020			2019
Significant Ratios (a)
Return on average stockholders' equity (h)	3.34		%	6.81		%	1.37		%	8.87		%
Return on average tangible equity (h)(i)	5.42		%	10.55		%	2.54		%	13.49		%
Return on average assets (h)	0.40		%	0.91		%	0.17		%	1.17		%
Return on average assets adjusted for non-core items (h)(j)	0.48		%	1.44		%	0.23		%	1.47		%
Average stockholders' equity to average assets	11.85		%	13.33		%	12.69		%	13.24		%
Average total loans to average deposits	85.00		%	86.37		%	85.43		%	87.81		%
Net interest margin (h)(k)	3.19		%	3.77		%	3.34		%	3.78		%
Efficiency ratio (l)	62.34		%	73.24		%	64.50		%	68.09		%
Efficiency ratio adjusted for non-core items (m)	59.94		%	60.21		%	62.76		%	61.19		%
Pre-provision net revenue to total average assets (n)	1.48		%	1.21		%	1.47		%	1.49		%
Dividend payout ratio (o)(p)	NM			73.30		%	NM			53.84		%
Total loans to deposits (g)	83.93		%	84.42		%	83.93		%	84.42		%
Total investment securities as percentage of total assets (g)	19.21		%	23.33		%	19.21		%	23.33		%
Asset Quality Ratios (a)
Nonperforming loans as a percent of total loans (g)(q)	0.80		%	0.71		%	0.80		%	0.71		%
Nonperforming assets as a percent of total assets (g)(q)	0.54		%	0.47		%	0.54		%	0.47		%
Nonperforming assets as a percent of total loans and OREO (g)(q)	0.80		%	0.71		%	0.80		%	0.71		%
Criticized loans as a percent of total loans (g)(r)	3.14		%	3.42		%	3.14		%	3.42		%
Classified loans as a percent of total loans (g)(s)	1.98		%	2.23		%	1.98		%	2.23		%
Allowance for credit losses as a percent of total loans (e)(g)	1.62		%	0.75		%	1.62		%	0.75		%
Allowance for credit losses as a percent of nonperforming loans (e)(g)(q)	202.02		%	106.57		%	202.02		%	106.57		%
Provision for credit losses as a percent of average total loans (b)	1.46		%	0.09		%	1.89		%	0.03		%
Net (recoveries) charge-offs as a percentage of average total loans	(0.05)		%	0.03		%	0.01		%	(0.06)		%
Capital Information (a)(g)
Common equity tier 1 capital ratio (t)	13.30		%	14.16		%	13.30		%	14.16		%
Tier 1 risk-based capital ratio	13.55		%	14.41		%	13.55		%	14.41		%
Total risk-based capital ratio (tier 1 and tier 2)	14.80		%	15.14		%	14.80		%	15.14		%
Tier 1 leverage ratio	8.97		%	10.26		%	8.97		%	10.26		%
Common equity tier 1 capital	$	408,619		$	410,978		$	408,619		$	410,978
Tier 1 capital	416,150			418,345			416,150			418,345
Total capital (tier 1 and tier 2)	454,641			439,702			454,641			439,702
Total risk-weighted assets	$	3,072,178		$	2,903,386		$	3,072,178		$	2,903,386
Total stockholders' equity to total assets	11.42		%	13.54		%	11.42		%	13.54		%
Tangible equity to tangible assets (f)	8.16		%	9.81		%	8.16		%	9.81		%

~~(d)~~

These amounts represent non-GAAP financial measures since they exclude the after-tax impact of amortization of other intangible assets from earnings and exclude the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on stockholders' equity. ~~Additional information regarding the calculation of these non-GAAP financial measures can be found under the caption “Return on Average Tangible Stockholders' Equity Ratio.”~~

(a)Reflects the impact of the acquisition of First Prestonsburg Bancshares Inc. ("First Prestonsburg") beginning April 12, 2019.

(b)On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model. Prior to the adoption of the CECL model, the provision for credit losses was the "provision for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans (which includes purchased credit deteriorated loans), held-to-maturity investment securities, and the unfunded commitment liability in 2020.

(c)Total non-interest income excluding net gains and losses, is a non-US GAAP financial measure since it excludes all gains and/or losses included in earnings. Additional information regarding the calculation of total non-interest income excluding net gains and losses can be found under the caption "Efficiency Ratio (non-US GAAP)."

(d)Net income includes non-core non-interest expenses totaling $1.2 million for the second quarter of 2020 and $1.7 million for the first six months of 2020. For the second quarter of 2019, net income included non-core non-interest expenses of $6.8 million and the first six months of 2019 included $7.0 million. Additional information regarding the non-core non-interest expense can be found under the caption "Core Non-Interest Expense (non-US GAAP)."

(e)On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million; and a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.

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

(g)Data presented as of the end of the period indicated.

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(h)Ratios are presented on an annualized basis.

(i)Return on average tangible equity ratio represents a non-US GAAP financial measure since it excludes the after-tax impact of amortization of other intangible assets from earnings and it excludes the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity. Additional information regarding the calculation of this non-US GAAP financial measure can be found under the caption “Return on Average Tangible Equity Ratio (non-US GAAP).”

(j)Return on average assets adjusted for non-core items ratio represents a non-US GAAP financial measure since it excludes the after-tax impact of all gains and/or losses, acquisition-related expenses, pension settlement charges, severance expenses and COVID-19 expenses included in earnings. Additional information regarding the calculation of this non-US GAAP financial measure can be found under the caption "Return on Average Assets Adjusted for Non-Core Items Ratio (non-US GAAP)."

(k)Information presented on a fully tax-equivalent basis.

(l)The efficiency ratio is defined as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income (excluding all gains and losses). This amount represents a non-US GAAP financial measure since it excludes amortization of other intangible assets, and all gains and/or losses included in earnings, and uses fully tax-equivalent net interest income. Additional information regarding the calculation of this non-US GAAP financial measure can be found under the caption “Efficiency Ratio (non-US GAAP).”

(m)The efficiency ratio adjusted for non-core items is defined as core non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus core non-interest income excluding all gains and losses. This amount represents a non-US GAAP financial measure since it excludes the impact of all gains and/or losses, acquisition-related expenses, pension settlement charges, severance expenses and COVID-19 expenses included in earnings, and uses FTE net interest income. Additional information regarding the calculation of this non-US GAAP financial measure can be found under the caption "Efficiency Ratio (non-US GAAP).”

(n)Pre-provision net revenue is defined as net interest income plus total non-interest income (excluding all gains and losses) minus total non-interest expense. This ratio represents a non-US GAAP financial measure since it excludes the provision for credit losses and all gains and/or losses included in earnings. This measure is a key metric used by federal bank regulatory agencies in their evaluation of capital adequacy for financial institutions. Additional information regarding the calculation of this non-US GAAP financial measure can be found under the caption “Pre-Provision Net Revenue (non-US GAAP).”

(o)The dividend payout ratio is calculated based on dividends declared during the period divided by net income for the period.

(p)NM = not meaningful

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

(r)Includes loans categorized as special mention, substandard and doubtful.

(s)Includes loans categorized as substandard and doubtful.

(t)Peoples' capital conservation buffer was 6.80% at June 30, 2020 and 7.14% at June 30, 2019, compared to 2.50% for the fully phased-in capital conservation buffer required at January 1, 2019.


~~(e)~~	~~Information presented on a fully tax-equivalent basis.~~


~~(f)~~	Total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income (excluding all gains and all losses). Additional information regarding the calculation of these non-GAAP financial measures can be found under the caption “Efficiency Ratio.”


~~(g)~~	These amounts represent non-GAAP financial measures since they exclude the provision for (recovery of) loan losses and all gains and losses included in earnings. Additional information regarding the calculation of these non-GAAP financial measures can be found under the caption “Pre-Provision Net Revenue.”


~~(h)~~	~~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.~~


~~(i)~~	~~Includes loans categorized as special mention, substandard or doubtful.~~


~~(j)~~	~~Includes loans categorized as substandard or doubtful.~~


~~(k)~~	Peoples' capital conservation buffer was 6.49% at September 30, 2017 and 6.24% at September 30, 2016, compared to 2.50% for the fully phased-in capital conservation buffer required by January 1, 2019.

Forward-Looking Statements

Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. ~~Words~~These forward-looking statements are identified by the fact they are not historical facts and include words such as ~~“anticipates,” “estimate,” “may,” “feel,” “expect,” “believes,” “plans,” “will,” “would,” “should,” “could”~~"anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," and similar ~~expressions are intended to identify these~~expressions.

These forward-looking statements ~~but are not the exclusive means~~reflect management's current expectations based on all information available to management and its knowledge of ~~identifying such statements. Forward-looking statements~~Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. ~~Factors that might cause such a difference~~These factors include, but are not limited to:


~~(1)~~	~~the success, impact, and timing of the implementation of Peoples' business strategies, including the successful integration of acquisitions and the expansion of consumer lending activity;~~


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


~~(3)~~	changes in the interest rate environment due to economic conditions and/or the fiscal policies of the United States ("U.S.") government and the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which may adversely impact interest rates, interest margins, loan demand and interest rate sensitivity;

~~(4)~~

uncertainty regarding the nature, timing and effect of legislative or regulatory changes or actions, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;


~~(5)~~	~~changes in policy and other regulatory and legal developments accompanying the current presidential administration and uncertainty or speculation pending the enactment of such changes;~~

~~(6)~~

Peoples' ability to leverage the core banking system upgrade that occurred in the fourth quarter of 2016 (including the related core operating systems, data systems and products) without complications or difficulties that may otherwise result in the loss of customers, operational problems or one-time costs currently not anticipated to arise in connection with implementing new features and functionality;


~~(7)~~	local, regional, national and international economic conditions and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated;


~~(8)~~	~~Peoples' ability to integrate any future acquisitions which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;~~


~~(9)~~	~~Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders;~~

(1)the ever-changing effects of the COVID-19 pandemic - the duration, extent and severity of which are impossible to predict - on economies (local, national and international) and markets, and on Peoples' customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities, including actions directed toward the containment of the COVID-19 pandemic and stimulus packages, which could decrease sales volumes, add volatility to the global stock markets, and increase loan delinquencies and defaults;

(2)changes in the interest rate environment due to economic conditions related to the COVID-19 pandemic or other factors and/or the fiscal and monetary policy measures taken by the U.S. government and the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") in response to such economic conditions, which may adversely impact interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity;

(3)the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the expansion of commercial and consumer lending activity;

(4)competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals;

(5)uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection

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Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the Coronavirus Aid, Relief and Economic Security ("CARES") Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;


~~(10)~~	changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans and charge-offs, which may be less favorable than expected and adversely impact the amount of interest income generated;

~~(11)~~

adverse changes in the economic conditions and/or activities, including, but not limited to, continued economic uncertainty in the U.S., the European Union (including uncertainty surrounding the actions to be taken to implement the referendum by British voters to exit the European Union), Asia and other areas, which could decrease sales volumes, add volatility to the global stock markets and increase loan delinquencies and defaults;


~~(12)~~	~~deterioration in the credit quality of Peoples' loan portfolio, which may adversely impact the provision for loan losses;~~


~~(13)~~	~~changes in accounting standards, policies, estimates or procedures which may adversely affect Peoples' reported financial condition or results of operations;~~


~~(14)~~	~~Peoples' assumptions and estimates used in applying critical accounting policies, which may prove unreliable, inaccurate or not predictive of actual results;~~


~~(15)~~	adverse changes in the conditions and trends in the financial markets, including political developments, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities;


~~(16)~~	~~Peoples' ability to receive dividends from its subsidiaries;~~


~~(17)~~	~~Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;~~


~~(18)~~	~~the impact of minimum capital thresholds established as a part of the implementation of Basel III;~~


~~(19)~~	the impact of larger or similar sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity;


~~(20)~~	~~the costs and effects of regulatory and legal developments, including the outcome of potential regulatory or other governmental inquiries and legal proceedings and results of regulatory examinations;~~


~~(21)~~	Peoples' ability to secure confidential information through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, may prove inadequate, which could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss;


~~(22)~~	~~ability to anticipate and respond to technological changes which can impact Peoples' ability to respond to customer needs and meet competitive demands;~~


~~(23)~~	changes in consumer spending, borrowing and saving habits, whether due to changes in business and economic conditions, legislative or regulatory initiatives, or other factors, which may be different than anticipated;


~~(24)~~	~~the overall adequacy of Peoples' risk management program;~~


~~(25)~~	the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics, cyber attacks, civil unrest, military or terrorist activities or international conflicts;


~~(26)~~	significant changes in the tax laws, which may adversely affect the fair values of deferred tax assets and obligations of states and political subdivisions held in Peoples' investment securities portfolio; and


~~(27)~~	other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples’ reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. RISK FACTORS" of Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2016 ("Peoples' 2016 Form 10-K").

(6)the effects of easing restrictions on participants in the financial services industry;

(7)local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and the relationship of the U.S. and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated;

(8)Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders;

(9)changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer creditworthiness generally, which may be less favorable than expected in light of the COVID-19 pandemic and adversely impact the amount of interest income generated;

(10)Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;

(11)changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations;

(12)the impact of estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model;

(13)the discontinuation of London Interbank Offered Rates and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;

(14)adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and the related responses by governmental and nongovernmental authorities to the pandemic, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities;

(15)the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;

(16)Peoples' ability to receive dividends from its subsidiaries;

(17)Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;

(18)the impact of larger or similar-sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity;

(19)Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss;

(20)Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands;

(21)operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and its subsidiaries are highly dependent;

(22)changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic), legislative or regulatory initiatives (including those in response to the COVID-19 pandemic), or other factors, which may be different than anticipated;

(23)the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business;

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(24)the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, or violence;

(25)the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts;

(26)the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property;

(27)risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets;

(28)Peoples' ability to identify, acquire, or integrate suitable strategic acquisitions, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;

(29)Peoples' continued ability to grow deposits; and

(30)other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples’ reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. RISK FACTORS" of Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and under the heading "ITEM 1A. RISK FACTORS" in Part II of this Form 10-Q.

All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections. Additionally, Peoples undertakes no obligation to

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update these forward-looking statements to reflect events or circumstances after the filing date of this Form 10-Q or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC’s website at www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section.

This discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ ~~2016~~2019 Form 10-K, as well as the Unaudited Consolidated Financial Statements, Notes to the Unaudited Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q.

Business Overview

The following discussion and analysis of Peoples’ Unaudited Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations.

Peoples offers diversified financial products and services through 7688 locations, including 6776 full-service bank branches, and 7485 Automated Teller Machines ("ATMs") in northeastern, central, southwestern and southeastern Ohio, central and eastern Kentucky, and west central West Virginia ~~and northeastern Kentucky~~ through its financial service units – Peoples Bank and Peoples Insurance Agency, LLC ("Peoples Insurance"), a subsidiary of Peoples Bank. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the Federal Reserve Bank ("FRB") of Cleveland and the Federal Deposit Insurance Corporation ~~("FDIC"~~(the "FDIC"). Peoples Bank ismust also ~~subject to~~follow the regulations ofpromulgated by the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business.

Peoples’ products and services include ~~traditional~~a complete line of banking products, such as deposit accounts, lending products and trust services. Peoples provides services through traditional offices, ATMs, mobile banking ~~for consumers~~ and telephone and internet-based banking. Peoples also offers a complete array of insurance products and premium financing solutions, and makes available custom-tailored fiduciary, employee benefit plan and asset management services. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices.

Critical Accounting Policies

The accounting and reporting policies of Peoples conform to US GAAP and to general practices within the financial services industry. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Consolidated Financial Statements, and Management’s Discussion and Analysis at ~~September~~June 30, ~~2017,~~2020, which ~~were unchanged from~~have been updated in "Note 1 Summary of Significant Accounting Policies" in this Form 10-Q, and should be read in conjunction with the policies disclosed in Peoples’ ~~2016~~2019 Form 10-K.

Goodwill and intangible assets: Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired in the business combination. Goodwill is not amortized but is tested for impairment when indicators of impairment exist, or

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at least annually on October 1. There were no triggering events that were reviewed as of October 1, 2019. There was no indication that the carrying amount of the assets may not be recoverable, based on that analysis. Quarterly, Peoples performs an impairment review of goodwill, core deposit intangibles and customer relationship intangibles. During interim periods, ASC 350 requires companies to focus on those events and circumstances that affect significant inputs used to determine the fair value of goodwill. Paragraph 350-20-35-3C(a) through (g) includes examples of those events or circumstances. Those examples are not all-inclusive, and an entity shall consider other relevant events and circumstances that affect the fair value or carrying amount of the entity (or of a reporting unit) in determining whether to perform the goodwill impairment test. If an entity determines that there are no triggering events, then further testing is unnecessary.

Upon the occurrence of a triggering event, an entity may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the entity (or the reporting unit) is less than its carrying amount, including goodwill. Based on the assessment at June 30, 2020, management concluded that it was not more likely than not that goodwill was impaired.

Summary of Recent Transactions and Events

The following is a summary of recent transactions ~~from 2017 and 2016,~~ and events that have impacted or are expected to impact Peoples’ results of operations or financial condition:

◦

On October 23, 2017, Peoples entered into a merger agreement with ASB Financial Corp (“ASB”) that calls for ASB to merge into Peoples and for ASB’s wholly-owned subsidiary, American Savings Bank, fsb, which operates six offices located in southern Ohio and northern Kentucky, to merge into Peoples Bank. This transaction is expected to close during the second quarter of 2018, subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Peoples and of ASB. As of June 30, 2017, ASB had approximately $293.6 million in total assets, which included approximately $241.5 million in net loans, and approximately $210.4 million in total deposits. Under the terms of the ASB agreement, shareholders of ASB can elect to receive either 0.592 shares of Peoples' common stock for each share of ASB common stock or $20.00 cash per share with a limit of 15% of the merger consideration being paid in cash.


◦	On October 2, 2017, Peoples Insurance acquired a property and casualty focused independent insurance agency with annual net revenue of approximately $0.8 million located in the Cleveland, Ohio area. The acquisition will not materially impact Peoples' financial position, results of operations or cash flows.


◦	During the third quarter of 2017, Peoples reduced its position in certain investment securities. This action was taken as a result of the high appreciation in the market value of these securities. The sales completed resulted in a net gain on investment securities of $1.9 million, and are not a normal occurrence for our business.

◦On July 1, 2020, Peoples completed its acquisition of Triumph Premium Finance ("TPF"), a division of TBK Bank, SSB. Based in Kansas City, Missouri. The division operating as Peoples Premium Finance will continue to provide insurance premium financing loans for commercial customers to purchase property and casualty insurance products through its network of independent insurance agency partners nationwide. Peoples recorded $96.1 million in the other assets line of the Unaudited Consolidated Balance Sheets, as the payment for the acquisition occurred during business hours, but became effective after close of business on June 30, 2020 (effective July 1, 2020 for accounting purposes).

◦During the second quarter of 2020, Peoples originated $488.1 million of loans under the loan guarantee program created under the CARES Act, called the Paycheck Protection Program ("PPP"). These loans were targeted to provide small businesses with support to cover payroll and certain other expenses. Loans made under the PPP are fully guaranteed by the Small Business Administration ("SBA"). Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts." As of June 30, 2020, Peoples had $458.0 million in PPP loans outstanding, which were included in commercial and industrial loan balances, compared to none in the first quarter as the program was initiated at the beginning of the second quarter of 2020.Peoples recognized interest income of $1.9 million for deferred fee/cost amortization and $918,000 of interest income on PPP loans during the second quarter of 2020.

◦Peoples is also providing relief solutions to consumer and commercial borrowers during the COVID-19 pandemic. Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts."

◦Peoples was selected to partner with JobsOhio, a private nonprofit organization charged with economic development. Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts."

◦Peoples incurred $151,000 in the second quarter of 2020, and $368,000 in the first quarter of 2020, in pension settlement charges due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing such charges during the period. There were no such charges during the first and second quarter of 2019.

◦During the second quarter of 2020, Peoples recorded a provision for credit losses of $11.8 million, compared to $17.0 million in the linked quarter and $0.6 million in the second quarter of 2019. For the first six months of 2020, Peoples has recorded a total provision for credit losses of $28.8 million compared to $0.4 million in 2019. The increases in the provision for credit losses compared to the second quarter of 2019, and first six months of 2019, were related to the impact of COVID-19 on the CECL model, as well as the implementation of the CECL accounting standard. The second quarter of 2020 included a recovery of $750,000 on a previously charged-off commercial loan. The first quarter of 2020 included a recovery of $1.2 million recorded on a previously charged-off commercial loan.

◦During the second quarter of 2020, Peoples recorded $918,000 of costs related to the COVID-19 pandemic, compared to $140,000 for the first quarter of 2020. These costs were primarily related to donations made to community food banks and pantries, as well as contributions to funds to support employees, including the issuance of unrestricted stock awards totaling$396,000 granted to employees at the Assistant Vice President level or below.

◦During the first and second quarters of 2020, Peoples recognized a credit of $289,000 and $172,000, respectively, to its Federal Deposit Insurance Corp. ("FDIC") insurance premiums related to its quarterly assessment as a result of the deposit insurance fund reaching its target threshold for smaller banks to recognize a credit to their insurance expense. As of June 30, 2020, Peoples had utilized all credits issued to it by the FDIC.

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◦	Peoples continually evaluates its overall balance sheet position given the interest rate environment. During the second quarter of 2017, Peoples borrowed an additional $45.0 million of long-term FHLB non-amortizing advances, which have interest rates ranging from 1.74% to 2.03% and mature between 2020 and 2022.


◦	During the first quarter of 2017, Peoples borrowed an additional $30.0 million of long-term FHLB non-amortizing advances, which have interest rates ranging from 1.20% to 1.46% and mature between 2018 and 2019.

◦

On March 31, 2017, Peoples closed four full-service bank branches. The closures included two Ohio offices located in Belpre and Wilmington, and two West Virginia offices located in Huntington and Point Pleasant. Peoples will close two additional full-service bank branches in the fourth quarter of 2017, one located in Centerville, Ohio and the other located in Coshocton, Ohio. Peoples continues to evaluate its bank branch network in an effort to optimize efficiency.


◦	On January 31, 2017, Peoples Insurance acquired a third-party insurance administration company located in Piketon, Ohio for total cash consideration of $0.5 million, and recorded $0.5 million of customer relationship intangibles. The acquisition did not materially impact Peoples' financial position, results of operations or cash flows.


◦	On January 27, 2017, Peoples entered into two $10.0 million forward starting interest rate swaps, which will become effective in 2018 and mature between 2025 and 2027, with interest rates ranging from 2.47% to 2.53%. For additional information regarding Peoples' interest rate swaps, refer to ~~Note 9~~ ~~of the Notes to the Unaudited Consolidated Financial Statements.~~

◦

In the fourth quarter of 2016, Peoples converted its core banking system (including ancillary systems as well as hardware, operating systems, application software and data center locations). The conversion resulted in a pre-tax combined revenue and expense impact of $1.3 million, or $0.05 in earnings per diluted share, for the full year of 2016. The costs recorded in the fourth quarter, third quarter and second quarter of 2016 were $700,000, $423,000 and $90,000, respectively. Deposit account service charges were impacted by the system conversion as Peoples granted waivers of $85,000 related to account service charges in the fourth quarter of 2016.


◦	During the fourth quarter of 2016, Peoples entered into two $5.0 million forward starting interest rate swaps, which become effective in 2018 and mature in 2022 and 2026, with interest rates of 1.56% and 1.83%. For additional information regarding Peoples' interest rate swaps, refer to ~~Note 9~~ ~~of the Notes to the Unaudited Consolidated Financial Statements.~~


◦	~~During the second quarter of 2016, Peoples executed the following transactions to take advantage of the low interest rates:~~


▪	Peoples restructured $20.0 million of FHLB borrowings that had a weighted-average rate of 2.97%, resulting in a $700,000 loss. Peoples replaced these borrowings with a long-term FHLB advance, which has an interest rate of 2.17% and matures in 2026.


▪	~~Peoples borrowed an additional $35.0 million of long-term FHLB amortizing advances, which had interest rates ranging from 1.08% to 1.40%, and mature between 2019 and 2031.~~

▪

Peoples entered into three $10.0 million forward starting interest rate swaps, which become effective in 2018 and mature between 2023 and 2025, with interest rates ranging from 1.49% to 1.56%. These swaps locked in funding rates for $40.0 million in FHLB advances that mature in 2018, which have interest rates ranging from 3.65% to 3.92%. For additional information regarding Peoples' interest rate swaps, refer to ~~Note 9~~ ~~of the Notes to the Unaudited Consolidated Financial Statements.~~


◦	On June 8, 2016, Peoples purchased an additional $35.0 million in bank owned life insurance ("BOLI"). The additional BOLI added $560,000 in non-interest income in the first nine months of 2017, compared to the first nine months of 2016.

◦

On March 4, 2016, Peoples entered into a Credit Agreement (the "RBJ Credit Agreement") with Raymond James, which provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $15.0 million, that may be used: (i) to make acquisitions; (ii) to make stock repurchases; (iii) for working capital needs; and (iv) for other general corporate purposes. On March 4, 2016, Peoples paid upfront fees for the establishment of a revolving line of credit agreement of $70,600, representing 0.47% of the loan commitment under the RJB Credit Agreement.


◦	Effective March 2, 2016, Peoples terminated the loan agreement with U.S. Bank National Association dated as of December 18, 2012, as amended (the "U.S. Bank Loan Agreement"). As of the termination date, Peoples had no

◦During the second quarter of 2020, Peoples incurred $47,000 of acquisition-related expenses, compared to $10,000 in the first quarter of 2020 and $6.8 million in the second quarter of 2019. Acquisition-related expenses for the six months ended June 30, 2020 were $77,000, compared to $7.0 million for the same period last year. The acquisition-related expenses in 2020 and 2019 were primarily related to the Triumph Premium Finance and First Prestonsburg acquisitions, respectively.

~~Table~~◦On April 2, 2020, Peoples entered into a First Amendment to Loan Agreement to extend the maturity of ~~Contents~~

~~outstanding borrowings~~the Loan Agreement (the “U.S. Bank Loan Agreement”) with U.S. Bank National Association, entered into on April 3, 2019. The First Amendment to Loan Agreement extends the maturity from April 2, 2020 to April 1, 2021. The U.S. Bank Loan Agreement provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $20.0 million that may be used: (i) for working capital purposes; (ii) to finance dividends or other distributions (other than stock dividends and stock splits) on or in respect of Peoples’ capital stock and redemptions, repurchases or other acquisitions of any of Peoples’ capital stock permitted under the U.S. Bank Loan ~~Agreement. Peoples paid an immaterial non-usage fee in connection with the termination of~~Agreement; and (iii) to finance acquisitions permitted under the U.S. Bank Loan Agreement.


◦	On January 6, 2016, Peoples Bank acquired a small financial advisory book of business in Marietta, Ohio for total cash consideration of $0.5 million, and recorded $0.5 million of customer relationship intangibles. The acquisition did not materially impact Peoples' financial position, results of operations or cash flows.

◦

Peoples' net interest income and net interest margin are impacted by changes in market interest rates based upon actions taken by the Federal Reserve Board (the "Fed"), either directly or through its Open Market Committee. These actions include changing its target Federal Funds Rate (the interest rate at which banks lend money to each other), Discount Rate (the interest rate charged to banks for money borrowed from a Federal Reserve Bank) and longer-term market interest rates (primarily U.S. Treasury securities). Interest rates also are affected by investor demand for U.S. Treasury securities. The resulting changes in the yield curve slope have a direct impact on reinvestment rates for Peoples' earning assets.

◦

The Fed raised the benchmark Federal Funds Target Rate by 25 basis points in each of December of 2016 and March and June of 2017. Peoples' management believes the Fed will likely raise the rate by 25 basis points again at its December 2017 meeting and potentially three more times in 2018. The Fed has also begun to reduce the size of its $4.5 trillion dollar balance sheet, which could result in higher interest rates as well. The minutes of the September 2017 Federal Open Market Committee meeting released in October noted concerns about raising interest rates given the low level of inflation in the economy. However, there was no indication that the Fed would alter its current posture of tightening monetary policy at future meetings. Peoples is closely monitoring interest rates, both foreign and domestic, and potential impacts of changes in interest rates to Peoples Bank’s operations.

◦On February 27, 2020, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $40 million of its outstanding common shares. This program replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $20 million of its outstanding common shares, which Peoples' Board of Directors had approved on November 3, 2015 and which was terminated on February 27, 2020. During the second quarter of 2020, Peoples repurchased 447,931 of its common shares through its share repurchase program for a total of $9.8 million. For the first six months of 2020, Peoples repurchased 884,068 of its common shares for a total of $20.0 million.

◦During the first quarter of 2020, Peoples recognized an additional $109,000 in bank owned life insurance ("BOLI") income related to tax-free death benefits from the fourth quarter of 2019 that exceeded the cash surrender value of the insurance policies, compared to $482,000 during the fourth quarter of 2019, and none in the first half of 2019.

◦Peoples closed a full-service bank branch located in Kentucky, when the lease for the location expired in July 2020. During the second quarter of 2020, there were no branch closures. During the first quarter of 2020, Peoples closed one full-service bank branch located in West Virginia when the lease for the location expired in January 2020. During the fourth quarter of 2019, Peoples closed one full-service bank branch located in Kentucky. During the second quarter of 2019, Peoples closed one full-service bank branch located in West Virginia. During the first quarter of 2019, Peoples closed one full-service bank branch located in West Virginia and one insurance office located in Ohio. The locations closed during 2019 were closed when the respective leases for those Kentucky, West Virginia and Ohio locations expired. Most employees at the closed locations filled open positions at other branches or offices.

◦On January 1, 2020, Peoples adopted ASU 2016-13 and adopted CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million; the addition of a $1.5 million unfunded commitment liability included in the accrued expenses and other liabilities line of the Unaudited Consolidated Balance Sheets; and a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.

◦On January 1, 2020, Peoples Insurance acquired a property and casualty-focused independent insurance agency for a purchase price amount equal to $866,000.

◦During the fourth quarter of 2019, Peoples entered into one interest rate swap with a notional value of $10.0 million, which will mature in 2024, with an interest rate of 1.59%. During the third quarter of 2019, Peoples entered into one interest rate swap with a notional value of $10.0 million, which will mature in 2029, with an interest rate of 1.44%. During the second quarter of 2019, Peoples entered into three interest rate swaps with a notional value in the aggregate of $30.0 million, which will mature between 2023 and 2026, with interest rates ranging from 1.89% to 1.91%. For additional information regarding Peoples' interest rate swaps, refer to "Note 9 Derivative Financial Instruments" of the Notes to the Unaudited Consolidated Financial Statements.

◦On August 22, 2019, Peoples Risk Management, Inc., a wholly-owned subsidiary of Peoples, was formed. Peoples Risk Management, Inc. is a Nevada-chartered captive insurance company which insures against certain risks unique to the operations of Peoples and for which insurance may not be currently available or economically feasible. Peoples Risk Management, Inc. pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

◦At the close of business on April 12, 2019, Peoples completed the merger transaction with First Prestonsburg. First Prestonsburg merged into Peoples and First Prestonsburg's wholly-owned subsidiary, The First Commonwealth Bank of Prestonsburg, Inc., which operated nine full-service bank branches in central and eastern Kentucky, merged into Peoples Bank. First Prestonsburg shareholders received total merger consideration of $43.7 million, of which $11.3 million was in the form of a special cash dividend paid by First Prestonsburg to its shareholders prior to the merger with the remainder being paid in the form of an aggregate of 1,005,478 Peoples common shares by Peoples. The merger added $129.4 million of total

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loans and $257.2 million of total deposits at the acquisition date, after fair value adjustments. Peoples also recorded $4.2 million of other intangible assets and $14.5 million of goodwill.

◦During the first quarter of 2019, Peoples sold its restricted Class B Visa stock, which had been held at a carrying cost and fair value of zero due to the litigation liability associated with the stock, resulting in a gain of $787,000 recorded in other non-interest income.

◦In an effort to stimulate an economy that was being heavily damaged by the impacts of the COVID-19, the Federal Reserve first lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3, then lowered the target rate another 100 basis points at the next FOMC meeting on March 15. The Federal Funds Target Rate range was 0% - 0.25% as of March 31, 2020 and maintained this rate as of June 30, 2020. According to the Chair of the Board of Governors of the Federal Reserve System, the federal funds target rate is not likely to drop below this range. However, the Federal Reserve does have other tools available that it can employ and has expressed an intention to do so in order to maintain a targeted level of liquidity.

The impact of these transactions and events, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis of Results of Operations and Financial Condition.

EXECUTIVE SUMMARY

Peoples recorded net income of $4.7 million for the second quarter ~~ended September 30, 2017~~ of ~~$10.9 million,~~2020, or ~~$0.60~~earnings of $0.23 per diluted common share, compared to ~~$7.8~~net loss of $0.8 million, or ~~$0.43~~a loss of $0.04 per diluted common share, for the ~~same~~first quarter ~~a year ago~~of 2020, and net income of ~~$9.8~~$9.6 million, or ~~$0.53~~$0.46 per diluted ~~common~~ share, for the second quarter of ~~2017. On a year-to-date basis,~~2019. Non-core items contained in net income (loss) included gains and losses, acquisition-related expenses, pension settlement charges, severance expenses and COVID-19 expenses. Non-core items negatively impacted income (loss) per diluted common share by $0.06 for the second quarter of 2020, $0.02 for the first quarter of 2020, and by $0.28 for the second quarter of 2019. Net income in the second quarter of 2020, was affected by the provision for credit losses recorded during the quarter, which was driven by the economic developments and uncertainties related to COVID-19. The provision for credit losses was calculated under the CECL accounting methodology in accordance with ASU 2016-13, which is sensitive to future economic projections. Additional information regarding the provision for credit losses can be found later in this discussion under the caption “RESULTS OF OPERATIONS - Provision for Credit Losses.”

During the first six months of 2020, net income was ~~$29.5~~$4.0 million, or ~~$1.61~~earnings of $0.19 per diluted common share, compared to ~~$23.7~~net income of $24.0 million, or ~~$1.31~~$1.19 per diluted share for the ~~same period~~six months ended June 30, 2019. The decrease in ~~2016. The increased~~ earnings was impacted primarily by the provision for ~~all periods were primarily due to increases~~credit losses calculated using the CECL accounting methodology and the impact COVID-19 had on the inputs in ~~net interest income, mortgage banking income and net gain on investment securities. Earnings~~the CECL model. Non-core items negatively impacted earnings per diluted common share ~~were positively impacted~~ by ~~$0.07 due to~~$0.08 and $0.29 for the ~~gain on investment securities of $1.9 million recognized during the third quarter of 2017.~~six months ended June 30, 2020, and 2019, respectively.

Net interest income was ~~$29.2 million in the third quarter of 2017, compared to $26.1 million for the same quarter a year ago and $28.1~~$34.9 million for the second quarter of ~~2017, while net~~2020, up 1% compared to $34.6 million for the first quarter of 2020, and a decrease of 3% compared to $36.0 million for the second quarter of 2019. Net interest margin was ~~3.67%, 3.54%,~~3.19% for the second quarter of 2020, compared to 3.51% for the first quarter of 2020, and ~~3.62%, respectively. For~~3.77% for the ~~nine months ended September 30, 2017, net~~second quarter of 2019. Net interest income ~~was $84.3 million, compared to $78.2 million for the same period in 2016, while net interest margin was 3.61%~~ and 3.55%, respectively. The increase in net interest margin compared to all prior periods was due primarily to loan growth, with the previous increases in interest rates positively impacting net interest income and the net interest margin. In addition, during the third quarter of 2017, the investment yield improved largely due to $611,000 received on an investment security for which an other-than-temporary-impairment had previously been recorded. These proceeds added eight basis points to the net interest margin during the ~~third~~second quarter were both impacted by the declining interest rate environment caused by COVID-19 that continued throughout the second quarter of ~~2017. Additionally,~~2020 and resulted in lower yields on the ~~accretion~~loan portfolio and accelerated premium amortization on the investment securities portfolio. The PPP loan income (interest and fees) of $2.8 million and a reduction of $1.3 million in interest expense on deposits benefited net interest income compared to the linked quarter.

Accretion income, net of amortization expense, from acquisitions was ~~$816,000 for the third quarter of 2017, compared to $801,000 for the third quarter of 2016 and $735,000~~$955,000 for the second quarter of ~~2017, which added 10 basis points to net interest margin in both~~2020, $1.1 million for the ~~third~~first quarter of ~~2017~~2020, and $1.2 million for the second quarter of ~~2017, compared to~~2019, which added 9 basis points, 11 basis points, ~~for the third quarter of 2016. During the third quarter of 2017, the annual re-estimation of expected cash flows for purchased credit impaired loans was completed~~ and ~~resulted in adjustments~~13 basis points, respectively, to ~~accretion income, which had a positive impact for the quarter. On a year-to-date basis, the accretion~~net interest margin. Accretion income, net of amortization expense, from acquisitions was $2.0 million for the six months ended June 30, 2020, compared to $1.9 million for the six months ended June 30, 2019, and added 10 basis points to net interest margin for both periods.

During the ~~first nine months~~second quarter of ~~2017~~2020, Peoples recorded a provision for credit losses of $11.8 million, compared to ~~12 basis points~~a provision for credit losses of $17.0 million for the first ~~nine months~~quarter of ~~2016.~~

~~Peoples'~~2020 and a provision for loan losses of $626,000 for the ~~three~~second quarter of 2019. Net recoveries for the second quarter of 2020 were $369,000, or (0.05)% of average total loans annualized, compared to net charge-offs of $498,000, or 0.07% of average total loans annualized, for the linked quarter and net charge-offs of $208,000, or 0.03% of average total loans annualized, for the second quarter of 2019. The provision for credit losses during the current quarter was primarily due to the economic forecast and Peoples' own credit portfolio developments related to COVID-19 and their impact on the assumptions used in estimating the allowance of credit losses under the CECL model in accordance with ASU 2016-13.

Provision for credit losses during the first six months ~~ended September 30, 2017 and September 30, 2016~~of 2020 was ~~$1.1~~$28.8 million, compared to ~~$947,000~~$363,000 for the ~~three~~first six months of 2019. Net charge-offs for the first six months of 2020 were $129,000, or 0.01% of average total loans annualized, compared to net recoveries of $799,000, or (0.06)% of average total loans annualized, for the first six months of 2019. The second quarter of 2020 included the $750,000 recovery recorded on a previously charged-off commercial loan, while a $1.2 million recovery was recognized

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during the first quarter of 2020. The first six months of 2019 included the $1.8 million recovery recorded on a previously charged-off commercial loan.

For the second quarter of 2020, total non-interest income decreased $1.1 million, or 7%, compared to the first quarter of 2020 and was down $625,000, or 4%, compared to the second quarter of 2019. Compared to the first quarter of 2020, insurance income decreased $939,000, or 23%, due to lower performance-based commissions, which are primarily recognized in the first quarter of each year and are a core component of insurance income, partially offset by an increase in health insurance commissions. Deposit account service charges declined $911,000 for this quarterly comparison due primarily to a $773,000 reduction in fees assessed for overdrafts and non-sufficient funds as customers have maintained higher balances in their deposit accounts due to the COVID-19 pandemic. Compared to the second quarter of 2019, non-interest income, excluding net gains and losses, was down $915,000. Income from deposit account service charges decreased $1.1 million, or 36%, compared to the prior year quarter, as a result of lower overdraft and non-sufficient funds fees assessed to customers given higher deposit balances being maintained in relation to the COVID-19 pandemic. Also contributing to the change was a reduction in insurance income of $295,000, driven by businesses that have either closed or declines in assets insured under policies, primarily due to the COVID-19 pandemic.

For the six months ended June 30, ~~2017. The slightly~~2020, total non-interest income decreased $317,000, or 1%, compared to the six months ended June 30, 2019. Driving the decline was lower deposit account service charges due to a reduction in fees assessed for overdrafts and non-sufficient funds primarily related to customers maintaining higher ~~provision for loan losses recorded~~balances in their accounts. Also affecting the change, other non-interest income was higher during the ~~third~~first six months of 2019 because of the sale of restricted Class B Visa stock last year, when Peoples recognized income of $787,000. Insurance income also decreased compared to the prior year and was mostly related to businesses that have either closed or declines in assets insured under policies, primarily due to the COVID-19 pandemic.

Total non-interest expense decreased $2.5 million, or 7%, for the second quarter of ~~2017~~2020 compared to the first quarter of 2020 and$7.1 million, or 18%, compared to the second quarter of 2019. Salaries and employee benefit costs were down as a result of higher deferred personnel costs associated with PPP loan originations, which were $921,000. Also contributing to the change in salaries and employee benefits was lower stock-based compensation expense due to vesting of prior awards and awards granted to retirement eligible participants that were expensed when granted. A decrease in medical insurance benefits of $622,000 during the second quarter 2020, compared to the linked quarter, also contributed to the change, which was ~~reflective of~~partially due to the ~~continued loan growth. Net charge-offs increased~~annual contributions to ~~$909,000 in the third quarter of 2017, compared to $765,000 for the third quarter of 2016 and $600,000 for~~employee health benefit accounts that had occurred during the linked quarter, ~~of 2017. Annualized net charge-offs were 0.16% of average gross loans during~~as well as fewer doctor's office visits and the ~~third quarter of 2017,~~decline in elective procedures, compared to ~~0.14% in the third quarter of 2016 and 0.11% in the linked quarter. During the first nine months~~

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of 2017, annualized net charge-offs were 0.12% of average gross loans compared to 0.09% in the same period of 2016. Net charge-offs were $2.1 million for the first nine months of 2017, compared to $1.4 million for the first nine months of 2016. The increase in net charge-offs during the periods was primarily related to residential real estate and deposit account overdrafts. The allowance for loan losses at September 30, 2017 increased to $19.0 million, compared to $18.4 million at December 31, 2016. The ratio of the allowance for loan losses as a percent of total loans, net of deferred fees and costs, was 0.82% at September 30, 2017, 0.84% at September 30, 2016 and 0.82% at June 30, 2017.

~~For the third quarter of 2017, total~~both periods. Total non-interest income increased $1.1 million, or 9%, compared to the third quarter of 2016, and increased $729,000, or 5%, from the linked quarter. The increase in total non-interest income for the third quarter of 2017 compared to the third quarter of 2016 and the linked quarter was due to an increase in net gain on investment securities which was offset partially by decreased swap fees. The increase in net gain on investment securities of $1.9 million was largely the result of $1.8 million of gains recognized as a result of the sale of bank equity securities, which had a high amount of appreciation and is not a normal occurrence for our business. The decreases in swap fees are attributed to customer demand.

For the first nine months of 2017, total non-interest income grew $3.0 million, or 8%, compared to the same period in 2016. The increase compared to the first nine months of 2016 was the result of a $1.4 million increase in gain on sale of securities, a $647,000 increase in trust and investment income, a $560,000 increase in BOLI income and a $537,000 increase in mortgage banking income. These increases were partially offset by declines in service charges on deposit accounts of $869,000 and electronic banking income of $175,000. The increase in trust and investment income was attributable to higher assets under administration and management, coupled with additional income generated from transaction commissions. The increase in BOLI income was due to the $35.0 million of policies that were purchased lateexpense in the second quarter of ~~2016. The increase~~2020 included $151,000 in ~~mortgage banking income was primarily due to $48.3 million of loan sales to the secondary market in~~pension settlement charges, while the first nine months of 2017 compared to $44.6 million in the first nine months of 2016. The declines in deposit account service charges were driven by lower overdraft fees while decreases in electronic banking income were due to customer activity.

~~Total non-interest expense for the third~~ quarter of ~~2017 was $26.6 million, compared to $26.8 million for the third quarter~~2020 included pension settlement charges of ~~2016~~$368,000 and ~~$26.7 million for~~none in the second quarter of ~~2017. Total non-interest expense decreased slightly from~~2019. The decreases in the third quarter of 2016 due mainly to other expenses, professional fees and communication expense. The decrease in other expenses compared to the third quarter of 2016 was primarily related to $423,000 of one-time costs associated with the system upgrade of Peoples' core banking system. The decrease in professional fees was primarily due to a decrease in legal fees related to collections of special assets which correlated to the decrease in nonperforming assets and classified loans from September 30, 2016. The decrease in communication expense resulted from the continued consolidation of traditional phone lines to a method of transmitting all voice traffic over the internet and the discontinuation of overlapping traditional phone line contracts that occurred during the transition. These decreasesareas described above were partially offset by increases for COVID-19 expenses, which included a $250,000 donation to food banks and pantries in Peoples' market area and an employee stock award aggregating $396,000 made to employees at the ~~increase~~level of Assistant Vice President or below.

During the first six months of 2020, total non-interest expense decreased 7% compared to 2019. The variance was driven primarily by a reduction in acquisition-related expenses that impacted salaries and employee benefits, ~~which was~~and other expenses recognized in the ~~result~~previous year related to the First Prestonsburg acquisition, lower FDIC insurance premiums because of ~~an increase in incentive compensation, which is tied to business performance. Peoples' number of full-time equivalent employees was 778 at September 30, 2017, compared to 775 at June 30, 2017~~the credits mentioned above, and ~~799 at September 30, 2016.~~

~~Total non-interest expense was up 1% during the first nine months of 2017, compared to 2016. Year-to-date, salaries~~lower travel and ~~employee benefit costs increased 7%, which was primarily~~entertainment expenses due to ~~higher incentive compensation tied to corporate performance for 2017. This increase was~~COVID-19 restrictions. These changes were partially offset by ~~reductions~~increases of 14% in ~~professional fees, communication expense, other non-interest expense~~electronic banking expenses, 13% in data processing and ~~amortization of other intangible assets.~~software expenses, and COVID-19 expenses.

Peoples' efficiency ratio, calculated as total non-interest expense less amortization of other intangible assets divided by fully ~~taxable equivalent~~tax-equivalent ("FTE") net interest income, plus total non-interest income, excluding all gains and losses, for the ~~third~~second quarter of ~~2017~~2020 was ~~60.74%~~62.3%, compared to 64.33% for the third quarter of 2016 and 61.19% for the linked quarter. The lower efficiency ratio in the third quarter of 2017 compared to the third quarter of 2016 was primarily due to an increase in net interest income which was slightly offset by decreased non-interest income, excluding all gains and losses. The decrease from the linked quarter was due to increased net interest income which was slightly offset by decreased non-interest income, excluding all gains and losses. On a year-to-date basis, the efficiency ratio was 62.24%, compared to 64.56%66.6% for the first ~~nine months~~quarter of ~~2016.~~2020 and 73.2% for the second quarter of 2019. The improvement in the efficiency ratio ~~during~~compared to the ~~first nine months of 2017 versus 2016~~linked quarter was primarily due to ~~an increase~~the decline in ~~net interest income, slightly offset by a 1% increase in total~~ non-interest expense. The efficiency ratio, when adjusted for non-core items, was 59.9% for the second quarter of 2020, compared to 65.5% for the first quarter of 2020 and 60.2% for the second quarter of 2019. For the first six months of 2020, the efficiency ratio was 64.5% compared to 68.1% for 2019, and was 62.8% and 61.2%, respectively, when adjusted for non-core items.

Peoples recorded income tax expense of $1.1 million for the second quarter of 2020, compared to an income tax benefit of $156,000 for the linked quarter and income tax expense of $2.2 million for the second quarter of 2019. Peoples recognized income tax expense of $1.0 million for the first six months of 2020, compared to $5.6 million for the first six months of 2019. The variance between each of the comparative periods was the result of pre-tax income (loss) recognized, due primarily to the higher allowance for credit losses recorded during the first half of 2020.

At ~~September~~June 30, ~~2017,~~2020, total assets were ~~$3.55~~$4.99 billion, compared to ~~$3.43~~$4.35 billion at December 31, ~~2016.~~2019. The ~~$120.1 million, or 3%,~~15% increase was primarily the result of growth in loan balances, net of deferred fees and costs, of $102.1 million, or 6% annualized. Indirect consumer lending continued to be a key component of loan growth as balances increased $83.0 million, or 44% annualized, compared to December 31, ~~2016.~~2019 was driven by an increase in cash and cash equivalents of $104.1 million, loan growth of $487.5 million, driven by PPP loan originations, along with an increase in other assets of $115.1 million, which included certain activity totaling $96.1 million related to the premium finance acquisition. The ~~growth in indirect consumer loan balances included diversification in the portfolio beyond automobile loans, including indirect consumer loans~~allowance for ~~recreational vehicles and~~

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~~motorcycles. Commercial real estate construction loans grew $25.0~~credit losses increased to $54.4 million, or ~~35% annualized, with commercial and industrial~~1.62% of total loans, ~~growing~~compared to $21.6 million ~~or 7% annualized, during the first nine months of 2017. Average gross loan balances for the nine months ended September 30, 2017 increased $162.3 million, or 8%~~and 0.75%, compared to the average gross loan balances for the nine months ended September 30, 2016, due primarily to increases in indirect consumer loans, commercial real estate construction and commercial and industrial loans.respectively, at December 31, 2019.

Total liabilities were ~~$3.10~~$4.42 billion at ~~September~~June 30, ~~2017,~~2020, up ~~$97.9~~$656.9 million since December 31, ~~2016.~~2019. The increase in total liabilities during the first ~~nine~~six months of ~~2017~~2020 was primarily due to an increase in deposits of ~~$155.0~~$773.5 million, ~~or 6%,~~partially offset ~~partially~~ by a decline in total ~~borrowings~~borrowed funds of ~~$61.2~~$109.7 million.

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At June 30, 2020, total stockholders' equity was $569.2 million, ~~or 14%.~~

~~Interest-bearing deposits increased $164.5 million, or 9%, offset partially by~~ a decrease ~~in total non-interest-bearing deposits~~ of ~~$9.6~~$25.2 million ~~or 1%,~~ compared to December 31, 2016. Peoples introduced new checking account product offerings for consumers. During the third quarter of 2017, and continuing into the fourth quarter, Peoples will migrate customers' accounts to the new product offerings. During this migration, customer accounts are evaluated based on certain characteristics, and some accounts that were traditionally non-interest-bearing deposits are being converted to interest-bearing demand accounts. As a result, fluctuations2019. The decrease in balances have occurred between non-interest-bearing deposits and interest-bearing demand account balances during the third quarter of 2017. These new products have increased maintenance fee requirements and Peoples expects that certain of these accounts will also result in higher fee-based income in future periods. Total certificates of deposit ("CDs") at September 30, 2017 also declined $35.6 million, or 9%, compared to December 31, 2016.

The growth in interest-bearing deposits from December 31, 2016 was primarily the result of an increase of $105.3 million in interest-bearing deposits, $53.0 million in brokered CDs, and $38.2 million in governmental deposit accounts, offset partially by a decrease of $9.6 million in non-interest-bearing demand deposits. The increase in brokered CDs was the result of adding relatively shorter term funding on the balance sheet, while the increase in governmental deposit accounts was primarily due to seasonality.

~~At September 30, 2017,~~ total stockholders' equity was ~~$457.4~~mainly due to the repurchase of 884,068 shares for a total of $20.0 million, andividends paid of $13.9 million and a $3.7 million adjustment related to the adoption of the CECL accounting standard, partially offset by net income of $4.7 million and a $6.1 million increase of $22.1 million, or 5%, compared to December 31, 2016. Regulatory capital ratios remained significantly higher than "well capitalized" minimums. Peoples' common equity tier 1 risk-based capital ratio was 13.31% at September 30, 2017, versus 12.91% at December 31, 2016, while the tier 1 risk-based capital ratio was 13.60% at September 30, 2017, compared to 13.21% at December 31, 2016. The total risk-based capital ratio was 14.49% at September 30, 2017, compared to 14.11% at December 31, 2016. In addition, Peoples' tangible equity to tangible asset ratio was 9.20%, and tangible book value per common share was $17.15 at September 30, 2017, versus 8.80% and $15.89, respectively, at December 31, 2016.in accumulated other comprehensive income.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the ~~Fed’s~~Federal Reserve Board’s monetary policy, the level and degree of pricing competition for both loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities.

Net interest margin, which is calculated by dividing FTE net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a federal corporate income tax rate of 21%.

The following table details the calculation of FTE net interest income:


	Three Months Ended										Six Months Ended
	June 30, 2020		March 31, 2020		June 30, 2019		June 30,
(Dollars in thousands)												2020	2019
Net interest income	$	34,860	$	34,636	$	36,049	$	69,496	$	69,963
Taxable equivalent adjustments	269		272		267		541		467
Fully tax-equivalent net interest income	$	35,129	$	34,908	$	36,316	$	70,037	$	70,430

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The following tables detail Peoples’ average balance sheets for the periods presented:

For the Three Months Ended
September 30, 2017 June 30, 2017 September 30, 2016
(Dollars in thousands)
Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost
Short-term investments $ 12,812
$ 42
1.30 % $ 12,275
$ 26
0.85 % $ 8,663
$ 10
0.46 %
Investment securities (a):
Taxable (b) 780,667
5,661
2.90 % 768,495
5,002
2.60 % 736,677
4,500
2.44 %
Nontaxable (c) 105,077
1,078
4.10 % 111,003
1,172
4.22 % 112,589
1,186
4.21 %
Total investment securities 885,744
6,739
3.04 % 879,498
6,174
2.81 % 849,266
5,686
2.68 %
Loans (c) (d):
Commercial real estate, construction 118,208
1,337
4.43 % 107,224
1,158
4.27 % 93,353
915
3.84 %
Commercial real estate, other 750,260
8,890
4.64 % 735,915
8,892
4.78 % 707,269
8,362
4.63 %
Commercial and industrial 438,524
5,196
4.64 % 433,277
4,858
4.44 % 378,053
3,855
3.99 %
Residential real estate (e) 507,906
5,468
4.31 % 520,863
5,564
4.27 % 554,039
6,070
4.38 %
Home equity lines of credit 110,741
1,291
4.63 % 111,185
1,233
4.45 % 110,232
1,246
4.50 %
Consumer, indirect 322,072
2,955
3.64 % 293,917
2,570
3.51 % 218,318
1,975
3.64 %
Consumer, other 70,204
1,270
7.18 % 69,329
1,229
7.11 % 72,729
1,108
6.13 %
Total loans 2,317,915
26,407
4.49 % 2,271,710
25,504
4.46 % 2,133,993
23,531
4.35 %
Less: Allowance for loan losses (18,869 ) (18,554 ) (17,787 )
Net loans 2,299,046
26,407
4.53 % 2,253,156
25,504
4.50 % 2,116,206
23,531
4.39 %
Total earning assets 3,197,602
33,188
4.10 % 3,144,929
31,704
4.01 % 2,974,135
29,227
3.89 %
Intangible assets 144,267
145,052
147,466

Other assets 199,351
199,720
203,035

    Total assets
$ 3,541,220
$ 3,489,701
$ 3,324,636

Deposits:
Savings accounts $ 443,599
$ 65
0.06 % $ 444,824
$ 61
0.06 % $ 439,464
$ 59
0.05 %
Governmental deposit accounts 309,623
200
0.26 % 301,448
168
0.22 % 311,650
152
0.19 %
Interest-bearing demand accounts 320,788
133
0.16 % 295,080
98
0.13 % 264,182
61
0.09 %
Money market accounts 389,292
253
0.26 % 393,807
197
0.20 % 400,749
175
0.17 %
Brokered certificates of deposit 106,448
454
1.69 % 110,160
459
1.67 % 31,910
203
2.56 %
Retail certificates of deposit 348,047
760
0.87 % 355,256
746
0.84 % 398,388
777
0.78 %
Total interest-bearing deposits 1,917,797
1,865
0.39 % 1,900,575
1,729
0.36 % 1,846,343
1,427
0.31 %
Borrowed funds:
Short-term FHLB advances 96,760
336
1.38 % 83,352
201
0.96 % 73,413
79
0.43 %
Retail repurchase agreements 77,706
33
0.17 % 76,153
32
0.17 % 70,401
30
0.17 %
Total short-term borrowings 174,466
369
0.84 % 159,505
233
0.58 % 143,814
109
0.30 %
Long-term FHLB advances 153,070
788
2.04 % 131,179
690
2.11 % 100,938
594
2.34 %
Wholesale repurchase agreements 40,000
371
3.71 % 40,000
367
3.67 % 40,000
371
3.71 %
Other borrowings 7,003
115
6.57 % 6,952
99
5.70 % 6,794
106
6.11 %
Total long-term borrowings 200,073
1,274
2.53 % 178,131
1,156
2.60 % 147,732
1,071
2.89 %
  Total borrowed funds 374,539
1,643
1.74 % 337,636
1,389
1.65 % 291,546
1,180
1.61 %
      Total interest-bearing liabilities 2,292,336
3,508
0.61 % 2,238,211
3,118
0.56 % 2,137,889
2,607
0.49 %
Non-interest-bearing deposits 756,098
769,406
709,432

Other liabilities 36,588

34,685

38,709

Total liabilities 3,085,022
3,042,302

2,886,030

Total stockholders’ equity 456,198

447,399

438,606

Total liabilities and stockholders’ equity $ 3,541,220

$ 3,489,701

$ 3,324,636

Interest rate spread (b) $ 29,680
3.49 % $ 28,586
3.45 % $ 26,620
3.40 %
Net interest margin (b) 3.67 % 3.62 % 3.54 %
48

Table of Contents


	For the Three Months Ended
	June 30, 2020											March 31, 2020									June 30, 2019
(Dollars in thousands)	Average Balance		Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost
Short-term investments (a)	$	164,487	$	48	0.12	%	$	73,798		$	236	1.29	%	$	27,979		$	263	3.77	%

Investment securities (b)(c)(d):
Taxable	903,227		4,188		1.85	%	928,182			5,428		2.34	%	874,427			6,006		2.75	%
Nontaxable	103,169		802		3.11	%	106,934			829		3.10	%	118,241			923		3.12	%
Total investment securities	1,006,396		4,990		1.98	%	1,035,116			6,257		2.42	%	992,668			6,929		2.79	%
Loans (c)(d)(e):
Construction	121,982		1,226		3.98	%	97,839			1,251		5.06	%	124,334			1,655		5.27	%
Commercial real estate, other	849,070		8,873		4.13	%	837,602			10,057		4.75	%	833,991			11,322		5.37	%
Commercial and industrial	979,206		8,842		3.57	%	649,437			7,424		4.52	%	599,432			8,081		5.33	%
Residential real estate (f)	682,216		8,257		4.84	%	665,737			8,371		5.03	%	646,978			7,918		4.90	%
Home equity lines of credit	128,632		1,493		4.67	%	131,673			1,775		5.42	%	132,395			2,006		6.08	%
Consumer, indirect	421,972		4,554		4.34	%	415,986			4,409		4.26	%	412,986			4,255		4.13	%
Consumer, direct	77,830		1,292		6.68	%	76,707			1,354		7.10	%	80,442			1,459		7.27	%
Total loans	3,260,908		34,537		4.22	%	2,874,981			34,641		4.80	%	2,830,558			36,696		5.20	%
Allowance for credit losses (d)	(48,768)						(27,548)							(21,311)
Net loans	3,212,140		34,537		4.28	%	2,847,433			34,641		4.84	%	2,809,247			36,696		5.20	%
Total earning assets	4,383,023		39,575		3.60	%	3,956,347			41,134		4.14	%	3,829,894			43,888		4.56	%
Goodwill and other intangible assets	177,012						177,984							175,169
Other assets	267,981						247,296							234,716
Total assets	$	4,828,016					$	4,381,627						$	4,239,779
Interest-bearing deposits:
Savings accounts	$	563,213	$	33	0.02	%	$	522,893		$	74	0.06	%	$	523,295		$	110	0.08	%
Governmental deposit accounts	370,999		445		0.48	%	328,407			715		0.88	%	331,607			848		1.03	%
Interest-bearing demand accounts	655,711		71		0.04	%	628,677			248		0.16	%	603,494			231		0.15	%
Money market accounts	575,858		360		0.25	%	476,477			673		0.57	%	414,307			654		0.63	%
Retail certificates of deposit	481,305		1,870		1.56	%	488,948			2,059		1.69	%	477,530			2,079		1.75	%
Brokered deposits	192,230		505		1.06	%	191,955			860		1.80	%	272,693			1,797		2.64	%
Total interest-bearing deposits	2,839,316		3,284		0.47	%	2,637,357			4,629		0.71	%	2,622,926			5,719		0.87	%
Borrowed funds:
Short-term FHLB advances	137,659		559		1.63	%	206,283			994		1.94	%	193,963			1,140		2.36	%
Repurchase agreements and other	46,330		15		0.13	%	47,351			45		0.38	%	46,631			93		0.80	%
Total short-term borrowings	183,989		574		1.25	%	253,634			1,039		1.65	%	240,594			1,233		2.06	%
Long-term FHLB advances	122,960		491		1.61	%	101,804			447		1.77	%	96,519			491		2.04	%

Other borrowings	12,438		97		3.12	%	7,471			111		5.94	%	7,346			129		7.02	%
Total long-term borrowings	135,398		588		1.75	%	109,275			558		2.05	%	103,865			620		2.39	%
Total borrowed funds	319,387		1,162		1.46	%	362,909			1,597		1.77	%	344,459			1,853		2.16	%
Total interest-bearing liabilities	3,158,703		4,446		0.57	%	3,000,266			6,226		0.83	%	2,967,385			7,572		1.02	%
Non-interest-bearing deposits	997,179						708,512							654,468
Other liabilities	99,993						76,603							52,934
Total liabilities	4,255,875						3,785,381							3,674,787


Stockholders’ equity	572,141						596,246							564,992
Total liabilities and stockholders’ equity	$	4,828,016					$	4,381,627						$	4,239,779
Interest rate spread (c)			$	35,129	3.03	%				$	34,908	3.31	%				$	36,316	3.54	%
Net interest margin (c)							3.19		%					3.51		%					3.77	%

For the Nine Months Ended
September 30, 2017 September 30, 2016
(Dollars in thousands)
Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost
Short-term investments $ 10,854
$ 83
1.02 % $ 10,052
$ 37
0.49 %
Investment securities (a):
Taxable (b) 766,116
15,416
2.68 % 754,922
14,010
2.47 %
Nontaxable (c) 109,921
3,473
4.21 % 112,331
3,588
4.26 %
Total investment securities 876,037
18,889
2.87 % 867,253
17,598
2.71 %
Loans (c) (d):
Commercial real estate, construction 106,637
3,488
4.31 % 88,373
2,566
3.81 %
Commercial real estate, other 740,263
26,205
4.67 % 721,620
25,195
4.59 %
Commercial and industrial 434,976
14,599
4.43 % 369,248
11,568
4.12 %
Residential real estate (e) 519,989
16,801
4.31 % 560,681
18,341
4.36 %
Home equity lines of credit 111,012
3,683
4.44 % 108,380
3,639
4.49 %
Consumer, indirect 295,461
7,758
3.51 % 195,613
5,432
3.71 %
Consumer, other 69,914
3,718
7.11 % 72,060
3,226
5.98 %
Total loans 2,278,252
76,252
4.46 % 2,115,975
69,967
4.41 %
Less: Allowance for loan losses (18,671 ) (17,333 )
Net loans 2,259,581
76,252
4.47 % 2,098,642
69,967
4.41 %
Total earning assets 3,146,472
95,224
4.02 % 2,975,947
87,602
3.90 %
Intangible assets 144,950
148,482

Other assets 201,350
175,909

    Total assets
$ 3,492,772
$ 3,300,338

Deposits:
Savings accounts $ 442,559
$ 184
0.06 % $ 433,233
$ 173
0.05 %
Governmental deposit accounts 298,321
499
0.22 % 304,422
444
0.19 %
Interest-bearing demand accounts 300,911
310
0.14 % 255,796
151
0.08 %
Money market accounts 393,944
637
0.22 % 399,853
500
0.17 %
Brokered certificates of deposit 85,576
1,218
1.90 % 41,965
890
2.83 %
Retail certificates of deposit 363,747
2,233
0.82 % 417,599
2,373
0.76 %
Total interest-bearing deposits 1,885,058
5,081
0.36 % 1,852,868
4,531
0.33 %
Borrowed funds:
Short-term FHLB advances 104,703
757
0.97 % 67,533
208
0.41 %
Retail repurchase agreements 74,940
96
0.17 % 73,275
93
0.17 %
Total short-term borrowings 179,643
853
0.64 % 140,808
301
0.29 %
Long-term FHLB advances 136,570
2,140
2.10 % 79,829
1,653
2.77 %
Wholesale repurchase agreements 40,000
1,100
3.67 % 40,000
1,104
3.68 %
Other borrowings 6,951
324
6.21 % 6,758
307
5.97 %
Total long-term borrowings 183,521
3,564
2.59 % 126,587
3,064
3.23 %
  Total borrowed funds 363,164
4,417
1.62 % 267,395
3,365
1.68 %
      Total interest-bearing liabilities 2,248,222
9,498
0.56 % 2,120,263
7,896
0.50 %
Non-interest-bearing deposits 761,308
715,244

Other liabilities 35,650

34,062

Total liabilities 3,045,180
2,869,569

Total stockholders’ equity 447,592

430,769

Total liabilities and stockholders’ equity $ 3,492,772

$ 3,300,338

Interest rate spread (c) $ 85,726
3.46 % $ 79,706
3.40 %
Net interest margin (c) 3.61 % 3.55 %
49

Table of Contents




	For the Six Months Ended
	June 30, 2020										June 30, 2019
(Dollars in thousands)	Average Balance		Income/ Expense		Yield/Cost		Average Balance		Income/ Expense		Yield/Cost
Short-term investments (a)	$	119,143	$	284	0.48	%	$	22,145	$	439	4.00	%

Investment securities (b)(c)(d):
Taxable	915,704		9,616		2.10	%	827,831		11,853		2.86	%
Nontaxable	105,051		1,631		3.11	%	100,876		1,603		3.18	%
Total investment securities	1,020,755		11,247		2.20	%	928,707		13,456		2.90	%
Loans (c)(d)(e):
Construction	109,910		2,477		4.46	%	127,988		3,387		5.26	%
Commercial real estate, other	843,336		18,930		4.44	%	820,163		21,918		5.32	%
Commercial and industrial	814,321		16,266		3.95	%	589,249		15,762		5.32	%
Residential real estate (f)	673,976		16,628		4.93	%	625,236		14,845		4.75	%
Home equity lines of credit	130,152		3,268		5.05	%	131,746		3,866		5.92	%
Consumer, indirect	418,979		8,963		4.30	%	411,489		8,343		4.09	%
Consumer, direct	77,269		2,646		6.89	%	76,969		2,648		6.94	%
Total loans	3,067,943		69,178		4.49	%	2,782,840		70,769		5.07	%
Less: Allowance for credit losses(d)	(38,158)						(20,861)
Net loans	3,029,785		69,178		4.54	%	2,761,979		70,769		5.12	%
Total earning assets	4,169,683		80,709		3.85	%	3,712,831		84,664		4.55	%
Goodwill and other intangible assets	177,498						168,458
Other assets	257,640						232,114
Total assets	$	4,604,821					$	4,113,403
Interest-bearing deposits:
Savings accounts	$	543,053	$	107	0.04	%	$	498,115	$	201	0.08	%
Governmental deposit accounts	349,703		1,160		0.67	%	314,666		1,405		0.90	%
Interest-bearing demand accounts	642,194		319		0.10	%	586,577		478		0.16	%
Money market accounts	526,168		1,033		0.39	%	404,868		1,185		0.59	%
Retail certificates of deposit	485,126		3,929		1.63	%	437,476		3,496		1.61	%
Brokered deposits	192,093		1,365		1.43	%	293,313		3,798		2.61	%
Total interest-bearing deposits	2,738,337		7,913		0.58	%	2,535,015		10,563		0.84	%
Borrowed funds:
Short-term FHLB advances	171,971		1,553		1.82	%	196,290		2,255		2.32	%
Repurchase agreements and other	46,840		60		0.26	%	46,373		151		0.65	%
Total short-term borrowings	218,811		1,613		1.48	%	242,663		2,406		2.00	%
Long-term FHLB advances	112,382		938		1.68	%	98,712		999		2.04	%

Repurchase agreement and other borrowings	9,954		208		4.18	%	7,325		266		7.26	%
Total long-term borrowings	122,336		1,146		1.88	%	106,037		1,265		2.40	%
Total borrowed funds	341,147		2,759		1.62	%	348,700		3,671		2.12	%
Total interest-bearing liabilities	3,079,484		10,672		0.70	%	2,883,715		14,234		0.99	%
Non-interest-bearing deposits	852,846						634,308
Other liabilities	88,298						50,674
Total liabilities	4,020,628						3,568,697

Total stockholders’ equity	584,193						544,706

Total liabilities and stockholders’ equity	$	4,604,821					$	4,113,403
Interest rate spread (c)			$	70,037	3.15	%			$	70,430	3.56	%
Net interest margin (c)					3.34	%					3.78	%

(a) The three and six month periods ended June 30, 2019 do not reflect an adjustment related to the balance sheet interest rate swap transactions.


~~(a)~~	~~Average balances are based on carrying value.~~

(b) Average balances are based on carrying value.

(c) Interest income and ~~yield~~yields are presented on a fully tax-equivalent basis, using a 21% statutory federal corporate income tax rate.

(d) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million; the addition of a $1.5 million unfunded commitment liability included in accrued expense and other liabilities; and a reduction to retained earnings of $3.7 million, net of statutory federal corporate income.

(e) Average balances include nonaccrual and impaired loans. Interest income includes ~~$611,000~~interest earned and received on ~~an investment security~~nonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for ~~which an other-than-temporary-impairment had previously been recorded.~~all periods presented.


~~(c)~~	~~Interest income and yields are presented on a fully tax-equivalent basis using a 35% federal tax rate.~~


~~(d)~~	Average balances include nonaccrual, impaired loans and loans held for sale. Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for all periods presented.

~~(e)~~

Table of Contents

(f) Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income.

Average total loan balances were impacted during the second quarter of 2020 and the first six months of 2020 due to the PPP loan growth. During the second quarter of 2020, Peoples funded approximately $488.1 million of PPP loans, which added to the commercial and industrial average loan balances for the quarterly and six month period.

The following table provides an analysis of the changes in FTE net interest income:




	Three Months Ended June 30, 2020 Compared to																			Six Months Ended June 30, 2020 Compared to
(Dollars in thousands)	March 31, 2020										June 30, 2019								June 30, 2019
Increase (decrease) in:	Rate		Volume		Total ^(a)		Rate		Volume		Total ^(a)		Rate		Volume		Total ^(a)
INTEREST INCOME:
Short-term investments	$	(908)	$	720	$	(188)	$	(1,696)	$	1,481	$	(215)	$	(1,306)	$	1,151	$	(155)

Investment Securities (b) (c):
Taxable	(1,097)		(143)		(1,240)		(3,088)		1,270		(1,818)		(1,823)		(414)		(2,237)
Nontaxable	15		(42)		(27)		(3)		(118)		(121)		28		—		28
Total investment income	(1,082)		(185)		(1,267)		(3,091)		1,152		(1,939)		(1,795)		(414)		(2,209)
Loans (b)(c):
Construction	(1,146)		1,121		(25)		(398)		(31)		(429)		(473)		(437)		(910)
Commercial real estate, other	(2,056)		872		(1,184)		(3,774)		1,325		(2,449)		(4,653)		1,665		(2,988)
Commercial and industrial	(8,314)		9,732		1,418		(13,618)		14,379		761		(9,438)		9,942		504
Residential real estate	(1,067)		953		(114)		(525)		864		339		596		1,187		1,783
Home equity lines of credit	(242)		(40)		(282)		(457)		(56)		(513)		(553)		(45)		(598)
Consumer, indirect	81		64		145		209		90		299		460		160		620
Consumer, direct	(177)		115		(62)		(123)		(44)		(167)		(2)		—		(2)
Total loan income	(12,921)		12,817		(104)		(18,686)		16,527		(2,159)		(14,063)		12,472		(1,591)
Total interest income	$	(14,911)	$	13,352	$	(1,559)	$	(23,473)	$	19,160	$	(4,313)	$	(17,164)	$	13,209	$	(3,955)
INTEREST EXPENSE:
Deposits:
Savings accounts	$	(76)	$	35	$	(41)	$	(130)	$	53	$	(77)	$	(143)	$	49	$	(94)
Governmental deposit accounts	(790)		520		(270)		(989)		586		(403)		(612)		367		(245)
Interest-bearing demand accounts	(248)		71		(177)		(286)		126		(160)		(275)		116		(159)
Money market accounts	(1,050)		737		(313)		(1,421)		1,127		(294)		(813)		661		(152)
Retail certificates of deposit	(157)		(32)		(189)		(317)		108		(209)		39		394		433
Brokered deposits	(364)		9		(355)		(865)		(427)		(1,292)		(1,383)		(1,050)		(2,433)
Total deposit cost	(2,685)		1,340		(1,345)		(4,008)		1,573		(2,435)		(3,187)		537		(2,650)
Borrowed funds:
Short-term borrowings	(169)		(296)		(465)		(377)		(282)		(659)		(707)		(86)		(793)
Long-term borrowings	(466)		496		30		(507)		475		(32)		(365)		246		(119)
Total borrowed funds cost	(635)		200		(435)		(884)		193		(691)		(1,072)		160		(912)
Total interest expense	(3,320)		1,540		(1,780)		(4,892)		1,766		(3,126)		(4,259)		697		(3,562)
Fully tax-equivalent net interest income	$	(11,591)	$	11,812	$	221	$	(18,581)	$	17,394	$	(1,187)	$	(12,905)	$	12,512	$	(393)

Nine Months Ended
September 30, 2017
Three Months Ended September 30, 2017 Compared to Compared to
(Dollars in thousands) June 30, 2017 September 30, 2016 September 30, 2016
Increase (decrease) in: Rate Volume
Total ⁽¹⁾
Rate Volume
Total ⁽¹⁾
Rate Volume
Total ⁽¹⁾
INTEREST INCOME:
Short-term investments $ 14
$ 2
$ 16
$ 24
$ 8
$ 32
$ 42
$ 4
$ 46
Investment Securities (2):

Taxable 579
80
659
880
281
1,161
1,196
210
1,406
Nontaxable (33 ) (61 ) (94 ) (30 ) (78 ) (108 ) (39 ) (76 ) (115 )
Total investment income 546
19
565
850
203
1,053
1,157
134
1,291
Loans (2):

Commercial real estate, construction 47
132
179
155
267
422
357
565
922
Commercial real estate, other (832 ) 830
(2 ) 19
509
528
409
601
1,010
Commercial and industrial 266
72
338
675
666
1,341
901
2,130
3,031
Residential real estate 242
(338 ) (96 ) (104 ) (498 ) (602 ) (223 ) (1,317 ) (1,540 )
Home equity lines of credit 89
(31 ) 58
39
6
45
(60 ) 104
44
Consumer, indirect 110
275
385
23
957
980
(484 ) 2,810
2,326
Consumer, other 18
23
41
389
(227 ) 162
647
(155 ) 492
Total loan income (60 ) 963
903
1,196
1,680
2,876
1,547
4,738
6,285
Total interest income 500
984
1,484
2,070
1,891
3,961
2,746
4,876
7,622
INTEREST EXPENSE:
Deposits:
Savings accounts 5
(1 ) 4
5
1
6
7
4
11
Governmental deposit accounts 27
5
32
55
(7 ) 48
70
(15 ) 55
Interest-bearing demand accounts 25
10
35
57
15
72
129
30
159
Money market accounts 71
(15 ) 56
111
(33 ) 78
149
(12 ) 137
Brokered certificates of deposit 33
(38 ) (5 ) (438 ) 689
251
(514 ) 842
328
Retail certificates of deposit 80
(66 ) 14
364
(381 ) (17 ) 261
(401 ) (140 )
Total deposit cost 241
(105 ) 136
154
284
438
102
448
550
Borrowed funds:
Short-term borrowings 98
38
136
223
37
260
128
424
552
Long-term borrowings (117 ) 235
118
(273 ) 476
203
(671 ) 1,171
500
Total borrowed funds cost (19 ) 273
254
(50 ) 513
463
(543 ) 1,595
1,052
Total interest expense 222
168
390
104
797
901
(441 ) 2,043
1,602
Net interest income $ 278
$ 816
$ 1,094
$ 1,966
$ 1,094
$ 3,060
$ 3,187
$ 2,833
$ 6,020

~~(1)~~(a)The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the

relationship of the dollar amounts of

the changes in each.

~~(2)~~(b)On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million; the addition of a $1.5 million unfunded commitment liability included in accrued expense and other liabilities; and a reduction to retained earnings of $3.7 million, net of statutory federal corporate income.

(c)Interest income and yields are presented on a fully tax-equivalent basis using a ~~35%~~21% statutory federal corporate income tax rate.

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Net interest margin, which is calculated by dividing fully tax-equivalent ("FTE") net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions to the pre-tax equivalent of taxable income using a 35% federal tax rate.

~~The following table details the calculation of FTE net interest income:~~

Three Months Ended Nine Months Ended
September 30,
2017 June 30,
2017 September 30,
2016 September 30,
(Dollars in thousands) 2017 2016
Net interest income, as reported $ 29,220
$ 28,090
$ 26,123
$ 84,255
$ 78,198
Taxable equivalent adjustments 460
496
497
1,471
1,508
Fully tax-equivalent net interest income $ 29,680
$ 28,586
$ 26,620
$ 85,726
$ 79,706

~~Fully tax-equivalent net interest~~ income increased ~~12% in the third quarter of 2017 compared to the prior year third quarter and 4%~~1% compared to the linked ~~quarter.~~quarter, as reductions in loan yields were more than offset by the PPP loan income, reduced deposit rates and lower borrowing costs. Federal, state and local responses to COVID-19 have included travel restrictions, prohibition and cancellation of large-scale gatherings, restrictions on commerce and movement, and the closure of schools

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and colleges. The impact caused by the closures had a significant impact on the economy. During the ~~third~~second quarter of ~~2017,~~2020, net interest income was heavily impacted by the actions taken by the Federal Reserve in response to the COVID-19 pandemic. In late March, the Federal Reserve lowered the Federal Funds effective target range 150 basis points during the first quarter of 2020 to 0.00% to 0.25%. The majority of Peoples' variable rate loan portfolio is tied to LIBOR or a prime rate, which continued to be lower than historical levels. The low interest rate environment also drove higher premium amortization on Peoples' investment securities portfolio, which was $720,000 higher than in the linked quarter, thereby reducing net interest income and net interest margin. Net interest margin decreased 32 basis points compared to the linked quarter driven by lower loan and investment yields.

Net interest income for the second quarter of 2020 decreased $1.2 million, or 3%, compared to the second quarter of 2019. Net interest margin decreased 58 basis points compared to 3.77% for the second quarter of 2019. The decrease in net interest income compared to the second quarter of 2019 was driven by lower yields on loans and investments, offset by PPP loan income and lower interest rates paid on deposits, all of which were impacted by the Federal Reserve's reaction to COVID-19.

For the first six months of 2020, net interest income declined $467,000, or 1%, compared to the first six months of 2019 and net interest margin decreased 44 basis points to 3.34%. The lower net interest income and net interest margin ~~benefited from accretion~~compared to 2019 were the result of lower interest rates, increased premium amortization on Peoples' investment securities portfolio and loans repricing faster than deposits, caused by the Federal Reserve's reaction to COVID-19. Funding costs declined compared to the first six months of 2019, as interest rates on deposits were lowered and borrowing costs were controlled.

Accretion income, net of amortization expense, from acquisitions ~~which~~ was ~~$816,000 for the third quarter of 2017, compared to $801,000 for the third quarter of 2016 and $735,000~~$955,000 for the second quarter of ~~2017,~~2020, $1.1 million for the linked quarter and $1.2 million for the second quarter of 2019, which added 9 basis points, 11 basis points and 13 basis points, respectively, to net interest margin. Accretion income, net of amortization expense, from acquisitions was $2.0 million for the six months ended June 30, 2020, compared to $1.9 million for the six months ended June 30, 2019, which in both periods added 10 basis points, to net interest margin in the third and second quarter of 2017, and 11 basis points for the third quarter of 2016. On a year-to-date basis, the accretion income, net of amortization expense, from acquisitions added 10 basis points to net interest margin for the first nine months of 2017 compared to 12 basis points for the first nine months of 2016.

During the third quarter of 2017, compared to the linked quarter, the net interest margin improved 5 basis points. The increases in net interest margin during the periods were primarily due to loan growth and increases in the earning asset yields outpacing higher funding costs. Recent increases in interest rates, coupled with prepayments on investment securities, led to the higher investment securities yield compared to both the third quarter of 2016 and the second quarter of 2017. In addition, during the third quarter of 2017, Peoples received proceeds of $611,000 on an investment security for which there had previously been an other-than-temporary-impairment. These proceeds during the third quarter added 8 basis points to the net interest margin during the third quarter of 2017. Funding costs increased 12 basis points for the third quarter of 2017 compared to prior year third quarter and increased 5 basis points from the linked quarter, as continued increases in interest rates have impacted the total cost of funds.

~~Average loan balances for the third quarter of 2017 increased $183.9 million compared to the prior year third quarter, and were up $46.2 million compared to the linked quarter.~~margin.

Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this discussion. Additional information regarding Peoples' interest rate risk and the potential impact of interest rate changes on Peoples' results of operations and financial condition can be found later in this discussion under the caption "FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity."

Provision for ~~Loan~~Credit Losses

The following table details Peoples’ provision for ~~loan~~credit losses:

Three Months Ended Nine Months Ended
September 30,
2017 June 30,
2017 September 30,
2016 September 30,
(Dollars in thousands) 2017 2016
Loan losses $ 900
$ 850
$ 978
2,150
2,410
Checking account overdrafts 186
97
168
$ 507
$ 418
Provision for loan losses $ 1,086
$ 947
$ 1,146
$ 2,657
$ 2,828
As a percentage of average total loans (a) 0.19 % 0.17 % 0.21 % 0.16 % 0.18 %
(a) Presented on an annualized basis


	Three Months Ended															Six Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019			June 30,
(Dollars in thousands)																	2020	2019
Provision for other credit losses	$	11,773		$	16,824		$	475		$	28,597		$	115
Provision for checking account overdraft credit losses	61			145			151			206			248
Provision for credit losses	$	11,834		$	16,969		$	626		$	28,803		$	363
As a percentage of average total loans (a)	1.46		%	2.37		%	0.09		%	1.89		%	0.03		%
(a) Presented on an annualized basis.

The provision for ~~loan~~credit losses recorded represents the amount needed to maintain the ~~adequacy~~appropriate level of the allowance for ~~loan~~credit losses based on management’s quarterly ~~analysis~~estimates. During the second quarter of 2020, the provision for credit losses was driven by the economic forecasts utilized within Peoples' CECL model, which predicted higher levels of defaults due to the COVID-19 pandemic. Peoples recorded lower provision for credit losses during the second quarter of 2020, compared to the linked quarter, driven primarily by the deterioration in the one-year economic forecast used for the first quarter, which was more severe than the deterioration in the one-year economic forecast used for the second quarter. For the first six months of 2020, Peoples recorded significant provision for credit losses related to the impacts from the economic assumptions used in estimating the allowance for credit losses under the CECL model. Net recoveries for the second quarter of 2020 were $369,000, or (0.05)% of average total loans annualized, compared to net charge-offs of $498,000, or 0.07% of average total loans annualized, for the linked quarter and net charge-offs of $208,000, or 0.03% of average total loans annualized, for the second quarter of 2019.

During the first quarter of 2020, Peoples adopted ASU 2016-13, and utilized the CECL model to determine its allowance for credit losses, while prior periods used the incurred loss model. The CECL model utilized by Peoples relies on economic forecasts, as well as other key assumptions including prepayments, probability of default and loss given default. Under the incurred loss model (the accounting methodology prior to 2020), the process for estimating allowance for loan ~~portfolio and procedural methodology that estimates the amount of probable credit losses. This process considers~~losses considered various factors that affect losses, such as changes in Peoples’ loan quality

and historical loss experience. Given the relatively low recent loss history, the incurred loss model was highly dependent on qualitative factors to arrive at an appropriate allowance for loan losses in periods prior to 2020. These qualitative factors included current economic conditions, and other environmental factors such as changes in real estate market conditions, unemployment, and the economic impact of tariffs.

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historical loss experience and current economic conditions. The higher provision for loan losses recorded during the third quarter of 2017, compared to the second quarter of 2017, was due to higher checking account overdrafts coupled with growth in loan balances.

Additional information regarding changes in the allowance for ~~loan~~credit losses and loan credit quality can be found later in this discussion under the caption “FINANCIAL CONDITION - Allowance for ~~Loan~~Credit Losses.”

Net ~~(Loss) Gain~~Gains (Losses) Included in Total Non-Interest Income

Net gains (losses) include gains and losses on ~~Asset Disposals and Other Transactions~~

~~The following table details the net (loss) gain on~~investment securities, asset disposals and other transactions, which are recognized ~~by Peoples:~~

Three Months Ended Nine Months Ended
September 30,
2017 June 30,
2017 September 30,
2016 September 30,
(Dollars in thousands) 2017 2016
Net (loss) gain on bank premises and equipment $ (38 ) $ 133
$ 1
$ 92
$ (126 )
Net gain (loss) on other real estate owned ("OREO") 13
(24 ) —
(11 ) (1 )
Net loss on debt extinguishment —
—
—
—
(707 )
Net loss on other transactions —
—
(225 ) —
(190 )
Net (loss) gain on asset disposals and other transactions $ (25 ) $ 109
$ (224 )
$ 81
$ (1,024 )

The net loss on bank premises and equipment during the third quarter of 2017 was primarily due to the sale of a parking lot that was no longer being utilized. The net gain on bank premises and equipment during the second quarter of 2017 was due to the sale of a previously closed branch. The net loss on bank premises and equipment during the nine months of 2016 was due mainly to the closing of a leased office and related disposal of leasehold improvements.

The net gain on OREO during the third quarter of 2017 was due to the sale of one property. The net loss on OREO during the second quarter of 2017 was due primarily to the write-down of two OREO properties.

The net loss on debt extinguishment during the nine months of 2016 was related to the prepayment of $20.0 million of FHLB advances. The net loss on other transactions during the third quarter of 2016 was related to the write-down of a tax investment.

~~Non-Interest Income~~

~~Insurance income comprised the largest portion of the third quarter 2017~~in total non-interest income. The following table details Peoples’ net gains (losses):


	Three Months Ended										Six Months Ended
	June 30, 2020		March 31, 2020		June 30, 2019		June 30,
(Dollars in thousands)												2020	2019
Net gain (loss) on investment securities	$	62	$	319	$	(57)	$	381	$	(27)

Net (loss) gain on asset disposals and other transactions:
Net loss on other assets	$	(145)	$	(70)	$	(274)	$	(215)	$	(431)
Net gain (loss) on OREO	1		(17)		(24)		(16)		(49)

Net gain on other transactions	22		—		5		22		5
Net loss on asset disposals and other transactions	$	(122)	$	(87)	$	(293)	$	(209)	$	(475)

During the second quarter of 2020, Peoples primarily recognized net losses on repossessed assets. During the first quarter of 2020, Peoples sold investment securities to lock in gains, while also recognizing net losses on repossessed assets. During the second quarter of 2019, net losses included $253,000 of write-offs of fixed assets acquired from First Prestonsburg.

For the first six months of 2020, net gains on investment securities were recorded related to sales of investment securities that primarily occurred in the first quarter, while the net loss on other assets was driven by losses on repossessed assets. For the first half of 2019, the net loss on other assets was mostly due to the write-off of fixed assets acquired from First Prestonsburg, coupled with market value write-downs related to closed offices that were held for sale.

Total Non-Interest Income, Excluding Net Gains and Losses

Peoples' electronic banking ("e-banking") services include ATM and debit cards, direct deposit services, internet and mobile banking, and remote deposit capture, and serve as alternative delivery channels to traditional sales offices for providing services to clients. The following table details Peoples' e-banking income:


	Three Months Ended										Six Months Ended
	June 30, 2020		March 31, 2020		June 30, 2019		June 30,
(Dollars in thousands)												2020	2019


E-banking income	$	3,523	$	3,280	$	3,267	$	6,803	$	6,254

Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. The increase in e-banking income compared to the linked quarter was driven by the increased usage of debit cards, due to the lifting of many restrictions and the stay-at-home orders put in place in Peoples' markets at the end of the previous quarter in response to COVID-19. In the first six months, e-banking grew 9% compared to the previous year due partially to the full six-month impact of the First Prestonsburg acquired accounts and the increased usage of debit cards by more customers.

The following table details Peoples' insurance income:


	Three Months Ended										Six Months Ended
	June 30, 2020		March 31, 2020		June 30, 2019		June 30,
(Dollars in thousands)												2020	2019


Property and casualty insurance commissions	2,506		2,590		2,680		5,096		5,354


Life and health insurance commissions	427		102		626		529		985
Performance-based commissions	138		1,291		2		1,429		1,421
Other fees and charges	120		147		178		267		347
Insurance income	$	3,191	$	4,130	$	3,486	$	7,321	$	8,107

Three Months Ended Nine Months Ended
September 30,
2017 June 30,
2017 September 30,
2016 September 30,
(Dollars in thousands) 2017 2016
Property and casualty insurance commissions $ 2,638
$ 2,753
$ 2,579
$ 7,633
$ 7,699
Performance-based commissions 99
2
91
1,407
1,720
Life and health insurance commissions 433
467
420
1,310
1,318
Credit life and A&H insurance commissions 2
17
12
27
30
Other fees and charges 173
175
35
484
167
Insurance income $ 3,345
$ 3,414
$ 3,137
$ 10,861
$ 10,934

The ~~decrease~~23% decline in insurance income for the ~~the first nine months~~second quarter of ~~2017~~2020, compared to the ~~first nine months of 2016~~linked quarter, was ~~mainly due~~largely related to the ~~decrease in~~annual performance-based ~~commissions. The majority~~commissions of ~~performance-based commissions typically~~$1.3 million, which are ~~recorded annually~~primarily recognized in the first quarter of each year and are ~~based on~~ a ~~combination of factors, such as loss experience~~core component of insurance income. The remaining decreases in insurance income compared to prior periods were mostly related to timing and businesses that have either closed or declines in assets insured under policies, ~~sold, production volumes, and overall financial performance of the individual insurance carriers. The increase in other fees and charges was~~primarily due to the ~~acquisition of a third-party insurance administration company that occurred in January 2017.~~

COVID-19 pandemic.

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Peoples' ~~trust~~fiduciary and ~~investment income continues~~brokerage revenues continued to be based primarily upon the value of assets under administration and management, with additional income generated from transaction commissions, cross-selling of products and additional retirement plan services business. ~~Additionally, changes in total assets, and the income derived from the assets is primarily in relation to increases or decreases in market values.~~ The following tables detail Peoples’ trust and investment income and related assets under administration and management:


	Three Months Ended										Six Months Ended
	June 30, 2020		March 31, 2020		June 30, 2019		June 30,
(Dollars in thousands)												2020	2019
Fiduciary income	$	1,780	$	1,622	$	1,837	$	3,402	$	3,473
Brokerage income	999		1,160		1,038		2,159		2,003
Employee benefits fees	537		480		526		1,017		1,037
Trust and investment income	$	3,316	$	3,262	$	3,401	$	6,578	$	6,513

Three Months Ended Nine Months Ended
September 30,
2017 June 30,
2017 September 30,
2016 September 30,
(Dollars in thousands) 2017 2016
Fiduciary $ 1,956
$ 2,093
$ 1,851
$ 5,922
$ 5,501
Brokerage 882
884
841
2,575
2,349
Trust and investment income $ 2,838
$ 2,977
$ 2,692
$ 8,497
$ 7,850
Fiduciary income and employee benefits fees benefited from higher managed asset balances near the end of the second quarter of 2020 compared to the first quarter of 2020, mostly due to the recent changes in market values. Brokerage income is also driven by managed asset balances, however, it is generally calculated based on balances at the beginning of each quarter, which caused the decline compared to the first quarter of 2020.


	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
(Dollars in thousands)	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Assets under administration and management:
Trust	$	1,552,785	$	1,385,161	$	1,572,933	$	1,504,036	$	1,501,110
Brokerage	885,138		816,260		944,002		904,191		887,745
Total	$	2,437,923	$	2,201,421	$	2,516,935	$	2,408,227	$	2,388,855
Quarterly average	$	2,351,701	$	2,425,849	$	2,458,770	$	2,397,515	$	2,356,121

September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016
(Dollars in thousands)
Trust assets under administration and management $ 1,418,360
$ 1,393,435
$ 1,362,243
$ 1,301,509
$ 1,292,044
Brokerage assets under administration and management 862,530
836,192
805,361
777,771
754,168
Total assets under administration and management $ 2,280,890
$ 2,229,627
$ 2,167,604
$ 2,079,280
$ 2,046,212
Quarterly average $ 2,254,997
$ 2,199,162
$ 2,122,036
$ 2,053,121
$ 2,031,378

~~People's~~Deposit account service charges are based on the recovery of costs associated with services provided. The following table details Peoples' deposit account service ~~charges was comprised of the following:~~charges:


	Three Months Ended						Nine Months Ended					Three Months Ended										Six Months Ended
	September 30, 2017		June 30, 2017		September 30, 2016		September 30,					June 30, 2020		March 31, 2020		June 30, 2019		June 30,
(Dollars in thousands)							2017		2016		(Dollars in thousands)												2020	2019
Overdraft and non-sufficient funds fees	$	1,765	$	1,642	$	2,105	$	5,021	$	5,806	Overdraft and non-sufficient funds fees	$	876	$	1,649	$	1,746	$	2,525	$	3,179
Account maintenance fees	543		545		605		1,624		1,751		Account maintenance fees	849		980		1,012		1,829		1,764
Other fees and charges	99		107		123		485		442		Other fees and charges	184		191		219		375		375
Deposit account service charges	$	2,407	$	2,294	$	2,833	$	7,130	$	7,999	Deposit account service charges	$	1,909	$	2,820	$	2,977	$	4,729	$	5,318

The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Income from deposit account service charges decreased compared to the linked quarter, second quarter of 2019 and first six months of 2019. The declines were a result of lower overdraft, non-sufficient funds and account maintenance fees assessed to customers given higher deposit balances held by Peoples' customers. The decline in assessed fees was directly correlated to the developments related to COVID-19, specifically the PPP loan proceeds, fiscal stimulus and changed customer habits.

The following table details the other items included within Peoples' total non-interest income:


	Three Months Ended										Six Months Ended
	June 30, 2020		March 31, 2020		June 30, 2019		June 30,
(Dollars in thousands)												2020	2019

Commercial loan swap fees	$	955	$	244	$	516	$	1,199	$	662
Mortgage banking income	938		750		1,000		1,688		1,788
Bank owned life insurance income	470		582		490		1,052		975
Other non-interest income	422		437		502		859		1,603

Commercial loan swap fees are largely dependent on timing, interest rates, and the volume of customer activity. Commercial loan swap fees in the second quarter of 2020 increased $711,000, driven by customer demand in the current low rate environment, when compared to the linked quarter. The increase compared to the second quarter of 2019 was driven by slightly higher customer demand, given the low rate environment and the favorable rates that customers could lock in by utilizing a swap. For the first six months of 2020, commercial loan swap income has nearly doubled compared to the same period in 2019, due to the larger size of the transactions, as the quantity of transactions was largely similar to 2019.

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Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and, to a lesser extent, servicing income for loans sold with servicing retained. As a result, the amount of income recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans offered in the secondary market. The increases in mortgage banking income from the linked quarter, second quarter of 2019 and first six months of 2019 were mainly due to higher refinancings because of the interest rate environment. Also contributing to the fluctuation compared to the linked quarter was seasonality in the housing market, coupled with a $182,000 write-down of mortgage servicing rights during the first quarter of 2020.

In the second quarter of 2020, Peoples sold $21.4 million in loans to the secondary market with servicing retained and sold $42.0 million in loans with servicing released, compared to approximately $22.0 million and $14.0 million, respectively, in the linked quarter, and $24.9 million and $11.4 million, respectively, in the second quarter of 2019. The volume of sales has a direct impact on the amount of mortgage banking income.

Bank owned life insurance income decreased $112,000, compared to the prior quarter as a result of $109,000 of tax-free death benefits recognized in the first quarter of 2020, which was not duplicated in the second quarter.

Non-Interest Expense

Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs:


	Three Months Ended										Six Months Ended
	June 30, 2020		March 31, 2020		June 30, 2019		June 30,
(Dollars in thousands)												2020	2019
Base salaries and wages	$	12,774	$	12,696	$	14,353	$	25,470	$	26,227
Sales-based and incentive compensation	3,165		2,662		3,096		5,827		5,705
Employee benefits	1,997		2,544		1,966		4,541		4,656
Payroll taxes and other employment costs	1,074		1,362		1,208		2,436		2,585
Stock-based compensation	970		1,383		930		2,353		2,138
Deferred personnel costs	(1,995)		(729)		(729)		(2,724)		(1,285)
Salaries and employee benefit costs	$	17,985	$	19,918	$	20,824	$	37,903	$	40,026
Full-time equivalent employees:
Actual at end of period	894		898		918		894		918
Average during the period	892		898		906		895		891

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Three Months Ended Nine Months Ended
September 30,
2017 June 30,
2017 September 30,
2016 September 30,
(Dollars in thousands) 2017 2016
Base salaries and wages $ 10,043
$ 9,750
$ 9,782
$ 29,860
$ 29,439
Sales-based and incentive compensation 2,653
2,878
2,501
7,630
6,310
Employee benefits 1,535
1,509
1,492
4,971
4,387
Stock-based compensation 359
443
346
1,370
1,009
Deferred personnel costs (394 ) (447 ) (453 ) (1,201 ) (1,397 )
Payroll taxes and other employment costs 945
916
916
3,056
3,133
Salaries and employee benefit costs $ 15,141
$ 15,049
$ 14,584
$ 45,686
$ 42,881
Full-time equivalent employees:

Actual at end of period 778
775
799
778
799
Average during the period 778
774
798
778
809

~~Salaries~~Base salaries and ~~employee benefit costs for the third quarter and the nine months of 2017~~wages increased 1% compared to the ~~third~~linked quarter and ~~nine months~~decreased 11% compared to the second quarter of ~~2016 due primarily~~2019. During the second quarter of 2019, Peoples incurred acquisition-related expenses related to ~~an increase in sales-based~~the First Prestonsburg acquisition totaling $2.4 million, which was the key driver of the decline, and ~~incentive compensation, and employee benefits, which~~ was partially offset by merit increases and the continued movement towards a ~~decrease in full-time equivalent employees.~~ $15 per hour minimum wage throughout Peoples' organization that was largely implemented as of January 1, 2020. For the first six months of 2020, base salaries and wages decreased 3% compared to 2019, as acquisition-related expenses of $2.4 million were recognized during the first six months of 2019.

The increase in sales-based and incentive compensation ~~is tied~~for the second quarter of 2020 compared to ~~improvement~~the first quarter of 2020 was related to overall company performance measures used in ~~corporate performance for 2017.~~ calculating incentive awards, combined with higher sales-based compensation related to mortgage banking reflecting the increased volume of real estate loans sold in the secondary market.

The ~~increase~~decrease in employee benefits for the second quarter of 2020, compared to the linked quarter, was partially due to the annual contribution of $427,000 to employee health benefit accounts occurring primarily in the first quarter of 2020, coupled with the restrictions on elective medical procedures due to ~~health insurance~~COVID-19.

Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years, adjusted for an estimate of the portion of awards that will be forfeited. At the vesting date, an adjustment is made to increase or reverse expense for the amount of actual forfeitures compared to the estimate. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. The majority of Peoples' stock-based compensation is attributable to annual equity-based incentive awards to employees, which are awarded in the first quarter of each year and are based upon Peoples achieving certain performance goals during the prior year. Stock-based compensation for the second quarter of 2020 declined compared to the linked quarter, as an additional $396,000 of unrestricted grants of common share awards to associates at the level of Assistant Vice President or below during the second quarter of 2020 was more than offset by a reduction of $813,000 related to additional expense recorded during the first quarter of 2020 from stock grants to retirement eligible

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individuals and the annual vesting of prior stock grants. The unrestricted common share grant during the second quarter of 2020 contributed to the increase in stock-based compensation for the first six months of 2020 compared to 2019.

The decrease in payroll taxes and other employment costs, compared to the linked quarter included lower social security and unemployment taxes recognized during the second quarter of 2020.

Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be direct loan origination costs. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year, which increased ~~as a result~~in 2020 compared to 2019. Materially impacting the comparison was the recognition of $921,000 in deferred personnel costs during the second quarter related to the origination of PPP loans. In addition, higher ~~claims~~production in ~~2017.~~residential real estate and commercial loans during the second quarter of 2020 contributed to the increased deferral compared to the linked quarter. Increased production in all categories of loans drove the higher deferred personnel costs compared to the first six months of 2019, with the first six months of 2020 also being impacted by the additional deferred costs related to the PPP loan originations.

Peoples' net occupancy and equipment expense was comprised of the following:


	Three Months Ended										Six Months Ended
	June 30, 2020		March 31, 2020		June 30, 2019		June 30,
(Dollars in thousands)												2020	2019
Depreciation	$	1,557	$	1,455	$	1,494	$	3,012	$	2,743
Repairs and maintenance costs	701		757		715		1,458		1,485
Net rent expense	315		305		250		620		538
Property taxes, utilities and other costs	578		637		673		1,215		1,344
Net occupancy and equipment expense	$	3,151	$	3,154	$	3,132	$	6,305	$	6,110

Three Months Ended Nine Months Ended
September 30,
2017 June 30,
2017 September 30,
2016 September 30,
(Dollars in thousands) 2017 2016
Depreciation $ 1,206
$ 1,200
$ 1,337
$ 3,649
$ 3,773
Repairs and maintenance costs 577
682
589
1,930
1,814
Net rent expense 264
205
244
689
712
Property taxes, utilities and other costs 572
561
598
1,712
1,856
Net occupancy and equipment expense $ 2,619
$ 2,648
$ 2,768
$ 7,980
$ 8,155
Compared to the second quarter of 2019, net occupancy and equipment expense was impacted by increased depreciation related to investments in technological infrastructure and equipment (mainly ATMs), as well as branding for additional full-service bank branches from the First Prestonsburg acquisition. Net occupancy and equipment expense increased 3% compared to the first six months of 2019 mainly due to additional assets and costs associated with maintaining the First Prestonsburg locations for a full period.

The following table details the other items included in total non-interest expense:


	Three Months Ended									Six Months Ended
	June 30, 2020		March 31, 2020	June 30, 2019		June 30,
(Dollars in thousands)											2020	2019
E-banking expense	$	1,879	1,865	$	1,693	$	3,744	$	3,270
Professional fees	1,834		1,693	2,344		3,527		3,620
Data processing and software expense	1,754		1,752	1,567		3,506		3,112
Franchise tax expense	881		882	772		1,763		1,477
Amortization of other intangible assets	728		729	824		1,457		1,518
Marketing expense	632		473	490		1,105		1,084
Foreclosed real estate and other loan expenses	335		578	469		913		724
Communication expense	294		280	317		574		595
FDIC insurance premiums (credits)	152		(5)	381		147		752
Other non-interest expense	2,180		3,006	6,063		5,186		8,448

E-banking expense was up compared to the second quarter of 2019 due to an increased number of customers as a result of the addition of First Prestonsburg customers, which increased the volume of transactions involving debit cards and Peoples' internet and mobile banking service. The increase in expenses related to Peoples' internet and mobile banking services was driven by increases in customer accounts and customer usage of mobile and online banking tools, driven by the acquisition of First Prestonsburg in April 2019, as well as the annual contractual increase in the cost of each unit of service in internet and mobile banking.

The increase in data processing and software expense compared to prior periods was driven by systems and software upgrades, annual contractual increases and overall growth, which included: the implementation of enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers; software upgrades; and additional network capacity and security features.

Professional fees increased from the first quarter of 2020, primarily due to higher legal expenses and other professional services. Compared to the second quarter of 2019, professional fees were down due to $562,000 of fees incurred in 2019 as a result of the First Prestonsburg acquisition.

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Peoples' amortization of other intangible assets is driven by acquisition-related activity. Amortization of other intangible assets for the ~~third~~second quarter of ~~2017~~2020 was flat compared to the first quarter of 2020 and was down compared to the second quarter of 2019, as a result of the declining amortization from previous acquisitions.

Peoples is subject to state franchise taxes, which are based largely on Peoples' equity, in the states where Peoples has a physical presence. Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end. Expenses related to state franchise taxes, which includes Ohio FIT, increased in the second quarter of 2020 compared to the second quarter of 2019 due to higher equity as of December 31, 2019 compared to December 31, 2018, coupled with additional taxes in Kentucky as a result of the First Prestonsburg acquisition in 2019.

Marketing expense increased compared to the first quarter of 2020 and the second quarter of 2019, due to COVID-19 expenses incurred during the second quarter of 2020, which included a $250,000 donation to food banks and pantries in Peoples' market area.

Foreclosed real estate and other loan expenses decreased ~~$268,000, or 16%, from~~compared to the prior ~~year third~~ quarter and ~~$711,000, or 14%, between~~the second quarter of 2019 primarily due to higher deferred costs associated with increased origination volume of consumer indirect loans during the second quarter of 2020.

Peoples used credits to partially offset its FDIC insurance premiums related to its quarterly assessments during the second quarter of 2020 and used credits to fully offset the first ~~nine months~~quarter of ~~2017~~2020 premiums, compared to having no credits available to offset the second quarter of 2019 premiums. The FDIC insurance premiums credits were related to the level of the federal Deposit Insurance Fund ("DIF") that continued to be above the target threshold for banks with total consolidated assets of less than $10 billion to recognize credits. Peoples utilized the remaining credits that had been issued to it in the second quarter of 2020.

Compared to the linked quarter, other non-interest expense declined due to lower travel and entertainment costs, which was driven by the ~~first nine months~~stay-at-home orders in place for part of ~~2016.~~the quarter, as well as reductions in other ancillary costs. Other non-interest expense for the second quarter of 2020 decreased $3.9 million compared to the second quarter of 2019. The decrease ~~in professional fees~~ was primarily due to a ~~decrease~~decline in ~~legal fees related to collections~~acquisition-related expenses of ~~special assets~~$3.8 million, which ~~correlated to~~had been incurred with the ~~decrease in nonperforming assets and classified loans from December 31, 2016.~~

~~Data processing and software expense increased $351,000, or 47%, from the third quarter~~acquisition of ~~2016 and $827,000, or 33%, for~~First Prestonsburg. For the first ~~nine~~six months of ~~2017 compared to the first nine months~~2020, other non-interest expense decreased $3.3 million, and was mostly driven by a reduction of ~~2016. The increases~~$3.8 million in acquisition-related expenses, which were ~~due to higher monthly fees which resulted in moving from an in-house core processing solution to a primarily outsourced solution.~~partially offset by pension settlement charges of $519,000 recognized during 2020, while no similar costs were incurred during 2019.

The decrease in other expenses for the first nine months of 2017 compared to the first nine months of 2016 was primarily related to the timing of payments for postage expense, coupled with the replacement of the previous vendor in 2016. The decrease in communication expense resulted from the continued consolidation of traditional phone lines to a method of transmitting all voice traffic over the internet and the discontinuation of overlapping traditional phone line contracts that occurred during the transition.

Income Tax Expense (Benefit)

~~For the nine months ended September 30, 2017,~~ Peoples recorded income tax expense of ~~$13.4~~$1.1 million for ~~an effective tax rate~~the second quarter of ~~31.2%. Peoples' current estimate is that the effective tax rate~~2020, compared to a benefit of $156,000 for the ~~entire year~~linked quarter and an expense of ~~2017 will be approximately 31.0% to 32.0%. In comparison,~~$2.2 million for the second quarter of 2019. The income tax expense during the second quarter of 2020 was driven by pre-tax income of $5.9 million, which was impacted by the $11.8 million provision for credit losses recorded during the quarter. During the linked quarter, Peoples recorded an income tax ~~expense~~benefit due to the pre-tax loss as a result of ~~$10.8 million~~higher provision for ~~the same period in 2016, for an effective tax rate of 31.2%.~~

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Peoples adopted the ASU 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting as of January 1, 2017. In the first nine months of 2017, Peoples recorded a tax benefit of $123,000 associated with the adoption of this ASU for the tax benefit of awards that settled or vestedcredit losses during the period.

Additional information regarding income taxes can be found in "Note 12 Income Taxes" of the Notes to the Consolidated Financial Statements included in Peoples' 2019 Form 10-K.

Pre-Provision Net Revenue (non-US GAAP)

Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income, ~~(excluding~~excluding all gains and ~~all losses)~~losses, minus total non-interest ~~expense and, therefore, excludes the provision for (recovery of) loan losses and all gains and/or losses included in earnings.~~expense. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital. This ratio represents a non-US GAAP financial measure since it excludes the provision for credit losses and all gains and/or losses included in earnings.

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The following table provides a reconciliation of this ~~non-GAAP~~non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Consolidated Financial Statements for the periods presented:


	Three Months Ended									Nine Months Ended							Three Months Ended															Six Months Ended
	September 30, 2017			June 30, 2017			September 30, 2016			September 30,							June 30, 2020			March 31, 2020			June 30, 2019			June 30,
(Dollars in thousands)										2017			2016			(Dollars in thousands)																	2020	2019
Pre-Provision Net Revenue:
Income before income taxes	$	16,022		$	14,180		$	11,448		$	42,863		$	34,538
Add: provision for loan losses	1,086			947			1,146			2,657			2,828
Add: loss on debt extinguishment	—			—			—			—			707
Pre-provision net revenue:																Pre-provision net revenue:
Income (loss) before income taxes																Income (loss) before income taxes	$	5,885		$	(921)		11,836			$	4,964		$	29,582
Add: provision for credit losses (a)																Add: provision for credit losses (a)	11,834			16,969			626			28,803			363

Add: net loss on OREO	—			24			—			24			1			Add: net loss on OREO	—			17			24			17			49
Add: net loss on investment securities	—			—			1			—			—			Add: net loss on investment securities	—			—			57			—			27
Add: net loss on other assets																Add: net loss on other assets	145			70			274			215			431
Add: net loss on other transactions	38			—			225			41			316			Add: net loss on other transactions	—			—			—			—			—
Less: net gain on OREO	13			—			—			13			—			Less: net gain on OREO	1			—			—			1			—

Less: net gain on investment securities	1,861			18			—			2,219			862			Less: net gain on investment securities	62			319			—			381			—
Less: net gain on other transactions	—			133			1			133			—

Less: gain on other transactions																Less: gain on other transactions	22			—			5			22			5
Pre-provision net revenue	$	15,272		$	15,000		$	12,819		$	43,220		$	37,528		Pre-provision net revenue	$	17,779		$	15,816		$	12,812		$	33,595		$	30,447

Total average assets	$	3,541,220		$	3,489,701		$	3,324,636		$	3,492,772		$	3,300,338		Total average assets	$	4,828,016		$	4,381,627		$	4,239,779		$	4,604,821		$	4,113,403
Pre-provision net revenue to total average assets (a)	1.71		%	1.72		%	1.53		%	1.65		%	1.52		%
(a) Presented on an annualized basis.
Pre-provision net revenue to total average assets (annualized)																Pre-provision net revenue to total average assets (annualized)	1.48		%	1.45		%	1.21		%	1.47		%	1.49		%

Weighted-average common shares outstanding - diluted																Weighted-average common shares outstanding - diluted	19,858,880			20,538,214			20,442,366			20,183,222			19,972,350
Pre-provision net revenue per common share - diluted																Pre-provision net revenue per common share - diluted	$	0.89		$0.77			$0.63			$	1.66		$	0.62

~~For~~(a) On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the ~~first nine months~~CECL model. Prior to the adoption of ~~2017,~~CECL, the provision for (recovery of) credit losses was the "provision for (recovery of) loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans, which includes purchased credit deteriorated loans, held-to-maturity investment securities, and the unfunded commitment liability.

The increase in PPNR during the second quarter of 2020 was mostly due to reductions in non-interest expense compared to the linked quarter. Compared to the second quarter of 2019, and the first ~~nine~~six months of ~~2016,~~2019, PPNR increase mostly due to acquisition-related expenses incurred during the ~~increase in pre-provision net revenue was due largely to higher net interest income, coupled with continued expense management.~~2019 periods.

Core Non-Interest Expense (non-US GAAP)

Core non-interest expense is a financial measure used to evaluate Peoples' recurring expense stream. This measure is ~~non-GAAP~~non-US GAAP since it excludes the impact of ~~system conversion costs.~~all acquisition-related expenses, pension settlement charges, severance expenses, and COVID-19 expenses.

The following ~~table provides a reconciliation~~tables provide reconciliations of this ~~non-GAAP financial~~non-US GAAP measure to the ~~comparable GAAP~~ amounts reported in Peoples' Unaudited Consolidated Financial Statements for the periods presented:

Three Months Ended Nine Months Ended
September 30,
2017 June 30,
2017 September 30,
2016 September 30,
(Dollars in thousands) 2017 2016
Core non-interest expense:
Total non-interest expense $ 26,558
$ 26,680
$ 26,842
$ 80,569
$ 79,629
Less: system conversion costs —
—
423
—
513
Core non-interest expense $ 26,558
$ 26,680
$ 26,419
$ 80,569
$ 79,116

~~Efficiency Ratio~~


	Three Months Ended										Six Months Ended
	June 30, 2020		March 31, 2020		June 30, 2019		June 30,
(Dollars in thousands)												2020	2019

Core non-interest expense:
Total non-interest expense	$	31,805	$	34,325	$	38,876	$	66,130	70,736

Less: acquisition-related expenses	47		30		6,770		77		7,023
Less: pension settlement charges	151		368		—		519		—
Less: severance expenses	79		13		—		92		—

Less: COVID-19 expenses	918		140		—		1,058		—
Core non-interest expense	$	30,610	$	33,774	$	32,106	$	64,384	$	63,713

4858

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Efficiency Ratio (non-US GAAP)

The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of ~~FTE~~fully tax-equivalent net interest income plus total non-interest income ~~(excluding all~~excluding net gains and ~~all losses).~~losses. This measure is ~~non-GAAP~~non-US GAAP since it excludes amortization of other intangible assets and all gains and/or losses included in earnings, and uses ~~FTE~~fully tax-equivalent net interest income.

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	Three Months Ended															Six Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019			June 30,
(Dollars in thousands)																	2020	2019

Efficiency ratio:
Total non-interest expense	$	31,805		$	34,325		$	38,876		$	66,130		$	70,736
Less: amortization of other intangible assets	728			729			824			1,457			1,518
Adjusted total non-interest expense	$	31,077		$	33,596		$	38,052		$	64,673		$	69,218

Total non-interest income	$	14,664		$	15,737		$	15,289		$	30,401		$	30,718
Less: net gain (loss) on investment securities	62			319			(57)			381			(27)
Less: net loss on asset disposals and other transactions	(122)			(87)			(293)			(209)			(475)
Total non-interest income excluding net gains and losses	$	14,724		$	15,505		$	15,639		$	30,229		$	31,220

Net interest income	$	34,860		$	34,636		$	36,049		$	69,496		$	69,963
Add: fully tax-equivalent adjustment (a)	269			272			267			541			467
Net interest income on a fully tax-equivalent basis	$	35,129		$	34,908		$	36,316		$	70,037		$	70,430

Adjusted revenue	$	49,853		$	50,413		$	51,955		$	100,266		$	101,650

Efficiency ratio	62.34		%	66.64		%	73.24		%	64.50		%	68.09		%

Efficiency ratio adjusted for non-core items:
Core non-interest expense	$	30,610		$	33,774		$	32,106		$	64,384		$	63,713
Less: amortization of other intangible assets	728			729			824			1,457			1,518
Adjusted core non-interest expense	$	29,882		$	33,045		$	31,282		$	62,927		$	62,195

Core non-interest income excluding net gains and losses	$	14,724		$	15,505		$	15,639		$	30,229		$	31,220
Net interest income on a fully tax-equivalent basis	35,129			34,908			36,316			70,037			70,430
Adjusted revenue	$	49,853		$	50,413		$	51,955		$	100,266		$	101,650

Efficiency ratio adjusted for non-core items	59.94		%	65.55		%	60.21		%	62.76		%	61.19		%

(a) Based on a 21% statutory federal corporate income tax rate.

The efficiency ratio and the efficiency ratio adjusted for non-core items improved compared to the linked quarter, and was driven by lower total non-interest expense. Compared to the second quarter of 2019, and the first six months of 2019, the efficiency ratio improved mainly due to the acquisition-related expenses that were recognized during the 2019 periods. The efficiency ratio adjusted for non-core items was impacted by lower core non-interest expenses in the second quarter of 2020, compared to the second quarter of 2019. The efficiency ratio adjusted for non-core items was negatively impacted by lower revenue and higher core non-interest expenses compared to the first six months of 2019.

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Three Months Ended Nine Months Ended
September 30,
2017 June 30,
2017 September 30,
2016 September 30,
(Dollars in thousands) 2017 2016

Efficiency ratio:
Total non-interest expense $ 26,558
$ 26,680
$ 26,842
$ 80,569
$ 79,629
Less: Amortization of other intangible assets 869
871
1,008
2,603
3,023
Adjusted total non-interest expense $ 25,689
$ 25,809
$ 25,834
$ 77,966
$ 76,606
Total non-interest income 14,446
13,717
13,313
41,834
38,797
Less net gain (loss) on investment securities 1,861
109
(1 ) 2,219
862
Less net (loss) gain on asset disposals and other transactions (25 ) 18
(224 ) 81
(1,024 )
Adjusted total non-interest income $ 12,610
$ 13,590
$ 13,538
$ 39,534
$ 38,959
Net interest income $ 29,220
$ 28,090
$ 26,123
$ 84,255
$ 78,198
Add: Fully tax-equivalent adjustment 460
496
497
1,471
1,508
Net interest income on a fully taxable-equivalent basis $ 29,680
$ 28,586
$ 26,620
$ 85,726
$ 79,706
Adjusted revenue $ 42,290
$ 42,176
$ 40,158
$ 125,260
$ 118,665
Efficiency ratio 60.74 % 61.19 % 64.33 % 62.24 % 64.56 %
Core non-interest expense $ 26,558
$ 26,680
$ 26,419
$ 80,569
$ 79,116
Less: Amortization of other intangible assets 869
871
1,008
2,603
3,023
Adjusted non-interest expense $ 25,689
$ 25,809
$ 25,411
$ 77,966
$ 76,093
Total non-interest income 12,610
$ 13,590
13,538
39,534
38,959
Net interest income on fully taxable-equivalent basis $ 29,680
$ 28,586
$ 26,620
$ 85,726
$ 79,706
Adjusted revenue 42,290
42,176
40,158
125,260
118,665
Efficiency ratio adjusted for non-core items 60.74 % 61.19 % 63.28 % 62.24 % 64.12 %
Return on Average Assets Adjusted for Non-Core Items Ratio (non-US GAAP)

In addition to return on average assets, management uses return on average assets adjusted for non-core items to monitor performance. The return on average assets adjusted for non-core items ratio represents a non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, pension settlement charges, severance expenses, and COVID-19 expenses.

The following table provides a reconciliation of this non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Consolidated Financial Statements for the periods presented:


	Three Months Ended															Six Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019			June 30,
(Dollars in thousands)																	2020	2019

Annualized net income (loss) adjusted for non-core items:
Net income (loss)	$	4,749		$	(765)		$	9,598		$	3,984		$	23,967

Add: net loss on investment securities	—			—			57			—			27
Less: tax effect of net loss on investment securities (a)	—			—			12			—			6
Less: net gain on investment securities	62			319			—			381			—
Add: tax effect of net gain on investment securities (a)	13			67			—			80			—
Add: net loss on asset disposals and other transactions	122			87			293			209			475
Less: tax effect of net loss on asset disposals and other transactions (a)	26			18			62			44			100



Add: acquisition-related expenses	47			30			6,770			77			7,023
Less: tax effect of acquisition-related expenses (a)	10			6			1,422			16			1,475
Add: pension settlement charges	151			368			—			519			—
Less: tax effect of pension settlement charges (a)	32			77			—			109			—
Add: severance expenses	79			13			—			92			—
Less: tax effect of severance expenses (a)	17			3			—			20			—
Add: COVID-19 expenses	918			140			—			1,058			—
Less: tax effect of COVID-19 expenses (a)	193			29			—			222			—




Net income (loss) adjusted for non-core items (after tax)	$	5,739		$	(512)		$	15,222		$	5,227		$	29,911
Days in the period	91			91			91			182			181
Days in the year	366			366			365			366			365
Annualized net income (loss)	$	19,100		$	(3,077)		$	38,497		$	8,012		$	48,331
Annualized net income (loss) adjusted for non-core items (after tax)	$	23,082		$	(2,059)		$	61,055		$	10,511		$	60,318
Return on average assets:
Annualized net income (loss)	$	19,100		$	(3,077)		$	38,497		$	8,012		$	48,331
Total average assets	4,828,016			4,381,627			4,239,779			4,604,821			4,113,403
Return on average assets	0.40		%	(0.07)		%	0.91		%	0.17		%	1.17		%
Return on average assets adjusted for non-core items:
Annualized net income (loss) adjusted for non-core items (after tax)	$	23,082		$	(2,059)		$	61,055		$	10,511		$	60,318
Total average assets	4,828,016			4,381,627			4,239,779			4,604,821			4,113,403
Return on average assets adjusted for non-core items	0.48		%	(0.05)		%	1.44		%	0.23		%	1.47		%

(a) Based on a 21% statutory federal corporate income tax rate.

The return on average assets and the return on average assets adjusted for non-core items both improved during the second quarter of 2020, compared to the linked quarter. The improvements were mostly due to a reduction in provision for credit losses compared to the linked quarter, coupled with lower total non-interest expense. Compared to the second quarter of 2019, the provision for credit

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losses of $11.8 million recorded during the second quarter of 2020 drove most of the decline in the ratios. For the first six months of 2020, provision for credit losses totaled $28.8 million, and was largely the reason for the decrease in the ~~efficiency ratio compared~~ratios. For additional information related to ~~all prior periods was primarily due~~the increased provision for credit losses, refer to ~~increased net interest income~~the sections in this discussion titled “Provision for Credit Losses" and ~~the continued focus on expense management.~~

~~Management is targeting an efficiency ratio of 61% to 63%~~"Allowance for ~~the full year of 2017, absent acquisition-related costs and other non-core charges.~~

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Credit Losses.”

Return on Average Tangible ~~Stockholders'~~ Equity Ratio (non-US GAAP)

The return on average tangible ~~stockholders'~~ equity ratio is a key financial measure used to monitor performance. ~~The return on tangible stockholders' equity~~This ratio is calculated as annualized net (loss) income (less the after-tax impact of amortization of other intangible assets) divided by average tangible ~~stockholders'~~ equity. This measure is ~~non-GAAP~~non-US GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity.


	Three Months Ended															Six Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019			June 30,
(Dollars in thousands)																	2020	2019
Annualized net income (loss) excluding amortization of other intangible assets:
Net income (loss)	$	4,749		$	(765)		$	9,598		$	3,984		$	23,967
Add: amortization of other intangible assets	728			729			824			1,457			1,518
Less: tax effect of amortization of other intangible assets (a)	153			153			173			306			319
Net income (loss) excluding amortization of other intangible assets	$	5,324		$	(189)		$	10,249		$	5,135		$	25,166
Days in the period	91			91			91			182			181
Days in the year	366			366			365			366			365
Annualized net income (loss)	$	19,100		$	(3,077)		$	38,497		$	8,012		$	48,331
Annualized net income (loss) excluding amortization of other intangible assets	$	21,413		$	(760)		$	41,109		$	10,326		$	50,749
Average tangible equity:
Total average stockholders' equity	$	572,141		$	596,246		$	564,992		$	584,193		$	544,706
Less: average goodwill and other intangible assets	177,012			177,984			175,169			177,498			168,458
Average tangible equity	$	395,129		$	418,262		$	389,823		$	406,695		$	376,248
Return on average stockholders' equity ratio:
Annualized net income (loss)	$	19,100		$	(3,077)		$	38,497		$	8,012		$	48,331
Average stockholders' equity	$	572,141		$	596,246		$	564,992		$	584,193		$	544,706
Return on average stockholders' equity	3.34		%	(0.52)		%	6.81		%	1.37		%	8.87		%
Return on average tangible equity ratio:
Annualized net income (loss) excluding amortization of other intangible assets	$	21,413		$	(760)		$	41,109		$	10,326		$	50,749
Average tangible equity	$	395,129		$	418,262		$	389,823		$	406,695		$	376,248
Return on average tangible equity	5.42		%	(0.18)		%	10.55		%	2.54		%	13.49		%

(a) Based on a 21% statutory federal corporate income tax rate.

The return on average stockholders' equity and average tangible equity ratios continued to be impacted by higher provision for credit losses during the second quarter of 2020. Compared to the linked quarter, the ratios improved due to a decline in the provision for credit losses of $5.1 million. The negative return on average stockholders' equity and average tangible equity ratios during the first quarter of 2020 were primarily due to the $17.0 million provision for credit losses recorded.

For additional information related to the increased provision for credit losses, refer to the sections in this discussion titled “Provision for Credit Losses" and "Allowance for Credit Losses.”

Three Months Ended Nine Months Ended
September 30,
2017 June 30,
2017 September 30,
2016 September 30,
(Dollars in thousands) 2017 2016
Annualized Net Income Excluding Amortization of Other Intangible Assets:
Net income $ 10,895
$ 9,766
$ 7,792
$ 29,470
$ 23,749
Add: amortization of other intangible assets 869
871
1,008
2,603
3,023
Less: tax effect (at 35% tax rate) of amortization of other intangible assets 304
305
353
911
1,058
Net income excluding amortization of other intangible assets $ 11,460
$ 10,332
$ 8,447
$ 31,162
$ 25,714
Days in the quarter 92
91
92
273
274
Days in the year 365
365
366
365
366
Annualized net income $ 43,225
$ 39,171
$ 30,999
$ 39,401
$ 31,723
Annualized net income excluding amortization of other intangible assets $ 45,466
$ 41,442
$ 33,604
$ 41,663
$ 34,348
Average Tangible Stockholders' Equity:
Total average stockholders' equity $ 456,198
$ 447,399
$ 438,606
$ 447,592
$ 430,769
Less: average goodwill and other intangible assets 144,267
145,052
147,466
144,950
148,482
Average tangible stockholders' equity $ 311,931
$ 302,347
$ 291,140
$ 302,642
$ 282,287
Return on Average Stockholders' Equity Ratio:
Annualized net income $ 43,225
$ 39,171
$ 30,999
$ 39,401
$ 31,723
Average stockholders' equity $ 456,198
$ 447,399
$ 438,606
$ 447,592
$ 430,769
Return on average stockholders' equity 9.47 % 8.76 % 7.07 % 8.80 % 7.36 %
Return on Average Tangible Stockholders' Equity Ratio:
Annualized net income excluding amortization of other intangible assets $ 45,466
$ 41,442
$ 33,604
$ 41,663
$ 34,348
Average tangible stockholders' equity $ 311,931
$ 302,347
$ 291,140
$ 302,642
$ 282,287
Return on average tangible stockholders' equity 14.58 % 13.71 % 11.54 % 13.77 % 12.17 %

Table of Contents

FINANCIAL CONDITION

Cash and Cash Equivalents

At ~~September~~June 30, ~~2017,~~2020, Peoples' interest-bearing deposits in other banks increased ~~$8.4~~$99.1 million from December 31, ~~2016.~~2019. The total cash and cash equivalent ~~balances~~balance included ~~$10.3~~$84.7 million of excess cash reserves being maintained at the ~~Federal Reserve Bank~~FRB of Cleveland at ~~September~~June 30, ~~2017,~~2020, compared to ~~$4.4~~$15.6 million at December 31, ~~2016.~~2019. The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan ~~balances.~~balances, coupled with increased liquidity due to the COVID-19 pandemic.

Through the first ~~nine~~six months of ~~2017,~~2020, Peoples' total cash and cash equivalents increased ~~$3.9~~$104.1 million as Peoples' net cash used in investing activities of $515.2 million was less than the sum of net cash provided by financing and operating activities of ~~$128.1~~$589.2 million ~~exceeded cash used in investing activities of $124.2 million.~~and $30.0 million, respectively. Peoples' investing activities reflected ~~purchases of $142.1 million in available-for-sale and held-to-maturity investment securities and~~ a net increase of ~~$99.8~~$479.6 million in loans and $89.4 million in purchases of available-for-sale investment securities, which were partially offset by ~~$120.7~~$161.8 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment securities. Financing activities included a $733.4 million net increase ~~of $154.9 million~~ in deposits ~~which was~~and $50.0 million of proceeds from long-term borrowings, offset partially by a ~~net~~ decrease of ~~$61.3~~$159.1 million in short-term borrowings, as well as the purchase of $20.0 million of treasury stock under the share repurchase program and ~~$10.9~~$13.5 million of cash dividends paid.

Through the first nine months of 2016, Peoples' total cash and cash equivalents decreased $3.3 million, as cash used in investing activities of $107.0 million exceeded cash provided by financing and operating activities of $61.6 million and $42.2 million, respectively. Peoples' investing activities reflected a $94.1 million net increase in loans and $35.0 million in BOLI, offset partially by $30.1 million in net proceeds from investment activities. The net proceeds from the investment portfolio reflected sales and principal payments, which outpaced purchases. Financing activities included a net increase in borrowings of $35.5 million and an increase of $39.6 million in deposits which were offset partially by cash dividends paid of $8.2 million and the purchase of $5.0 million of treasury stock.

Further information regarding the management of Peoples' liquidity position can be found later in this discussion under “Interest Rate Sensitivity and Liquidity.”

~~Table of Contents~~

Investment Securities

The following table provides information regarding Peoples’ investment portfolio:


(Dollars in thousands)	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Available-for-sale securities, at fair value:
Obligations of:

U.S. government sponsored agencies	$	5,396	$	6,361	$	8,209	$	12,145	$	19,051
States and political subdivisions	107,032		108,812		114,104		115,613		125,418
Residential mortgage-backed securities	748,867		823,893		791,009		835,172		748,132
Commercial mortgage-backed securities	12,157		17,061		18,088		20,461		22,664
Bank-issued trust preferred securities	4,399		4,708		4,691		4,644		4,099



Total fair value	$	877,851	$	960,835	$	936,101	$	988,035	$	919,364
Total amortized cost	$	853,072	$	932,179	$	929,395	$	976,286	$	910,431
Net unrealized gain	$	24,779	$	28,656	$	6,706	$	11,749	$	8,933
Held-to-maturity securities, at amortized cost:
Obligations of:
States and political subdivisions (a)	3,538		3,838		$	4,346	$	4,395	$	4,398
Residential mortgage-backed securities	28,075		29,070		21,494		22,412		23,335
Commercial mortgage-backed securities	5,754		5,830		5,907		7,022		7,106
Total amortized cost	$	37,367	$	38,738	$	31,747	$	33,829	$	34,839
Other investment securities	$	42,656	$	46,924	$	42,730	$	43,045	$	43,508
Total investment securities:
Amortized cost	$	933,095	$	1,017,841	$	1,003,872	$	1,053,160	$	988,778
Carrying value	$	957,874	$	1,046,497	$	1,010,578	$	1,064,909	$	997,711

(Dollars in thousands) September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016
Available-for-sale securities, at fair value:
Obligations of:
U.S. government sponsored agencies $ —
$ —
$ —
$ 1,000
$ 1,001
States and political subdivisions 104,560
111,390
114,712
117,230
117,839
Residential mortgage-backed securities 672,106
664,341
640,299
626,567
607,452
Commercial mortgage-backed securities 7,128
8,092
16,424
19,291
23,283
Bank-issued trust preferred securities 5,154
5,144
4,964
4,899
4,783
Equity securities 8,073
10,121
10,562
8,953
7,785
Total fair value $ 797,021
$ 799,088
$ 786,961
$ 777,940
$ 762,143
Total amortized cost $ 792,810
$ 792,803
$ 782,947
$ 777,017
$ 743,878
Net unrealized gain $ 4,211
$ 6,285
$ 4,014
$ 923
$ 18,265
Held-to-maturity securities, at amortized cost:
Obligations of:

States and political subdivisions $ 3,812
$ 3,815
$ 3,818
$ 3,820
$ 3,823
Residential mortgage-backed securities 33,648
34,264
34,812
33,858
34,203
Commercial mortgage-backed securities 4,703
4,981
5,392
5,466
5,636
Total amortized cost $ 42,163
$ 43,060
$ 44,022
$ 43,144
$ 43,662
Other investment securities, at cost $ 38,371
$ 38,371
$ 38,371
$ 38,371
$ 38,443
Total investment portfolio:

Amortized cost $ 873,344
$ 874,234
$ 865,340
$ 858,532
$ 825,983
Carrying value $ 877,555
$ 880,519
$ 869,354
$ 859,455
$ 844,248
(a) Amortized cost is presented net of the allowance for credit losses of $6,000 at June 30, 2020 and March 31, 2020.

~~Peoples' investment in residential~~At June 30, 2020, the fair value of available-for-sale securities declined $83.0 million, or 9%, compared to March 31,2020. The decrease compared to all prior periods was driven by the paydowns and ~~commercial mortgage-backed securities largely consists~~maturities of securities, either guaranteed by the U.S. government or issued by U.S. government sponsored agencies, such as Fannie Mae and Freddie Mac. The remaining portions of Peoples' mortgage-backed securities consist of securities issued by other entities, including other financial institutions, which are not guaranteed by the U.S. government.

~~The amount of these “non-agency” securities included in the~~primarily residential mortgage-backed ~~securities totals above was as follows:~~

(Dollars in thousands) September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016
Total fair value $ 2,067
$ 2,502
$ 2,702
$ 2,991
$ 3,288
Total amortized cost 2,253
2,703
2,916
3,206
3,499
Net unrealized loss $ (186 ) $ (201 ) $ (214 ) $ (215 ) $ (211 )

~~Management continues~~securities. These proceeds were not reinvested into the investment portfolio mostly due to ~~reinvest the principal runoff from the non-agency securities in U.S. agency investments, which accounted~~liquidity needs for funding of PPP loans, anticipation of funding needs for the ~~decline in~~acquisition of Peoples Premium Finance, and the ~~past year. At September 30, 2017, Peoples' non-agency portfolio consisted entirely of first lien residential mortgages, with nearly all of the underlying loans in these~~limited attractive investment securities originated prior to 2004 and possessing fixed interest rates. Management continues to monitor the non-agency portfolio closely for leading indicators of increasing stress and will continue to be proactive in taking actions to mitigate such risk when necessary.available.

~~Table of Contents~~

Additional information regarding Peoples' investment portfolio can be found in ~~Note~~"Note 3 Investment Securities" of the Notes to the Unaudited Consolidated Financial Statements.

Table of Contents

Loans

The following table provides information regarding outstanding loan balances:


(Dollars in thousands)	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			(Dollars in thousands)	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019
Gross originated loans:
Commercial real estate, construction	$	111,187		$	103,039		$	93,886		$	84,626		$	70,838
Originated loans:																Originated loans:
Construction																Construction	$	105,493		$	106,415		$	83,283		$	100,338		$	102,904
Commercial real estate, other	573,256			567,537			535,474			531,557			507,842			Commercial real estate, other	738,292			707,339			671,576			659,103			641,061
Commercial real estate	684,443			670,576			629,360			616,183			578,680			Commercial real estate	843,785			813,754			754,859			759,441			743,965
Commercial and industrial	407,468			392,097			384,548			378,131			351,340			Commercial and industrial	1,032,970			611,791			622,175			564,279			548,460
Residential real estate	304,094			306,385			308,153			307,490			306,374			Residential real estate	285,407			293,078			314,935			308,964			299,173
Home equity lines of credit	88,421			88,229			85,512			85,617			83,412			Home equity lines of credit	90,612			91,344			93,013			92,910			90,374
Consumer, indirect	335,436			305,580			283,106			252,024			229,334			Consumer, indirect	450,296			418,022			417,127			423,217			419,595
Consumer, other	68,286			67,287			66,283			67,579			67,973
Consumer, direct																Consumer, direct	74,614			71,230			70,852			72,699			72,209
Consumer	403,722			372,867			349,389			319,603			297,307			Consumer	524,910			489,252			487,979			495,916			491,804
Deposit account overdrafts	507			521			721			1,080			1,074			Deposit account overdrafts	592			610			878			1,081			676
Total originated loans	$	1,888,655		$	1,830,675		$	1,757,683		$	1,708,104		$	1,618,187		Total originated loans	$	2,778,276		$	2,299,829		$	2,273,839		$	2,222,591		$	2,174,452
Gross acquired loans (a):
Commercial real estate, construction	$	8,565		$	9,130		$	9,431		$	10,100		$	10,242
Acquired loans (a):																Acquired loans (a):
Construction																Construction	$	4,460		$	4,450		$	5,235		$	4,435		$	6,775
Commercial real estate, other	174,157			182,682			194,581			204,466			221,036			Commercial real estate, other	176,128			190,478			161,662			171,096			201,909
Commercial real estate	182,722			191,812			204,012			214,566			231,278			Commercial real estate	180,588			194,928			166,897			175,531			208,684
Commercial and industrial	36,462			39,376			44,189			44,208			48,702			Commercial and industrial	37,356			42,739			40,818			43,961			51,506
Residential real estate	194,950			206,502			216,059			228,435			238,787			Residential real estate	327,677			332,288			346,541			358,053			348,439
Home equity lines of credit	22,366			23,481			24,516			25,875			27,784			Home equity lines of credit	32,772			36,667			39,691			41,942			41,262
Consumer, indirect	408			533			656			808			952			Consumer, indirect	38			44			58			67			90
Consumer, other	1,472			1,980			2,387			2,940			3,518
Consumer, direct																Consumer, direct	4,312			4,942			5,681			8,171			9,100
Consumer	1,880			2,513			3,043			3,748			4,470			Consumer	4,350			4,986			5,739			8,238			9,190
Total acquired loans	$	438,380		$	463,684		$	491,819		$	516,832		$	551,021		Total acquired loans	$	582,743		$	611,608		$	599,686		$	627,725		$	659,081
Total loans	$	2,327,035		$	2,294,359		$	2,249,502		$	2,224,936		$	2,169,208		Total loans	$	3,361,019		$	2,911,437		$	2,873,525		$	2,850,316		$	2,833,533

Percent of loans to total loans:																Percent of loans to total loans:
Commercial real estate, construction	5.1		%	4.9		%	4.6		%	4.3		%	3.7		%
Construction																Construction	3.3		%	3.8		%	3.1		%	3.8		%	3.9		%
Commercial real estate, other	32.2		%	32.7		%	32.4		%	33.0		%	33.8		%	Commercial real estate, other	27.2		%	30.8		%	29.0		%	29.1		%	29.7		%
Commercial real estate	37.3		%	37.6		%	37.0		%	37.3		%	37.5		%	Commercial real estate	30.5		%	34.6		%	32.1		%	32.9		%	33.6		%
Commercial and industrial	19.1		%	18.8		%	19.1		%	19.0		%	18.4		%	Commercial and industrial	31.9		%	22.5		%	23.1		%	21.3		%	21.2		%
Residential real estate	21.4		%	22.4		%	23.3		%	24.1		%	25.1		%	Residential real estate	18.2		%	21.5		%	23.0		%	23.4		%	22.9		%
Home equity lines of credit	4.8		%	4.9		%	4.9		%	5.0		%	5.1		%	Home equity lines of credit	3.7		%	4.4		%	4.6		%	4.7		%	4.6		%
Consumer, indirect	14.4		%	13.3		%	12.6		%	11.4		%	10.6		%	Consumer, indirect	13.4		%	14.4		%	14.5		%	14.9		%	14.8		%
Consumer, other	3.0		%	3.0		%	3.1		%	3.2		%	3.3		%
Consumer, direct																Consumer, direct	2.3		%	2.6		%	2.7		%	2.8		%	2.9		%
Consumer	17.4		%	16.3		%	15.7		%	14.6		%	13.9		%	Consumer	15.7		%	17.0		%	17.2		%	17.7		%	17.7		%

Total percentage	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	Total percentage	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%
Residential real estate loans being serviced for others	$	409,199		$	402,516		$	399,279		$	398,134		$	389,090		Residential real estate loans being serviced for others	$	491,545		$	503,158		$	496,802		$	488,724		$	473,443


~~(a)~~	(a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 or ~~premium recorded as part of acquisition accounting, in 2012 and~~ thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit).

While commercial loans comprise the largest portion of Peoples Bank's loan portfolio, residential real estate lending remains a focus of Peoples Bank. The originated loans may either be retained in Peoples Bank's loan portfolio, or sold into the secondary market. Peoples Bank's portfolio of residential real estate loans comprised 21.4% of total loans at September 30, 2017, and 24.1% at December 31, 2016. Peoples Bank also had $3.7 million of residential real estate loans held for sale and was servicing $409.2 million of loans, consisting primarily of one-to-four family residential mortgages, previously sold

~~Table of Contents~~

in the secondary market. Peoples Bank requires evidence of insurance at the time of the loan closing, and additionally, has a blanket insurance policy to cover residential real estate loans that do not include an insurance escrow account.

Period-end total loan balances at ~~September~~June 30, ~~2017~~2020 increased ~~$32.7~~$449.6 million, or ~~6% annualized,~~15%, compared to March 31, 2020, and $527.5 million, or 19%, compared to June 30, ~~2017. Indirect consumer lending continued~~2019. The increase compared to ~~be a key component of loan growth, as balances increased $29.7 million, or 39% annualized,~~March 31, 2020 was mostly driven by the PPP loans originated during the ~~quarter. The growth~~second quarter of 2020, which totaled $457.7 million at June 30, 2020, and were included in indirect consumer lending included continued diversification in the portfolio beyond automobile loans, including loans for recreational vehicles and motorcycles. Commercial loans grew $17.2 million, or 5% annualized, with commercial and industrial loan balances. Excluding acquired loans ~~growing $12.5~~and the PPP loans, Peoples' originated loans grew by 4% annualized compared to March 31, 2020. The growth was due to higher consumer indirect loan balances, which were up $32.2 million, or ~~12%~~31% annualized, ~~during the quarter.~~

~~Compared to December 31, 2016, period-end loan balances at September 30, 2017 increased $102.1 million, or 6% annualized. Indirect consumer~~while commercial real estate loan balances increased ~~$83.0~~$30.9 million, or ~~44%~~18% annualized, compared to ~~December~~March 31, ~~2016. Commercial~~2020.

The increase compared to June 30, 2019 was largely due to the PPP loans added during the second quarter of 2020, coupled with growth in commercial real estate, ~~loans grew $36.4 million, or 6% annualized, while~~ commercial and industrial, and home equity lines of credit balances. Acquired loan balances continued to decline compared to prior periods, as these loans ~~grew $21.6 million,~~either payoff or ~~7% annualized, for~~are re-underwritten, at which point Peoples no longer considers the ~~first nine months~~loan acquired.

Table of ~~2017.~~Contents

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' 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' total loan portfolio.

Loans secured by commercial real estate, including commercial construction loans, continued to comprise the largest portion of Peoples' loan portfolio. The following table provides information regarding the largest concentrations of commercial real estate loans within the loan portfolio at ~~September~~June 30, ~~2017~~:2020:


(Dollars in thousands)	Outstanding Balance		Loan Commitments		Total Exposure		% of Total



































Construction:
Assisted living facilities and nursing homes	$	31,992	$	43,579	$	75,571	36.2	%
Apartment complexes	31,396		22,478		53,874		25.8	%
Retail	4,139		17,659		21,798		10.4	%
Land development	5,142		1,337		6,479		3.1	%
Office buildings	5,561		631		6,192		3.0	%
Gas station facilities	6,024		143		6,167		3.0	%
Land only	5,076		1,044		6,120		2.9	%
Residential property	2,009		3,234		5,243		2.5	%
Mixed used facilities	4,600		560		5,160		2.5	%




















Other (a)	14,667		7,448		22,115		10.6	%
Total construction	$	110,606	$	98,113	$	208,719	100.0	%

(a) All other outstanding balances are less than 2% of the total loan portfolio.

(Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total
Commercial real estate, construction:
Apartment complexes $ 45,081
$ 53,788
$ 98,869
39.4 %
Mixed commercial use facilities 7,485
27,167
34,652
13.8 %
Office buildings 3,363
28,287
31,650
12.6 %
Light industrial 10,735
4,074
14,809
5.9 %
Assisted living facilities and nursing homes 9,024
966
9,990
4.0 %
Land development 8,943
—
8,943
3.6 %
Residential property 2,461
2,514
4,975
2.0 %
Other 32,660
14,134
46,794
18.7 %
Total commercial real estate, construction $ 119,752
$ 130,930
$ 250,682
100.0 %
64

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(Dollars in thousands)	Outstanding Balance		Loan Commitments		Total Exposure		% of Total
Commercial real estate, other:
Office buildings and complexes:
Owner occupied	$	75,991	$	2,378	$	78,369	8.8	%
Non-owner occupied	63,031		3,991		67,022		7.5	%
Total office buildings and complexes	139,022		6,369		145,391		16.3	%
Apartment complexes	101,885		6,660		108,545		12.1	%
Mixed-use facilities:
Owner occupied	58,855		1,592		60,447		6.8	%
Non-owner occupied	39,062		721		39,783		4.4	%
Total mixed-use facilities	97,917		2,313		100,230		11.2	%
Retail facilities:
Owner occupied	40,591		707		41,298		4.6	%
Non-owner occupied	54,641		348		54,989		6.1	%
Total retail facilities	95,232		1,055		96,287		10.7	%
Warehouse facilities	67,627		6,377		74,004		8.3	%
Light industrial facilities:
Owner occupied	46,794		1,156		47,950		5.4	%
Non-owner occupied	22,714		1,088		23,802		2.7	%
Total light industrial facilities	69,508		2,244		71,752		8.1	%
Lodging and lodging related	52,465		779		53,244		5.9	%
Education services	35,167		98		35,265		3.9	%
Assisted living facilities and nursing homes	29,732		250		29,982		3.3	%








Day care facilities:
Owner occupied	19,055		—		19,055		2.1	%
Non-owner occupied	2,282		—		2,282		0.3	%
Total day care facilities	21,337		—		21,337		2.4	%
Agriculture	20,511		744		21,255		2.4	%
Gas station facilities:
Owner occupied	15,885		—		15,885		1.8	%
Non-owner occupied	4,484		—		4,484		0.5	%
Total health care facilities	20,369		—		20,369		2.3	%
Health care facilities:
Owner occupied	8,466		276		8,742		1.0	%
Non-owner occupied	10,013		—		10,013		1.1	%
Total gas station facilities	18,479		276		18,755		2.1	%











Other (a)	93,635		5,436		99,070		11.0	%
Total commercial real estate, other	$	862,886	$	32,601	$	895,486	100.0	%

(Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total
Commercial real estate, other:
Office buildings and complexes:
Owner occupied $ 42,537
$ 2,409
$ 44,946
5.8 %
Non-owner occupied 44,859
288
45,147
5.8 %
Total office buildings and complexes 87,396
2,697
90,093
11.6 %
Mixed commercial use facilities:
Owner occupied 36,611
1,070
37,681
4.9 %
Non-owner occupied 34,006
970
34,976
4.5 %
Total mixed commercial use facilities 70,617
2,040
72,657
9.4 %
Apartment complexes 67,267
187
67,454
8.7 %
Light industrial facilities:
Owner occupied 50,500
308
50,808
6.5 %
Non-owner occupied 13,178
—
13,178
1.7 %
Total light industrial facilities 63,678
308
63,986
8.2 %
Retail facilities:
Owner occupied 20,493
565
21,058
2.7 %
Non-owner occupied 37,626
982
38,608
5.0 %
Total retail facilities 58,119
1,547
59,666
7.7 %
Lodging and lodging related 38,571
2,994
41,565
5.4 %
Assisted living facilities and nursing homes 31,352
250
31,602
4.1 %
Warehouse facilities 27,937
605
28,542
3.7 %
Other 302,476
18,622
321,098
41.2 %
Total commercial real estate, other $ 747,413
$ 29,250
$ 776,663
100.0 %
(a) All other outstanding balances are less than 2% of the total loan portfolio.

Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas within Ohio, Kentucky and West ~~Virginia and Kentucky.~~Virginia. In all other states, the aggregate outstanding balances of commercial loans in each state were not material at either ~~September~~June 30, ~~2017~~2020 or December 31, ~~2016.~~2019.

COVID-19 Loan Impacts

Small Business Administration Paycheck Protection Program

In March 2020, the CARES Act created a new loan guarantee program called the PPP targeted to provide small businesses with support to cover payroll and certain other expenses. Loans made under the PPP are fully guaranteed by the SBA. The PPP loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness.

Peoples is a PPP participating lender, and funded $488.1 million of loans through June 30, 2020. As of June 30, 2020, Peoples had principal balances of PPP loans of $457.7 million, net of payoffs during the quarter, included in commercial and

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industrial loans. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which totaled $13.6 million at June 30, 2020. For the second quarter of 2020, Peoples recorded amortization of net deferred loan origination fees of $1.9 million on PPP loans. The net deferred loan origination fees will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income.

JobsOhio Partnership

Peoples has also been selected to partner with JobsOhio, a private nonprofit organization charged with economic development. JobsOhio will provide a 90% guarantee on the first $25 million of increased exposure to small businesses, where customers may obtain up to $200,000 of additional financing, subject to certain eligibility requirements. Through June 30, 2020, Peoples originated 114 loans for $7.1 million of principal balances under this program. As of July 17, 2020, Peoples had approved a total of $8.6 million in JobsOhio loans for 140 customers.

Payment Relief and Loan Modifications

Peoples is also providing relief solutions to consumer and commercial borrowers. For consumer borrowers, Peoples is providing interest-only payment options to customers for a period of up to 90 days, with the ability to extend if needed and specified qualifications are met. Peoples is also providing forbearance to its consumer borrowers which allows them to defer their principal and interest payments for up to 90 days for non-residential real estate consumer loans and up to 180 days for residential real estate consumer loans. As of July 6, 2020, Peoples had completed forbearance or payment relief for 1,369 customers, for loan balances of $43 million, which included $7.4 million of relief for the Federal National Mortgage Association and Federal Home Loan Mortgage Corp secondary market loans. Peoples is proactively reaching out to customers to which it granted payment relief previously to determine if there is any additional need for relief beyond the initial period granted.

In addition, for commercial borrowers who meet certain criteria, Peoples is providing interest-only payment options, principal and interest deferrals, and increased financing. As of July 17, 2020, Peoples had approved $486 million of loan modifications to commercial loan customers. As of July 17, 2020, the portfolio had experienced a small number of borrowers requesting extensions of the originally approved deferment periods. The requests for additional payment relief account for $42 million, or 9%, of the total commercial loan balance modifications approved. Peoples continues to prudently work with borrowers and review any second requests for deferment more closely. These requests are maintained within the CARES Act guidance and have not exceeded six consecutive months of deferred payment.

Borrowers within the lodging industry account for nearly 60% of the total $42 million of additional extension requests. The lodging industry continues to be impacted by the COVID-19 pandemic, with a negative outlook for travel demand among both business and leisure customers. The remaining borrowers that have requested additional payment relief are primarily within the daycare and retail sectors. Peoples will continue to work with its customers in identifying relief solutions during this economic downturn.

Portfolio Exposure

Peoples has evaluated its portfolio exposure to certain industries most impacted by the COVID-19 pandemic, which includes restaurants, lodging and lodging related businesses, floorplans, office and retail facilities, as well as daycare facilities. Peoples has been proactive in working with clients within these industries, and is keeping in close communication with them. Peoples has made loan modifications, when it is prudent to do so, and is monitoring early warnings signs of risk within these industry segments. These segments comprise approximately 60% of the total commercial loan modifications approved in response to COVID-19.

Below is a table detailing Peoples' outstanding balance of loans as of June 30, 2020, within certain industries that have been impacted:


(Dollars in thousands)	Outstanding Balance		% of Total Loans		Loan-to-Value		Total Commitment
Restaurants (a)	$	217,493	6.5	%	59.2	%	$	231,645
Multifamily	128,076		3.8	%	60.7	%	157,219
Floorplans (b)	76,216		2.3	%	100.0	%	128,600
Assisted living facilities and nursing homes (c)	94,411		2.8	%	74.2	%	145,005
Lodging and lodging related (d)	73,130		2.2	%	64.8	%	84,660
Total	$	589,326	17.6	%			$	747,129

(a)Restaurant outstanding balance includes $60.5 million in PPP loans.

(b)Individual units financed under dealer floor plan agreements are generally financed in line with industry standards at 100% of manufacturer invoice, auction cost, or wholesale value.

(c)Assisted living facilities and nursing homes outstanding balance includes $15.5 million in PPP loans.

(d)Lodging and lodging related outstanding balance includes $2.3 million in PPP loans.

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Approximately 79% of Peoples' outstanding balance to restaurants is to McDonald's franchise operators, which have additional guarantor support, as well as corporate assistance with rent and service fee deferments. Of the remaining outstanding balance of restaurant loans, approximately 16% are enhanced with SBA guarantees. As of July 17, 2020, Peoples had modified approximately $112 million of restaurant loans. Peoples approved $105 million in modifications to McDonald’s operators and $7.3 million to non-McDonald’s operators. The total portfolio outstanding balances of non-McDonald’s operators was $60.7 million at June 30, 2020, which included $28 million of PPP loans.

In addition, for multifamily loans, Peoples has sponsors with extensive experience and substantial liquidity. The top five relationships, in terms of aggregate credit exposures, account for 33% of the portfolio balances. The top five relationships consist of five properties with an average loan-to-value of 64%. Peoples' commercial loan policy for this specific property type is a maximum loan-to-value of 80%. These relationships have average liquidity greater than $1 million. Additional support is provided by guarantor strength on the majority of these relationships. The largest loan in the portfolio accounts for 13% of the portfolio balance. The loan has notable guarantor support, with a reported unencumbered liquidity level of more than $200 million.

For floorplan loans, Peoples has a robust monitoring and audit process, and performs collateral audits frequently.

Approximately 80% of the assisted living facilities and nursing homes are private pay and are not dependent upon Medicare, and as of June 30, 2020, Peoples had no requests from these customers for relief.

The majority of Peoples' lodging and lodging related outstanding balances are larger established franchises. The top five relationships, in terms of aggregate credit exposures, account for 85% of the portfolio balance. The five largest loans have an average loan-to-value of 60%. Peoples' commercial loan policy for this specific property type is a maximum loan-to-value of 65%. These relationships have average liquidity of more than $1 million. Additional support is provided by guarantor strength on the majority of these relationships. As of June 30, 2020, Peoples had modified approximately $56 million, or 81%, of the lodging and lodging related loan balances.

Peoples' exposure to energy loans was not material at June 30, 2020. Energy loan balances were $5.9 million, or less than 1% of total loans, as of June 30, 2020, with a total commitment of $7.6 million. Peoples' energy loans are mostly operators in support services for oil and gas companies.

Allowance for ~~Loan~~Credit Losses

The amount of the allowance for ~~loan~~credit losses at the end of each period represents management's estimate of expected losses from existing loans based upon its quarterly analysis of the loan portfolio. While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses ~~incurred~~expected within the loan portfolio.

The following details management's allocation of the allowance for ~~loan~~credit losses:


(Dollars in thousands)	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019
Commercial real estate	$	21,810		$	13,884		$	7,333		$	8,466		$	8,245
Commercial and industrial	10,106			8,743			8,432			7,162			7,197
Total commercial	31,916			22,627			15,765			15,628			15,442
Residential real estate	6,380			5,744			1,191			1,162			1,184
Home equity lines of credit	1,755			1,695			546			567			598
Consumer, indirect	12,293			10,878			2,937			3,247			3,172
Consumer, direct	1,941			1,803			294			339			342
Consumer	14,234			12,681			3,231			3,586			3,514
Deposit account overdrafts	77			86			94			128			86
Originated allowance for credit losses	54,362			42,833			20,827			21,071			20,824


Acquired allowance for credit losses⁽¹⁾	—			—			729			514			533
Allowance for credit losses⁽²⁾	$	54,362		$	42,833		$	21,556		$	21,585		$	21,357
As a percent of total loans	1.62		%	1.47		%	0.75		%	0.76		%	0.75		%

(Dollars in thousands) September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016
Commercial real estate $ 7,534
$ 7,328
$ 7,066
$ 7,172
$ 7,490
Commercial and industrial 6,415
6,727
6,534
6,353
5,690
Total commercial 13,949
14,055
13,600
13,525
13,180
Residential real estate 924
960
1,145
982
1,120
Home equity lines of credit 679
676
675
688
686
Consumer, indirect 2,814
2,549
2,409
2,312
2,240
Consumer, other 441
402
438
518
592
Consumer 3,255
2,951
2,847
2,830
2,832
Deposit account overdrafts 70
83
111
171
143
Originated allowance for loan losses 18,877
18,725
18,378
18,196
17,961
Acquired allowance for loan losses 115
90
90
233
258
Allowance for loan losses $ 18,992
$ 18,815
$ 18,468
$ 18,429
$ 18,219
As a percent of total loans, net of deferred fees and costs 0.82 % 0.82 % 0.82 % 0.83 % 0.84 %
(1) As of March 31, 2020, the amounts previously included in "acquired allowance for credit losses" is included in the originated allowance for credit losses under the CECL model.

(2) As of March 31, 2020, Peoples calculated the allowance for credit losses using the CECL model, while previous periods used the incurred loss model.

Peoples implemented ASU 2016-13 on January 1, 2020, which resulted in an increase of $5.8 million in allowance for credit losses. The remaining significant increase in the allowance for credit losses at March 31, 2020 compared to December 31, 2019 was mostly due to the recent COVID-19 pandemic, and the resulting impact to economic forecasts utilized in the CECL model. Peoples calculates its allowance for credit losses using a discounted cash flow model, and incorporates economic forecasts, including U.S. unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic factors.

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At ~~September~~June 30, ~~2017,~~2020, the allowance for ~~loan~~credit losses ~~increased to $19.0~~was $54.4 million, compared to ~~$18.2~~$42.8 million at ~~September 30, 2016 and $18.5~~March 31, 2020, $21.6 million at December 31, ~~2016.~~2019 and $21.4 million at June 30, 2019. The ratio of the allowance for loan losses as a percent of total loans ~~net of deferred fees and costs,~~ was ~~0.82%~~1.62% at ~~September~~June 30, ~~2017,~~2020, compared to ~~0.84%~~1.47% at ~~September 30, 2016~~March 31, 2020, and ~~0.83%~~0.75% at both December 31, ~~2016. The continued decline~~2019 and June 30, 2019. During the second quarter of 2020, Peoples increased its allowance for credit losses based on CECL model results, which incorporated economic forecasts at the end of June 2020. These forecasts included higher unemployment rates nationally and in ~~this ratio~~Ohio, and lower Ohio Gross Domestic Product, which are the key assumptions within the CECL model, compared to March 31, 2020 and January 1, 2020. This was ~~primarily due~~similar to the ~~stabilization of Peoples' asset quality metrics.~~

~~The significant allocations of~~impact that COVID-19 had on economic forecasts at March 31, 2020, which also resulted in higher allowance for ~~loan~~credit losses compared to ~~commercial~~December 31, 2019. The PPP loans ~~reflect~~originated during the ~~higher~~second quarter of 2020 are guaranteed by the SBA, and therefore, had no impact on the allowance for credit ~~risk associated with this type~~losses at June 30, 2020. The PPP loans did have a negative impact on the allowance for credit losses as a percent of ~~lending~~total loans at June 30, 2020, as they were included in total loans but had no related allowance for credit losses.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" and "Note 4 Loans" of the ~~size of this loan category in relationship~~Notes to the ~~entire loan portfolio. The allowance allocated to the residential real estate and consumer loan categories is based upon Peoples' allowance methodology for homogeneous pools~~Unaudited Consolidated Financial Statements.

Table of ~~loans. The fluctuations in these allocations have been directionally consistent with the changes in loan quality, loss experience and loan balances in these categories.~~Contents

The following table summarizes Peoples’ net charge-offs and recoveries:


	Three Months Ended
(Dollars in thousands)	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019
Gross charge-offs:

Commercial real estate, other	$	135		$	10		$	—		$	—		$	43

Commercial and industrial	15			937			738			261			—
Residential real estate	16			118			55			81			67
Home equity lines of credit	9			14			10			36			—
Consumer, indirect	336			721			563			447			346
Consumer, direct	51			62			61			54			33
Consumer	387			783			624			501			379
Deposit account overdrafts	119			213			219			283			176
Total gross charge-offs	$	681		$	2,075		$	1,646		$	1,162		$	665
Recoveries:

Commercial real estate, other	$	6		$	116		$	53		$	86		$	2

Commercial and industrial	805			1,204			322			81			228
Residential real estate	100			57			9			87			102
Home equity lines of credit	8			1			1			8			1
Consumer, indirect	72			125			41			67			47
Consumer, direct	10			14			7			5			27
Consumer	82			139			48			72			74
Deposit account overdrafts	49			60			48			51			50
Total recoveries	$	1,050		$	1,577		$	481		$	385		$	457
Net charge-offs (recoveries):

Commercial real estate, other	$	129		$	(106)		$	(53)		$	(86)		$	41

Commercial and industrial	(790)			(267)			416			180			(228)
Residential real estate	(84)			61			46			(6)			(35)
Home equity lines of credit	1			13			9			28			(1)
Consumer, indirect	264			596			522			380			299
Consumer, direct	41			48			54			49			6
Consumer	305			644			576			429			305
Deposit account overdrafts	70			153			171			232			126
Total net (recoveries) charge-offs	$	(369)		$	498		$	1,165		$	777		$	208
Ratio of net (recoveries) charge-offs to average total loans (annualized):


Commercial real estate	0.02		%	(0.01)		%	(0.01)		%	(0.01)		%	0.01		%
Commercial and industrial	(0.11)		%	(0.04)		%	0.06		%	0.03		%	(0.03)		%
Residential real estate	(0.01)		%	0.01		%	0.01		%	—		%	—		%

Consumer, indirect	0.03		%	0.08		%	0.07		%	0.05		%	0.03		%
Consumer, direct	0.01		%	0.01		%	0.01		%	0.01		%	—		%
Consumer	0.04		%	0.09		%	0.08		%	0.06		%	0.03		%
Deposit account overdrafts	0.01		%	0.02		%	0.02		%	0.03		%	0.02		%
Total	(0.05)		%	0.07		%	0.16		%	0.11		%	0.03		%

Three Months Ended
(Dollars in thousands) September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016
Gross charge-offs:
Commercial real estate, other $ —
$ 25
$ —
$ 13
$ 28
Commercial and industrial 48
—
117
—
—
Residential real estate 245
98
108
63
146
Home equity lines of credit 80
17
3
15
29
Consumer, indirect 494
516
483
571
674
Consumer, other 106
129
40
185
177
    Consumer 600
645
523
756
851
Deposit account overdrafts 246
172
349
229
210
Total gross charge-offs $ 1,219
$ 957
$ 1,100
$ 1,076
$ 1,264
Recoveries:
Commercial real estate, other $ 19
$ 14
$ 102
$ 10
$ 18
Commercial and industrial 1
—
—
56
—
Residential real estate 19
20
89
85
123
Home equity lines of credit 3
3
3
22
8
Consumer, indirect 175
217
206
333
253
Consumer, other 46
56
50
42
56
    Consumer 221
273
256
375
309
Deposit account overdrafts 47
47
65
27
41
Total recoveries $ 310
$ 357
$ 515
$ 575
$ 499
Net charge-offs (recoveries):
Commercial real estate, other $ (19 ) $ 11
$ (102 ) $ 3
$ 10
Commercial and industrial 47
—
117
(56 ) —
Residential real estate 226
78
19
(22 ) 23
Home equity lines of credit 77
14
—
(7 ) 21
Consumer, indirect 319
299
277
238
421
Consumer, other 60
73
(10 ) 143
121
    Consumer 379
372
267
381
542
Deposit account overdrafts 199
125
284
202
169
Total net charge-offs $ 909
$ 600
$ 585
$ 501
$ 765
Each with "--%" not meaningful.

Net recoveries during the second quarter of 2020 were (0.05)% of average total loans on an annualized basis. During the second quarter of 2020, Peoples recorded a $750,000 recovery on a commercial loan relationship that had been previously charged-off. Also contributing to the declining net charge-off level was the low amount of gross charge-offs during the second quarter of 2020. The first quarter of 2020 included a recovery of $1.2 million recorded on a previously charged-off commercial loan.

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Three Months Ended
(Dollars in thousands) September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016
Ratio of net charge-offs (recoveries) to average total loans (annualized):
Commercial real estate — % 0.01 % (0.01 )% — % — %
Commercial and industrial 0.01 % — % 0.02 % (0.01 )% — %
Residential real estate 0.04 % 0.01 % —%
— % — %
Home equity lines of credit 0.02 % 0.01 % —%
— % — %
Consumer, indirect 0.05 % 0.05 % 0.05 % 0.06 % 0.04 %
Consumer, other 0.01 % 0.01 % — % — % 0.07 %
Consumer 0.06 % 0.06 % 0.05 % 0.06 % 0.11 %
Deposit account overdrafts 0.03 % 0.02 % 0.05 % 0.04 % 0.03 %
Total 0.16 % 0.11 % 0.11 % 0.09 % 0.14 %

The following table details Peoples’ nonperforming assets:


(Dollars in thousands)	September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016		(Dollars in thousands)	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Loans 90+ days past due and accruing:
Commercial real estate, other	$	1,272	$	224	$	456	$	1,506	$	1,636
Commercial and industrial	832		919		1,358		387		452
Residential real estate	1,415		1,406		1,020		1,855		1,792
Home equity lines of credit	15		34		111		—		199
Consumer, indirect	—		—		61		—		82
Consumer, other	8		—		—		23		—
Consumer	8		—		61		23		82
Total loans 90+ days past due and accruing	$	3,542	$	2,583	$	3,006	$	3,771	$	4,161
Nonaccrual loans:
Commercial real estate, construction	$	776	$	797	$	819	$	826	$	855
Loans 90+ days past due and accruing (a):											Loans 90+ days past due and accruing (a):
Construction											Construction	$	—	$	—	$	—	$	—	$	230
Commercial real estate, other	7,321		7,711		8,893		10,792		10,020		Commercial real estate, other	130		—		907		582		557
Commercial real estate	8,097		8,508		9,712		11,618		10,875		Commercial real estate	130		—		907		582		787
Commercial and industrial	584		626		639		1,620		1,365		Commercial and industrial	—		806		155		572		261
Residential real estate	4,055		4,271		4,019		4,481		3,951		Residential real estate	1,618		557		2,677		3,095		2,291
Home equity lines of credit	589		450		438		554		458		Home equity lines of credit	46		143		108		183		53
Consumer, indirect	79		138		153		9		—		Consumer, indirect	57		—		—		—		—
Consumer, other	31		23		1		81		—
Consumer, direct											Consumer, direct	29		37		85		83		57
Consumer											Consumer	86		37		85		83		57
Total loans 90+ days past due and accruing											Total loans 90+ days past due and accruing	$	1,880	$	1,543	$	3,932	$	4,515	$	3,449
Nonaccrual loans (a):											Nonaccrual loans (a):
Construction											Construction	$	4	$	99	411		$	230	$	688
Commercial real estate, other											Commercial real estate, other	9,413		9,167		6,699		6,723		6,427
Commercial real estate											Commercial real estate	9,417		9,266		7,110		6,953		7,115
Commercial and industrial											Commercial and industrial	4,745		4,408		1,824		883		1,748
Residential real estate											Residential real estate	8,867		6,156		4,471		4,237		3,868
Home equity lines of credit											Home equity lines of credit	687		978		955		893		1,001
Consumer, indirect											Consumer, indirect	802		637		629		568		383
Consumer, direct											Consumer, direct	208		122		48		55		13
Consumer	110		161		154		90		—		Consumer	1,010		759		677		623		396
Total nonaccrual loans	$	13,435	$	14,016	$	14,962	$	18,363	$	16,649	Total nonaccrual loans	$	24,726	$	21,567	$	15,037	$	13,589	$	14,128
Nonaccrual troubled debt restructurings ("TDRs"):											Nonaccrual troubled debt restructurings ("TDRs"):

Commercial real estate, other											Commercial real estate, other	$	265	$	410	$	102	$	112	$	122
Commercial and industrial											Commercial and industrial	—		602		331		332		332
Residential real estate											Residential real estate	38		2,484		1,890		1,770		1,664
Home equity lines of credit											Home equity lines of credit	—		174		210		194		193
Consumer, indirect											Consumer, indirect	—		197		211		203		152
Consumer, direct											Consumer, direct	—		48		—		—		—
Consumer											Consumer	—		245		211		203		152
Total nonaccrual TDRs											Total nonaccrual TDRs	$	303	$	3,915	$	2,744	$	2,611	$	2,463
Total nonperforming loans ("NPLs")											Total nonperforming loans ("NPLs")	$	26,909	$	27,025	$	21,713	$	20,715	$	20,040
OREO:											OREO:
Commercial											Commercial	$	145	$	145	$	145	$	145	$	—
Residential											Residential	$	91	$	81	$	82	$	144	$	123
Total OREO											Total OREO	$	236	$	226	$	227	$	289	$	123
Total nonperforming assets ("NPAs")											Total nonperforming assets ("NPAs")	$	27,145	$	27,251	$	21,940	$	21,004	$	20,163
Criticized loans (b)											Criticized loans (b)	$	105,499	$	90,881	$	96,830	$	100,434	$	97,016
Classified loans (c)											Classified loans (c)	66,567		68,787		66,154		58,938		63,048

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(Dollars in thousands) September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016
Nonaccrual troubled debt restructurings (TDRs):
Commercial real estate, other $ 336
$ 335
$ 558
$ 751
$ 742
Commercial and industrial 694
821
910
482
384
Residential real estate 1,592
1,543
1,699
1,614
1,484
Home equity lines of credit 85
101
102
60
47
Consumer, indirect 75
102
58
6
30
Consumer, other 2
3
4
49
10
Consumer 77
105
62
55
40
Total nonaccrual TDRs 2,784
2,905
3,331
2,962
2,697
Total nonperforming loans (NPLs) $ 19,761
$ 19,504
$ 21,299
$ 25,096
$ 23,507
Other real estate owned (OREO):
Commercial $ 167
$ 545
$ 545
$ 594
$ 594
Residential 109
107
132
67
125
Total OREO 276
652
677
661
719
Total nonperforming assets (NPAs) $ 20,037
$ 20,156
$ 21,976
$ 25,757
$ 24,226
Criticized loans (a)(c) 96,671
111,480
101,284
99,182
99,294
Classified loans (b)(c) 41,233
53,041
56,503
57,736
53,755
Asset Quality Ratios:
NPLs as a percent of total loans 0.85 % 0.85 % 0.95 % 1.13 % 1.08 %
NPAs as a percent of total assets 0.56 % 0.57 % 0.64 % 0.75 % 0.72 %
NPAs as a percent of total loans and OREO 0.86 % 0.88 % 0.98 % 1.16 % 1.11 %
Allowance for loan losses as a percent of NPLs 96.11 % 96.47 % 86.71 % 73.43 % 77.50 %
Criticized loans as a percent of total loans (a) 4.15 % 4.86 % 4.50 % 4.46 % 4.58 %
Classified loans as a percent of total loans (b) 1.77 % 2.31 % 2.51 % 2.59 % 2.48 %


(Dollars in thousands)	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Asset Quality Ratios:
NPLs as a percent of total loans (d)(e)	0.80	%	0.93	%	0.75	%	0.73	%	0.71	%
NPAs as a percent of total assets (d)(e)	0.54	%	0.61	%	0.50	%	0.48	%	0.47	%
NPAs as a percent of total loans and OREO (d)(e)	0.80	%	0.94	%	0.76	%	0.74	%	0.71	%
Allowance for loan losses as a percent of NPLs (d)(e)	202.02	%	158.49	%	99.28	%	104.20	%	106.57	%
Criticized loans as a percent of total loans (b)(d)	3.14	%	3.12	%	3.37	%	3.52	%	3.42	%
Classified loans as a percent of total loans (c)(d)	1.98	%	2.36	%	2.30	%	2.07	%	2.23	%

(a) The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020. As of December 31, 2019, these loans were presented as 90+ days past due and accruing. Although they were not accruing contractual interest income, they were accreting income from the discount that was recognized due to acquisition accounting.

(b) Includes loans categorized as special mention, substandard or doubtful.

~~(b)~~(c) Includes loans categorized as substandard or doubtful.

~~(c)~~ (d) Data presented as of the end of the period indicated.

(e) Nonperforming loans include loans 90+ days past due and accruing, TDRs and nonaccrual loans. Nonperforming assets include nonperforming loans and OREO.

As of June 30, 2020, nonperforming loans and assets were relatively unchanged from March 31, 2020. The nonperforming loans as a percent of total loans and nonperforming assets as a percent of total assets ratios declined compared to March 31, 2020, largely due to the increased total loans and total assets balances related to the PPP loans added during the quarter.

Criticized loans, which are those categorized as special mention, substandard or doubtful, increased $14.6 million, or 16%, compared to March 31, 2020 and $8.7 million, or 9%, compared to December 31, 2019. The increase was related to additional loans being downgraded during the second quarter of 2020 based upon updated information that was available, and were not driven by COVID-19. The increase in criticized loans compared to June 30, 2019 was mostly related to the additional loans downgraded during the second quarter of 2020. Classified loans, which are those categorized as substandard or doubtful, declined $2.2 million, or 3%, compared to March 31, 2020, and are relatively flat compared to December 31, 2019.

On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not in the scope of ASC 310-40.

Deposits

The following table details Peoples’ deposit balances:

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(Dollars in thousands) September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016
Non-interest-bearing deposits (a) $ 724,846
$ 772,061
$ 785,047
$ 734,421
$ 745,468
Interest-bearing deposits:
Retail certificates of deposit (CDs) (b) 343,122
352,758
353,918
360,464
390,568
Money market deposit accounts 388,876
397,211
386,999
407,754
411,111
Governmental deposit accounts 289,895
297,560
330,477
251,671
286,716
Savings accounts 440,633
443,110
445,720
436,344
438,087
Interest-bearing demand accounts (a) 384,261
303,501
292,187
278,975
270,490
Brokered certificates of deposit (b) 93,049
110,943
107,817
40,093
33,017
Total interest-bearing deposits 1,939,836
1,905,083
1,917,118
1,775,301
1,829,989
Total deposits $ 2,664,682
$ 2,677,144
$ 2,702,165
$ 2,509,722
$ 2,575,457


~~(a)~~	~~The sum of amounts presented are considered total demand deposits.~~


~~(b)~~	~~Prior periods reclassified.~~


(Dollars in thousands)	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Non-interest-bearing deposits (a)	$	1,005,732	$	727,266	$	671,208	$	677,232	$	643,058
Interest-bearing deposits:
Interest-bearing demand accounts (a)	666,181		637,011		635,720		622,496		610,464
Savings accounts	580,703		527,295		521,914		526,372		526,746
Retail certificates of deposit ("CDs")	474,593		487,153		490,830		488,942		497,221
Money market deposit accounts	598,641		485,999		469,893		441,989		428,213
Governmental deposit accounts	377,787		400,184		293,908		337,941		331,754
Brokered deposits	321,247		133,522		207,939		262,230		326,157
Total interest-bearing deposits	3,019,152		2,671,164		2,620,204		2,679,970		2,720,555
Total deposits	$	4,024,884	$	3,398,430	$	3,291,412	$	3,357,202	$	3,363,613

(a)The ~~increase~~sum of amounts presented is considered total demand deposits.

At June 30, 2020, period-end deposits grew $626.5 million, or 18%, compared to March 31, 2020, and increased $661.3 million, or 20%, compared to June 30, 2019. The growth in ~~total deposit~~ balances compared to ~~December 31, 2016~~all prior periods was ~~primarily due~~related to customers maintaining higher balances, as a result of PPP loan proceeds, fiscal stimulus and changes in customer habits in light of the COVID-19 pandemic. Peoples experienced increases ~~of $105.3 million~~ in ~~interest-bearing deposits, $53.0 million~~mostly low-cost deposit categories, while also driving increases in brokered ~~CDs and $38.2 million in governmental deposit accounts~~deposits as a low-cost funding source compared to other alternatives.

In prior periods, Peoples had reduced its reliance on higher-rate brokered deposits, which included one-way buy Certificate of Deposit Account Registry Services. This was partially offset ~~partially~~ by ~~a decrease~~the issuance of ~~$9.6 million in non-interest-bearing demand deposits. Shifts in balances occurred between non-interest-~~

~~Table~~90-day brokered deposits to fund interest rate swaps. During each of ~~Contents~~

~~bearing deposits and interest-bearing demand account balances as consumers are being migrated to new products during the third quarter and continuing into~~ the fourth ~~quarter,~~and third quarters of ~~2017. During this migration, customer accounts are evaluated based~~2019, Peoples issued $10.0 million of 90-day brokered deposits to fund one interest rate swap with a notional value of $10.0 million. The swap will pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on ~~certain characteristics, and some accounts that were traditionally non-interest-bearing~~the brokered deposits. The brokered deposits are ~~being converted~~expected to ~~interest-bearing demand accounts. The increase in brokered CDs was~~be extended every 90 days through the ~~result~~maturity dates of ~~adding relatively shorter term funding on~~ the ~~balance sheet while the increase in governmental deposit accounts was primarily due to seasonality.~~swaps.

Total demand deposit accounts comprised 42% of total deposits at ~~September~~June 30, ~~2017,~~2020, compared to 40% at March 31, 2020, and 37% at June 30, ~~2017 and December 31, 2016, and 39% at September 30, 2016.~~2019. Peoples continues its deposit strategy of growing low-cost core deposits, such as checking and savings accounts, ~~and reducing its reliance on higher-cost, non-core~~while utilizing brokered deposits ~~such~~ as ~~retail CDs.~~a funding source when necessary.

Borrowed Funds

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


(Dollars in thousands)	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			(Dollars in thousands)	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Short-term borrowings:																Short-term borrowings:
FHLB advances	$	116,597		$	65,000		$	32,000		$	231,000		$	90,000
Overnight borrowings																Overnight borrowings	$	—	$	64,000	$	141,000	$	106,000	$	—
FHLB 90-day advances																FHLB 90-day advances	110,000		110,000		110,000		110,000		117,200
Current portion of long-term FHLB advances																Current portion of long-term FHLB advances	25,000		45,000		23,009		23,069		23,129
Retail repurchase agreements	77,120			77,532			73,752			74,607			72,807			Retail repurchase agreements	42,912		40,661		42,968		49,081		46,128

Total short-term borrowings	193,717			142,532			105,752			305,607			162,807			Total short-term borrowings	$	177,912	$	259,661	$	316,977	$	288,150	$	186,457
Long-term borrowings:																Long-term borrowings:
FHLB advances	148,862			172,038			127,581			98,282			100,743			FHLB advances	$	105,005	$	125,300	$	75,672	$	76,785	$	78,324
National market repurchase agreements	40,000			40,000			40,000			40,000			40,000
Unamortized debt issuance costs	(33		)	(39		)	(45		)	(51		)	(57		)

Junior subordinated debt securities	7,061			7,015			6,970			6,924			6,877			Junior subordinated debt securities	7,531		7,491		7,451		7,409		7,367
Total long-term borrowings	195,890			219,014			174,506			145,155			147,563			Total long-term borrowings	$	112,536	$	132,791	$	83,123	$	84,194	$	85,691
Total borrowed funds	$	389,607		$	361,546		$	280,258		$	450,762		$	310,370		Total borrowed funds	$	290,448	$	392,452	$	400,100	$	372,344	$	272,148

Peoples' ~~short-term FHLB advances generally consist of~~ overnight borrowings are maintained in connection with the management of Peoples' daily liquidity position. ~~Peoples' short-term~~Borrowed funds, in total, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances. The decrease in overnight borrowings of $64.0 million, and the decline of $40.3 million in FHLB advances ~~at September 30, 2017 increased $51.6 million and $84.6 million~~ compared to March 31, 2020 were primarily tied to the growth in deposits during the quarter. As of June 30, ~~2017 and March 31, 2017, respectively.~~2020, Peoples had 17 effective interest rate swaps, with an aggregate notional value of $160.0 million, $110.0 million of which were funded by FHLB 90-day advances, which are expected to be extended every 90 days through the maturity dates of the swaps. The ~~increase in short-term borrowings was~~remaining $50.0 million of interest rate swaps were funded by 90-day brokered deposits, which are also expected to ~~fund loan growth during~~be extended every 90 days through the ~~second and third quarters~~maturity dates of ~~2017.~~the swaps. Peoples continually evaluates the overall balance sheet position given the interest rate environment.

~~Due to the interest rate environment, Peoples took action with respect to $80 million of long-term borrowings that were scheduled to mature in 2018, with interest rates ranging from 2.79% to 3.92%.~~ During the first quarter ~~of 2017, and throughout 2016, these actions included:~~


▪	On January 27, 2017, Peoples entered into two $10.0 million forward starting interest rate swaps, which will become effective in 2018 and mature between 2025 and 2027, with interest rates ranging from 2.47% to 2.53%.


▪	During the fourth quarter of 2016, Peoples entered into two $5.0 million forward starting interest rate swaps, which become effective in 2018 and mature in 2022 and 2026, with interest rates of 1.56% and 1.83%.


▪	~~During the second quarter of 2016, Peoples executed the following transactions to take advantage of the low interest rates:~~

2020, Peoples ~~restructured $20.0~~borrowed $50.0 million ~~of FHLB borrowings that had a weighted-average rate of 2.97%, resulting in a $700,000 loss. Peoples replaced these borrowings with a~~through long-term FHLB ~~advance, which had an interest rate of 2.17% and matures in 2026.~~putable, non-amortizing fixed-rates advances.

~~Peoples borrowed an additional $35.0 million of long-term FHLB amortizing advances, which had interest rates ranging from 1.08% to 1.40%, and mature between 2019 and 2031.~~

Additional information regarding Peoples' interest rate swaps can be found in ~~Note~~"Note 9 Derivative Financial Instruments" of the Notes to the ~~Unconsolidated~~Unaudited Consolidated Financial Statements.

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Capital/Stockholders’ Equity

At ~~September~~June 30, ~~2017,~~2020, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations. These higher capital levels reflect Peoples' desire to maintain a strong capital position. During the first quarter of 2015, Peoples adopted the Basel III regulatory capital framework, as approved by the federal banking agencies. The adoption of this new framework modified the calculations and well capitalized thresholds of the existing risk-based capital ratios and added the new Common Equity Tier 1 risk-based capital ratio. Additionally, under the new rules, inIn order to avoid limitations on dividends, equity repurchases and compensation, Peoples must exceed the three minimum required ratios by at least the capital conservation ~~buffer. The capital conservation~~ buffer ~~is being phased in from 0.625% beginning January 1, 2016 to~~of 2.50% ~~by January 1, 2019, and~~, which applies to the ~~Common Equity Tier~~common equity tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio. At ~~September~~June 30, ~~2017, Peoples'~~2020, Peoples had a capital conservation buffer of ~~6.49%, compared to 2.50% for the fully phased-in capital conservation buffer required by January 1, 2019.~~6.80%. As such, Peoples exceeded the minimum ratios including the capital conservation buffer at ~~September~~June 30, ~~2017.~~2020.

The following table details Peoples' risk-based capital levels and corresponding ratios:


(Dollars in thousands)	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019
Capital Amounts:
Common Equity Tier 1	$	408,619		$	415,768		$	427,415		$	417,468		$	410,978
Tier 1	416,150			423,259			434,866			424,877			418,345
Total (Tier 1 and Tier 2)	454,641			459,727			456,422			446,462			439,702
Net risk-weighted assets	$	3,072,178		$	2,988,263		$	2,930,355		$	2,933,848		$	2,903,386
Capital Ratios:
Common Equity Tier 1	13.30		%	13.91		%	14.59		%	14.23		%	14.16		%
Tier 1	13.55		%	14.16		%	14.84		%	14.48		%	14.41		%
Total (Tier 1 and Tier 2)	14.80		%	15.38		%	15.58		%	15.22		%	15.14		%
Tier 1 leverage ratio	8.97		%	10.06		%	10.41		%	10.28		%	10.26		%

(Dollars in thousands) September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016
Capital Amounts:
Common Equity Tier 1 $ 326,966
$ 318,849
$ 310,856
$ 306,506
$ 301,222
Tier 1 334,027
325,865
317,826
313,430
308,099
Total (Tier 1 and Tier 2) 355,951
348,309
340,147
334,957
328,948
Net risk-weighted assets $ 2,456,797
$ 2,419,335
$ 2,382,874
$ 2,373,359
$ 2,309,951
Capital Ratios:
Common Equity Tier 1 13.31 % 13.18 % 13.05 % 12.91 % 13.04 %
Tier 1 13.60 % 13.47 % 13.34 % 13.21 % 13.34 %
Total (Tier 1 and Tier 2) 14.49 % 14.40 % 14.27 % 14.11 % 14.24 %
Leverage ratio 9.82 % 9.72 % 9.60 % 9.66 % 9.71 %
During the second quarter of 2020, Peoples repurchased 447,931, or $9.8 million, of common shares under Peoples' share repurchase program pursuant to the then effective Rule 10b5-1 plan. Peoples continues to evaluate repurchases under its share-repurchase program as appropriate, based on market conditions and other relevant factors. At June 30, 2020, Peoples continued to have strong capital levels. Peoples is closely monitoring capital levels, in light of the COVID-19 pandemic, and the potential impact of its effect upon future earnings. Peoples has stress tested its capital metrics, and will continue to adjust capital levers as necessary to ensure adequate capital is maintained.

In addition to the repurchase of common shares during the second quarter of 2020, Peoples' capital ratios at June 30, 2020 compared to March 31, 2020, were impacted by dividends declared of $6.8 million, which exceeded net income of $4.7 million. The decline in capital ratios at March 31, 2020, compared to December 31, 2019 was related to the net loss recorded during the first quarter of 2020, coupled with common share repurchases and dividends declared. During 2019, Peoples' capital ratios increased ~~compared to June 30, 2017 and December 31, 2016, largely~~primarily due to ~~increased~~ earnings, which exceeded ~~the~~ dividends declared and ~~paid~~paid.

As a result of the implementation of ASU 2016-13 on January 1, 2020, Peoples recorded a one-time transition adjustment to retained earnings of $3.7 million. This adjustment reflected the increase in the allowance for credit losses for loans (excluding the gross up of loan balances related to the establishment of an allowance for credit losses for purchased credit deteriorated loans), the allowance for credit losses for held-to-maturity investment securities and the addition of an unfunded commitment liability, net of statutory federal corporate income taxes. Based on current accounting guidance, Peoples is electing to utilize the five-year phase-in period for the transition adjustment due to the implementation of ASU 2016-13. This phase-in period also includes a 25% deferment of the impact on regulatory capital of the estimated increase in the allowance for credit losses related to the CECL model, which is applied during the ~~periods, coupled~~first two years of application. For the first two years of the phase-in period, 100% of the transition adjustment due to ASU 2016-13 is excluded for regulatory capital purposes, along with ~~relatively stable net risk-weighted assets.~~25% of the increase in the allowance for credit losses compared to the January 1, 2020 allowance for credit losses. In year three of the phase-in, 75% of the transition adjustment, and the cumulative 25% increase in the allowance for credit losses compared to January 1, 2020, are excluded from regulatory capital, while 50% and 25% of these amounts are excluded in years four and five, respectively, under this phase-in period.

In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity. Such ratios represent ~~non-GAAP~~non-US GAAP financial measures since their calculation removes the impact of goodwill and other intangible assets acquired through acquisitions on amounts reported in the Unaudited Consolidated Balance Sheets. Management believes this information is useful to investors since it facilitates the comparison of Peoples' operating performance, financial condition and trends to peers, especially those without a similar level of intangible assets to that of Peoples. Further, intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value. As a result, tangible equity represents a conservative measure of the capacity for Peoples to incur losses but remain solvent.

Table of Contents

The following table reconciles the calculation of these ~~non-GAAP~~non-US GAAP financial measures to amounts reported in Peoples' Unaudited Consolidated Financial Statements:


(Dollars in thousands)	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019
Tangible equity:
Total stockholders' equity	$	569,177		$	583,721		$	594,393		$	588,533		$	579,022
Less: goodwill and other intangible assets	176,625			177,447			177,503			179,126			176,763
Tangible equity	$	392,552		$	406,274		$	416,890		$	409,407		$	402,259






Tangible assets:
Total assets	$	4,985,819		$	4,469,120		$	4,354,165		$	4,396,148		$	4,276,376
Less: goodwill and other intangible assets	176,625			177,447			177,503			179,126			176,763
Tangible assets	$	4,809,194		$	4,291,673		$	4,176,662		$	4,217,022		$	4,099,613

Tangible book value per common share:
Tangible equity	$	392,552		$	406,274		$	416,890		$	409,407		$	402,259
Common shares outstanding	19,925,083			20,346,843			20,698,941			20,700,630			20,696,041

Tangible book value per common share	$	19.70		$	19.97		$	20.14		$	19.78		$	19.44

Tangible equity to tangible assets ratio:
Tangible equity	$	392,552		$	406,274		$	416,890		$	409,407		$	402,259
Tangible assets	$	4,809,194		$	4,291,673		$	4,176,662		$	4,217,022		$	4,099,613

Tangible equity to tangible assets	8.16		%	9.47		%	9.98		%	9.71		%	9.81		%

(Dollars in thousands) September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016
Tangible equity:
Total stockholders' equity $ 457,386
$ 451,353
$ 443,009
$ 435,261
$ 440,637
Less: goodwill and other intangible assets 143,859
144,692
145,505
146,018
147,005
Tangible equity $ 313,527
$ 306,661
$ 297,504
$ 289,243
$ 293,632
Tangible assets:
Total assets $ 3,552,412
$ 3,525,126
$ 3,459,276
$ 3,432,348
$ 3,363,585
Less: goodwill and other intangible assets 143,859
144,692
145,505
146,018
147,005
Tangible assets $ 3,408,553
$ 3,380,434
$ 3,313,771
$ 3,286,330
$ 3,216,580
Tangible book value per common share:
Tangible equity $ 313,527
$ 306,661
$ 297,504
$ 289,243
$ 293,632
Common shares outstanding 18,281,194
18,279,036
18,270,508
18,200,067
18,195,986
Tangible book value per common share $ 17.15
$ 16.78
$ 16.28
$ 15.89
$ 16.14
Tangible equity to tangible assets ratio:
Tangible equity $ 313,527
$ 306,661
$ 297,504
$ 289,243
$ 293,632
Tangible assets $ 3,408,553
$ 3,380,434
$ 3,313,771
$ 3,286,330
$ 3,216,580
Tangible equity to tangible assets 9.20 % 9.07 % 8.98 % 8.80 % 9.13 %

~~The increase in~~Tangible book value per common share declined at June 30, 2020 compared to March 31, 2020. This decline was driven by the increased tangible assets arising from the PPP loan originations, which negatively impacted the ratio at June 30, 2020 by 86 basis points. In addition, tangible equity declined due to ~~tangible assets ratio at September 30, 2017 compared~~dividends declared exceeding net income during the second quarter of 2020, coupled with the common share repurchases during the quarter. Compared to ~~June 30, 2017, March 31, 2017 and~~ December 31, ~~2016 was mostly due to higher~~2019, Peoples' net income has been reduced by higher provision for credit losses, and when coupled with ~~an increase in accumulated other comprehensive income due to a slight recovery in~~ the ~~market value of investment securities.~~dividends declared and common share repurchases, has driven tangible equity lower.

Interest Rate Sensitivity and Liquidity

While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major risks that can materially impact future results of operations and financial condition due to their complexity and dynamic nature. The objective of Peoples' ~~asset/liability~~asset-liability management ~~(“ALM”)~~ function is to measure and manage these risks in order to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the ~~ALM~~asset-liability management function is intended to guide management in the acquisition and disposition of earning assets and selection of appropriate funding sources.

Interest Rate Risk

Interest rate risk ~~(“IRR”~~("IRR") is one of the most significant risks arising in the normal course of business of financial services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream, as well as market values, of financial assets and liabilities. Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can ~~expose Peoples~~affect Peoples' exposure to IRR and increase interest costs or reduce revenue streams.

Peoples has assigned overall management of IRR to its Asset-Liability Committee (the “ALCO”), which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and managing the level of IRR. The methods used by ~~the~~ ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' ~~2016~~2019 Form 10-K.

The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis with balances held constant (dollars in thousands):

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Increase in Interest Rate	Estimated Increase (Decrease) in Net Interest Income									Estimated Decrease in Economic Value of Equity
Increase (Decrease) in Interest Rate																				Increase (Decrease) in Interest Rate	Estimated Increase (Decrease) in Net Interest Income																Estimated Increase (Decrease) in Economic Value of Equity
(in Basis Points)	September 30, 2017				December 31, 2016					September 30, 2017					December 31, 2016					(in Basis Points)	June 30, 2020								December 31, 2019					June 30, 2020					December 31, 2019
300	$	4,572	4.0	%	$	(1,100	)	(1.0	)%	$	(89,378	)	(13.1	)%	$	(88,004	)	(15.0	)%	300	$	18,183	14.9	%	$	14,806	11.2	%		$	209,974	20.7	%		$	35,743	3.2	%
200	3,805		3.3	%	83			0.1	%	(60,496		)	(8.9	)%	(57,925		)	(9.9	)%	200	14,876		12.2	%	12,063		9.1	%		187,794		18.5	%		45,651		4.0	%
100	2,496		2.2	%	603			0.6	%	(29,942		)	(4.4	)%	(27,441		)	(4.7	)%	100	9,048		7.4	%	7,895		6.0	%		104,390		10.3	%		39,137		3.5	%
(100)																				(100)	(5,392)		(4.4)	%	(12,524)		(9.5)	%		(74,835)		(7.4)	%		(63,964)		(5.7)	%

Estimated changes in net interest income and economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest ~~rates.~~rates as well as assumptions regarding prepayment speeds on mortgage-backed securities. These and other modeling assumptions are monitored closely by Peoples on an ongoing basis.

With respect to investment prepayment speeds, the assumptions used are the results of a third-party prepayment model which projects the rate at which the underlying mortgages prepay. These prepayment speeds affect the amount forecasted for cash flow reinvestment, premium amortization, and ~~were last updated~~discount accretion assumed in ~~May 2017.~~

~~At September 30, 2017, Peoples' Unaudited Consolidated Balance Sheet remained positioned for a rising~~ interest rate ~~environment,~~risk modeling results. This prepayment activity is generally the result of refinancing activity and tends to increase as ~~illustrated by~~longer term interest rates decline, much like the ~~potential increase~~current environment. The assumptions in the interest rate risk model could be incorrect, leading to either a lower or higher impact on net interest ~~income shown in the above table.~~ income. Peoples generally takes a more conservative approach regarding prepayment speed assumptions.

While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in ~~Peoples' Unaudited Consolidated Balance Sheet,~~the balance sheet, interest rates typically move in a ~~non-parallel~~nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any benefit that ~~could~~might occur as a result of the Federal Reserve Board increasing short-term interest rates in the future ~~quarters~~ could be offset by an inverse movement in long-term rates, and vice versa. For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. These include various flattening and steepening scenarios in which short-term and long-term rates move in different directions with varying magnitude. Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above. Given the shape of market yield curves at June 30, 2020, consideration of the bear steepener and bull flattener scenarios provide insights which were not captured by parallel shifts. These scenarios were evaluated as the current environment suggests these may be possible outcomes for the trajectory of interest rates.

The bear steepener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates rise. In such a scenario, Peoples' deposit and borrowing costs, which are correlated with short-term rates, remain constant, while asset yields, which are correlated with long-term rates, rise. Increased asset yields largely driven by higher rates on floating rate loans would not be offset by increases in deposit or funding costs; resulting in an increased amount of net interest income and higher net interest margin. At June 30, 2020, the bear steepener scenario resulted in an increase in both net interest income and economic value of equity of 4.0% and 7.7%, respectively.

The bull flattener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates fall. In such a scenario, Peoples’ deposit and borrowing costs, which are correlated with short-term rates, remain constant while asset yields, which are correlated with long-term rates, fall. Asset yields driven lower by increased investment securities premium amortization and lower rates on floating rate loans would not be offset by reductions in deposit or funding costs; resulting in a decreased amount of net interest income and lower net interest margin. At June 30, 2020, the bull flattener scenario resulted in a decrease in both net interest income and economic value of equity of 1.3% and 0.6%, respectively. Peoples was within the policy limitations for this alternative scenario as of June 30, 2020, which sets the maximum allowable downside exposure as 5.0% of net interest income and 10.0% of economic value of equity.

Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of ~~September~~June 30, ~~2017,~~2020, Peoples ~~had seven~~has entered into seventeen interest rate swap contracts with an aggregate notional value of $160.0 million. Additional information regarding Peoples’ interest rate swaps ~~with a notional~~can be found in “Note 9 Derivative Financial Instruments” of the Notes to the Unaudited Consolidated Financial Statements.

At June 30, 2020, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of potential impact on net interest income and the economic value of ~~$60.0 million.~~equity. The table above illustrates this point as changes to net interest income increase in the rising rate scenarios. While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the increase in asset sensitivity from December 31, 2019 was largely attributable to greater forecasted impacts of interest rate movements on the amount of premium amortization in the investment portfolio. The table also illustrates a significant reduction in long-term interest rate risk as evidenced by the change in the modeled impact of rising interest rates on the economic value of equity. The reduction is largely attributable to increased forecasted base case investment portfolio prepayments, which shortens the effective duration of assets and, ultimately, equity.

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As interest rates across the yield curve have fallen, Peoples has experienced and will most likely continue to experience net interest margin compression. The confluence of lower LIBOR rates and increased investment securities prepayment speeds has created further headwinds which prevent margin expansion. Peoples should experience positive impacts from retail CDs and term borrowings maturing and re-pricing lower, the expiration of promotional and contractual interest rates, and recently implemented non-maturity deposit rate reductions should begin to materialize over the next one to two quarters.

Liquidity

In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. The methods used by the ALCO to monitor and evaluate the adequacy of ~~Peoples'~~Peoples Bank's liquidity position remain unchanged from those disclosed in Peoples' ~~2016~~2019 Form 10-K.

At ~~September~~June 30, ~~2017,~~2020, Peoples Bank had liquid assets of ~~$173.5~~$209.5 million, which represented ~~4.4%~~3.8% of total assets and unfunded loan commitments. This amount exceeded the ~~minimal~~minimum level by ~~$94.6~~$99.3 million, or ~~2.4%~~1.8% of total loans and unfunded commitments, currently required under Peoples' liquidity policy. Peoples also had an additional ~~$71.6~~$105.0 million of unpledged investment securities not included in the measurement of liquid assets.

Management believes the current balance of cash and cash equivalents, ~~and~~ anticipated investment portfolio cash flows ~~from the investment portfolio, along with~~and the availability of other funding sources, will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.

The COVID-19 pandemic presents a unique set of challenges and considerations which necessitate an abundance of caution when addressing liquidity risk. Management has taken action intended to ensure that liquidity levels are more than sufficient to meet the challenges posed by the current environment. Steps taken, before March 31, 2020 and after, to reinforce Peoples' liquidity position include, but are not limited to, the pledging of additional loan and investment securities collateral to counterparties in exchange for additional borrowing capacity, accumulation of larger than normal cash reserves, and purchasing of short-term brokered deposits.

Peoples is authorized to utilize the Federal Reserve's Paycheck Protection Program Liquidity Facility (PPPLF) to fund originations under the PPP. During the second quarter of 2020, Peoples borrowed a small amount under the PPPLF in order to test the funding source, which is available if needed.

Since March 31, 2020, there was an increase in deposit balances due to the influx of funds from government stimulus, the PPP and other government actions. Peoples anticipates that these deposit balances will decline over time as the funds are used for intended business purposes; however, this deposit outflow should be partially offset as the associated PPP loans are forgiven and loan reimbursement is received. At the same time, we have experienced a decrease in the utilization rate for commercial lines of credit. This decrease is related to the receipt of PPP loan proceeds and other increased cash flows to certain companies. Peoples expects the commercial line of credit utilization percentage to revert back to more historical averages as time progresses. The utilization percentage for consumer line of credit products has been relatively steady.

Off-Balance Sheet Activities and Contractual Obligations

In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the ~~Unaudited~~ Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments.

Loan Commitments and Standby Letters of Credit

Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. ~~Peoples'~~Peoples Bank's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples Bank uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties.

Peoples Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the ~~consolidated financial statements.~~Unaudited Consolidated Financial Statements. These activities are part of ~~Peoples'~~Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional

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capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure.

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The following table details the total contractual amount of loan commitments and standby letters of credit:


(Dollars in thousands)	September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016		(Dollars in thousands)	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Home equity lines of credit	$	84,101	$	86,086	$	86,037	$	85,024	$	83,267	Home equity lines of credit	$	116,634	$	113,605	$	112,464	$	110,127	$	106,456
Unadvanced construction loans	103,732		92,669		116,168		119,075		100,484		Unadvanced construction loans	113,119		97,153		102,491		87,063		95,266
Other loan commitments	280,974		302,710		267,132		269,669		268,259		Other loan commitments	426,776		413,515		353,137		365,343		360,872
Loan commitments	$	468,807	$	481,465	$	469,337	$	473,768	$	452,010	Loan commitments	$	656,529	$	624,273	$	568,092	$	562,533	$	562,594
Standby letters of credit	$	21,788	$	26,458	$	25,797	$	25,651	$	27,072	Standby letters of credit	$	12,280	$	12,883	$	12,498	$	14,983	$	14,658

Management does not anticipate that ~~Peoples’~~Peoples Bank’s current off-balance sheet activities will have a material impact on its future results of operations and financial condition based on historical experience and recent trends.

ITEM 3.3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this Item 3 is provided under the caption “Interest Rate Sensitivity and Liquidity” under “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS AND FINANCIAL CONDITION”~~OPERATIONS” in this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

ITEM 4.4 CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Peoples' management, with the participation of Peoples' President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer, has evaluated the effectiveness of Peoples’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~September~~June 30, ~~2017~~.2020. Based upon that evaluation, Peoples’ President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer have concluded that:

~~(a)~~

information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be accumulated and communicated to Peoples’ management, including its President and Chief Executive Officer and its Executive Vice President, Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure;


~~(b)~~	information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and


~~(c)~~	~~Peoples’ disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q.~~

(a)information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be accumulated and communicated to Peoples’ management, including its President and Chief Executive Officer and its Executive Vice President, Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure;

(b)information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

(c)Peoples’ disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control Over Financial Reporting

There were no changes in Peoples' internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Peoples' fiscal quarter ended ~~September~~June 30, ~~2017~~,2020, that have materially affected, or are reasonably likely to materially affect, Peoples’ internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1.1 LEGAL PROCEEDINGS

In the ordinary course of their respective businesses or operations, Peoples or one of its subsidiaries may be named as a plaintiff, a defendant, or a party to a legal proceeding or any of their respective properties may be subject to various pending and threatened legal proceedings and various actual and potential claims. In view of the inherent difficulty of predicting the outcome of such matters, Peoples cannot state what the eventual outcome of any such matters will be. However, based on management's current knowledge and after consultation with legal counsel, management believes these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of Peoples.

ITEM ~~1A.~~1A RISK FACTORS

The ~~accounting treatment~~disclosures below supplement the risk factors previously disclosed under “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 2019 Form 10-K.

The COVID-19 pandemic has adversely impacted Peoples' business and financial results, and the ultimate continued impact on both will depend on future developments, which are highly uncertain and cannot be predicted, including the scope

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and duration of the pandemic and actions taken by governmental and nongovernmental authorities in response to the pandemic.

The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other Federal Reserve monetary policy. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, lowered equity market valuations, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in Peoples' 2019 Form 10-K could be exacerbated and such effects could have a material adverse impact on Peoples in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate ~~swaps entered into~~risk, and human capital, as described in more detail below.

Credit Risk. Peoples' risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of the business of Peoples' commercial borrowers and the financial circumstances of Peoples' consumer borrowers. Concern about the spread of COVID-19 had caused and is likely to continue to cause business shutdowns and slowdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, which may affect individuals, households and business differently, and decreased consumer confidence generally, all of which may cause Peoples' customers to be unable to make scheduled loan payments.

If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in Peoples' portfolio, Peoples could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover Peoples' exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with existing loans, the ability to liquidate the real estate collateral securing residential and commercial real estate loans, Peoples' ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of Peoples' lending and services, and the financial condition and credit risk of Peoples' customers, both commercial and consumer. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent Peoples from making business decisions or may result in a delay in taking certain remediation actions, such as ~~part~~foreclosure. In addition, Peoples has unfunded commitments to extend credit to customers. During a challenging economic environment like now, customers are more dependent on credit commitments and increased borrowings under these commitments could adversely impact Peoples' liquidity.

Furthermore, in an effort to support Peoples' communities during the pandemic, Peoples is participating in the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of ~~its~~loan payments for a specified time or that would limit Peoples' ability to pursue all available remedies in the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, Peoples is at the heightened risk of holding the loan at an unfavorable interest rate ~~management strategy, may change~~as compared to the loans to customers that Peoples would have otherwise extended credit. Rules providing for forgiveness have been constantly evolving, including an automatic forgiveness if the ~~hedging relationship~~amount of the PPP loan was not larger than a specified floor.

As described in Peoples' 2019 Form 10-K, on January 1, 2020, Peoples adopted ASU 2016-13, Financial Instruments - Credit Losses (“CECL”), which upon adoption resulted in a reduction to the retained earnings balance of $3.7 million, net of income tax, and a pre-tax increase to the allowance for loan losses of approximately $5.8 million. Due to the adoption of ASU 2016-13, Peoples' financial results may be negatively affected as soon as weak or deteriorating economic conditions are forecasted and alter Peoples' expectations for credit losses. In addition, due to the expansion of the time horizon over which Peoples is required to estimate future credit losses under CECL, Peoples may experience increased volatility in future provisions for credit losses. Peoples may also experience a higher or more volatile provision for credit losses due to higher levels of nonperforming loans and net charge-offs if commercial and consumer customers are unable to make scheduled loans payments.

Strategic Risk. Peoples' success may be affected by a variety of external factors that may affect the price or marketability of products and services, changes in interest rates that may increase funding costs, reduced demand for financial products due to economic conditions, and the various response of governmental and nongovernmental authorities. In recent months, the COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets. Furthermore, many of the governmental actions to curtail the spread of the virus have been directed toward curtailing household and business activity to contain COVID-19. These actions have been rapidly expanding in scope and intensity. For example, in many of Peoples' markets, local governments have acted in the first and early second quarters of 2020 to temporarily close or restrict the operations of most businesses. Many businesses have re-opened; however, the future effects of COVID-19 on economic activity could negatively affect the future banking products Peoples

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provides, including a decline in loan originations if there are renewed or additional restrictions placed on businesses, including the potential of closing again.

Operational Risk. Current and future restrictions on the access of Peoples' workforce to its facilities could limit Peoples' ability to meet customer service expectations and have a material adverse effect on operations. Peoples relies on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties.

In response to COVID-19, Peoples has modified its business practices with a portion of employees working remotely from their homes to limit interruptions to operations as much as possible and to help reduce the risk of COVID-19 infecting entire departments. Reduced workforces which may be caused by, but not limited to, illness, quarantine, stay at home or other government mandates, or difficulties transitioning back to an in office environment, could result in an adverse impact to Peoples' operations and financial performance. Employees with health conditions putting them at higher risk of adverse effects from COVID-19 are working remotely. Peoples is encouraging virtual meetings and conference calls in place of in-person meetings, including the annual shareholders meeting which was held virtually this year. Additionally, travel has been restricted. Peoples is promoting social distancing, frequent hand washing and thorough disinfection of all surfaces. Peoples financial service location lobbies have re-opened in June 2020. Branch drive-ups, call center, ATMs and online/mobile banking services continue to operate and are the preferred option of service. Even with the precautions undertaken, the continued spread or prolonged impact of the COVID-19 could negatively impact the availability of key personnel or significant numbers of Peoples' staff, who are necessary to conduct Peoples' business.

Further, technology in employees’ homes may not be as ~~effective~~robust as ~~currently anticipated.~~in Peoples' offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in the offices. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risks. These cybersecurity risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of Peoples' information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of Peoples' ability to perform critical functions, including wiring funds, all of which could expose Peoples to risks of data or financial loss, litigation and liability and could seriously disrupt operations and the operations of any impacted customers.

Moreover, Peoples relies on many third parties in business operations, including appraisers of real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their services. For example, loan origination could be delayed due to the limited availability of real estate appraisers for the underlying collateral. Loan closings could be delayed due to reductions in available staff in recording offices or the closing of courthouses in certain counties, which slows the process for title work, and mortgage and UCC filings in those counties. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect Peoples' operations.

Interest Rate Risk. Peoples' net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0% to 0.25%, citing concerns about the impact of COVID-19 on markets and stress in the energy sector and maintained this target range as of June 30, 2020. A prolonged period of extremely volatile and unstable market conditions would likely increase Peoples' funding costs and negatively affect market risk mitigation strategies. Higher revenue volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in the fair market values of Peoples' assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of Peoples' assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on Peoples' net income, results of operations and financial condition. Low rates increase the risk in the United States of a negative interest rate ~~swaps~~environment in which interest rates drop below zero, either broadly or for some types of instruments. Such an occurrence would likely further reduce the interest Peoples earns on loans and other earning assets, while also likely requiring Peoples to pay to maintain its deposits with the Federal Reserve. Peoples' systems may not be able to adequately handle a negative interest rate environment and not all variable rate instruments are ~~designated~~designed for such a circumstance. Peoples cannot predict the nature or timing of future changes in monetary policies in response to the outbreak or the precise effects that they may have on Peoples activities and financial results.

Liquidity Risk. Peoples' ability to access short-term funding or liquidity may be limited as a result of the impact of COVID-19 on local and global markets. This situation could further be exacerbated by a reduced deposit base either through customer withdrawals or non-renewal of term deposits. Market stress from the virus could result in reduced cash flow ~~hedges~~from earning assets including other-than-temporary impairment on investment securities and ~~involve~~sustained repayment shortfalls on

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loans. It is possible that sources of wholesale funding such as the ~~receipt~~Federal Home Loan Bank, the Federal Reserve Bank, or the brokered certificate of ~~variable rate amounts from~~deposit market would no longer be accessible to fund daily liquidity needs.

Peoples does not yet know the full extent of COVID-19’s effects on its business, operations, or the global economy as a ~~counterparty in exchange for Peoples making fixed payments. As~~whole, despite experience and knowledge gained throughout the second quarter of ~~September 30, 2017, Peoples had 7 interest rate swaps with a notional value of $60.0 million. The swaps become effective in 2018, roughly to coincide with the maturity of existing FHLB advances.~~

~~Although Peoples expects that the hedging relationship~~2020. Any future developments will be highly ~~effective~~uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of Peoples' work from home arrangements, third-party providers’ ability to support operations, and any actions taken by governmental authorities and other third parties to restrict or close businesses in response to the pandemic and how quickly and to what extent normal economic and operating conditions can resume. Even after COVID-19 has subsided, Peoples may continue to experience material adverse impacts on its business as ~~described above, it~~a result of the virus' global economic impact, including the availability of credit, adverse impacts on Peoples' liquidity and any recession that has ~~not assumed that there will be no ineffectiveness~~occurred or may occur in the hedging relationship. As of September 30, 2017, the termination value of derivatives in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $0.9 million. As of September 30, 2017, Peoples has no minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $6.0 million against its obligations under these agreements. If Peoples had breached any of these provisions at September 30, 2017, it could have been required to settle its obligations under the agreements at the termination value.future.

There have been no other material changes from those risk factors previously disclosed in “ITEM 1A. RISK FACTORS” of Part I of Peoples’ ~~2016~~2019 Form 10-K. Those risk factors are not the only risks Peoples faces. Additional risks and uncertainties not currently known to management or that management currently deems to be immaterial also may materially adversely affect Peoples’ business, financial condition and/or operating results.

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ITEM 2.2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table details repurchases by Peoples and purchases by “affiliated purchasers” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, of Peoples’ common shares during the three months ended ~~September~~June 30, ~~2017~~:2020:


Period	(a) Total Number of Common Shares Purchased		(b) Average Price Paid per Common Share			(c) Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾	(d) Maximum Number ( or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs⁽¹⁾
April 1 – 30, 2020	297,227	^(1)(2)(3)	$	21.82	^(1)(2)(3)	290,673	$	23,946,721
May 1 – 31, 2020	157,258	(1)	$	21.65	(1)	157,258	$	20,542,307
June 1 – 30, 2020	780	(2)	$	21.28	(2)	—	$	20,542,307
Total	455,265		$	21.76		447,931	$	20,542,307

Period
(a)
Total Number of Common Shares Purchased

(b)
Average Price Paid per Common Share

(c)
Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾
(d)
Maximum
Number ( or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs⁽¹⁾
July 1- 31, 2017 —

$ —
—
$ 15,049,184
August 1-31, 2017 —
—
—
15,049,184
September 1-30, 2017 ⁽²⁾⁽³⁾
2,380
31.23
—
15,049,184
Total 2,380
$ 31.23
—
$ 15,049,184


~~(1)~~	On November 3, 2015, Peoples announced that on that same date, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to $20.0 million of its outstanding common shares. No common shares were purchased under this share repurchase program during the three months ended September 30, 2017.


~~(2)~~	~~Information reported includes 1,324 common shares withheld in September, to pay income tax associated with restricted common shares which vested.~~

~~(3)~~

Information reported includes 1,056 common shares purchased in open market transactions during September by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishes a rabbi trust that holds assets to provide funds for the payment of the benefits under the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp Inc. and Subsidiaries.

(1)On February 28, 2020, Peoples announced that on February 27, 2020, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $40 million of its outstanding common shares. The share repurchase program announced on February 28, 2020 replaced the previous repurchase program which was terminated on February 27, 2020. Peoples repurchased 290,673 and 157,258 common shares for $6.3 million and $3.4 million under the current share repurchase program during April and May 2020, respectively.

(2)Information reported includes 1,011 common shares and 780 common shares purchased in open market transactions during April and June, respectively, by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishes a rabbi trust that holds assets to provide funds for the payment of the benefits under the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp Inc. and Subsidiaries.

(3)Information reported includes: an aggregate of 5,543 common shares withheld to satisfy income taxes associated with unrestricted common shares which were granted under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan during April 2020 and were not subject to vesting requirements.

ITEM 3.3 DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.4 MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.5 OTHER INFORMATION

None

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ITEM 6.6 EXHIBITS

Exhibit
Number

Description

Exhibit Location

~~Exhibit~~

~~Number~~2.1

~~Description~~Agreement and Plan of Merger, dated as of October 29, 2018, as amended by Amendment No. 1, to Agreement and Plan of Merger made and entered into as of December 18, 2018, between Peoples Bancorp Inc. and First Prestonsburg Bancshares Inc.⁺

~~Exhibit Location~~

Included as Annex A to the definitive proxy statement/prospectus which forms a part of the Registration Statement of Peoples Bancorp ("Peoples") on Form S-4/A (Registration No. 333-228745)

3.1(a)

Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on May 3, 1993)^P

Incorporated herein by reference to Exhibit 3(a) to ~~the~~Peoples' Registration Statement on Form 8-B ~~of Peoples Bancorp Inc. ("Peoples")~~ filed on July 20, 1993 (File No. 0-16772)

3.1(b)

Certificate of Amendment to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April 22, 1994)

~~Filed herewith~~Incorporated herein by reference to Exhibit 3.1(b) to Peoples' Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 (File No. 0-16772) ("Peoples' September 30, 2017 Form 10-Q")

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~~Exhibit~~

~~Number~~3.1(c)

~~Description~~

~~Exhibit Location~~

~~3.1(c)~~

Certificate of Amendment to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April 9, 1996)

~~Filed herewith~~Incorporated herein by reference to Exhibit 3.1(c) to Peoples' September 30, 2017 Form 10-Q

3.1(d)

Certificate of Amendment to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April 23, 2003)

Incorporated herein by reference to Exhibit 3(a) to Peoples’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 (File No. 0-16772) (“Peoples’ March 31, 2003 Form 10-Q”)

3.1(e)

Certificate of Amendment by Shareholders to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on January 22, 2009)

Incorporated herein by reference to Exhibit 3.1 to Peoples’ Current Report on Form 8-K dated and filed on January 23, 2009 (File No. 0-16772)

3.1(f)

Certificate of Amendment by Directors to Articles filed with the Ohio Secretary of State ~~of the State of Ohio~~ on January 28, 2009, evidencing adoption of amendments by the Board of Directors of Peoples Bancorp Inc. to Article FOURTH of the Amended Articles of Incorporation to establish express terms of Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value, of Peoples Bancorp Inc.

Incorporated herein by reference to Exhibit 3.1 to Peoples’ Current Report on Form 8-K dated and filed on February 2, 2009 (File No. 0-16772)

3.1(g)

Amended Articles of Incorporation of Peoples Bancorp Inc. (This document represents the Amended Articles of Incorporation of Peoples Bancorp Inc. in compiled form incorporating all amendments. The compiled document has not been filed with the Ohio Secretary of State.)

Incorporated herein by reference to Exhibit 3.1(g) to Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (File No. 0-16772)

3.2(a)

Code of Regulations of Peoples Bancorp Inc.^P

Incorporated herein by reference to Exhibit 3(b) to Peoples’ Registration Statement on Form 8-B filed on July 20, 1993 (File No. 0-16772)

3.2(b)

Certified Resolutions Regarding Adoption of Amendments to Sections 1.03, 1.04, 1.05, 1.06, 1.08, 1.10, 2.03(C), 2.07, 2.08, 2.10 and 6.02 of the Code of Regulations of Peoples Bancorp Inc. by shareholders on April 10, 2003

Incorporated herein by reference to Exhibit 3(c) to Peoples’ March 31, 2003 Form 10-Q

3.2(c)

Certificate regarding adoption of amendments to Sections 3.01, 3.03, 3.04, 3.05, 3.06, 3.07, 3.08 and 3.11 of the Code of Regulations of Peoples Bancorp Inc. by shareholders on April 8, 2004

Incorporated herein by reference to Exhibit 3(a) to Peoples’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004 (File No. 0-16772)

⁺Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K, as in effect at the time of filing of the Agreement and Plan of Merger. A copy of any omitted schedules or exhibits will be furnished supplementally by Peoples Bancorp Inc. to the SEC on a confidential basis upon request.

^PPeoples Bancorp Inc. filed this exhibit with the SEC in paper form originally and this exhibit has not been filed with the SEC in electronic format.

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Exhibit
Number

Description

Exhibit Location

3.2(d)

Certificate regarding adoption of amendments to Sections 2.06, 2.07, 3.01 and 3.04 of Peoples Bancorp Inc.’s Code of Regulations by the shareholders on April 13, 2006

Incorporated herein by reference to Exhibit 3.1 to Peoples’ Current Report on Form 8-K dated and filed on April 14, 2006 (File No. 0-16772)

3.2(e)

Certificate regarding adoption of an amendment to Section 2.01 of Peoples Bancorp Inc.’s Code of Regulations by the shareholders on April 22, 2010

Incorporated herein by reference to Exhibit 3.2(e) to Peoples’ Quarterly Report on Form 10-Q/A (Amendment No. 1) for the quarterly period ended June 30, 2010 (File No. 0-16772)

3.2(f)

Certificate regarding Adoption of Amendment to Division (D) of Section 2.02 of the Code of Regulations of Peoples Bancorp Inc. by the Shareholders at the Annual Meeting of Shareholders on April 26, 2018

Incorporated herein by reference to Exhibit 3.1 to Peoples' Current Report on Form 8-K dated and filed on June 28, 2018 (File No. 0-16772) ("Peoples' June ~~30, 2010~~28, 2018 Form ~~10-Q/A"~~8-K")

~~3.2(f)~~3.2(g)

Code of Regulations of Peoples Bancorp Inc. (This document represents the Code of Regulations of Peoples Bancorp Inc. in compiled form incorporating all amendments.)

Incorporated herein by reference to Exhibit ~~3.2(f)~~3.2 to ~~Peoples’~~Peoples' June ~~30, 2010~~28, 2018 Form ~~10-Q/A~~8-K

10.1

~~Form~~Summary of Base Salaries for Named Executive Officers of Peoples Bancorp Inc. Second Amended and Restated 2006 Equity Plan Performance Unit Award Agreement used and to be used to evidence grants of performance units to executive officers of Peoples Bancorp Inc. on and after July 26, 2017

Incorporated herein by reference to Exhibit ~~10.1~~10.3 to ~~Peoples’~~Peoples' Quarterly Report on Form 10-Q for the quarterly period ended ~~June 30, 2017~~March 31, 2020 (File No. 0-16772)

10.2

First Amendment to Loan Agreement, made and entered into as of April 2, 2020, by and between Peoples Bancorp Inc., as Borrower, and U.S. Bank National Association, as Lender

Incorporated herein by reference to 10.1 to Peoples' Current Report on Form 8-K dated and filed on April 6, 2020 (File No. 0-16772)

10.3

Peoples Bancorp Inc. Change in Control Agreement between Peoples Bancorp Inc. and Jason M. Eakle (adopted April 1, 2020).

Filed herewith

31.1

Rule 13a-14(a)/15d-14(a) Certifications [President and Chief Executive Officer]

Filed herewith

31.2

Rule 13a-14(a)/15d-14(a) Certifications [Executive Vice President, Chief Financial Officer and Treasurer]

Filed herewith

Section 1350 Certifications

Furnished herewith

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101.INS

Inline XBRL Instance Document ##