UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~March 31,~~September 30, 2020


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

For the transition period from ____ to ____

Commission File Number: 000-16772

PEOPLES BANCORP INC.

(Exact name of Registrant as specified in its charter)

Ohio

31-0987416

(State or other jurisdiction of incorporation or organization)

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

138 Putnam Street, P.O. Box 738,

Marietta,

Ohio

45750

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(740)

373-3155

Not Applicable

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

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

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


Large accelerated filer	o	Accelerated filer	☒
Non-accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐

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 ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~20,034,344~~19,721,276 common shares, without par value, at ~~May 4,~~October 27, 2020.

Table of Contents


Table of Contents

PART I – FINANCIAL INFORMATION			3
ITEM 1. FINANCIAL STATEMENTS			3
CONSOLIDATED BALANCE SHEETS (Unaudited)			3
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)			4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)			5
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)			6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)			7
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS			8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			3740
SELECTED FINANCIAL DATA			3840
EXECUTIVE SUMMARY			4447
RESULTS OF OPERATIONS			4650
FINANCIAL CONDITION			5965
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			7380
ITEM 4. CONTROLS AND PROCEDURES			7380
PART II – OTHER INFORMATION			7380
ITEM 1. LEGAL PROCEEDINGS			7380
ITEM 1A. RISK FACTORS			7381
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			7684
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			7684
ITEM 4. MINE SAFETY DISCLOSURES			7684
ITEM 5. OTHER INFORMATION			7684
ITEM 6. EXHIBITS			7785
SIGNATURES			7987

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PEOPLES BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
											September 30, 2020	December 31, 2019
(Dollars in thousands)	(Dollars in thousands)	(Unaudited)				(Dollars in thousands)	(Unaudited)
Assets	Assets					Assets
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Cash and due from banks	Cash and due from banks	$	56,490	$	53,263	Cash and due from banks	$	57,953	$	53,263
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks	107,162		61,930		Interest-bearing deposits in other banks	103,298		61,930
Total cash and cash equivalents	Total cash and cash equivalents	163,652		115,193		Total cash and cash equivalents	161,251		115,193
Available-for-sale investment securities, at fair value (amortized cost of $932,179 at March 31, 2020 and $929,395 at December 31, 2019) (a)		960,835		936,101
Held-to-maturity investment securities, at amortized cost (fair value of $40,682 at March 31, 2020 and $32,541 at December 31, 2019) (a)(b)		38,738		31,747
Available-for-sale investment securities, at fair value (amortized cost of $829,899 at September 30, 2020 and $929,395 at December 31, 2019) (a)						Available-for-sale investment securities, at fair value (amortized cost of $829,899 at September 30, 2020 and $929,395 at December 31, 2019) (a)	851,702		936,101
Held-to-maturity investment securities, at amortized cost (fair value of $38,086 at September 30, 2020 and $32,541 at December 31, 2019) (a)(b)						Held-to-maturity investment securities, at amortized cost (fair value of $38,086 at September 30, 2020 and $32,541 at December 31, 2019) (a)(b)	36,143		31,747
Other investment securities	Other investment securities	46,924		42,730		Other investment securities	40,715		42,730
Total investment securities (a)(b)	Total investment securities (a)(b)	1,046,497		1,010,578		Total investment securities (a)(b)	928,560		1,010,578
Loans, net of deferred fees and costs ~~(b)~~(c)	Loans, net of deferred fees and costs ~~(b)~~(c)	2,911,437		2,873,525		Loans, net of deferred fees and costs ~~(b)~~(c)	3,472,085		2,873,525
Allowance for credit losses (b)	Allowance for credit losses (b)	(42,833)		(21,556)		Allowance for credit losses (b)	(58,128)		(21,556)
Net loans (b)	Net loans (b)	2,868,604		2,851,969		Net loans (b)	3,413,957		2,851,969
Loans held for sale	Loans held for sale	2,217		6,499		Loans held for sale	7,420		6,499
Bank premises and equipment, net of accumulated depreciation	Bank premises and equipment, net of accumulated depreciation	60,301		61,846		Bank premises and equipment, net of accumulated depreciation	61,468		61,846
Bank owned life insurance	Bank owned life insurance	70,195		69,722		Bank owned life insurance	71,127		69,722
Goodwill	Goodwill	165,805		165,701		Goodwill	171,255		165,701
Other intangible assets	Other intangible assets	11,642		11,802		Other intangible assets	14,142		11,802
Other assets	Other assets	80,207		60,855		Other assets	82,627		60,855
Total assets	Total assets	$	4,469,120	$	4,354,165	Total assets	$	4,911,807	$	4,354,165
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Non-interest-bearing	Non-interest-bearing	$	727,266	$	671,208	Non-interest-bearing	$	982,912	$	671,208
Interest-bearing	Interest-bearing	2,671,164		2,620,204		Interest-bearing	2,969,093		2,620,204
Total deposits	Total deposits	3,398,430		3,291,412		Total deposits	3,952,005		3,291,412
Short-term borrowings	Short-term borrowings	259,661		316,977		Short-term borrowings	182,063		316,977
Long-term borrowings	Long-term borrowings	132,791		83,123		Long-term borrowings	111,386		83,123

Accrued expenses and other liabilities (b)	Accrued expenses and other liabilities (b)	94,517		68,260		Accrued expenses and other liabilities (b)	99,497		68,260
Total liabilities	Total liabilities	3,885,399		3,759,772		Total liabilities	4,344,951		3,759,772
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock, no par value, 50,000 shares authorized, no shares issued at March 31, 2020 and December 31, 2019		—		—
Common stock, no par value, 24,000,000 shares authorized, 21,162,702 shares issued at March 31, 2020 and 21,156,143 shares issued at December 31, 2019, including shares held in treasury		420,678		420,876
Preferred shares, 0 par value, 50,000 shares authorized, 0 shares issued at September 30, 2020 and December 31, 2019						Preferred shares, 0 par value, 50,000 shares authorized, 0 shares issued at September 30, 2020 and December 31, 2019	0		0
Common shares, 0 par value, 24,000,000 shares authorized, 21,184,157 shares issued at September 30, 2020 and 21,156,143 shares issued at December 31, 2019, including shares held in treasury						Common shares, 0 par value, 24,000,000 shares authorized, 21,184,157 shares issued at September 30, 2020 and 21,156,143 shares issued at December 31, 2019, including shares held in treasury	421,715		420,876
Retained earnings (b)	Retained earnings (b)	175,637		187,149		Retained earnings (b)	177,012		187,149
Accumulated other comprehensive income (loss), net of deferred income taxes	Accumulated other comprehensive income (loss), net of deferred income taxes	8,252		(1,425)		Accumulated other comprehensive income (loss), net of deferred income taxes	2,942		(1,425)
Treasury stock, at cost, 865,998 shares at March 31, 2020 and 504,182 shares at December 31, 2019		(20,846)		(12,207)
Treasury stock, at cost, 1,515,624 shares at September 30, 2020 and 504,182 shares at December 31, 2019						Treasury stock, at cost, 1,515,624 shares at September 30, 2020 and 504,182 shares at December 31, 2019	(34,813)		(12,207)
Total stockholders’ equity	Total stockholders’ equity	583,721		594,393		Total stockholders’ equity	566,856		594,393
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	4,469,120	$	4,354,165	Total liabilities and stockholders’ equity	$	4,911,807	$	4,354,165

(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 ~~March 31,~~September 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 OPERATIONS (Unaudited)


		Three Months Ended							Three Months Ended				Nine Months Ended
		March 31,							September 30,				September 30,
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2020		2019		(Dollars in thousands, except per share data)	2020		2019		2020		2019
Interest income:	Interest income:					Interest income:
Interest and fees on loans	Interest and fees on loans	$	34,588	$	34,053	Interest and fees on loans	$	35,580	$	36,522	$	104,651	$	107,235
Interest and dividends on taxable investment securities	Interest and dividends on taxable investment securities	5,383		5,810		Interest and dividends on taxable investment securities	2,786		5,891		12,310		17,670
Interest on tax-exempt investment securities	Interest on tax-exempt investment securities	655		537		Interest on tax-exempt investment securities	614		690		1,903		1,956
Other interest income	Other interest income	236		176		Other interest income	33		506		317		945
Total interest income	Total interest income	40,862		40,576		Total interest income	39,013		43,609		119,181		127,806
Interest expense:	Interest expense:					Interest expense:
Interest on deposits	Interest on deposits	4,629		4,844		Interest on deposits	2,669		6,159		10,582		16,722
Interest on short-term borrowings	Interest on short-term borrowings	1,039		1,173		Interest on short-term borrowings	742		1,150		2,355		3,556
Interest on long-term borrowings	Interest on long-term borrowings	558		645		Interest on long-term borrowings	483		546		1,629		1,811

Total interest expense	Total interest expense	6,226		6,662		Total interest expense	3,894		7,855		14,566		22,089
Net interest income	Net interest income	34,636		33,914		Net interest income	35,119		35,754		104,615		105,717
Provision for (recovery of) credit losses (a)		16,969		(263)
Net interest income after provision for (recovery of) credit losses		17,667		34,177
Provision for credit losses (a)						Provision for credit losses (a)	4,728		1,005		33,531		1,368
Net interest income after provision for credit losses						Net interest income after provision for credit losses	30,391		34,749		71,084		104,349

Non-interest income:	Non-interest income:					Non-interest income:
Electronic banking income						Electronic banking income	3,765		3,577		10,568		9,831
Insurance income	Insurance income	4,130		4,621		Insurance income	3,608		3,386		10,929		11,493
Electronic banking income		3,280		2,987
Trust and investment income	Trust and investment income	3,262		3,112		Trust and investment income	3,435		3,205		10,013		9,718
Mortgage banking income						Mortgage banking income	2,658		1,204		4,346		2,992
Deposit account service charges	Deposit account service charges	2,820		2,341		Deposit account service charges	2,266		3,233		6,995		8,551
Mortgage banking income		750		788
Bank owned life insurance income	Bank owned life insurance income	582		485		Bank owned life insurance income	462		487		1,514		1,462
Commercial loan swap fees						Commercial loan swap fees	68		772		1,267		1,434
Net gain on investment securities	Net gain on investment securities	319		30		Net gain on investment securities	2		97		383		70
Commercial loan swap fees		244		146
Net loss on asset disposals and other transactions	Net loss on asset disposals and other transactions	(87)		(182)		Net loss on asset disposals and other transactions	(28)		(78)		(237)		(553)
Other non-interest income	Other non-interest income	437		1,101		Other non-interest income	534		510		1,393		2,113
Total non-interest income	Total non-interest income	15,737		15,429		Total non-interest income	16,770		16,393		47,171		47,111
Non-interest expense:	Non-interest expense:					Non-interest expense:
Salaries and employee benefit costs	Salaries and employee benefit costs	19,918		19,202		Salaries and employee benefit costs	19,410		18,931		57,313		58,957
Net occupancy and equipment expense	Net occupancy and equipment expense	3,154		2,978		Net occupancy and equipment expense	3,383		3,098		9,688		9,208
Electronic banking expense	Electronic banking expense	1,865		1,577		Electronic banking expense	2,095		2,070		5,839		5,340
Data processing and software expense	Data processing and software expense	1,752		1,545		Data processing and software expense	1,838		1,572		5,344		4,684
Professional fees	Professional fees	1,693		1,276		Professional fees	1,720		1,544		5,247		5,164
Franchise tax expense	Franchise tax expense	882		705		Franchise tax expense	882		797		2,645		2,274
Amortization of other intangible assets	Amortization of other intangible assets	729		694		Amortization of other intangible assets	857		953		2,314		2,471
FDIC insurance premium						FDIC insurance premium	570		0		717		752
Marketing expense						Marketing expense	456		634		1,561		1,718
Foreclosed real estate and other loan expenses	Foreclosed real estate and other loan expenses	578		255		Foreclosed real estate and other loan expenses	342		600		1,255		1,324
Marketing expense		473		594
Communication expense	Communication expense	280		278		Communication expense	283		268		857		863
FDIC insurance premium		(5)		371
Other non-interest expense	Other non-interest expense	3,006		2,385		Other non-interest expense	2,479		2,526		7,665		10,974
Total non-interest expense	Total non-interest expense	34,325		31,860		Total non-interest expense	34,315		32,993		100,445		103,729
(Loss) income before income taxes		(921)		17,746
Income tax (benefit) expense		(156)		3,377
Net (loss) income		$	(765)	$	14,369
Income before income taxes						Income before income taxes	12,846		18,149		17,810		47,731
Income tax expense						Income tax expense	2,636		3,281		3,616		8,896
Net income						Net income	$	10,210	$	14,868	$	14,194	$	38,835

(Loss) earnings per common share - basic		$	(0.04)	$	0.74
(Loss) earnings per common share - diluted		$	(0.04)	$	0.73
Earnings per common share - basic						Earnings per common share - basic	$	0.52	$	0.72	$	0.70	$	1.93
Earnings per common share - diluted						Earnings per common share - diluted	$	0.51	$	0.72	$	0.70	$	1.91
Weighted-average number of common shares outstanding - basic	Weighted-average number of common shares outstanding - basic	20,367,564		19,366,008		Weighted-average number of common shares outstanding - basic	19,504,503		20,415,245		19,862,409		20,023,271
Weighted-average number of common shares outstanding - diluted	Weighted-average number of common shares outstanding - diluted	20,538,214		19,508,868		Weighted-average number of common shares outstanding - diluted	19,637,689		20,595,769		19,998,353		20,178,634
Cash dividends declared	Cash dividends declared	$	7,038	$	5,868	Cash dividends declared	$	6,770	$	7,040	$	20,622	$	19,943
Cash dividends declared per common share	Cash dividends declared per common share	$	0.34	$	0.30	Cash dividends declared per common share	$	0.34	$	0.34	$	1.02	$	0.98

(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~~(which includes purchased credit deteriorated ~~loans,~~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							Three Months Ended				Nine Months Ended
		March 31,							September 30,				September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019		2020		2019
Net (loss) income		$	(765)	$	14,369
Net income						Net income	$	10,210	$	14,868	$	14,194	$	38,835
Other comprehensive income:	Other comprehensive income:					Other comprehensive income:
Available-for-sale investment securities:	Available-for-sale investment securities:					Available-for-sale investment securities:
Gross unrealized holding gain arising during the period		22,268		8,725
Related tax expense		(4,676)		(1,832)
Less: reclassification adjustment for net gain included in net income		319		30
Gross unrealized holding (loss) gain arising during the period						Gross unrealized holding (loss) gain arising during the period	(2,974)		2,913		15,480		24,585
Related tax benefit (expense)						Related tax benefit (expense)	624		(612)		(3,251)		(5,163)
Reclassification adjustment for net gain included in net income						Reclassification adjustment for net gain included in net income	(2)		(97)		(383)		(70)
Related tax expense	Related tax expense	(67)		(6)		Related tax expense	0		21		80		15

Net effect on other comprehensive income		17,340		6,869
Net effect on other comprehensive (loss) income						Net effect on other comprehensive (loss) income	(2,352)		2,225		11,926		19,367
Defined benefit plans:	Defined benefit plans:					Defined benefit plans:
Net (loss) gain arising during the period	Net (loss) gain arising during the period	(365)		2		Net (loss) gain arising during the period	(533)		2		(1,054)		4
Related tax (benefit) expense		76		—
Related tax benefit (expense)						Related tax benefit (expense)	113		(1)		222		(1)
Amortization of unrecognized loss and service cost on benefit plans	Amortization of unrecognized loss and service cost on benefit plans	28		17		Amortization of unrecognized loss and service cost on benefit plans	33		17		97		54
Related tax expense	Related tax expense	(6)		(4)		Related tax expense	(7)		(3)		(21)		(11)
Recognition of loss due to settlement and curtailment	Recognition of loss due to settlement and curtailment	368		—		Recognition of loss due to settlement and curtailment	531		0		1,050		0
Related tax expense	Related tax expense	(77)		—		Related tax expense	(112)		0		(221)		0
Net effect on other comprehensive income	Net effect on other comprehensive income	24		15		Net effect on other comprehensive income	25		15		73		46
Cash flow hedges:	Cash flow hedges:					Cash flow hedges:
Net loss arising during the period		(9,730)		(1,833)
Related tax benefit		2,043		385
Net effect on other comprehensive loss		(7,687)		(1,448)
Total other comprehensive income, net of tax		9,677		5,436
Net gain (loss) arising during the period						Net gain (loss) arising during the period	803		(1,857)		(9,661)		(6,824)
Related tax (expense) benefit						Related tax (expense) benefit	(168)		390		2,029		1,433
Net effect on other comprehensive income (loss)						Net effect on other comprehensive income (loss)	635		(1,467)		(7,632)		(5,391)
Total other comprehensive (loss) income, net of tax						Total other comprehensive (loss) income, net of tax	(1,692)		773		4,367		14,022
Total comprehensive income	Total comprehensive income	$	8,912	$	19,805	Total comprehensive income	$	8,518	$	15,641	$	18,561	$	52,857

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

Net loss		—		(765)		—				—		(765)
Net income												Net income						—		14,194			—		—		14,194
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		9,677		—		9,677		Other comprehensive income, net of tax				—		—		4,367			—		4,367

Cash dividends declared	Cash dividends declared	—		(7,038)		—		—		(7,038)		Cash dividends declared				—		(20,622)		—			—		(20,622)

Reissuance of treasury stock for common share awards	Reissuance of treasury stock for common share awards	(1,865)		—		—		1,865		—		Reissuance of treasury stock for common share awards				(2,583)		—		—			2,583		0

Reissuance of treasury stock for deferred compensation plan for Boards of Directors												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	Repurchase of treasury stock in connection with employee incentive plan and under compensation plan for Boards of Directors	—		—		—		(812)		(812)		Repurchase of treasury stock in connection with employee incentive plan and under compensation plan for Boards of Directors				—		—		—			(1,052)		(1,052)
Common shares repurchased under share repurchase program	Common shares repurchased under share repurchase program	—		—		—		(10,226)		(10,226)		Common shares repurchased under share repurchase program				—		—		—			(25,000)		(25,000)
Common shares issued under dividend reinvestment plan	Common shares issued under dividend reinvestment plan	209		—		—		—		209		Common shares issued under dividend reinvestment plan				463		—		—			—		463
Common shares issued under compensation plan for Boards of Directors	Common shares issued under compensation plan for Boards of Directors	45		—		—		195		240		Common shares issued under compensation plan for Boards of Directors				9		—		—			316		325
Gross common shares issued under performance unit awards		41		—		—		234		275
Common shares issued under performance unit awards, net of tax												Common shares issued under performance unit awards, net of tax				41		—		—			138		179
Common shares issued under employee stock purchase plan	Common shares issued under employee stock purchase plan	(8)		—		—		105		97		Common shares issued under employee stock purchase plan				(40)		—		—			350		310
Stock-based compensation	Stock-based compensation	1,380		—		—		—		1,380		Stock-based compensation				2,949		—		—			—		2,949
Impact of adoption of new accounting standard, net of taxes (a)	Impact of adoption of new accounting standard, net of taxes (a)	—		(3,709)		—		—		(3,709)		Impact of adoption of new accounting standard, net of taxes (a)				—		(3,709)		—			—		(3,709)

Balance, March 31, 2020		$	420,678	$	175,637	$	8,252	$	(20,846)	$	583,721
Balance, September 30, 2020												Balance, September 30, 2020				$	421,715	$	177,012	$	2,942		$	(34,813)	$	566,856

(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)


		Three Months Ended							Nine Months Ended
		March 31,							September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019
Net cash provided by operating activities	Net cash provided by operating activities	$	18,218	$	6,279	Net cash provided by operating activities	$	55,992	$	52,528
Investing activities:	Investing activities:					Investing activities:
Available-for-sale investment securities:	Available-for-sale investment securities:					Available-for-sale investment securities:
Purchases	Purchases	(72,942)		(37,462)		Purchases	(171,251)		(246,563)
Proceeds from sales	Proceeds from sales	5,620		7,425		Proceeds from sales	11,582		72,706
Proceeds from principal payments, calls and prepayments	Proceeds from principal payments, calls and prepayments	61,701		25,799		Proceeds from principal payments, calls and prepayments	248,021		130,860
Held-to-maturity investment securities:	Held-to-maturity investment securities:					Held-to-maturity investment securities:
Purchases	Purchases	(8,404)		—		Purchases	(8,404)		—
Proceeds from principal payments	Proceeds from principal payments	1,354		1,277		Proceeds from principal payments	3,834		2,939
Other investment securities:	Other investment securities:					Other investment securities:
Purchases	Purchases	(5,376)		(246)		Purchases	(5,901)		(1,420)
Proceeds from sales	Proceeds from sales	957		2,694		Proceeds from sales	7,937		5,415

Net increase in loans held for investment		(32,265)		(6,811)
Proceeds from insurance claim						Proceeds from insurance claim	0		26
Net (increase) decrease in loans held for investment						Net (increase) decrease in loans held for investment	(505,161)		11,993
Net expenditures for premises and equipment	Net expenditures for premises and equipment	(1,028)		(1,584)		Net expenditures for premises and equipment	(3,702)		(2,758)
Proceeds from sales of other real estate owned	Proceeds from sales of other real estate owned	50		2		Proceeds from sales of other real estate owned	96		221

Proceeds from bank owned life insurance contracts	Proceeds from bank owned life insurance contracts	109		—		Proceeds from bank owned life insurance contracts	109		—
Business acquisitions, net of cash received	Business acquisitions, net of cash received	(839)		—		Business acquisitions, net of cash received	(94,856)		7,813
(Investment in) return of limited partnership and tax credit funds		(15)		1
Investment in limited partnership and tax credit funds						Investment in limited partnership and tax credit funds	(13)		(5,021)
Net cash used in investing activities	Net cash used in investing activities	(51,078)		(8,905)		Net cash used in investing activities	(517,709)		(23,789)
Financing activities:	Financing activities:					Financing activities:
Net increase in non-interest-bearing deposits	Net increase in non-interest-bearing deposits	56,058		20,587		Net increase in non-interest-bearing deposits	311,704		10,856
Net increase in interest-bearing deposits	Net increase in interest-bearing deposits	50,905		161,293		Net increase in interest-bearing deposits	348,779		132,795
Net decrease in short-term borrowings	Net decrease in short-term borrowings	(57,316)		(168,023)		Net decrease in short-term borrowings	(154,914)		(105,636)
Proceeds from long-term borrowings	Proceeds from long-term borrowings	50,000		—		Proceeds from long-term borrowings	50,000		—
Payments on long-term borrowings	Payments on long-term borrowings	(372)		(503)		Payments on long-term borrowings	(1,857)		(2,388)

Cash dividends paid	Cash dividends paid	(6,918)		(5,719)		Cash dividends paid	(20,147)		(19,212)
Purchase of treasury stock under share repurchase program	Purchase of treasury stock under share repurchase program	(10,226)		—		Purchase of treasury stock under share repurchase program	(25,000)		(431)
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	(812)		(450)		Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock	(1,052)		(790)
Proceeds from issuance of common shares	Proceeds from issuance of common shares	—		3		Proceeds from issuance of common shares	262		6
Contingent consideration payments made after a business acquisition	Contingent consideration payments made after a business acquisition	—		(102)		Contingent consideration payments made after a business acquisition	0		(102)

Net cash provided by financing activities	Net cash provided by financing activities	81,319		7,086		Net cash provided by financing activities	507,775		15,098
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	48,459		4,460		Net increase in cash and cash equivalents	46,058		43,837
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	115,193		77,612		Cash and cash equivalents at beginning of period	115,193		77,612
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	163,652	$	82,072	Cash and cash equivalents at end of period	$	161,251	$	121,449

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Interest paid	Interest paid	6,634		6,499		Interest paid	15,179		21,902
Income taxes paid						Income taxes paid	7,500		10,050

Supplemental noncash disclosures:	Supplemental noncash disclosures:					Supplemental noncash disclosures:
Transfers from loans to other real estate owned	Transfers from loans to other real estate owned	66		14		Transfers from loans to other real estate owned	163		153
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		—		Lease right-of-use assets obtained in exchange for lessee operating lease liabilities	38		—

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") 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, 2019 ("Peoples' 2019 Form 10-K").

The accounting and reporting policies followed in the presentation of the accompanying Unaudited Consolidated Financial Statements are consistent with those described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 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 ~~March 31,~~September 30, 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. Intercompany accounts and transactions have been eliminated. The Consolidated Balance Sheet at December 31, 2019, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 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. For the three months ended March 31, 2020 and 2019, the amount of performance-based insurance commissions recognized totaled $1.3 million and $1.4 million, respectively.

New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by Peoples as of the required effective dates. The following 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") 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying US GAAP to contracts, 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. Per the guidance, Peoples is continuing to evaluate the impact of ASU 2020-04 on Peoples' consolidated financial statements.

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This accounting guidance replaces the "incurred loss" model for recognizing credit losses with an "expected loss" model, referred to as the Current Expected Credit Loss ("CECL") model. Under the CECL model, Peoples is required to present certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity 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. The measurement 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" model under previous US GAAP accounting guidance, which delayed recognition until it was probable a loss had been incurred.

Peoples adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized ~~costs~~cost on January 1, 2020. Reporting periods beginning after December 31, 2019 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.~~

As of January 1, 2020, Peoples 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

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commitment liability of $1.5 million. On January 1, 2020, the amortized cost basis of the purchased credit deteriorated assets ~~were~~was adjusted to reflect the addition of $2.6 million to establish the allowance for credit losses. The remaining interest-related discount is

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being accreted into interest income at the effective interest rate beginning on January 1, 2020. As of January 1, 2020, Peoples did not record an allowance for credit losses for available-for-sale investment securities, as all unrealized losses on these securities were deemed to be non-credit in nature, with no credit deterioration upon review by Peoples. Peoples recorded an allowance for credit losses for held-to-maturity securities of $7,000 as of January 1, 2020.

The following table illustrates the impact on the allowance for credit losses from the adoption of ASU 2016-13:


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

Allowance for credit losses on loans:	Allowance for credit losses on loans:							Allowance for credit losses on loans:
Construction	Construction	651		1,188		(537)		Construction	651		1,188		(537)
Commercial real estate, other	Commercial real estate, other	8,549		6,560		1,989		Commercial real estate, other	8,549		6,560		1,989
Commercial and industrial	Commercial and industrial	5,820		8,568		(2,748)		Commercial and industrial	5,820		8,568		(2,748)
Residential real estate	Residential real estate	4,360		1,296		3,064		Residential real estate	4,360		1,296		3,064
Home equity lines of credit	Home equity lines of credit	1,572		612		960		Home equity lines of credit	1,572		612		960
Consumer, indirect	Consumer, indirect	5,389		2,942		2,447		Consumer, indirect	5,389		2,942		2,447
Consumer, direct	Consumer, direct	890		296		594		Consumer, direct	890		296		594
Deposit account overdrafts	Deposit account overdrafts	94		94		—		Deposit account overdrafts	94		94		0
Allowance for credit losses on loans	Allowance for credit losses on loans	27,325		21,556		5,769		Allowance for credit losses on loans	27,325		21,556		5,769

Liabilities:	Liabilities:							Liabilities:
Allowance for credit losses for unfunded commitments	Allowance for credit losses for unfunded commitments	$	1,495	$	—	$	1,495	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 specific identification method and recognized as of 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 Peoples has the 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 future in response to Peoples' liquidity needs, changes in market interest rates, and asset-liability management strategies, among other considerations. Available-for-sale securities are reported at fair value, with unrealized gains and losses reported in total stockholders' equity as a separate component of accumulated other comprehensive income or loss, net of applicable deferred income taxes.

Certain restricted equity investment securities that do not have readily determinable fair values and for which Peoples does not exercise significant influence, are carried at cost. These cost method securities are reported 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,~~0, 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 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.

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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 itPeoples 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;~~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 1617 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~~utilizes 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 partial charge-off has occurred, if the loan is in non-accrual status, if a troubled debt restructuring ("TDR") 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 ~~loss rates used in determining~~ 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 certain 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 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 the overall credit quality of the loan portfolio and evaluate the appropriateness of the allowance for credit losses. 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 million are reviewed at least on an annual basis for

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possible credit deterioration. Loan relationships whose aggregate credit exposure to Peoples is equal to or less than $1 million are reviewed at least on an event

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driven basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or other similar events. Adversely classified loans are ~~generally~~ 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 accounting for troubled debt restructurings defined in ASC 310-40. Based on this guidance, Peoples does not classify COVID-19 loan modifications as TDRs.

On August 3, 2020, federal and state banking regulators issued a joint statement, encouraging financial institutions to consider prudent accommodation options to mitigate losses for the borrower and financial institution beyond the initial accommodation period. In this guidance, institutions should also provide consumers with available options for repaying missed payments at the end of their accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable and affordable payments for the long term. These considerations should also include prudent risk management practices at the financial institution based on the credit risk of the borrower. Peoples is actively working with its customers to address any further accommodation needs while carefully evaluating the associated credit risk of the borrowers.

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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 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.

~~Table~~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 ~~Contents~~

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 no 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 outstanding 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 as earned. The deferred interest will be repaid by the borrower in a future period, and will be evaluated by Peoples for collectability.

Note 2 Fair Value of Assets and Liabilities

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

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

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

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Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis

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


		Recurring Fair Value Measurements at Reporting Date																										Recurring Fair Value Measurements at Reporting Date
		March 31, 2020											December 31, 2019											September 30, 2020						December 31, 2019
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3			Level 1		Level 2		Level 3		(Dollars in thousands)		Level 1		Level 2		Level 3			Level 1		Level 2		Level 3
								Level 1								Level 2							Level 3							Level 1	Level 2	Level 3
Assets:	Assets:																					Assets:
Available-for-sale investment securities:	Available-for-sale investment securities:														Available-for-sale investment securities:
Obligations of:	Obligations of:														Obligations of:

U.S. government sponsored agencies	U.S. government sponsored agencies	$	—	$	6,361	$	—		$	—	$	8,209	$	—	U.S. government sponsored agencies		$	0	$	5,383	$	0		$	0	$	8,209	$	0
States and political subdivisions	States and political subdivisions	—		108,812		—			—		114,104		—		States and political subdivisions		0		104,126		0			0		114,104		0
Residential mortgage-backed securities	Residential mortgage-backed securities	—		823,893		—			—		791,009		—		Residential mortgage-backed securities		0		726,992		0			0		791,009		0
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—		17,061		—			—		18,088		—		Commercial mortgage-backed securities		0		10,568		0			0		18,088		0
Bank-issued trust preferred securities	Bank-issued trust preferred securities	—		4,708		—			—		4,691		—		Bank-issued trust preferred securities		0		4,633		0			0		4,691		0

Total available-for-sale securities	Total available-for-sale securities	—		960,835		—			—		936,101		—		Total available-for-sale securities		0		851,702		0			0		936,101		0
Equity investment securities (a)	Equity investment securities (a)	83		206		—			123		198		—		Equity investment securities (a)		97		209		—			123		198		—
Derivative assets (b)	Derivative assets (b)	—		30,235		—			—		11,419		—		Derivative assets (b)		—		30,651		—			—		11,419		—
Liabilities:	Liabilities:														Liabilities:
Derivative liabilities (c)	Derivative liabilities (c)	$	—	$	43,659	$	—		$	—	$	15,116	$	—	Derivative liabilities (c)		$	—	$	44,002	$	—		$	—	$	15,116	$	—

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

(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) 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.

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

Derivative Assets and Liabilities: Derivative assets and liabilities are recognized on the 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

The following table provides the fair value for each class of assets and liabilities required to be measured and reported at fair value on a non-recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy.


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

Other real estate owned ("OREO")	Other real estate owned ("OREO")					$	—	$	—	$	226			$	—	$	—	$	227		Other real estate owned ("OREO")		$	—	$	—	$	293		$	—	$	—	$	227

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

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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																										Fair Value Measurements of Other Financial Instruments
(Dollars in thousands)	(Dollars in thousands)	Fair Value Hierarchy Level	March 31, 2020										December 31, 2019						(Dollars in thousands)				Fair Value Hierarchy Level		September 30, 2020					December 31, 2019
					Carrying Amount		Fair Value						Carrying Amount		Fair Value						Carrying Amount				Fair Value			Carrying Amount		Fair Value
																Fair Value															Carrying Amount	Fair Value
Assets:	Assets:																		Assets:
Cash and cash equivalents	Cash and cash equivalents		1					$	163,652		$	163,652				$	115,193		$	115,193		Cash and cash equivalents			1	$	161,251	$	161,251			$	115,193	$	115,193

Held-to-maturity investment securities:	Held-to-maturity investment securities:														Held-to-maturity investment securities:
Obligations of:	Obligations of:														Obligations of:
States and political subdivisions	States and political subdivisions	2	3,844		4,348					4,346			4,791		States and political subdivisions			2			3,539		4,073			4,346		4,791
Residential mortgage-backed securities	Residential mortgage-backed securities	2	29,070		30,090					21,494			21,569		Residential mortgage-backed securities			2			26,926		27,879			21,494		21,569
Commercial mortgage-backed securities	Commercial mortgage-backed securities	2	5,830		6,250					5,907			6,181		Commercial mortgage-backed securities			2			5,678		6,134			5,907		6,181
Total held-to-maturity securities	Total held-to-maturity securities		38,744		40,688					31,747			32,541		Total held-to-maturity securities						36,143		38,086			31,747		32,541

Other investment securities:	Other investment securities:														Other investment securities:
Federal Home Loan Bank ("FHLB") stock	Federal Home Loan Bank ("FHLB") stock	2	31,595		31,595					27,235			27,235		Federal Home Loan Bank ("FHLB") stock			2			25,022		25,022			27,235		27,235
Federal Reserve Bank ("FRB") stock	Federal Reserve Bank ("FRB") stock	2	13,310		13,310					13,310			13,310		Federal Reserve Bank ("FRB") stock			2			13,311		13,311			13,310		13,310
Nonqualified deferred compensation	Nonqualified deferred compensation	2	1,365		1,365					1,499			1,499		Nonqualified deferred compensation			2			1,711		1,711			1,499		1,499
Other investment securities	Other investment securities	2	365		365					365			365		Other investment securities			2			365		365			365		365
Other investment securities (a)	Other investment securities (a)		46,635		46,635					42,409			42,409		Other investment securities (a)						40,409		40,409			42,409		42,409
Net loans	Net loans	3	2,868,604		3,227,179					2,851,969			3,147,190		Net loans			3			3,413,957		3,486,317			2,851,969		3,147,190
Loans held for sale	Loans held for sale	2	2,217		2,364					6,499			6,553		Loans held for sale			2			7,420		8,796			6,499		6,553
Bank owned life insurance	Bank owned life insurance	3	70,195		70,195					69,722			69,722		Bank owned life insurance			3			71,127		71,127			69,722		69,722
Servicing rights (b)(c)	Servicing rights (b)(c)	3	2,576		2,736					2,742			3,881		Servicing rights (b)(c)			3			2,489		2,789			2,742		3,881
Liabilities:	Liabilities:														Liabilities:
Deposits	Deposits	2	$	3,398,430	$	3,406,572				$	3,291,412		$	3,292,950	Deposits			2			$	3,952,005	$	3,853,468		$	3,291,412	$	3,292,950
Short-term borrowings	Short-term borrowings	2	259,661		275,389					316,977			317,973		Short-term borrowings			2			182,063		185,713			316,977		317,973
Long-term borrowings	Long-term borrowings	2	132,791		140,353					83,123			82,701		Long-term borrowings			2			111,386		116,741			83,123		82,701

(a) Other investment securities, as reported on the Unaudited Consolidated Balance Sheets, also includes equity investment securities ~~for~~at September 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.~~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-downs of servicing rights during the third and second quarters 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-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). Fair values for loans are estimated using a discounted cash flow

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methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and other market factors, including liquidity.

Loans Held for Sale: Loans originated and intended to be sold in the secondary market, generally 1-4 family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. The use of a valuation model using quoted prices of similar instruments 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 carrying value. There were 0 similar write-downs during the third and second quarters of 2020.

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

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

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

Certain financial assets and financial liabilities that are not required to be measured or reported at fair value can be subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These financial assets and liabilities include the following: customer relationships, the deposit base, and other information required to compute Peoples’ aggregate fair value that are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of Peoples.

Note 3 Investment Securities

Available-for-sale

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


(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2020
September 30, 2020										September 30, 2020
Obligations of:	Obligations of:									Obligations of:

U.S. government sponsored agencies	U.S. government sponsored agencies	$	5,918	$	443	$	—	$	6,361	U.S. government sponsored agencies	$	4,958	$	425	$	0	$	5,383
States and political subdivisions	States and political subdivisions	105,904		3,026		(118)		108,812		States and political subdivisions	99,518		4,608		0		104,126
Residential mortgage-backed securities	Residential mortgage-backed securities	798,762		25,914		(783)		823,893		Residential mortgage-backed securities	710,254		19,052		(2,314)		726,992
Commercial mortgage-backed securities	Commercial mortgage-backed securities	16,899		279		(117)		17,061		Commercial mortgage-backed securities	10,473		218		(123)		10,568
Bank-issued trust preferred securities	Bank-issued trust preferred securities	4,696		202		(190)		4,708		Bank-issued trust preferred securities	4,696		114		(177)		4,633

Total available-for-sale securities	Total available-for-sale securities	$	932,179	$	29,864	$	(1,208)	$	960,835	Total available-for-sale securities	$	829,899	$	24,417	$	(2,614)	$	851,702
December 31, 2019	December 31, 2019									December 31, 2019
Obligations of:	Obligations of:									Obligations of:

U.S. government sponsored agencies	U.S. government sponsored agencies	$	7,917	$	292	$	—	$	8,209	U.S. government sponsored agencies	$	7,917	$	292	$	0	$	8,209
States and political subdivisions	States and political subdivisions	111,217		3,018		(131)		114,104		States and political subdivisions	111,217		3,018		(131)		114,104
Residential mortgage-backed securities	Residential mortgage-backed securities	787,430		7,763		(4,184)		791,009		Residential mortgage-backed securities	787,430		7,763		(4,184)		791,009
Commercial mortgage-backed securities	Commercial mortgage-backed securities	18,135		88		(135)		18,088		Commercial mortgage-backed securities	18,135		88		(135)		18,088
Bank-issued trust preferred securities	Bank-issued trust preferred securities	4,696		137		(142)		4,691		Bank-issued trust preferred securities	4,696		137		(142)		4,691

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

The gross unrealized losses related to residential mortgage-backed securities at ~~March 31,~~September 30, 2020 and December 31, 2019, were attributed to changes in market interest rates and spreads since the securities were purchased.

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~~During each of the three months ended March 31, 2020 and 2019, Peoples realized 0 gross losses from sales of available-for-sale securities.~~ The gross gains and losses realized by Peoples from sales of available-for-sale securities for the periods ended ~~March 31~~September 30 were as follows:


		Three Months Ended							Three Months Ended				Nine Months Ended
		March 31,							September 30,				September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019		2020		2019
Gross gains realized	Gross gains realized	$	319	$	30	Gross gains realized	$	2	$	97	$	386	$	157

Gross losses realized						Gross losses realized	0		0		3		87
Net gain realized	Net gain realized	$	319	$	30	Net gain realized	$	2	$	97	$	383	$	70

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

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


		Less than 12 Months									12 Months or More									Total				Less than 12 Months					12 Months or More		Total
(Dollars in thousands)	(Dollars in thousands)	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss		(Dollars in thousands)	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss
March 31, 2020
September 30, 2020																September 30, 2020
Obligations of:	Obligations of:															Obligations of:

States and political subdivisions		$	2,337	$	75	2	$	2,251	$	43	1	$	4,588	$	118

Residential mortgage-backed securities	Residential mortgage-backed securities	57,391		449		28	18,948		334		15	76,339		783		Residential mortgage-backed securities	$	142,807	$	1,794	44	$	19,904	$	519	18	$	162,711	$	2,313
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—		—		—	2,050		117		3	2,050		117		Commercial mortgage-backed securities	0		0		0	1,475		123		2	1,475		123
Bank-issued trust preferred securities	Bank-issued trust preferred securities	—		—		—	1,810		190		2	1,810		190		Bank-issued trust preferred securities	495		5		1	1,828		172		2	2,323		177

Total	Total	$	59,728	$	524	30	$	25,059	$	684	21	$	84,787	$	1,208	Total	$	143,302	$	1,799	45	$	23,207	$	814	22	$	166,509	$	2,613
December 31, 2019	December 31, 2019															December 31, 2019
Obligations of:	Obligations of:															Obligations of:

States and political subdivisions	States and political subdivisions	$	6,226	$	74	2	$	2,441	$	57	1	$	8,667	$	131	States and political subdivisions	$	6,226	$	74	2	$	2,441	$	57	1	$	8,667	$	131
Residential mortgage-backed securities	Residential mortgage-backed securities	284,096		2,527		62	88,993		1,657		39	373,089		4,184		Residential mortgage-backed securities	284,096		2,527		62	88,993		1,657		39	373,089		4,184
Commercial mortgage-backed securities	Commercial mortgage-backed securities	970		21		1	2,409		114		3	3,379		135		Commercial mortgage-backed securities	970		21		1	2,409		114		3	3,379		135
Bank-issued trust preferred securities	Bank-issued trust preferred securities	—		—		—	1,858		142		2	1,858		142		Bank-issued trust preferred securities	0		0		0	1,858		142		2	1,858		142

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

Management evaluates available-for-sale investment securities for an allowance for credit losses on a quarterly basis. At ~~March 31,~~September 30, 2020, management concluded that 0 individual securities at an unrealized loss position required an allowance for credit losses. At ~~March 31,~~September 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 ~~March 31,~~September 30, 2020 and ~~March~~December 31, 2019 were largely attributable to changes in market interest rates and spreads since the securities were 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 ~~$3.8~~$3.4 million at ~~March 31,~~September 30, 2020 and $3.6 million at December 31, 2019.

At ~~March 31,~~September 30, 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 2 positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. ~~Both~~Neither of ~~these~~the 2 positions had a fair value of less than 90% of ~~their~~its book ~~value, with an aggregate book and fair value of $202,000 and $165,000, respectively.~~value. 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 underlying these securities.

The unrealized losses with respect to the 2 bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at ~~March 31,~~September 30, 2020 were primarily attributable to the subordinated nature of the 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 ~~March 31,~~September 30, 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.


(Dollars in thousands)	(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																Amortized cost
Obligations of:	Obligations of:																Obligations of:

U.S. government sponsored agencies	U.S. government sponsored agencies	$	—		$	1,993		$	3,925		$	—		$	5,918		U.S. government sponsored agencies	$	0		$	4,958		$	0		$	0		$	4,958
States and political subdivisions	States and political subdivisions	4,641			23,918			42,744			34,601			105,904			States and political subdivisions	5,878			24,002			38,358			31,280			99,518
Residential mortgage-backed securities	Residential mortgage-backed securities	4			1,656			81,803			715,299			798,762			Residential mortgage-backed securities	2			5,898			73,518			630,836			710,254
Commercial mortgage-backed securities	Commercial mortgage-backed securities	4,750			8,024			974			3,151			16,899			Commercial mortgage-backed securities	3,213			3,535			960			2,765			10,473
Bank-issued trust preferred securities	Bank-issued trust preferred securities	—			—			4,696			—			4,696			Bank-issued trust preferred securities	—			—			4,696			0			4,696

Total available-for-sale securities	Total available-for-sale securities	$	9,395		$	35,591		$	134,142		$	753,051		$	932,179		Total available-for-sale securities	$	9,093		$	38,393		$	117,532		$	664,881		$	829,899
Fair value	Fair value																Fair value
Obligations of:	Obligations of:																Obligations of:

U.S. government sponsored agencies	U.S. government sponsored agencies	$	—		$	2,115		$	4,246		$	—		$	6,361		U.S. government sponsored agencies	$	0		$	5,383		$	0		$	0		$	5,383
States and political subdivisions	States and political subdivisions	4,655			24,299			44,538			35,320			108,812			States and political subdivisions	5,925			24,949			40,925			32,327			104,126
Residential mortgage-backed securities	Residential mortgage-backed securities	4			1,710			83,776			738,403			823,893			Residential mortgage-backed securities	2			5,995			74,425			646,570			726,992
Commercial mortgage-backed securities	Commercial mortgage-backed securities	4,781			8,162			1,025			3,093			17,061			Commercial mortgage-backed securities	3,225			3,622			1,004			2,717			10,568
Bank-issued trust preferred securities	Bank-issued trust preferred securities	—			—			4,708			—			4,708			Bank-issued trust preferred securities	—			—			4,633			0			4,633

Total available-for-sale securities	Total available-for-sale securities	$	9,440		$	36,286		$	138,293		$	776,816		$	960,835		Total available-for-sale securities	$	9,152		$	39,949		$	120,987		$	681,614		$	851,702
Total weighted-average yield	Total weighted-average yield	2.25		%	2.63		%	2.68		%	2.58		%	2.59		%	Total weighted-average yield	2.47		%	2.67		%	2.43		%	2.12		%	2.19		%

Held-to-Maturity

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


(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(Dollars in thousands)	Amortized Cost		Allowance for Credit Losses (a)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2020
September 30, 2020												September 30, 2020
Obligations of:	Obligations of:											Obligations of:
States and political subdivisions	States and political subdivisions	$	3,844	$	(6)	$	504	$	—	$	4,342	States and political subdivisions	$	3,545	$	(6)	$	534	$	0	$	4,073
Residential mortgage-backed securities	Residential mortgage-backed securities	29,070		—		1,020		—		30,090		Residential mortgage-backed securities	26,926		—		954		(1)		27,879
Commercial mortgage-backed securities	Commercial mortgage-backed securities	5,830		—		420		—		6,250		Commercial mortgage-backed securities	5,678		—		456		0		6,134
Total held-to-maturity securities	Total held-to-maturity securities	$	38,744	$	(6)	$	1,944	$	—	$	40,682	Total held-to-maturity securities	$	36,149	$	(6)	$	1,944	$	(1)	$	38,086
December 31, 2019	December 31, 2019											December 31, 2019
Obligations of:	Obligations of:											Obligations of:
States and political subdivisions	States and political subdivisions	$	4,346	$	—	$	445	$	—	$	4,791	States and political subdivisions	$	4,346	$	—	$	445	$	0	$	4,791
Residential mortgage-backed securities	Residential mortgage-backed securities	21,494		—		169		(94)		21,569		Residential mortgage-backed securities	21,494		—		169		(94)		21,569
Commercial mortgage-backed securities	Commercial mortgage-backed securities	5,907		—		275		(1)		6,181		Commercial mortgage-backed securities	5,907		—		275		(1)		6,181
Total held-to-maturity securities	Total held-to-maturity securities	$	31,747	$	—	$	889	$	(95)	$	32,541	Total held-to-maturity securities	$	31,747	$	—	$	889	$	(95)	$	32,541

(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 0 gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for ~~either~~any of the three and nine months ended ~~March 31,~~September 30, 2020 and 2019.

At March 31, 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 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

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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~~are 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 ~~March 31,~~September 30, 2020, Peoples recorded $6,000 of allowance for credit losses for held-to-maturity securities, compared to $7,000 at January 1, 2020.

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The following table presents a summary of held-to-maturity investment securities that had an unrealized loss:


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

Residential mortgage-backed securities	$	637	$	1	1	$	0	$	0	0	$	637	$	1

Total	$	637	$	1	1	$	0	$	0	0	$	637	$	1
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	0		0		0	1,666		1
Total	$	9,397	$	68	2	$	890	$	27	1	$	10,287	$	95

The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at ~~March 31,~~September 30, 2020. The weighted-average yields are based on the amortized 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.


(Dollars in thousands)	(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																Amortized cost
Obligations of:	Obligations of:																Obligations of:
States and political subdivisions	States and political subdivisions	$	300		$	—		$	3,544		$	—		$	3,844		States and political subdivisions	$	0		$	0		$	3,545		$	0		$	3,545
Residential mortgage-backed securities	Residential mortgage-backed securities	—			—			3,399			25,671			29,070			Residential mortgage-backed securities	0			0			3,023			23,903			26,926
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—			392			3,816			1,622			5,830			Commercial mortgage-backed securities	0			380			3,764			1,534			5,678
Total held-to-maturity securities	Total held-to-maturity securities	$	300		$	392		$	10,759		$	27,293		$	38,744		Total held-to-maturity securities	$	0		$	380		$	10,332		$	25,437		$	36,149
Fair value	Fair value																Fair value
Obligations of:	Obligations of:																Obligations of:
States and political subdivisions	States and political subdivisions	$	301		$	—		$	4,041		$	—		$	4,342		States and political subdivisions	$	0		$	0		$	4,073		$	0		$	4,073
Residential mortgage-backed securities	Residential mortgage-backed securities	—			—			3,538			26,552			30,090			Residential mortgage-backed securities	0			0			3,142			24,737			27,879
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—			402			4,214			1,634			6,250			Commercial mortgage-backed securities	0			389			4,175			1,570			6,134
Total held-to-maturity securities	Total held-to-maturity securities	$	301		$	402		$	11,793		$	28,186		$	40,682		Total held-to-maturity securities	$	0		$	389		$	11,390		$	26,307		$	38,086
Total weighted-average yield	Total weighted-average yield	2.55		%	2.29		%	2.79		%	2.71		%	2.73		%	Total weighted-average yield	0		%	2.29		%	2.81		%	2.41		%	2.53		%

Other Investment Securities

Peoples' other investment securities on the Unaudited Consolidated Balance Sheets consist largely of shares of FHLB of Cincinnati and FRB of Cleveland ~~stock, and other equity investment securities.~~stock.

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


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		December 31, 2019		(Dollars in thousands)	September 30, 2020		December 31, 2019
FHLB stock	FHLB stock	$	31,595	$	27,235	FHLB stock	$	25,022	$	27,235
FRB stock	FRB stock	13,310		13,310		FRB stock	13,311		13,310
Nonqualified deferred compensation	Nonqualified deferred compensation	1,365		1,499		Nonqualified deferred compensation	1,711		1,499
Equity investment securities	Equity investment securities	289		321		Equity investment securities	306		321
Other investment securities	Other investment securities	365		365		Other investment securities	365		365
Total other investment securities	Total other investment securities	$	46,924	$	42,730	Total other investment securities	$	40,715	$	42,730

During the nine months ended September 30, 2020, Peoples redeemed FHLB stock in order to be in compliance with the requirements of the FHLB of ~~Cincinnati, which~~Cincinnati. These redemptions totaled $2.1 million during the third quarter of 2020, $4.5 million during the second quarter of 2020, and $700,000 during the first quarter of 2020. Peoples purchased 0 additional FHLB ~~Stock, which totaled~~stock during the third and second quarters of 2020, and purchased $5.0 million of additional FHLB stock during the first quarter of 2020, as a result of the FHLB of Cincinnati's capital requirements on FHLB advances during the quarter.

During the three and nine months ended ~~March 31,~~September 30, 2020, Peoples recorded the change in the fair value of equity investment securities held at September 30, 2020, in other non-interest income, resulting in unrealized gain of $1,000 and ~~March 31,~~unrealized loss of $15,000, respectively. During the three and nine months ended September 30, 2019, Peoples recorded the change in the fair value of equity investment securities held at ~~March 31, 2020 and March 31,~~September 30, 2019, ~~respectively,~~ in other non-interest income, resulting in ~~unrealized loss of $30,000 and~~an unrealized gain of ~~$22,000,~~$19,000 and $828,000, respectively. Net realized gains on sales of equity investment securities, included in other non-interest income during the

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first ~~three~~nine 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 ~~zero~~0 due to the litigation liability associated with the stock.

At ~~March 31,~~September 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~~has pledged available-for-sale investment securities and held-to-maturity investment securities to secure public and trust department deposits, and repurchase agreements in accordance with federal and state requirements. Peoples has also pledged available-for-sale investment securities and held-to-maturity securities to secure additional borrowing capacity at the FHLB and the FRB.

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


		Carrying Amount									Carrying Amount
(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		December 31, 2019		(Dollars in thousands)		September 30, 2020			December 31, 2019
							(Dollars in thousands)			September 30, 2020				December 31, 2019
Securing public and trust department deposits, and repurchase agreements:	Securing public and trust department deposits, and repurchase agreements:							Securing public and trust department deposits, and repurchase agreements:
Available-for-sale	Available-for-sale	$	572,848	$	527,655	Available-for-sale		$	588,634			$	527,655
Held-to-maturity	Held-to-maturity	19,263		12,975		Held-to-maturity		18,440			12,975
Securing additional borrowing capacity at the FHLB and the FRB:	Securing additional borrowing capacity at the FHLB and the FRB:					Securing additional borrowing capacity at the FHLB and the FRB:
Available-for-sale	Available-for-sale	92,651		44,618		Available-for-sale		98,003			44,618
Held-to-maturity	Held-to-maturity	13,587		14,155		Held-to-maturity		12,054			14,155

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 central and eastern Kentucky.~~Virginia. Peoples also originates insurance premium finance loans nationwide through its premium finance division. Acquired loans consist of loans purchased in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit).

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


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		December 31, 2019		(Dollars in thousands)	September 30, 2020		December 31, 2019
Construction	Construction	$	110,865	$	88,518	Construction	$	108,051	$	88,518
Commercial real estate, other	Commercial real estate, other	897,817		833,238		Commercial real estate, other	913,239		833,238
Commercial and industrial	Commercial and industrial	654,530		662,993		Commercial and industrial	1,168,134		662,993
Residential real estate	Residential real estate	625,366		661,476		Residential real estate	589,449		661,476
Home equity lines of credit	Home equity lines of credit	128,011		132,704		Home equity lines of credit	121,935		132,704
Consumer, indirect	Consumer, indirect	418,066		417,185		Consumer, indirect	491,699		417,185
Consumer, direct	Consumer, direct	76,172		76,533		Consumer, direct	79,059		76,533
Deposit account overdrafts	Deposit account overdrafts	610		878		Deposit account overdrafts	519		878
Total loans, at amortized cost	Total loans, at amortized cost	$	2,911,437	$	2,873,525	Total loans, at amortized cost	$	3,472,085	$	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 $488.9 million of PPP loans during the first nine months of 2020. At September 30, 2020, the PPP loans had an amortized cost of $460.4 million, and were included in commercial and industrial loan balances. Peoples recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which totaled $11.6 million at September 30, 2020. During the third 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.

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Accrued interest receivable is not included inwithin the loan balances, ~~and~~but is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Interest receivable on loans was ~~$8.8~~$10.2 million at ~~March 31,~~September 30, 2020 and $9.1 million at December 31, 2019.

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Nonaccrual and Past Due Loans

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

The amortized cost of loans on nonaccrual status and loans delinquent for 90 days or more and accruing were as follows:


		March 31, 2020						December 31, 2019							September 30, 2020					December 31, 2019
(Dollars in thousands)	(Dollars in thousands)	Nonaccrual ⁽¹⁾⁽²⁾		Accruing Loans 90+ Days Past Due		Nonaccrual ⁽¹⁾		Accruing Loans 90+ Days Past Due ⁽²⁾		(Dollars in thousands)	Nonaccrual (a)(b)		Accruing Loans 90+ Days Past Due			Nonaccrual (a)		Accruing Loans 90+ Days Past Due (b)
Construction	Construction	$	99	$	—	$	411	$	—	Construction	$	4	$	0		$	411	$	0
Commercial real estate, other	Commercial real estate, other	9,577		—		6,801		907		Commercial real estate, other	9,534		80			6,801		907
Commercial and industrial	Commercial and industrial	5,010		806		2,155		155		Commercial and industrial	6,317		74			2,155		155
Residential real estate	Residential real estate	8,640		557		6,361		2,677		Residential real estate	8,508		2,548			6,361		2,677
Home equity lines of credit	Home equity lines of credit	1,152		143		1,165		108		Home equity lines of credit	919		27			1,165		108
Consumer, indirect	Consumer, indirect	834		—		840		—		Consumer, indirect	961		86			840		0
Consumer, direct	Consumer, direct	170		37		48		85		Consumer, direct	193		0			48		85
Total loans, at amortized cost	Total loans, at amortized cost	$	25,482	$	1,543	$	17,781	$	3,932	Total loans, at amortized cost	$	26,436	$	2,815		$	17,781	$	3,932

~~(1)~~(a) There were 0$1.3 million of nonaccrual loans for which there was no allowance for credit ~~losses.~~losses as of September 30, 2020 and $3.1 million at December 31, 2019.

~~(2)~~(b) 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. At December 31, 2019, these loans were presented as 90+ days past due and accruing.

During the third quarter of 2020, nonaccrual loans increased compared to June 30, 2020, mostly due to a single commercial relationship of $1.8 million that was placed on nonaccrual. As of September 30, 2020, Peoples had made short-term modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment for current 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 90+ days past due as of September 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 at September 30, 2020, compared to December 31, 2019, was due to ~~a $1.5~~two commercial relationships aggregating $3.3 million ~~commercial relationship~~ and several smaller commercial relationships being placed on nonaccrual. The amount of interest income recognized on nonaccrual loans during the ~~first quarter of~~three and nine months ended September 30, 2020 was ~~$458,000.~~$377,000 and $1.2 million, respectively.

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The following table presents the aging of the amortized cost of past due loans:


		Loans Past Due														Current Loans		Total Loans			Loans Past Due							Current Loans	Total Loans
(Dollars in thousands)	(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total						Current Loans						30 - 59 days	60 - 89 days		90 + Days		Total		Current Loans
March 31, 2020
September 30, 2020														September 30, 2020
Construction	Construction	$	—	$	4	$	94	$	98	$	110,767	$	110,865	Construction	$	0	$	0	$	4	$	4	$	108,047	$	108,051
Commercial real estate, other	Commercial real estate, other	3,707		77		8,929		12,713		885,104		897,817		Commercial real estate, other	1,353		267		9,039		10,659		902,580		913,239
Commercial and industrial	Commercial and industrial	2,135		42		5,472		7,649		646,881		654,530		Commercial and industrial	330		286		4,594		5,210		1,162,924		1,168,134
Residential real estate	Residential real estate	10,790		886		4,467		16,143		609,223		625,366		Residential real estate	1,517		2,113		5,598		9,228		580,221		589,449
Home equity lines of credit	Home equity lines of credit	626		267		1,055		1,948		126,063		128,011		Home equity lines of credit	66		195		712		973		120,962		121,935
Consumer, indirect	Consumer, indirect	3,046		502		330		3,878		414,188		418,066		Consumer, indirect	2,199		286		336		2,821		488,878		491,699
Consumer, direct	Consumer, direct	457		84		151		692		75,480		76,172		Consumer, direct	141		163		104		408		78,651		79,059
Deposit account overdrafts	Deposit account overdrafts	—		—		—		—		610		610		Deposit account overdrafts	0		0		0		0		519		519
Total loans, at amortized cost	Total loans, at amortized cost	$	20,761	$	1,862	$	20,498	$	43,121	$	2,868,316	$	2,911,437	Total loans, at amortized cost	$	5,606	$	3,310	$	20,387	$	29,303	$	3,442,782	$	3,472,085
December 31, 2019	December 31, 2019													December 31, 2019
Construction	Construction	$	5	$	—	$	411	$	416	$	88,102	$	88,518	Construction	$	5	$	0	$	411	$	416	$	88,102	$	88,518
Commercial real estate, other	Commercial real estate, other	376		337		7,501		8,214		825,024		833,238		Commercial real estate, other	376		337		7,501		8,214		825,024		833,238
Commercial and industrial	Commercial and industrial	2,780		312		1,244		4,336		658,657		662,993		Commercial and industrial	2,780		312		1,244		4,336		658,657		662,993
Residential real estate	Residential real estate	10,538		2,918		5,872		19,328		642,148		661,476		Residential real estate	10,538		2,918		5,872		19,328		642,148		661,476
Home equity lines of credit	Home equity lines of credit	642		510		1,033		2,185		130,519		132,704		Home equity lines of credit	642		510		1,033		2,185		130,519		132,704
Consumer, indirect	Consumer, indirect	3,574		714		370		4,658		412,527		417,185		Consumer, indirect	3,574		714		370		4,658		412,527		417,185
Consumer, direct	Consumer, direct	619		117		112		848		75,685		76,533		Consumer, direct	619		117		112		848		75,685		76,533
Deposit account overdrafts	Deposit account overdrafts	—		—		—		—		878		878		Deposit account overdrafts	0		0		0		0		878		878
Total loans, at amortized cost	Total loans, at amortized cost	$	18,534	$	4,908	$	16,543	$	39,985	$	2,833,540	$	2,873,525	Total loans, at amortized cost	$	18,534	$	4,908	$	16,543	$	39,985	$	2,833,540	$	2,873,525

The increase in loans 90+ days past due, compared to December 31, 2019, was mostly due to ~~one $2.5~~a $1.5 million commercial relationship. Delinquency trends remained stable, as ~~98.5%~~99.2% of Peoples' portfolio was considered “current” at ~~March 31,~~September 30, 2020, compared to 98.6% at December 31, 2019.

Pledged Loans

Peoples has pledged certain loans secured by one-to-four family and multifamily residential mortgages, and home equity lines of credit under a blanket collateral agreement to secure borrowings from the ~~FHLB of Cincinnati.~~FHLB. Peoples also has pledged commercial loans to secure borrowings with the ~~FRB of Cleveland.~~FRB. Loans pledged are summarized as follows:

(Dollars in thousands) March 31, 2020 December 31, 2019
Loans pledged to FHLB of Cincinnati $ 484,772 $ 458,227
Loans pledged to FRB of Cleveland 440,349 172,693


(Dollars in thousands)	September 30, 2020		December 31, 2019
Loans pledged to FHLB	$	742,023	$	458,227
Loans pledged to FRB	188,354		172,693

During 2020, Peoples pledged additional collateral to the FHLB and FRB to secure potential funding needs in light of the COVID-19 pandemic, as well as to fund the PPP loan originations that occurred during the year.

Credit Quality Indicators

As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 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 other similar events. Adversely classified loans are ~~generally~~ 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

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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

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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 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 credit losses are taken during the period in which the loan becomes uncollectible. Consequently, Peoples typically does not maintain a recorded investment in loans within this category.

Consumer loans and other smaller-balance loans are evaluated and categorized as “substandard,” ~~“doubtful,”~~ or “loss” based upon the regulatory definition of these classes and consistent with regulatory requirements. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as being “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 at ~~March 31,~~September 30, 2020:


(Dollars in thousands)	(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans		(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Construction	Construction																			Construction
Pass	Pass	$	4,092	$	38,085	$	30,264	$	34,158	$	1,277	$	839	$	500	$	1,085	$	109,215	Pass	$	25,197	$	42,715	$	2,958	$	14,650	$	1,146	$	17,668	$	446	$	3,311	$	104,780
Special mention	Special mention	—		—		—		—		—		—		152		—		152		Special mention	0		1,378		475		0		0		144		0		475		1,997
Substandard	Substandard	—		—		—		409		—		1,089		—		—		1,498		Substandard	0		0		0		195		0		730		349		0		1,274

Total	Total	4,092		38,085		30,264		34,567		1,277		1,928		652		1,085		110,865		Total	25,197		44,093		3,433		14,845		1,146		18,542		795		3,786		108,051
Commercial real estate, other	Commercial real estate, other																					Commercial real estate, other
Pass	Pass	34,844		123,054		83,513		107,026		114,584		261,144		122,359		20,711		846,524		Pass	89,909		99,713		99,193		99,656		112,043		220,567		126,990		27,562		848,071
Special mention	Special mention	—		44		584		2,054		4,570		6,394		1,634		125		15,280		Special mention	61		4,822		1,118		3,809		5,102		7,206		2,025		182		24,143
Substandard	Substandard	—		930		1,076		2,198		2,086		21,000		8,604		96		35,894		Substandard	0		1,547		822		2,854		1,973		31,972		1,857		47		41,025
Doubtful		—		—		—		—		—		119		—		—		119

Total	Total	34,844		124,028		85,173		111,278		121,240		288,657		132,597		20,932		897,817		Total	89,970		106,082		101,133		106,319		119,118		259,745		130,872		27,791		913,239
Commercial and industrial	Commercial and industrial																					Commercial and industrial
Pass	Pass	27,851		115,319		86,120		53,941		54,880		89,840		203,505		32,037		631,456		Pass	495,729		92,863		75,491		40,026		49,385		170,044		206,382		27,217		1,129,920
Special mention	Special mention	—		205		181		168		8		1,396		4,701		15		6,659		Special mention	755		1,712		3,448		123		269		1,397		13,367		51		21,071
Substandard	Substandard	—		2,169		1,002		3,185		470		3,578		5,428		2,147		15,832		Substandard	2,337		1,665		1,439		1,977		300		4,014		3,638		2,722		15,370
Doubtful	Doubtful	—		—		—		—		7		233		343		193		583		Doubtful	0		0		0		0		0		1,773		0		0		1,773

Total	Total	27,851		117,693		87,303		57,294		55,365		95,047		213,977		34,392		654,530		Total	498,821		96,240		80,378		42,126		49,954		177,228		223,387		29,990		1,168,134
Residential real estate	Residential real estate																					Residential real estate
Pass	Pass	8,820		51,870		33,071		37,058		54,563		368,621		71,077		190		625,080		Pass	29,893		44,275		27,806		32,183		45,532		306,390		86,801		227		572,880
Special mention	Special mention	—		—		—		—		—		2		—		—		2		Special mention	0		0		0		0		0		1		0		0		1
Substandard	Substandard	—		—		—		—		—		210		74		—		284		Substandard	0		0		0		0		0		15,962		126		0		16,088

Doubtful																				Doubtful	0		0		0		0		0		297		0		0		297
Loss																				Loss	0		0		0		0		0		183		0		0		183
Total	Total	8,820		51,870		33,071		37,058		54,563		368,833		71,151		190		625,366		Total	29,893		44,275		27,806		32,183		45,532		322,833		86,927		227		589,449
Home equity lines of credit	Home equity lines of credit																					Home equity lines of credit
Pass	Pass	3,209		14,712		15,145		15,905		14,208		48,551		16,281		4,510		128,011		Pass	11,065		13,802		13,087		14,651		11,751		43,776		13,803		4,025		121,935

Total	Total	3,209		14,712		15,145		15,905		14,208		48,551		16,281		4,510		128,011		Total	11,065		13,802		13,087		14,651		11,751		43,776		13,803		4,025		121,935
Consumer, indirect	Consumer, indirect																			Consumer, indirect
Pass	Pass	34,969		122,879		104,388		61,567		29,552		9,438		55,273		—		418,066		Pass	169,220		102,067		80,906		45,867		20,583		15,417		57,639		0		491,699

Total	Total	34,969		122,879		104,388		61,567		29,552		9,438		55,273		—		418,066		Total	169,220		102,067		80,906		45,867		20,583		15,417		57,639		0		491,699
Consumer, direct	Consumer, direct																			Consumer, direct
Pass	Pass	7,736		23,732		17,511		8,038		4,697		4,335		10,123		—		76,172		Pass	25,239		18,257		12,834		5,427		3,249		5,256		8,797		0		79,059

Total	Total	7,736		23,732		17,511		8,038		4,697		4,335		10,123		—		76,172		Total	25,239		18,257		12,834		5,427		3,249		5,256		8,797		0		79,059
Deposit account overdrafts	Deposit account overdrafts	610																610		Deposit account overdrafts	519		—		—		—		—		—		—		—		519
Total loans, at amortized cost	Total loans, at amortized cost	$	122,131	$	492,999	$	372,855	$	325,707	$	280,902	$	816,789	$	500,054	$	61,109	$	2,911,437	Total loans, at amortized cost	$	849,924	$	424,816	$	319,577	$	261,418	$	251,333	$	842,797	$	522,220	$	65,819	$	3,472,085

During the third quarter of 2020, Peoples downgraded several relationships due to the COVID-19 pandemic. The COVID-related downgrades contributed to increases of $17.5 million of additional criticized loans and $9.3 million of additional classified loans compared to balances at June 30, 2020. At ~~March 31,~~September 30, 2020, Peoples had a total of ~~$2.1~~$1.8 million of loans secured by residential real estate mortgages that were in the process of foreclosure.

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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:

•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.

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

•Home equity lines of credit are generally secured by second mortgages on residential real estate property.

•Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.

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


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		December 31, 2019		(Dollars in thousands)	September 30, 2020		December 31, 2019

Commercial real estate, other	Commercial real estate, other	$	9,572	$	6,818	Commercial real estate, other	$	8,999		$	6,818
Commercial and industrial	Commercial and industrial	5,791		1,962		Commercial and industrial	6,487			1,962
Residential real estate	Residential real estate	2,006		1,847		Residential real estate	1,971			1,847
Home equity lines of credit	Home equity lines of credit	776		681		Home equity lines of credit	406			681
Consumer, indirect	Consumer, indirect	—		713		Consumer, indirect	0			713
Consumer, direct	Consumer, direct	—		94		Consumer, direct	0			94
Total collateral dependent loans	Total collateral dependent loans	$	18,145	$	12,115	Total collateral dependent loans	$	17,863		$	12,115

The increase in collateral dependent commercial and industrial loans at ~~March 31,~~September 30, 2020 compared to December 31, 2019 was mostly due to one commercial relationship that became collateral ~~dependent.~~dependent, coupled with some smaller relationships. In addition, the ~~decline~~increase in collateral dependent consumer loans was driven by a change in the policy threshold for evaluation of individually impaired loans, which was previously $100,000 and on January 1, 2020 was changed to $250,000, thereby reducing the amount of loans considered collateral dependent which were no longer above the threshold.

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The following ~~table summarizes~~tables summarize the loans that were modified as TDRs during the three months and nine months ended ~~March 31:~~September 30:


											Three Months Ended
			Recorded Investment (1)												Recorded Investment (a)
(Dollars in thousands)	(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
March 31, 2020
Originated loans:
September 30, 2020									September 30, 2020

Commercial real estate, other	Commercial real estate, other	1	$	265	$	265	$	265	Commercial real estate, other	3	$	2,214	$	2,214	$	1,112
Commercial and industrial		1	145		145		145

Residential real estate		3	452		483		481
Home equity lines of credit		2	41		41		41
Consumer - indirect		11	175		175		175
Consumer - direct		4	57		57		57
Total		22	$	1,135	$	1,166	$	1,164
March 31, 2019
Originated loans:

Commercial and industrial	Commercial and industrial	2	$	38	$	38	$	36	Commercial and industrial	4	3,657		3,657		3,658
Residential real estate	Residential real estate	2	399		403		403		Residential real estate	10	608		608		608
Home equity lines of credit	Home equity lines of credit	2	79		79		79		Home equity lines of credit	3	68		68		68
Consumer, indirect	Consumer, indirect	6	72		72		72		Consumer, indirect	11	126		126		126
Consumer, direct		5	37		37		37
Consumer - direct									Consumer - direct	2	16		16		16
Consumer	Consumer	11	109		109		109		Consumer	13	142		142		142
Total									Total	33	$	6,689	$	6,689	$	5,588

September 30, 2019									September 30, 2019
Originated loans:									Originated loans:

Consumer, indirect									Consumer, indirect	15	$	205	$	205	$	205

Total	Total	17	$	625	$	629	$	627	Total	15	$	205	$	205	$	205
Acquired loans:	Acquired loans:								Acquired loans:

Residential real estate	Residential real estate	1	$	24	$	24	$	24	Residential real estate	1	$	70	$	70	$	70
Home equity lines of credit		2	65		66		66

Total	Total	3	$	89	$	90	$	90	Total	1	$	70	$	70	$	70
(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.
(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.

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

Commercial real estate, other	5	$	2,533	$	2,533	$	1,430
Commercial and industrial	5	3,803		3,803		3,804
Residential real estate	16	1,237		1,267		1,261
Home equity lines of credit	7	123		123		121
Consumer, indirect	23	235		235		216
Consumer, direct	5	68		68		63
Consumer	28	303		303		279
Total	61	$	7,999	$	8,029	$	6,895

September 30, 2019
Originated loans:

Commercial and industrial	2	$	38	$	38	$	34
Residential real estate	3	437		440		434
Home equity lines of credit	4	139		139		137
Consumer, indirect	23	328		328		312
Consumer, direct	3	52		52		48
Consumer	26	380		380		360
Total	35	$	994	$	997	$	965
Acquired loans:

Commercial real estate, other	3	$	101	$	76	$	75
Commercial and industrial	5	1,557		1,557		1,510
Residential real estate	35	2,088		2,088		2,037
Home equity lines of credit	8	172		172		168

Consumer, direct	16	340		340		330

Total	67	$	4,258	$	4,233	$	4,120
(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.

On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred ~~with~~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 accounting for troubled debt restructurings, as defined in ASC 310-40.

~~Peoples did not have any~~

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The following table presents those loans ~~that were~~ modified asinto a TDR during the ~~last twelve months~~year that subsequently ~~defaulted.~~ defaulted (i.e., 90 days or more past due following a modification during the nine-month periods ended September 30:


	September 30, 2020				September 30, 2019
(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
Commercial real estate, other		1	$	54	—		—	$	—	$	—
Consumer, direct		—	—		—		1	35		$	—
Total		1	$	54	$	—	1	$	35	$	—
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

Peoples had 0 commitments to lend additional funds to the related borrowers whose loan terms have been modified in a TDR.

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Allowance for Credit Losses

Changes in the allowance for credit losses for the three months ended ~~March 31, 2020:~~September 30, 2020 are summarized below:


(Dollars in thousands)	(Dollars in thousands)	Beginning Balance, January 1, 2020		Initial Allowance for Purchased Credit Deteriorated Assets		Provision for Credit Losses		Charge-offs		Recoveries		Ending Balance, March 31, 2020		(Dollars in thousands)	Beginning Balance, June 30, 2020		Provision for (Recovery of) Credit Losses (a)		Charge-offs		Recoveries		Ending Balance, September 30, 2020
Construction	Construction	$	600	$	51	$	1,091	$	—	$	—	$	1,742	Construction	$	2,662	$	(148)	$	0	$	0	$	2,514
Commercial real estate, other	Commercial real estate, other	7,193		1,356		3,487		(10)		116		12,142		Commercial real estate, other	19,148		(8)		(109)		4		19,035
Commercial and industrial	Commercial and industrial	4,960		860		2,656		(937)		1,204		8,743		Commercial and industrial	10,106		4,127		(148)		0		14,085
Residential real estate	Residential real estate	3,977		383		1,445		(118)		57		5,744		Residential real estate	6,380		(371)		(121)		100		5,988
Home equity lines of credit	Home equity lines of credit	1,570		2		136		(14)		1		1,695		Home equity lines of credit	1,755		40		0		2		1,797
Consumer, indirect	Consumer, indirect	5,389		—		6,085		(721)		125		10,878		Consumer, indirect	12,293		785		(370)		64		12,772
Consumer, direct	Consumer, direct	856		34		961		(62)		14		1,803		Consumer, direct	1,941		(78)		(15)		13		1,861
Deposit account overdrafts	Deposit account overdrafts	94		—		145		(213)		60		86		Deposit account overdrafts	77		154		(202)		47		76
Total	Total	$	24,639	$	2,686	$	16,006	$	(2,075)	$	1,577	$	42,833	Total	$	54,362	$	4,501	$	(965)	$	230	$	58,128

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

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



(Dollars in thousands)	Beginning Balance, January 1, 2020		Initial Allowance for Purchased Credit Deteriorated Assets		Provision for Credit Losses (a)		Charge-offs		Recoveries		Ending Balance, September 30, 2020
Construction	$	600	$	51	$	1,863	$	0	$	0	$	2,514
Commercial real estate, other	7,193		1,356		10,614		(254)		126		19,035
Commercial and industrial	4,960		860		7,356		(1,100)		2,009		14,085
Residential real estate	3,977		383		1,626		(255)		257		5,988
Home equity lines of credit	1,570		2		237		(23)		11		1,797
Consumer, indirect	5,389		0		8,549		(1,427)		261		12,772
Consumer, direct	856		34		1,062		(128)		37		1,861
Deposit account overdrafts	94		0		360		(534)		156		76
Total	$	24,639	$	2,686	$	31,667	$	(3,721)	$	2,857	$	58,128

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

Peoples increased its allowance for credit losses based on CECL model results, which incorporated economic forecasts at the end of September 2020. The primary drivers of the increase compared to June 30, 2020, were the recent developments related to COVID-10 and the resulting impact on the economic assumptions used in estimating the allowance for credit losses under the CECL model, the addition of a specific reserve of $1.9 million related to one commercial loan relationship impacted by COVID-19 and the

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$932,000 recorded to establish the allowance for credit losses related to the premium finance acquisition completed on July 1, 2020. The PPP loans originated during 2020 are guaranteed by the SBA, and therefore, had 0 impact on the allowance for credit losses at September 30, 2020.

The significant increase in the allowance for credit losses as of ~~March 31,~~September 30, 2020 compared to January 1, 2020 was mostly due to the recent COVID-19 pandemic, and the resulting impact toon 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. The economic forecast used in the ~~March 31,~~September 30, 2020 calculation of the allowance for credit losses included higher unemployment rates and lower Ohio Gross Domestic Product than those at January 1, 2020, which drove much of the increase in the allowance for credit losses at ~~March 31,~~September 30, 2020. Approximately 72% of the increase in the allowance for credit losses at March 31, 2020, compared to January 1, 2020, was related to the change in the economic forecast, and the remaining increase was attributable to changes in the composition of the loan portfolio. In addition, Peoples recorded an increase of $5.8 million in allowance for credit losses on January 1, 2020 related to the implementation of ASU 2016-13.

As of ~~March 31,~~September 30, 2020, the CECL model produced results, based on economic forecasts, ~~that~~which were higher than Peoples believed to be appropriate at the time. The majority of the modifications that were granted by Peoples early in the pandemic had expired by September 30, 2020, with the remaining requests considered minimal. Peoples' delinquency rates improved at September 30, 2020, compared to December 31, 2019. Peoples believes the actions taken to provide early relief to consumer and commercial customers, which ~~include~~included at least 90 days of payment relief for those customers, coupled with the ~~Coronavirus Aid, Relief and Economic Security ("CARES")~~CARES Act stimulus package and the ~~Small Business Administration ("SBA") Paycheck Protection Program ("PPP"),~~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 portfolio at ~~March 31,~~September 30, 2020.

During the ~~first~~second quarter of 2020, Peoples recognized a recovery of ~~$1.2 million~~$750,000 on a commercial and industrial loan that was previously ~~charged-off.~~charged-off, and recognized a similar $1.2 million recovery during the first quarter of 2020.

As of ~~March 31,~~September 30, 2020, Peoples had recorded an unfunded commitment liability of ~~$2.4~~$3.3 million, an increase compared to the $3.1 million at June 30, 2020, and the $1.5 million that was recorded on January 1, 2020. The increase in the unfunded commitment liability was mostly related to the higher unadvanced portions of commercial lines of credit, as the utilization rate by customers declined compared to prior periods. The unfunded commitment liability is presented in the “Accrued expenses and other liabilities” line of the Unaudited Consolidated Balance Sheets.

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Note 5 Long-Term Borrowings

The following table summarizes Peoples' long-term borrowings:


		March 31, 2020						December 31, 2019							September 30, 2020					December 31, 2019
(Dollars in thousands)	(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	FHLB putable, non-amortizing, fixed-rate advances	$	115,000	1.57	%	$	65,000	2.18	%	FHLB putable, non-amortizing, fixed-rate advances	$	95,000	1.52	%		$	65,000	2.18	%

FHLB amortizing, fixed-rate advances	FHLB amortizing, fixed-rate advances	$	10,300	1.74	%	$	10,672	1.74	%	FHLB amortizing, fixed-rate advances	$	8,815	1.79	%		$	10,672	1.74	%
Junior subordinated debt securities	Junior subordinated debt securities	$	7,491	5.21	%	$	7,451	6.55	%	Junior subordinated debt securities	$	7,571	4.28	%		$	7,451	6.55	%

Total long-term borrowings	Total long-term borrowings	$	132,791	1.78	%	$	83,123	2.51	%	Total long-term borrowings	$	111,386	1.73	%		$	83,123	2.51	%

Peoples continually evaluates its overall balance sheet position given the interest rate environment. During the first ~~three~~nine months of 2020, Peoples entered into 1 additional $50.0 million FHLB putable, non-amortizing fixed-rate advance with an interest rate of 0.77%, which matures in 2030. Peoples also reclassified 2 long-term FHLB non-amortizing advances totaling $20.0 million to short-term borrowings as the maturity became less than one year.

The FHLB putable, non-amortizing, fixed rate advances have maturities ranging from one to ~~ten~~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 collateral requirements. These advances require monthly interest payments, with no repayment of principal until the earlier of either an option to terminate being exercised by the FHLB or the stated maturity.

The amortizing, fixed-rate FHLB advances have a fixed rate for the term of each advance, with remaining maturities ranging from 65 to ~~eleven~~ten 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.

~~The~~

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At September 30, 2020, the aggregate minimum annual retirements of long-term borrowings in future periods are as follows:


(Dollars in thousands)	(Dollars in thousands)	Balance		Weighted-Average Rate (a)		(Dollars in thousands)	Balance		Weighted-Average Rate (a)
Nine months ending December 31, 2020		$	2,223	1.48	%
Three months ending December 31, 2020						Three months ending December 31, 2020	$	818	1.98	%
Year ending December 31, 2021	Year ending December 31, 2021	21,979		1.75	%	Year ending December 31, 2021	1,979		1.53	%
Year ending December 31, 2022	Year ending December 31, 2022	16,521		1.97	%	Year ending December 31, 2022	16,521		1.98	%
Year ending December 31, 2023	Year ending December 31, 2023	1,157		1.39	%	Year ending December 31, 2023	1,157		1.49	%
Year ending December 31, 2024	Year ending December 31, 2024	869		1.34	%	Year ending December 31, 2024	869		1.47	%
Thereafter	Thereafter	90,042		1.61	%	Thereafter	90,042		1.54	%
Total long-term borrowings	Total long-term borrowings	$	132,791	1.68	%	Total long-term borrowings	$	111,386	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%~~2.08% in the ~~nine~~three months ending December 31, 2020, ~~1.78%~~1.71% in 2021, 2.00% in 2022, 1.73% in 2023, 1.74% in 2024, and 1.43% thereafter.

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Note 6 Stockholders’ Equity

The following table details the progression in Peoples’ common shares and treasury stock during the ~~three~~nine months ended ~~March 31,~~September 30, 2020:


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

Release of restricted common shares	Release of restricted common shares	—	21,448	Release of restricted common shares	—	27,391
Cancellation of restricted common shares	Cancellation of restricted common shares	—	3,602	Cancellation of restricted common shares	0	13,445

Grant of restricted common shares	Grant of restricted common shares	—	(80,338)	Grant of restricted common shares	—	(23,482)
Grant of unrestricted common shares	Grant of unrestricted common shares	—	(4,030)	Grant of unrestricted common shares	—	(101,202)
Changes related to deferred compensation plan for Boards of Directors:	Changes related to deferred compensation plan for Boards of Directors:			Changes related to deferred compensation plan for Boards of Directors:
Purchase of treasury stock	Purchase of treasury stock	—	3,159	Purchase of treasury stock	—	8,632

Common shares repurchased under share repurchase program		—	436,137
Disbursed out of treasury stock				Disbursed out of treasury stock	—	(2,362)
Common shares repurchased under share repurchase programs				Common shares repurchased under share repurchase programs	—	1,119,752
Common shares issued under dividend reinvestment plan	Common shares issued under dividend reinvestment plan	6,559	—	Common shares issued under dividend reinvestment plan	28,014	—
Common shares issued under compensation plan for Boards of Directors	Common shares issued under compensation plan for Boards of Directors	—	(4,396)	Common shares issued under compensation plan for Boards of Directors	—	(9,615)
Gross common shares issued under performance unit awards		—	(9,395)
Common shares issued under performance unit awards				Common shares issued under performance unit awards	—	(6,127)
Common shares issued under employee stock purchase plan	Common shares issued under employee stock purchase plan	—	(4,371)	Common shares issued under employee stock purchase plan	—	(14,990)

Shares at March 31, 2020		21,162,702	865,998
Shares at September 30, 2020				Shares at September 30, 2020	21,184,157	1,515,624

On February 27, 2020, Peoples' Board of Directors ~~authorized~~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~~$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 ~~three~~nine months of 2020, Peoples purchased an aggregate of ~~$10.2~~$25.0 million of its outstanding common shares, ~~$0.5 million~~$843,000 of which were purchased under the previous share repurchase program ~~pursuant to the previously authorized Rule 10b5-1 plan~~ and ~~$9.7~~$24.2 million of which were purchased under the share repurchase program authorized on February 27, ~~2020 pursuant to the previously authorized Rule 10b5-1 plan.~~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 ~~March 31,~~September 30, 2020, Peoples had 0 preferred shares issued or outstanding.

On ~~April 20,~~October 19, 2020, Peoples' Board of Directors declared a quarterly cash dividend of ~~$0.34~~$0.35 per common share, payable on ~~May 18,~~November 16, 2020, to shareholders of record on ~~May 4,~~November 2, 2020. The following table details the cash dividends declared per common share during 2020 and the comparable period of 2019:


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

Third quarter						Third quarter	0.34		0.34
Fourth quarter						Fourth quarter	0.35		0.34
Total dividends declared	Total dividends declared	$	0.68	$	0.64	Total dividends declared	$	1.37	$	1.32

Accumulated Other Comprehensive Income (Loss)

The following table details the change in the components of Peoples’ accumulated other comprehensive income (loss) for the ~~three~~nine months ended ~~March 31,~~September 30, 2020:


(Dollars in thousands)	(Dollars in thousands)	Unrealized Gain on Securities		Unrecognized Net Pension and Postretirement Costs		Unrealized Loss on Cash Flow Hedge		Accumulated Other Comprehensive Income (Loss)		(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	Balance, December 31, 2019	$	5,300	$	(3,958)	$	(2,767)	$	(1,425)	Balance, December 31, 2019	$	5,300	$	(3,958)	$	(2,767)	$	(1,425)
Reclassification adjustments to net income:	Reclassification adjustments to net income:									Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax	Realized gain on sale of securities, net of tax	(252)		—		—		(252)		Realized gain on sale of securities, net of tax	(303)		—		—		(303)
Realized loss due to settlement and curtailment, net of tax	Realized loss due to settlement and curtailment, net of tax	—		291		—		291		Realized loss due to settlement and curtailment, net of tax	—		829		—		829
Other comprehensive income (loss), net of reclassifications and tax	Other comprehensive income (loss), net of reclassifications and tax	17,592		(267)		(7,687)		9,638		Other comprehensive income (loss), net of reclassifications and tax	12,229		(756)		(7,632)		3,841
Balance, March 31, 2020		$	22,640	$	(3,934)	$	(10,454)	$	8,252
Balance, September 30, 2020										Balance, September 30, 2020	$	17,226	$	(3,885)	$	(10,399)	$	2,942

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 benefits as they arise.

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


		Pension Benefits							Pension Benefits
		Three Months Ended							Three Months Ended				Nine Months Ended
		March 31,							September 30,				September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019		2020		2019
Interest cost	Interest cost	$	94	$	109	Interest cost	$	80	$	109	$	256	$	328
Expected return on plan assets	Expected return on plan assets	(200)		(195)		Expected return on plan assets	(187)		(195)		(577)		(586)
Amortization of net loss	Amortization of net loss	30		19		Amortization of net loss	35		19		101		58
Settlement of benefit obligation	Settlement of benefit obligation	368		—		Settlement of benefit obligation	531		0		1,050		0
Net periodic loss (income)	Net periodic loss (income)	$	292	$	(67)	Net periodic loss (income)	$	459	$	(67)	$	830	$	(200)

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		Postretirement Benefits									Postretirement Benefits
		Three Months Ended							Three Months Ended					Nine Months Ended
		March 31,							September 30,					September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019			2020		2019
Interest cost	Interest cost	$	1	$	1	Interest cost	$	1	$	1		$	2	$	3

Amortization of prior service cost						Amortization of prior service cost	0		0			0		(1)

Amortization of net gain	Amortization of net gain	(2)		(2)		Amortization of net gain	(2)		(2)			(4)		(4)

Net periodic income	Net periodic income	$	(1)	$	(1)	Net periodic income	$	(1)	$	(1)		$	(2)	$	(2)

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.

~~During~~In the first ~~quarter~~nine months 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 ~~$368,000~~$531,000 and $1.1 million, respectively, in the three and nine months ended ~~March 31,~~September 30, 2020. There were 0 settlement charges recorded during the three and nine months ended ~~March 31,~~September 30, 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 ~~three~~nine months ended ~~March 31,~~September 30, 2020:


		As of			March 31, 2020															As of		September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	December 31,			Before			Impact of		After			(Dollars in thousands)	December 31,			Before			Impact of		After
Funded status:	Funded status:	2019			Settlements					Settlements			Funded status:	2019			Settlements					Settlements
Projected benefit obligation	Projected benefit obligation	$	12,668		$	13,734		$	(650)	$	13,084		Projected benefit obligation	$	12,668		$	12,854		$	(1,172)	$	11,682
Fair value of plan assets	Fair value of plan assets	11,865			10,253			(650)		9,603			Fair value of plan assets	11,865			10,989			(1,172)		9,817
Funded status	Funded status	$	(803)		$	(3,481)		$	—	$	(3,481)		Funded status	$	(803)		$	(1,865)		$	—	$	(1,865)
Gross unrealized loss	Gross unrealized loss	$	5,068		$	7,823		$	(368)	$	7,455		Gross unrealized loss	$	5,068		$	5,834		$	(531)	$	5,303
Assumptions:	Assumptions:												Assumptions:
Discount rate	Discount rate	3.12		%	2.65		%			2.65		%	Discount rate	3.12		%	2.51		%			2.51		%
Expected return on plan assets	Expected return on plan assets	7.50		%	7.50		%			7.50		%	Expected return on plan assets	7.50		%	7.50		%			7.50		%

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Note 8 ~~(Loss)~~ Earnings Per Common Share

The calculations of basic and diluted ~~(loss)~~ earnings per common share were as follows:


		Three Months Ended							Three Months Ended				Nine Months Ended
		March 31,							September 30,				September 30,
(Dollars in thousands, except per common share data)	(Dollars in thousands, except per common share data)	2020		2019		(Dollars in thousands, except per common share data)	2020		2019		2020		2019
Distributed earnings allocated to common shareholders	Distributed earnings allocated to common shareholders	$	6,943	$	5,777	Distributed earnings allocated to common shareholders	$	6,658	$	6,941	$	20,310	$	19,652
Undistributed (loss) earnings allocated to common shareholders		(7,782)		8,490
Net (loss) earnings allocated to common shareholders		$	(839)	$	14,267
Undistributed earnings (loss) allocated to common shareholders						Undistributed earnings (loss) allocated to common shareholders	3,454		7,828		(6,386)		18,900
Net earnings allocated to common shareholders						Net earnings allocated to common shareholders	$	10,112	$	14,769	$	13,924	$	38,552

Weighted-average common shares outstanding	Weighted-average common shares outstanding	20,367,564		19,366,008		Weighted-average common shares outstanding	19,504,503		20,415,245		19,862,409		20,023,271
Effect of potentially dilutive common shares	Effect of potentially dilutive common shares	170,650		142,860		Effect of potentially dilutive common shares	133,186		180,524		135,944		155,363
Total weighted-average diluted common shares outstanding	Total weighted-average diluted common shares outstanding	20,538,214		19,508,868		Total weighted-average diluted common shares outstanding	19,637,689		20,595,769		19,998,353		20,178,634

(Loss) earnings per common share:
Earnings per common share:						Earnings per common share:
Basic	Basic	$	(0.04)	$	0.74	Basic	$	0.52	$	0.72	$	0.70	$	1.93
Diluted	Diluted	$	(0.04)	$	0.73	Diluted	$	0.51	$	0.72	$	0.70	$	1.91
Anti-dilutive common shares excluded from calculation:	Anti-dilutive common shares excluded from calculation:					Anti-dilutive common shares excluded from calculation:
Restricted shares	Restricted shares	37,284		2,057		Restricted shares	69,459		844		67,759		720

Note 9 Derivative Financial Instruments

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 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 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 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.

Cash Flow Hedges of Interest Rate Risk

Peoples' objectives in using interest rate 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 ~~March 31,~~September 30, 2020, Peoples had 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 ~~certificates of deposit,~~CDs, which will continue to be rolled through the life of the swaps. As of ~~March 31,~~September 30, 2020, the

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interest rate swaps were funded by $110.0 million of rolling three-month FHLB advances and $50.0 million of rolling three-month brokered ~~CDs.~~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' variable-rate assets or liabilities. During the three and nine months ended ~~March 31,~~September 30, 2020, Peoples had reclassifications of losses to earnings of $732,000 and $1.2 million, respectively. During the three and nine months ended September 30, 2019, Peoples had reclassifications of gains to interest expense of ~~$118,000~~$30,000 and ~~during the three months ended March 31, 2019, Peoples had reclassifications of loss to earnings of $83,000.~~$183,000, respectively.

For derivative financial instruments designated as cash flow hedges, the effective portion of changes in the fair value of each derivative financial instrument is reported in 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 the changes in cash flows of the hedging derivative financial instrument with the changes in cash flows of the designated hedged transaction. The reset dates and the payment dates on the 90-day advances or brokered ~~certificates of deposit~~CDs used to fund the swaps are matched to the 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)	(Dollars in thousands)	March 31, 2020			December 31, 2019			(Dollars in thousands)	September 30, 2020			December 31, 2019
Notional amount	Notional amount	$	160,000		$	160,000		Notional amount	$	160,000		$	160,000
Weighted average pay rates	Weighted average pay rates	2.18		%	2.18		%	Weighted average pay rates	2.18		%	2.18		%
Weighted average receive rates	Weighted average receive rates	0.58		%	1.73		%	Weighted average receive rates	0.34		%	1.73		%
Weighted average maturity	Weighted average maturity	5.1 years			5.4 years			Weighted average maturity	4.6 years			5.4 years
Pre-tax unrealized losses included in AOCI	Pre-tax unrealized losses included in AOCI	$	(13,233)		$	(3,503)		Pre-tax unrealized losses included in AOCI	$	(13,164)		$	(3,503)

The following table presents net losses or gains recorded in AOCI and in the Unaudited Consolidated Statements of Operations related to the cash flow hedges:


		Three Months Ended							Three Months Ended				Nine Months Ended
		March 31,							September 30,				September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019		2020		2019
Amount of loss recognized in AOCI, pre-tax		$	(9,730)	$	(1,833)
Amount of (gain) loss recognized in AOCI, pre-tax						Amount of (gain) loss recognized in AOCI, pre-tax	$	(803)	$	1,857	$	9,661	$	6,824
Amount of loss recognized in earnings	Amount of loss recognized in earnings	$	—	$	(19)	Amount of loss recognized in earnings	$	0	$	0	$	0	$	(19)

The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:

March 31,
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 $ 13,424 $ 105,000 $ 4,340
Total included in accrued expenses and other liabilities $ 160,000 $ 13,424 $ 105,000 $ 4,340


	September 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	$	0	$	0	$	55,000	$	644

Included in "Accrued expenses and other liabilities":
Interest rate swaps related to debt	$	160,000	$	13,350	$	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 originates variable rate loans with interest rate swaps, where the customer 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 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 financial instrument. These interest rate swaps did not have a material impact on Peoples' results of operation or financial condition.

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

March 31,
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 $ 337,265 $ 30,235 $ 321,394 $ 10,776
Total included in other assets $ 337,265 $ 30,235 $ 321,394 $ 10,776
Included in accrued expenses and other liabilities:
Interest rate swaps related to commercial loans $ 337,265 $ 30,235 $ 321,394 $ 10,776
Total included in accrued expenses and other liabilities $ 337,265 $ 30,235 $ 321,394 $ 10,776


	September 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	$	387,239	$	30,651	$	321,394	$	10,776

Included in "Accrued expenses and other liabilities":
Interest rate swaps related to commercial loans	$	387,239	$	30,651	$	321,394	$	10,776

Pledged Collateral

Peoples pledges collateral for all interest rate swaps. When the fair value of Peoples' interest rate swaps ~~are~~is in a net liability position, Peoples must pledge collateral, and, when the fair value of Peoples' interest rate swaps ~~are~~is in a net asset position, the counterparties must pledge collateral. At ~~March 31,~~September 30, 2020 and December 31, 2019, Peoples had ~~$44.0~~$46.9 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~~"interest-bearing deposits in other ~~banks~~banks" on the Unaudited Consolidated Balance Sheets.

Note 10 Stock-Based Compensation

Under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan (the "2006 Equity Plan"), Peoples may grant, among other awards, nonqualified stock options, incentive stock options, restricted common share awards, stock appreciation rights, 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 891,340. The maximum number of common shares that can be issued for incentive stock options is 500,000 common shares. Since February 2009, Peoples has granted restricted common shares to employees, and 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.

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 the restricted common shares awarded to employees expire after periods ranging from one to five years. Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions. In the first ~~three~~nine months of 2020, Peoples granted an aggregate of 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; 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 status by regulatory standards for each of the three fiscal years preceding the vesting date. During the first nine months of 2020, Peoples granted, to certain key employees, an aggregate of 20,864 common shares subject to time-based vesting with restrictions that will lapse three years after the grant date.

The following table summarizes the changes to Peoples’ restricted common shares for the ~~three~~nine months ended ~~March 31,~~September 30, 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	Outstanding at January 1	32,230	$	33.05	253,884	$	33.29	Outstanding at January 1	32,230	$	33.05		253,884	$	33.29
Awarded	Awarded	—	—		80,338	32.91		Awarded	20,864	20.21			80,338	32.91
Released	Released	4,000	31.63		56,827	32.42		Released	5,250	32.76			56,827	32.42
Forfeited	Forfeited	200	34.14		3,402	33.04		Forfeited	7,286	31.85			6,159	33.09
Outstanding at March 31		28,030	$	33.25	273,993	$	33.36
Outstanding at September 30								Outstanding at September 30	40,558	$	26.70		271,236	$	33.36

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For the ~~three~~nine months ended ~~March 31,~~September 30, 2020, the total intrinsic value for restricted common shares released was $2.0 million compared to ~~$1.1~~$1.8 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

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Performance Unit Awards

Under the 2006 Equity Plan, Peoples may 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 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 covered the performance period beginning January 1, 2018 and ending on December 31, 2019, and were subject to two performance goals. Peoples achieved the first performance goal by exceeding its target cumulative two-year adjusted earnings per share. However, Peoples failed to achieve the second performance goal as its adjusted return on average assets for the 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 unit awards received an aggregate of 9,395 common shares at a fair market value of $29.26 per common share on the date the performance units were deemed vested, with a related expense of ~~$275,000.~~$275,000 that had been recognized over the vesting period.

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 related tax benefit recognized for each period:


		Three Months Ended							Three Months Ended				Nine Months Ended
		March 31,							September 30,				September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019		2020		2019
Employee stock-based compensation expense:	Employee stock-based compensation expense:					Employee stock-based compensation expense:
Stock grant expense	Stock grant expense	$	1,380	$	1,153	Stock grant expense	$	615	$	888	$	2,950	$	2,944
Employee stock purchase plan expense	Employee stock purchase plan expense	15		16		Employee stock purchase plan expense	17		16		$	47	$	48
Performance unit (benefit) expense		(12)		39
Performance unit expense (benefit)						Performance unit expense (benefit)	0		46		$	(12)	$	96
Total employee stock-based compensation expense	Total employee stock-based compensation expense	1,383		1,208		Total employee stock-based compensation expense	632		950		$	2,985	$	3,088
Non-employee director stock-based compensation expense	Non-employee director stock-based compensation expense	182		152		Non-employee director stock-based compensation expense	53		50		$	288	$	252
Total stock-based compensation expense	Total stock-based compensation expense	1,565		1,360		Total stock-based compensation expense	685		1,000		$	3,273	$	3,340
Recognized tax benefit	Recognized tax benefit	(329)		(286)		Recognized tax benefit	(144)		(210)		(687)		(701)
Net stock-based compensation expense	Net stock-based compensation expense	$	1,236	$	1,074	Net stock-based compensation expense	$	541	$	790	$	2,586	$	2,639

Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the ~~three~~nine months ended ~~March 31,~~September 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 ~~$3.9~~$3.0 million at ~~March 31,~~September 30, 2020, which will be recognized over a weighted-average period of ~~2.1~~1.8 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 portion of directors' fees paid in common shares, non-employee director stock-based compensation expense included $120,000 during the first ~~three~~nine months of 2020, and $102,000 during the first ~~three~~nine 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							Three Months Ended				Nine Months Ended
		March 31,							September 30,				September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019		2020		2019
Insurance income:	Insurance income:					Insurance income:
Commission and fees from sale of insurance policies (a)	Commission and fees from sale of insurance policies (a)	$	2,692	$	3,033	Commission and fees from sale of insurance policies (a)	$	3,493	$	3,173	$	9,117	$	9,512
Fees related to third-party administration services (a)	Fees related to third-party administration services (a)	147		169		Fees related to third-party administration services (a)	107		140		375		486
Performance-based commissions (b)	Performance-based commissions (b)	1,291		1,419		Performance-based commissions (b)	9		73		1,437		1,495
Trust and investment income (a)	Trust and investment income (a)	3,262		3,112		Trust and investment income (a)	3,435		3,205		10,013		9,718
Electronic banking income:	Electronic banking income:					Electronic banking income:
Interchange income (a)	Interchange income (a)	2,401		2,443		Interchange income (a)	3,011		2,842		8,255		8,032
Promotional and usage income (a)	Promotional and usage income (a)	879		544		Promotional and usage income (a)	755		735		2,313		1,799
Deposit account service charges:	Deposit account service charges:					Deposit account service charges:
Ongoing maintenance fees for deposit accounts (a)	Ongoing maintenance fees for deposit accounts (a)	980		752		Ongoing maintenance fees for deposit accounts (a)	848		1,049		2,677		2,813
Transactional-based fees (b)	Transactional-based fees (b)	1,840		1,589		Transactional-based fees (b)	1,418		2,184		4,318		5,738
Commercial loan swap fees (b)	Commercial loan swap fees (b)	244		146		Commercial loan swap fees (b)	68		772		1,267		1,434
Other non-interest income transactional-based fees (b)	Other non-interest income transactional-based fees (b)	218		171		Other non-interest income transactional-based fees (b)	94		174		624		598
Total revenue from contracts with customers	Total revenue from contracts with customers	$	13,954	$	13,378	Total revenue from contracts with customers	$	13,238	$	14,347	$	40,396	$	41,625

Timing of revenue recognition:	Timing of revenue recognition:					Timing of revenue recognition:
Services transferred over time	Services transferred over time	$	10,361	$	10,053	Services transferred over time	$	11,649	$	11,144	$	32,750	$	32,360
Services transferred at a point in time	Services transferred at a point in time	3,593		3,325		Services transferred at a point in time	1,589		3,203		7,646		9,265
Total revenue from contracts with customers	Total revenue from contracts with customers	$	13,954	$	13,378	Total revenue from contracts with customers	$	13,238	$	14,347	$	40,396	$	41,625

(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 and certain insurance 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 September 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 collectability under the contracts.

The following table details the change in Peoples' contract assets and contract liabilities for the period ended ~~March 31,~~September 30, 2020:


		Contract Assets		Contract Liabilities			Contract Assets		Contract Liabilities
(Dollars in thousands)	(Dollars in thousands)										Contract Assets	Contract Liabilities
Balance, January 1, 2020	Balance, January 1, 2020	$	600	$	5,190	Balance, January 1, 2020	$	600	$	5,190
Additional income receivable	Additional income receivable	175		—		Additional income receivable	519		—
Additional deferred income	Additional deferred income	—		(125)		Additional deferred income	—		56

Recognition of income previously deferred	Recognition of income previously deferred	—		(21)		Recognition of income previously deferred	—		(125)
Balance, March 31, 2020		$	775	$	5,044
Balance, September 30, 2020						Balance, September 30, 2020	$	1,119	$	5,121

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Note 12 Acquisitions

Effective July 1, 2020, Peoples closed on a business combination under which Peoples Bank acquired the operations and assets of Triumph Premium Finance (referred to as "premium finance acquisition"), 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.

The following table provides the preliminary purchase price calculation as of the date of acquisition for the premium finance company, and the assets acquired and liabilities assumed at their estimated fair values.


(Dollars in thousands)
Total purchase price	$	94,526
Net Assets at Fair Value
Assets
Cash and due from banks	$	508
Loans, net of deferred fees and costs	84,817
Bank premises and equipment, net of accumulated depreciation	45
Customer relationship intangible assets	4,172
Other assets	10
Total assets	$	89,552
Liabilities
Accrued expenses and other liabilities	479
Total liabilities	$	479
Net assets	$	89,075
Preliminary goodwill	$	5,451

The estimated fair values presented in the above table reflect certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded in the period in which each adjustment is determined and, as a result, previously recorded results may change.

Peoples has recorded a preliminary customer relationship intangible of $4.2 million. Peoples expects to amortize the intangible over 10 years. Amortization for the third quarter of 2020 was $128,000.

As of the acquisition date, Peoples estimated an allowance for credit losses of $932,000 for the acquired loans through the income statement, which was included in the provision for credit losses during the third quarter of 2020.

Acquired loans are reported net of the unamortized fair value adjustment. The following table details the preliminary fair value adjustment for acquired loans as of the acquisition date:


(Dollars in thousands, except per share data)	Triumph Premium Finance
Loans Purchased Without Credit Deterioration
Contractual cash flows	$	84,440
Nonaccretable difference	(179)
Expected cash flows	84,261
Accretable yield	556
Fair value	$	84,817

On January 1, 2020, Peoples Insurance acquired a property and casualty-focused independent insurance agency for a purchase price amount equal to $866,000, and recorded $735,000 of customer relationship intangibles, and $27,000 of other assets, resulting in $104,000 of goodwill. The acquisition will not materially impact Peoples' financial position, results of operations or cash flows. As of ~~March 31,~~September 30, 2020, Peoples had ~~$319,000~~$403,000 of contingent consideration payable related to the acquisition.

~~On April 20, 2020, Peoples signed an asset purchase agreement under which Peoples Bank will acquire the operations and assets~~36

Table of Triumph Premium Finance (“TPF”), a division of TBK Bank, SSB. Based in Kansas City, Missouri, TPF provides premium finance services for customers to purchase property and casualty insurance products through its network of independent insurance agency customers nationwide. Closing is expected to occur during the third quarter of 2020 and is subject to regulatory approval and other conditions set forth in the asset purchase agreement.Contents

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 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 ~~March 31,~~September 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 in net occupancy and equipment expense in the Unaudited Consolidated Statements of Operations:


		Three Months Ended							Three Months Ended				Nine Months Ended
(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		March 31, 2019		(Dollars in thousands)	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Operating lease expense	Operating lease expense	$	334	$	307	Operating lease expense	$	334	$	192	995		815
Short-term lease expense	Short-term lease expense	76		30		Short-term lease expense	71		113		231		170
Total lease expense	Total lease expense	$	410	$	337	Total lease expense	$	405	$	305	$	1,226	$	985

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 based on the term of the lease and the interest rate environment at the lease commencement or remeasurement date.

The following table details the ~~right-of-use~~ROU asset, the lease liability and other information related to Peoples' operating leases:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020			December 31, 2019			(Dollars in thousands)	September 30, 2020			December 31, 2019
Right-of-use asset:
ROU asset:								ROU asset:
Other assets	Other assets	$	7,364		$	7,606		Other assets	$	6,872		$	7,606
Lease liability:	Lease liability:							Lease liability:
Accrued expenses and other liabilities	Accrued expenses and other liabilities	$	7,582		$	7,813		Accrued expenses and other liabilities	$	7,117		$	7,813
Other information:	Other information:							Other information:
Weighted-average remaining lease term	Weighted-average remaining lease term	12.4 years						Weighted-average remaining lease term	12.3 years			12.4 years
Weighted-average discount rate	Weighted-average discount rate	3.15		%	3.16		%	Weighted-average discount rate	3.14		%	3.16		%

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During the ~~first~~ three and nine months ended September 30, 2020, Peoples paid cash of ~~2020~~$320,000 and $960,000, respectively, for operating leases. During the three and nine months ended September 30, 2019, Peoples paid cash of ~~$321,000~~$291,000 and ~~$296,000,~~$882,000, respectively, for operating leases.

The following table summarizes the maturity of remaining lease liabilities:


(Dollars in thousands)	Balance
~~Nine~~Three months ending December 31, 2020	$	~~1,031~~425
Year ending December 31, 2021	~~1,146~~1,199
Year ending December 31, 2022	~~1,077~~1,061
Year ending December 31, 2023	~~883~~873
Year ending December 31, 2024	629
Thereafter	4,750
Total undiscounted lease payments	$	~~9,516~~8,937
Imputed interest	$	~~(1,934)~~(1,820)
Total lease liability	$	~~7,582~~7,117

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ITEM 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 nine months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019. This discussion and analysis should be read in conjunction with the Unaudited Consolidated Financial Statements and the Notes ~~therein.~~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 Three Months Ended				At or For the Nine Months Ended
		March 31,							September 30,				September 30,
		2020		2019
(Dollars in thousands, expect per share data)						(Dollars in thousands, expect per share data)	2020		2019		2020		2019
Operating Data (a)	Operating Data (a)					Operating Data (a)
Total interest income	Total interest income	$	40,862	$	40,576	Total interest income	$	39,013	$	43,609	$	119,181	$	127,806
Total interest expense	Total interest expense	6,226		6,662		Total interest expense	3,894		7,855		14,566		22,089
Net interest income	Net interest income	34,636		33,914		Net interest income	35,119		35,754		104,615		105,717
Provision for (recovery of) credit losses (b)		16,969		(263)
Provision for credit losses (b)						Provision for credit losses (b)	4,728		1,005		33,531		1,368
Net gain on investment securities	Net gain on investment securities	319		30		Net gain on investment securities	2		97		383		70
Net loss on asset disposals and other transactions	Net loss on asset disposals and other transactions	(87)		(182)		Net loss on asset disposals and other transactions	(28)		(78)		(237)		(553)
Total non-interest income excluding net gains and losses (c)	Total non-interest income excluding net gains and losses (c)	15,505		15,581		Total non-interest income excluding net gains and losses (c)	16,796		16,374		47,025		47,594
Total non-interest expense	Total non-interest expense	34,325		31,860		Total non-interest expense	34,315		32,993		100,445		103,729
Net (loss) income (d)		(765)		14,369
Net income (d)						Net income (d)	10,210		14,868		14,194		38,835
Balance Sheet Data (a)	Balance Sheet Data (a)					Balance Sheet Data (a)
Total investment securities (e)	Total investment securities (e)	$	1,046,497	$	879,625	Total investment securities (e)	$	928,560	$	1,064,909	$	928,560	$	1,064,909
Loans, net of deferred fees and costs ("total loans")	Loans, net of deferred fees and costs ("total loans")	2,911,437		2,737,580		Loans, net of deferred fees and costs ("total loans")	3,472,085		2,850,316		3,472,085		2,850,316
Allowance for credit losses (e)	Allowance for credit losses (e)	42,833		20,939		Allowance for credit losses (e)	58,128		21,585		58,128		21,585
Goodwill and other intangible assets	Goodwill and other intangible assets	177,447		161,242		Goodwill and other intangible assets	185,397		179,126		185,397		179,126
Total assets	Total assets	4,469,120		4,017,119		Total assets	4,911,807		4,396,148		4,911,807		4,396,148
Non-interest-bearing deposits	Non-interest-bearing deposits	727,266		628,464		Non-interest-bearing deposits	982,912		677,232		982,912		677,232
Brokered certificates of deposits		133,522		287,345
Brokered deposits						Brokered deposits	260,753		262,230		260,753		262,230
Other interest-bearing deposits	Other interest-bearing deposits	2,537,642		2,221,604		Other interest-bearing deposits	2,708,340		2,417,740		2,708,340		2,417,740
Short-term borrowings	Short-term borrowings	259,661		191,363		Short-term borrowings	182,063		288,150		182,063		288,150
Junior subordinated debentures held by subsidiary trust	Junior subordinated debentures held by subsidiary trust	7,491		7,325		Junior subordinated debentures held by subsidiary trust	7,571		7,409		7,571		7,409
Other long-term borrowings	Other long-term borrowings	132,791		105,995		Other long-term borrowings	103,815		76,785		103,815		76,785
Total stockholders' equity (e)	Total stockholders' equity (e)	583,721		535,121		Total stockholders' equity (e)	566,856		588,533		566,856		588,533
Tangible assets (f)	Tangible assets (f)	4,291,673		3,855,877		Tangible assets (f)	4,726,410		4,217,022		4,726,410		4,217,022
Tangible equity (f)	Tangible equity (f)	406,274		373,879		Tangible equity (f)	381,459		409,407		381,459		409,407
Per Common Share Data (a)	Per Common Share Data (a)					Per Common Share Data (a)
(Loss) earnings per common share – basic		$	(0.04)	$	0.74
(Loss) earnings per common share – diluted		(0.04)		0.73
Earnings per common share – basic						Earnings per common share – basic	$	0.52	$	0.72	$	0.70	$	1.93
Earnings per common share – diluted						Earnings per common share – diluted	0.51		0.72		0.70		1.91
Cash dividends declared per common share	Cash dividends declared per common share	0.34		0.30		Cash dividends declared per common share	0.34		0.34		1.02		0.98
Book value per common share (g)	Book value per common share (g)	28.69		27.19		Book value per common share (g)	28.74		28.43		28.74		28.43
Tangible book value per common share (f)(g)	Tangible book value per common share (f)(g)	$	19.97	$	19.00	Tangible book value per common share (f)(g)	$	19.34	$	19.78	$	19.34	$	19.78
Weighted-average number of common shares outstanding – basic	Weighted-average number of common shares outstanding – basic	20,367,564		19,366,008		Weighted-average number of common shares outstanding – basic	19,504,503		20,415,245		19,862,409		20,023,271
Weighted-average number of common shares outstanding – diluted	Weighted-average number of common shares outstanding – diluted	20,538,214		19,508,868		Weighted-average number of common shares outstanding – diluted	19,637,689		20,595,769		19,998,353		20,178,634
Common shares outstanding at end of period	Common shares outstanding at end of period	20,346,843		19,681,692		Common shares outstanding at end of period	19,721,783		20,700,630		19,721,783		20,700,630
Closing share price at end of period	Closing share price at end of period	$	22.15	$	30.97	Closing share price at end of period	$	19.09	$	31.81	$	19.09	$	31.81

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		At or For the Three Months Ended										At or For the Three Months Ended						At or For the Nine Months Ended
		March 31,										September 30,						September 30,
		2020			2019
(Dollars in thousands, expect per share data)								(Dollars in thousands, expect per share data)	2020			2019			2020			2019
Significant Ratios (a)	Significant Ratios (a)							Significant Ratios (a)
Return on average stockholders' equity (h)	Return on average stockholders' equity (h)	(0.52)		%	11.12		%	Return on average stockholders' equity (h)	7.16		%	10.11		%	3.28		%	9.31		%
Return on average tangible equity (h)(i)	Return on average tangible equity (h)(i)	(0.18)		%	16.69		%	Return on average tangible equity (h)(i)	11.36		%	15.35		%	5.38		%	14.14		%
Return on average assets (h)	Return on average assets (h)	(0.07)		%	1.46		%	Return on average assets (h)	0.83		%	1.37		%	0.40		%	1.24		%
Return on average assets adjusted for non-core items (h)(j)	Return on average assets adjusted for non-core items (h)(j)	(0.05)		%	1.49		%	Return on average assets adjusted for non-core items (h)(j)	0.91		%	1.39		%	0.47		%	1.44		%
Average stockholders' equity to average assets	Average stockholders' equity to average assets	13.61		%	13.15		%	Average stockholders' equity to average assets	11.56		%	13.53		%	12.29		%	13.34		%
Average total loans to average deposits	Average total loans to average deposits	85.93		%	89.36		%	Average total loans to average deposits	87.44		%	84.99		%	86.15		%	86.83		%
Net interest margin (h)(k)	Net interest margin (h)(k)	3.51		%	3.80		%	Net interest margin (h)(k)	3.14		%	3.66		%	3.27		%	3.74		%
Efficiency ratio (l)	Efficiency ratio (l)	66.64		%	62.71		%	Efficiency ratio (l)	64.12		%	61.10		%	64.37		%	65.71		%
Efficiency ratio adjusted for non-core items (m)	Efficiency ratio adjusted for non-core items (m)	65.55		%	62.21		%	Efficiency ratio adjusted for non-core items (m)	61.81		%	60.55		%	62.44		%	60.94		%
Pre-provision net revenue to total average assets (n)	Pre-provision net revenue to total average assets (n)	1.45		%	1.79		%	Pre-provision net revenue to total average assets (n)	1.43		%	1.76		%	1.45		%	1.59		%
Dividend payout ratio (o)(p)	Dividend payout ratio (o)(p)	NM			40.84		%	Dividend payout ratio (o)(p)	66.31		%	47.35		%	145.29		%	51.35		%
Total loans to deposits (g)	Total loans to deposits (g)	85.74		%	87.33		%	Total loans to deposits (g)	88.04		%	85.04		%	88.04		%	85.04		%
Total investment securities as percentage of total assets (g)	Total investment securities as percentage of total assets (g)	23.42		%	21.90		%	Total investment securities as percentage of total assets (g)	18.90		%	24.22		%	18.90		%	24.22		%
Asset Quality Ratios (a)	Asset Quality Ratios (a)							Asset Quality Ratios (a)
Nonperforming loans as a percent of total loans (g)(q)	Nonperforming loans as a percent of total loans (g)(q)	0.93		%	0.66		%	Nonperforming loans as a percent of total loans (g)(q)	0.84		%	0.73		%	0.84		%	0.73		%
Nonperforming assets as a percent of total assets (g)(q)	Nonperforming assets as a percent of total assets (g)(q)	0.61		%	0.45		%	Nonperforming assets as a percent of total assets (g)(q)	0.60		%	0.48		%	0.60		%	0.48		%
Nonperforming assets as a percent of total loans and OREO (g)(q)	Nonperforming assets as a percent of total loans and OREO (g)(q)	0.94		%	0.67		%	Nonperforming assets as a percent of total loans and OREO (g)(q)	0.85		%	0.74		%	0.85		%	0.74		%
Criticized loans as a percent of total loans (g)(r)	Criticized loans as a percent of total loans (g)(r)	3.12		%	3.28		%	Criticized loans as a percent of total loans (g)(r)	3.55		%	3.52		%	3.55		%	3.52		%
Classified loans as a percent of total loans (g)(s)	Classified loans as a percent of total loans (g)(s)	2.36		%	1.73		%	Classified loans as a percent of total loans (g)(s)	2.19		%	2.07		%	2.19		%	2.07		%
Allowance for credit losses as a percent of total loans (e)(g)	Allowance for credit losses as a percent of total loans (e)(g)	1.47		%	0.76		%	Allowance for credit losses as a percent of total loans (e)(g)	1.67		%	0.76		%	1.67		%	0.76		%
Allowance for credit losses as a percent of nonperforming loans (e)(g)(q)	Allowance for credit losses as a percent of nonperforming loans (e)(g)(q)	158.49		%	115.28		%	Allowance for credit losses as a percent of nonperforming loans (e)(g)(q)	198.72		%	104.20		%	198.72		%	104.20		%
Provision for (recovery of) credit losses as a percent of average total loans (b)		2.37		%	(0.04)		%
Net charge-offs (recoveries) as a percentage of average total loans		0.07		%	(0.15)		%
Provision for credit losses as a percent of average total loans (b)								Provision for credit losses as a percent of average total loans (b)	0.55		%	0.14		%	1.40		%	0.07		%
Net charge-offs as a percentage of average total loans (p)								Net charge-offs as a percentage of average total loans (p)	0.08		%	0.11		%	0.04		%	NM
Capital Information (a)(g)	Capital Information (a)(g)							Capital Information (a)(g)
Common equity tier 1 capital ratio (t)	Common equity tier 1 capital ratio (t)	13.91		%	13.96		%	Common equity tier 1 capital ratio (t)	12.83		%	14.23		%	12.83		%	14.23		%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	14.16		%	14.22		%	Tier 1 risk-based capital ratio	13.07		%	14.48		%	13.07		%	14.48		%
Total risk-based capital ratio (tier 1 and tier 2)	Total risk-based capital ratio (tier 1 and tier 2)	15.38		%	14.98		%	Total risk-based capital ratio (tier 1 and tier 2)	14.33		%	15.22		%	14.33		%	15.22		%
Tier 1 leverage ratio	Tier 1 leverage ratio	10.06		%	10.31		%	Tier 1 leverage ratio	8.62		%	10.28		%	8.62		%	10.28		%
Common equity tier 1 capital	Common equity tier 1 capital	$	415,768		$	389,394		Common equity tier 1 capital	$	398,553		$	417,468		$	398,553		$	417,468
Tier 1 capital	Tier 1 capital	423,259			396,719			Tier 1 capital	406,124			424,877			406,124			424,877
Total capital (tier 1 and tier 2)	Total capital (tier 1 and tier 2)	459,727			417,658			Total capital (tier 1 and tier 2)	445,101			446,462			445,101			446,462
Total risk-weighted assets	Total risk-weighted assets	$	2,988,263		$	2,788,935		Total risk-weighted assets	$	3,106,817		$	2,933,848		$	3,106,817		$	2,933,848
Total stockholders' equity to total assets	Total stockholders' equity to total assets	13.06		%	13.32			Total stockholders' equity to total assets	11.54		%	13.39		%	11.54		%	13.39		%
Tangible equity to tangible assets (f)	Tangible equity to tangible assets (f)	9.47		%	9.70		%	Tangible equity to tangible assets (f)	8.07		%	9.71		%	8.07		%	9.71		%

(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 ~~current expected credit loss ("CECL")~~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~~(which includes purchased credit deteriorated ~~loans,~~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 ~~$551,000~~$1.2 million for the third quarter of 2020 and $3.0 million for the first ~~three~~nine months of ~~2020~~2020. For the third quarter of 2019, net income included non-core non-interest expenses of $0.3 million and ~~$253,000 for~~ the first ~~three~~nine months of ~~2019.~~2019 included $7.4 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).”

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(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~~and losses, acquisition-related expenses, pension settlement charges, severance ~~charges~~expenses and ~~COVID-19~~COVID-19-related 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~~and 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~~and losses, acquisition-related expenses, pension settlement charges, severance expenses and ~~COVID-19~~COVID-19-related 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~~and 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 ~~(loss)~~ 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 ~~7.38%~~6.33% at ~~March 31,~~September 30, 2020 and ~~6.98%~~7.22% at ~~March 31,~~September 30, 2019, compared to 2.50% for the fully phased-in capital conservation buffer required at 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. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," and similar expressions.

These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of 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. These factors include, but are not limited to:

(1)the ever-changing effects of the COVID-19 pandemic - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 - 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 to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic and the implementation of fiscal 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 undertaken by the U.S. government and the Board of Governors of the Federal Reserve System (the "Federal Reserve") 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 ~~its~~Peoples' ability to manage strategic initiatives, including the expansion of commercial and consumer lending ~~activity;~~activities, in light of the continuing impact of the COVID-19 pandemic on customers' operations and financial condition;

~~(3)~~(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;

~~(4)~~

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 BoardTable 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;Contents

(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 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~~

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~~Security ("CARES")~~CARES Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;

(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 changes in 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;~~stockholders;

(9)changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer and other counterparties performance and 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 assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the ~~newly-adopted current expected credit loss model (or "CECL model");~~CECL model;

(13)the discontinuation of the London Interbank Offered ~~Rates~~Rate ("LIBOR") 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;

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(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;

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

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(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;~~deposits

(30)the impact of future governmental and regulatory actions upon Peoples' participation in and execution of government programs related to the COVID-19 pandemic;

(31)uncertainty regarding changes to the U.S. presidential administration and Congress and the impact thereof on the regulatory landscape, capital markets and the response to and management of the COVID-19 pandemic; and

~~(30)~~(32)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 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’ 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 88 locations, including 7776 full-service bank branches, and 8584 Automated Teller Machines ("ATMs") in northeastern, central, southwestern and southeastern Ohio, central and eastern Kentucky, and west central West Virginia through its financial service units – Peoples Bank and Peoples Insurance Agency, LLC ("Peoples Insurance"), a subsidiary of Peoples Bank. Peoples Bank also offers insurance premium finance lending nationwide through its premium finance division. 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 (the "FDIC"). Peoples Bank must also follow the regulations promulgated 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 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.

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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 ~~March 31,~~September 30, 2020, which 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’ 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 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 September 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 and events that have impacted or are expected to impact Peoples’ results of operations or financial condition:

◦Peoples originated $489.0 million of loans during the first nine months of 2020 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 September 30, 2020, Peoples had $460.4 million in PPP loans outstanding, which were included in commercial and industrial loan balances, compared to $458.0 million at June 30, 2020, as the program was initiated at the beginning of the second quarter of 2020.Peoples recognized interest income of $3.8 million for deferred fee/cost amortization and $2.1 million of interest income on PPP loans during the first nine months of 2020.

◦Peoples is also providing relief solutions to consumer and commercial borrowers, including forbearance and modifications, 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 $531,000 in pension settlement charges in the third quarter of 2020, $151,000 in the second quarter of 2020, and $368,000 in the first quarter of 2020, in each case, 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, second, and third quarters of 2019.

◦During the third quarter of 2020, Peoples recorded a provision for credit losses of $4.7 million, compared to $11.8 million in the linked quarter and $1.0 million in the third quarter of 2019. For the first nine months of 2020, Peoples recorded a total provision for credit losses of $33.5 million compared to $1.4 million in 2019. During the third quarter of 2020, Peoples recorded $932,000 of the provision for credit losses to establish the allowance for credit losses for the loans acquired from Triumph Premium Finance. The increases in the provision for credit losses compared to the third quarter of 2019, and the first nine 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. Peoples recognized a recovery of $750,000 and $1.2 million on a previously charged-off commercial loan in the second and first quarters of 2020, respectively.

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◦~~On April 20,~~For the third quarter of 2020, Peoples ~~signed~~recorded $148,000 of expenses related to the COVID-19 pandemic, compared to $918,000 for the second quarter of 2020. These expenses were primarily related to donations made to community food banks and pantries, as well as contributions to funds to support employees, including, in the second quarter of 2020, the issuance of unrestricted common share awards totaling $396,000 granted to employees at the Assistant Vice President level and below.

◦During the third quarter of 2020, Peoples recognized an ~~asset purchase agreement~~expense of $570,000 for its Federal Deposit Insurance Corp. ("FDIC") insurance premiums. The FDIC previously issued credits to member banks to offset against the quarterly assessment as a result of the deposit insurance fund reaching its target threshold for smaller banks. These credits were used beginning in 2019 and were fully exhausted during the second quarter of 2020. For the three months ended September 30, 2020, Peoples had no credits available to offset FDIC insurance premiums.

◦During the third quarter of 2020, Peoples incurred $0.3 million of acquisition-related expenses, compared to $47,000 in the second quarter of 2020 and $199,000 in the third quarter of 2019. Acquisition-related expenses for the nine months ended September 30, 2020 were $0.4 million, compared to $7.2 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.

◦Effective July 1, 2020, Peoples completed the business combination under which Peoples Bank ~~will acquire~~acquired the operations and assets of Triumph Premium Finance ~~(“TPF”~~(referred to as "premium finance acquisition"), a division of TBK Bank, SSB. Based in Kansas City, Missouri, ~~TPF provides~~the division operating as Peoples Premium Finance will continue to provide insurance premium ~~finance services~~financing loans for commercial customers to purchase property and casualty insurance products through its growing network of independent insurance agency ~~customers~~partners nationwide. ~~Closing is expected~~Peoples Bank acquired $84.8 million in loans, at acquisition date, after preliminary fair value adjustments. Peoples also preliminarily recorded $4.2 million of other intangible assets and $5.5 million of goodwill. As of September 30, 2020, Peoples Premium Finance loans had grown to ~~occur during the third quarter of 2020 and is subject to regulatory approval and other conditions set forth in the asset purchase agreement.~~$104.1 million.

◦On April 2, 2020, Peoples entered into a First Amendment to Loan Agreement to extend the maturity of 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; and (iii) to finance acquisitions permitted under the U.S. Bank Loan Agreement.

◦In March 2020, the CARES Act created a new loan guarantee program called the Paycheck Protection Program ("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 Small Business Administration ("SBA"). Peoples is a PPP participating lender. Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts."

◦Peoples has also been 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 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."

◦During the first quarter of 2020, Peoples recorded a provision for credit losses of $17.0 million, compared to a provision for loan losses of $1.1 million for the linked quarter and a recovery of loan losses of $263,000 for the first quarter of 2019. The increase in the provision for credit losses compared to the fourth and first quarters of 2019 was primarily due to the recent developments related to COVID-19 and the resulting impact on the economic assumptions used in the CECL model. The first quarters of 2020 and 2019 included recoveries of $1.2 million and $1.8 million, respectively, recorded on a previously charged-off commercial loan.

◦Peoples incurred $368,000 in pension settlement costs during the first quarter of 2020 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 costs during the linked quarter or the first quarter of 2019.

◦On February 27, 2020, Peoples' Board of Directors ~~authorized~~approved a share repurchase program authorizing Peoples to purchase up to an aggregate of ~~$40~~$40.0 million of ~~its~~Peoples' outstanding common shares. This program replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of ~~$20~~$20.0 million of ~~its~~Peoples' outstanding common shares, which Peoples' Board of Directors had ~~authorized~~approved on November 3, 2015 and which was terminated on February 27, 2020. During the ~~first~~third quarter of 2020, Peoples repurchased ~~436,137 of its common shares through its share repurchase programs that existed at that time for a total of $10.2 million. During the first quarter of 2019, Peoples repurchased 26,427~~235,684 of its common shares through its share repurchase program ~~that existed at that time~~ for a total of ~~$805,000.~~$5.0 million. For the first nine months of 2020, Peoples repurchased 1,119,752 of its common shares for a total of $25.0 million.

◦During the first quarter of 2020 and the first nine months 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 ~~quarter~~nine months of 2019.

◦Peoples closed a full-service bank branch located in Kentucky, when the lease for the location expired in July 2020. During the ~~first~~second quarter of 2020, Peoples recognized a credit to its 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. Peoples also recognized credits during the third and fourth quarters of 2019.

◦During the first quarter of 2020, Peoples incurred $10,000 of acquisition-related costs, compared to $65,000 in the fourth quarter of 2019, and $253,000 in the first quarter of 2019. The acquisition-related costs in 2020 and 2019there were ~~primarily related to the First Prestonsburg acquisition.~~

◦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. ~~Additionally, Peoples provided notification during 2020 that it will be closing one additional full-service bank branch located in Kentucky in July 2020, which is leased.~~ 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

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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 the ~~current expected credit loss("CECL")~~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.

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◦~~During~~In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve first ~~quarter~~lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3, 2020 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 ~~2019, Peoples sold its restricted Class B Visa stock, which had been held at a carrying cost~~March 31, 2020 and ~~fair value~~maintained this rate as of ~~zero due~~September 30, 2020. According to the ~~litigation liability associated with~~Chair of the ~~stock, resulting~~Board of Governors of the Federal Reserve, 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 ~~gain~~targeted level of ~~$787,000 recorded in other non-interest income.~~liquidity. Furthermore, the Federal Reserve has indicated it is committed to a target 0% - 0.25% range for Federal Funds through at least 2023.

◦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 issued by Peoples. The merger added $129.4 million of total loans and $257.2 million of total deposits at the acquisition date, after ~~preliminary~~ fair value adjustments. Peoples also recorded $4.2 million of other intangible assets and ~~$15.2~~$14.5 million of goodwill.

◦~~In an effort~~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 ~~stimulate an economy that was being heavily damaged by~~ the ~~impacts~~litigation liability associated with the stock, resulting in a gain 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 is not likely to drop below this range. However, the Federal Reserve does have$787,000 recorded in other ~~tools available that it can employ and has expressed an intention to do so in order to maintain a targeted level of liquidity.~~non-interest income.

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 a net ~~loss~~income of ~~$0.8~~$10.2 million for the ~~first~~third quarter of 2020, or ~~a loss~~earnings of ~~$0.04~~$0.51 per diluted common share, compared to net income of $4.7 million, or $0.23 per diluted common share, for the second quarter of 2020, and net income of $14.9 million, or $0.72 per diluted ~~common~~ share, for the ~~fourth quarter of 2019, and net income of $14.4 million, or $0.73 per diluted share, for the first~~third quarter of 2019. Non-core items contained in net income included gains and losses, acquisition-related costs, pension settlement charges, severance expenses and COVID-19-related expenses. Non-core items negatively impacted ~~loss~~earnings per diluted common share by ~~$0.02~~$0.05 for the ~~first~~third quarter of ~~2020. Earnings per diluted common share were negatively impacted~~2020, $0.06 for the second quarter of 2020, and by $0.01 for the ~~fourth~~third quarter of ~~2019, and positively impacted by $0.09 for the first quarter of 2019, by non-core items. The net loss~~2019. Net income in the ~~first~~third quarter of 2020, was ~~primarily a result of~~largely affected by the provision for credit losses recorded during the quarter. The provision for credit losses was lower than in the linked quarter ~~which was driven by~~due to the changes in economic developments and ~~uncertainties related to COVID-19.~~forecasts used in the CECL model. 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 ~~(Recovery of)~~ Credit Losses.”

~~Net interest~~For the first nine months of 2020, net income was ~~$34.6~~$14.2 million, or earnings of $0.70 per diluted common share, compared to net income of $38.8 million, or earnings of $1.91 per diluted share for the ~~first quarter of 2020, down 1% compared to $35.1 million~~nine months ended September 30, 2019. The decrease in earnings was impacted primarily by the provision for credit losses calculated using the CECL accounting methodology and the impact COVID-19 had on the inputs in the CECL model. Non-core items negatively impacted earnings per diluted common share by $0.12 and $0.29 for the ~~fourth quarter of~~nine months ended September 30, 2020, and 2019, ~~and an increase of 2% compared to $33.9 million for the first quarter of 2019. Net interest margin was 3.51% for the first~~respectively.

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Net interest income was $35.1 million for the third quarter of 2020, up 1% compared to $34.9 million for the second quarter of 2020, and a decrease of 2% compared to $35.8 million for the third quarter of 2019. Net interest margin was 3.14% for the third quarter of 2020, compared to ~~3.56%~~3.19% for the ~~fourth~~second quarter of ~~2019,~~2020, and ~~3.80%~~3.66% for the ~~first~~third quarter of 2019. Net interest income ~~was impacted by one less calendar day in the first quarter of 2020 compared to the linked quarter. The declines in net interest income~~ and net interest margin ~~compared~~continued to ~~the linked quarter were both~~be impacted by the ~~declining~~low interest rate environment ~~during the first quarter of 2020,~~caused by COVID-19, which resulted in lower yields on ~~loans~~the loan portfolio and accelerated premium amortization on the investment ~~security portfolios, partially offset by lower deposit costs. Compared to the first quarter~~securities portfolio. The PPP loan income (interest and fees) of ~~2019, the improvement~~$3.1 million, premium finance interest income of $1.8 million and a reduction of $615,000 in interest expense on deposits benefited net interest income ~~was primarily due~~compared to the impact of the acquired First Prestonsburg loans and deposits, while the decline in the net interest margin was driven by lower yields on investment securities, given accelerated premium amortization due to higher prepayment speeds.linked quarter.

Accretion income, net of amortization expense, from acquisitions was ~~$1.1~~$547,000 for the third quarter of 2020, $955,000 for the second quarter of 2020, and $1.2 million for the ~~first quarter of 2020, $1.8 million for the fourth quarter of 2019, and $722,000 for the first~~third quarter of 2019, which added 115 basis points, 189 basis points, and 812 basis points, respectively, to net interest margin. ~~Net accretion~~Accretion income, innet of amortization expense, from acquisitions was $2.6 million for the ~~fourth quarter of~~nine months ended September 30, 2020, compared to $3.1 million for the nine months ended September 30, 2019, ~~was boosted by an acquired commercial loan that paid off during the quarter,~~ which ~~positively impacted the~~added 8 basis points and 11 basis points, respectively, to net interest ~~margin by 6 basis points.~~margin.

During the ~~first~~third quarter of 2020, Peoples recorded a provision for credit losses of ~~$17.0~~$4.7 million, compared to a provision for credit losses of $11.8 million for the second quarter of 2020 and a provision for loan losses of ~~$1.1~~$1.0 million for the ~~fourth quarter of 2019 and a recovery of loan losses of $263,000 for the first~~third quarter of 2019. Net charge-offs for the ~~first~~third quarter of 2020 were ~~$498,000,~~$735,000, or ~~0.07%~~0.08% of average total loans annualized, compared to net ~~charge-offs~~recoveries of ~~$1.2 million,~~$369,000, or ~~0.16%~~(0.05)% of average total loans annualized, for the linked quarter and net ~~recoveries~~charge-offs of ~~$1.0 million,~~$777,000, or ~~0.15%~~0.11% of average total loans annualized, for the ~~first~~third quarter of 2019. The provision for credit losses during the ~~current~~third quarter of 2020 was primarily due to a specific reserve recorded on one commercial relationship, along with the ~~economic downturn~~establishment of the allowance for credit losses related to ~~COVID-19 and~~ the ~~resulting impact on the economic assumptions used in estimating the allowance of~~premium finance loans acquired.

Provision for credit losses ~~under~~during the ~~CECL model in accordance with ASU 2016-13.~~first nine months of 2020 was $33.5 million, compared to a provision for loan losses of $1.4 million for the first nine months of 2019. Net charge-offs for the first nine months of 2020 were $864,000, or 0.04% of average total loans annualized, compared to net recoveries of $22,000, for the first nine months of 2019. During the first nine months of 2020, recoveries of $750,000 and $1.2 million were recognized, during the second and first quarters of 2020, respectively, on a previously charged-off commercial loan. The first nine months of 2019 included the recognition of a $1.8 million recovery on a previously charged-off commercial loan.

For the ~~first~~third quarter of 2020, total non-interest income ~~decreased $1.4~~increased $2.1 million, or 8%14%, compared to the ~~fourth~~second quarter of ~~2019~~2020 and was up ~~$308,000,~~$377,000, or 2%, compared to the ~~first~~third quarter of 2019. Compared to the ~~fourth~~second quarter of ~~2019, electronic banking income and~~2020, mortgage banking income ~~were negatively impacted by traditional seasonality factors combined with declining customer activity as the quarter progressed related~~increased $1.7 million due to the ~~COVID-19 pandemic. Additionally, mortgage banking~~volume of refinancing activity resulting from the low interest rate environment, insurance income ~~during~~increased $417,000, or 13%, due to a $591,000 revenue recognition adjustment recorded in the ~~first~~third quarter of 2020 included a $182,000 write-down of mortgage servicing rights. In the first quarter of 2020, commercial loan swap fees were down considerably from the linked quarter's record high level. These declines were partially offsetand deposit account service charges increased $357,000 driven largely by an increase in ~~insurance income compared to the linked quarter, mainly due to annual performance-based insurance commissions that are primarily received in the first quarter each year~~fees assessed for overdrafts and are a core component of insurance income. The increase in total non-interest income from the first quarter of 2019 was driven by increases in deposit account service charges, electronic banking income, mortgage banking income, and trust and investment income, which were positively impacted by the First Prestonsburg acquisition.non-sufficient funds. These increases were partially offset by a ~~decline~~decrease in commercial loan swap fees of $887,000. Compared to the third quarter of 2019, non-interest income was up $377,000. Mortgage banking income increased $1.5 million due to a higher volume of refinance activity. Also contributing to the increase was an increase in trust and investment income of $230,000 and an increase in insurance income of $222,000. These increases were offset partially by decreases in deposit account service charges and lower commercial loan swap fees, driven by lower customer demand of these products.

For the ~~impact of additional~~nine months ended September 30, 2020, total non-interest income ~~recorded during the first quarter of 2019 of $787,000 related~~increased slightly compared to the ~~sale~~nine months ended September 30, 2019. Decreases in deposit account service charges and commercial loan swap fees of ~~restricted Class B Visa stock.~~were more than offset by increases in mortgage banking and electronic banking income.

Total non-interest expense increased ~~$804,000,~~$2.5 million, or 2%8%, for the ~~first~~third quarter of 2020 compared to the ~~fourth~~second quarter of ~~2019~~2020 and ~~grew $2.5~~$1.3 million, or 8%4%, compared to the ~~first~~third quarter of 2019. ~~The first~~Compared to the linked quarter, salaries and employee benefit costs were up as a result of higher one-time deferred personnel costs of $921,000 associated with PPP loan originations recognized in the second quarter. Total non-interest expense in the third quarter of 2020 included $531,000 in pension settlement charges, while the second quarter of 2020 included pension settlement charges of ~~$368,000~~$151,000 and there were no pension settlement charges recorded in the third quarter of 2019. Total non-interest expense in the third quarter of 2020 also included $192,000 in severance expenses, ~~related to COVID-19 totaling $140,000. The increase~~ compared to the linked quarter was driven by a $1.0 million, or 5%, increase in salaries and employee benefit costs, partially offset by declines in professional fees of $238,000, or 12%, and amortization of intangibles of $159,000, or 18%. Salaries and employee benefit costs were driven by additional expenses which occur primarily$79,000 recognized in the ~~first~~second quarter of ~~each year related to stock-based compensation~~2020 and ~~contributions to employee health benefit accounts. The growth~~$88,000 in ~~total non-interest expense compared to~~severance expenses recorded in the ~~first~~third quarter of ~~2019 was led by higher salaries and employee benefit costs, professional fees, foreclosed real estate and other loan expenses, and electronic banking expenses, partially offset by a decline~~2019. The increases in ~~FDIC insurance premiums. Salaries and employee benefit costs were impacted by~~ the ~~additional employees from the First Prestonsburg acquisition, annual merit increases, and the continued movement towards a $15 per hour minimum wage throughout Peoples' organization. These costs~~areas described above were partially offset by decreases for COVID-19-related expenses, which during the second quarter of 2020 included a ~~decline~~$250,000 donation to food banks and pantries in ~~medical insurance~~Peoples' market area and an employee unrestricted common share award aggregating $396,000 made to employees at the level of Assistant Vice President and below during the second quarter.

During the first nine months of 2020, total non-interest expense decreased $3.3 million to $100.4 million compared to 2019. The variance was driven primarily by a reduction in "Other expenses", which included acquisition-related expenses of $7.2 million recognized in the previous year, and lower travel and entertainment expenses of $747,000 due to ~~lower claims compared to the first quarter~~COVID-19 restrictions. These changes were partially offset by increases of ~~2019.~~$660,000, or 14% in data processing and software expenses, $499,000, or 9% in electronic banking expenses, pension settlement charges of $1.1 million, severance expenses of $284,000 and COVID-19-related expenses.

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Peoples' efficiency ratio, calculated as total non-interest expense less amortization of other intangible assets divided by fully tax-equivalent ("FTE") net interest income, plus total non-interest income, excluding all gains and losses, for the ~~first~~third quarter of 2020 was ~~66.6%~~64.1%, compared to ~~61.9%~~62.3% for the ~~fourth~~second quarter of ~~2019~~2020, and ~~62.7%~~61.1% for the ~~first~~third quarter of 2019. The ~~increase~~change in the efficiency ratio compared to the linked quarter was primarily due to the ~~decline in revenue, which was negatively impacted by the developments related to COVID-19 and its impact on the interest rate environment, combined with the~~ increase in ~~total~~ non-interest expense. The efficiency ratio, when adjusted for non-core items, was ~~65.5%~~61.8% for the ~~first~~third quarter of 2020, compared to ~~61.3%~~59.9% for the ~~fourth~~second quarter of ~~2019~~2020 and ~~62.2%~~60.6% for the ~~first~~third quarter of 2019. For the first nine months of 2020, the efficiency ratio was 64.4% compared to 65.7% for 2019, and was 62.4% and 60.9%, respectively, when adjusted for non-core items. The efficiency ratio, adjusted for non-core items, went up as a result of lower revenue as a result of COVID-19 and the impact of the low interest rate environment.

Peoples recorded an income tax ~~benefit~~expense of ~~$156,000~~$2.6 million for the ~~first~~third quarter of 2020, compared to ~~income tax expense of $2.8~~$1.1 million for the linked quarter and ~~$3.4~~$3.3 million for the third quarter of 2019. Peoples recognized income tax expense of $3.6 million for the first ~~quarter~~nine months of 2020, compared to $8.9 million for the first nine months of 2019. The ~~income tax benefit during~~variance between each of the ~~first quarter of 2020 was driven by a pretax net loss, which~~comparative periods was the result of ~~a $17.0 million provision~~pre-tax income in 2020 related to the variability in the allowance for credit losses recorded during the ~~quarter.~~first nine months of 2020 and an additional income tax expense adjustment of $575,000 and $288,000 in the third and second quarters of 2020, respectively.

At ~~March 31,~~September 30, 2020, total assets were ~~$4.47~~$4.91 billion, compared to $4.35 billion at December 31, 2019. The 3%13% increase compared to December 31, 2019 was driven by loan growth of $598.6 million, which was primarily the result of PPP loan originations and loans from the acquisition of the premium finance company, as well as an increase in cash and cash equivalents of ~~$48.5 million, loan growth of $37.9 million, coupled with an increase in total investment securities of $35.9~~$46.1 million. The allowance for credit losses increased to ~~$42.8~~$58.1 million, or ~~1.47%~~1.67% of total loans, compared to $21.6 million and 0.75%, respectively, at December 31, 2019. Peoples implemented ASU 2016-13 on January 1, 2020, which resulted in an increase of $5.8 million in the allowance for credit losses.

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Total liabilities were ~~$3.89~~$4.34 billion at ~~March 31,~~September 30, 2020, up ~~$125.6~~$585.2 million since December 31, 2019. The increase in total liabilities during the first ~~three~~nine months of 2020 was primarily due to an increase in deposits of ~~$107.0~~$660.6 million, partially offset by a decline in ~~borrowings~~total borrowed funds of ~~$7.6~~$106.7 million. The increase in deposits was caused by customers having continued to maintain higher balances largely as a reaction to the COVID-19 pandemic. Also, Peoples began using alternative funding sources that included overnight brokered deposits and reduced overnight borrowings.

At ~~March 31,~~September 30, 2020, total stockholders' equity was ~~$583.7~~$566.9 million, a decrease of ~~$10.7~~$27.5 million compared to December 31, 2019. The decrease in total stockholders' equity was ~~driven by~~ ~~a combination of~~mainly due to the repurchase of ~~436,137 common~~1.1 million shares for a total of ~~$10.2~~$25.0 million, ~~during the first quarter~~dividends paid of ~~2020, dividends declared of $7.0~~$20.6 million, and a $3.7 million adjustment related to the adoption of the CECL accounting standard, ~~and a net loss of $765,000. These were~~ partially offset by net income of $14.2 million and a $4.4 million increase in accumulated other comprehensive income ~~of $9.7 million, which was primarily the result of a higher market value related to the available-for-sale investment securities portfolio, partially offset by a decline~~ in the ~~value~~third quarter of ~~cash flow hedges, both~~2020.

Table of ~~which were driven by overall decreases in market interest rates during the quarter.~~Contents

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 Federal ~~Reserve Board’s~~Reserve’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											Three Months Ended							Nine Months Ended
		March 31, 2020		December 31, 2019		March 31, 2019			September 30, 2020		June 30, 2020		September 30, 2019			September 30,
(Dollars in thousands)	(Dollars in thousands)														September 30, 2020	June 30, 2020		September 30, 2019			2020	2019
Net interest income	Net interest income	$	34,636	$	35,121	$	33,914	Net interest income	$	35,119	$	34,860	$	35,754
Taxable equivalent adjustments	Taxable equivalent adjustments	272		287		200		Taxable equivalent adjustments	262		269		314			803		781
Fully tax-equivalent net interest income	Fully tax-equivalent net interest income	$	34,908	$	35,408	$	34,114	Fully tax-equivalent net interest income	$	35,381	$	35,129	$	36,068		$	105,418	$	106,498

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


		For the Three Months Ended																																							For the Three Months Ended
		March 31, 2020											December 31, 2019											March 31, 2019										September 30, 2020							June 30, 2020				September 30, 2019
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost		(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)	Short-term investments (a)	$	73,798	$	236	1.29	%	$	64,790		$	(26)	(0.16)	%	$	16,247		$	176	4.39	%	Short-term investments (a)	$	97,430	$	33	0.13	%	$	164,487		$	48	0.12	%	$	62,860		$	506	3.19	%

Investment securities (b)(c)(d):	Investment securities (b)(c)(d):																					Investment securities (b)(c)(d):
Taxable	Taxable	928,182		5,428		2.34	%	930,469			5,581		2.40	%	780,721			5,847		3.00	%	Taxable	851,092		2,832		1.33	%	903,227			4,188		1.85	%	896,142			5,986		2.67	%
Nontaxable	Nontaxable	106,934		829		3.10	%	110,010			854		3.11	%	83,319			680		3.26	%	Nontaxable	101,403		778		3.07	%	103,169			802		3.11	%	113,806			874		3.07	%
Total investment securities	Total investment securities	1,035,116		6,257		2.42	%	1,040,479			6,435		2.47	%	864,040			6,527		3.03	%	Total investment securities	952,495		3,610		1.52	%	1,006,396			4,990		1.98	%	1,009,948			6,860		2.69	%
Loans (c)(d)(e):	Loans (c)(d)(e):																					Loans (c)(d)(e):
Construction	Construction	97,839		1,251		5.06	%	87,731			1,308		5.83	%	131,683			1,732		5.26	%	Construction	105,488		1,179		4.37	%	121,982			1,226		3.98	%	103,758			1,313		4.95	%
Commercial real estate, other	Commercial real estate, other	837,602		10,057		4.75	%	833,507			11,349		5.33	%	806,181			10,596		5.26	%	Commercial real estate, other	857,830		8,854		4.04	%	849,070			8,873		4.13	%	844,186			11,307		5.24	%
Commercial and industrial	Commercial and industrial	649,437		7,424		4.52	%	624,939			7,739		4.85	%	578,954			7,681		5.31	%	Commercial and industrial	1,139,638		10,016		3.44	%	979,206			8,842		3.57	%	603,750			8,110		5.26	%
Residential real estate (f)	Residential real estate (f)	665,737		8,371		5.03	%	664,742			7,923		4.77	%	603,253			6,927		4.59	%	Residential real estate (f)	661,694		7,870		4.76	%	682,216			8,257		4.84	%	648,481			7,903		4.87	%
Home equity lines of credit	Home equity lines of credit	131,673		1,775		5.42	%	133,534			1,872		5.56	%	131,089			1,860		5.75	%	Home equity lines of credit	125,351		1,278		4.06	%	128,632			1,493		4.67	%	131,898			1,977		5.95	%
Consumer, indirect	Consumer, indirect	415,986		4,409		4.26	%	420,229			4,555		4.30	%	409,975			4,088		4.04	%	Consumer, indirect	477,962		5,103		4.25	%	421,972			4,554		4.34	%	423,694			4,452		4.17	%
Consumer, direct	Consumer, direct	76,707		1,354		7.10	%	79,285			1,421		7.11	%	73,457			1,189		6.56	%	Consumer, direct	82,139		1,332		6.45	%	77,830			1,292		6.68	%	82,067			1,495		7.23	%
Total loans	Total loans	2,874,981		34,641		4.80	%	2,843,967			36,167		5.02	%	2,734,592			34,073		5.00	%	Total loans	3,450,102		35,632		4.08	%	3,260,908			34,537		4.22	%	2,837,834			36,557		5.08	%
Allowance for credit losses (d)	Allowance for credit losses (d)	(27,548)						(21,600)							(20,406)							Allowance for credit losses (d)	(56,519)						(48,768)							(21,620)
Net loans	Net loans	2,847,433		34,641		4.84	%	2,822,367			36,167		5.05	%	2,714,186			34,073		5.04	%	Net loans	3,393,583		35,632		4.14	%	3,212,140			34,537		4.28	%	2,816,214			36,557		5.12	%
Total earning assets	Total earning assets	3,956,347		41,134		4.14	%	3,927,636			42,576		4.28	%	3,594,473			40,776		4.55	%	Total earning assets	4,443,508		39,275		3.49	%	4,383,023			39,575		3.60	%	3,889,022			43,923		4.47	%
Goodwill and other intangible assets	Goodwill and other intangible assets	177,984						178,163							161,673							Goodwill and other intangible assets	185,816						177,012							179,487
Other assets	Other assets	247,296						244,615							229,475							Other assets	277,290						267,981							242,880
Total assets	Total assets	$	4,381,627					$	4,350,414						$	3,985,621						Total assets	$	4,906,614					$	4,828,016						$	4,311,389
Interest-bearing deposits:	Interest-bearing deposits:																					Interest-bearing deposits:
Savings accounts	Savings accounts	$	522,893	$	74	0.06	%	$	523,767		$	111	0.08	%	$	472,656		$	91	0.08	%	Savings accounts	$	589,100	$	34	0.02	%	$	563,213		$	33	0.02	%	$	524,025		$	126	0.10	%
Governmental deposit accounts	Governmental deposit accounts	328,407		715		0.88	%	317,819			824		1.03	%	297,537			557		0.76	%	Governmental deposit accounts	398,653		511		0.51	%	370,999			445		0.48	%	347,625			991		1.13	%
Interest-bearing demand accounts	Interest-bearing demand accounts	628,677		248		0.16	%	631,003			254		0.16	%	569,472			247		0.18	%	Interest-bearing demand accounts	671,987		66		0.04	%	655,711			71		0.04	%	617,770			378		0.24	%
Money market accounts	Money market accounts	476,477		673		0.57	%	455,595			773		0.67	%	395,324			531		0.54	%	Money market accounts	589,078		215		0.15	%	575,858			360		0.25	%	434,834			787		0.72	%
Retail certificates of deposit	Retail certificates of deposit	488,948		2,059		1.69	%	490,163			2,252		1.82	%	396,977			1,417		1.45	%	Retail certificates of deposit	467,431		1,524		1.30	%	481,305			1,870		1.56	%	495,499			2,255		1.81	%
Brokered certificates of deposit		191,955		860		1.80	%	243,118			1,274		2.08	%	314,163			2,001		2.58	%
Brokered deposits																						Brokered deposits	258,875		319		0.49	%	192,230			505		1.06	%	261,145			1,622		2.46	%
Total interest-bearing deposits	Total interest-bearing deposits	2,637,357		4,629		0.71	%	2,661,465			5,488		0.82	%	2,446,129			4,844		0.80	%	Total interest-bearing deposits	2,975,124		2,669		0.36	%	2,839,316			3,284		0.47	%	2,680,898			6,159		0.91	%
Borrowed funds:	Borrowed funds:																					Borrowed funds:
Short-term FHLB advances	Short-term FHLB advances	206,283		994		1.94	%	208,638			1,114		2.12	%	198,643			1,115		2.28	%	Short-term FHLB advances	137,174		732		2.12	%	137,659			559		1.63	%	190,677			1,086		2.26	%
Repurchase agreements and other	Repurchase agreements and other	47,351		45		0.38	%	48,249			42		0.35	%	46,111			58		0.50	%	Repurchase agreements and other	43,184		10		0.09	%	46,330			15		0.13	%	46,240			64		0.55	%
Total short-term borrowings	Total short-term borrowings	253,634		1,039		1.65	%	256,887			1,156		1.79	%	244,754			1,173		1.94	%	Total short-term borrowings	180,358		742		1.64	%	183,989			574		1.25	%	236,917			1,150		1.93	%
Long-term FHLB advances	Long-term FHLB advances	101,804		447		1.77	%	75,936			405		2.12	%	100,930			508		2.04	%	Long-term FHLB advances	103,906		402		1.54	%	122,960			491		1.61	%	76,893			410		2.12	%

Other borrowings	Other borrowings	7,471		111		5.94	%	7,431			119		6.41	%	7,304			137		7.50	%	Other borrowings	7,551		81		4.29	%	12,438			97		3.12	%	7,388			136		7.36	%
Total long-term borrowings	Total long-term borrowings	109,275		558		2.05	%	83,367			524		2.50	%	108,234			645		2.41	%	Total long-term borrowings	111,457		483		1.73	%	135,398			588		1.75	%	84,281			546		2.58	%
Total borrowed funds	Total borrowed funds	362,909		1,597		1.77	%	340,254			1,680		1.96	%	352,988			1,818		2.09	%	Total borrowed funds	291,815		1,225		1.67	%	319,387			1,162		1.46	%	321,198			1,696		2.10	%
Total interest-bearing liabilities	Total interest-bearing liabilities	3,000,266		6,226		0.83	%	3,001,719			7,168		0.95	%	2,799,117			6,662		0.96	%	Total interest-bearing liabilities	3,266,939		3,894		0.47	%	3,158,703			4,446		0.57	%	3,002,096			7,855		1.04	%
Non-interest-bearing deposits	Non-interest-bearing deposits	708,512		��				685,147							613,924							Non-interest-bearing deposits	970,353						997,179							657,952
Other liabilities	Other liabilities	76,603						72,436							48,384							Other liabilities	102,267						99,993							68,072
Total liabilities	Total liabilities	3,785,381						3,759,302							3,461,425							Total liabilities	4,339,559						4,255,875							3,728,120

Stockholders’ equity		596,246						591,112							524,196
Total stockholders’ equity																						Total stockholders’ equity	567,055						572,141							583,269
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	4,381,627					$	4,350,414						$	3,985,621						Total liabilities and stockholders’ equity	$	4,906,614					$	4,828,016						$	4,311,389
Interest rate spread (c)	Interest rate spread (c)			$	34,908	3.31	%				$	35,408	3.33	%				$	34,114	3.59	%	Interest rate spread (c)			$	35,381	3.02	%				$	35,129	3.03	%				$	36,068	3.43	%
Net interest margin (c)	Net interest margin (c)							3.51		%					3.56		%							3.80	%	Net interest margin (c)			3.14		%					3.19		%					3.66	%

Table of Contents




	For the Nine Months Ended
	September 30, 2020						September 30, 2019
(Dollars in thousands)	Average Balance		Income/ Expense		Yield/Cost		Average Balance		Income/ Expense		Yield/Cost
Short-term investments (a)	$	111,852	$	317	0.38	%	$	35,867	$	945	3.52	%

Investment securities (b)(c)(d):
Taxable	894,008		12,448		1.86	%	850,852		17,839		2.80	%
Nontaxable	103,827		2,409		3.09	%	105,233		2,477		3.14	%
Total investment securities	997,835		14,857		1.99	%	956,085		20,316		2.83	%
Loans (c)(d)(e):
Construction	108,426		3,656		4.43	%	119,823		4,700		5.17	%
Commercial real estate, other	848,202		27,784		4.30	%	828,258		33,225		5.29	%
Commercial and industrial	923,552		26,282		3.74	%	594,136		23,872		5.30	%
Residential real estate (f)	669,852		24,498		4.88	%	633,070		22,748		4.79	%
Home equity lines of credit	128,540		4,546		4.72	%	131,797		5,843		5.93	%
Consumer, indirect	438,784		14,066		4.28	%	415,602		12,795		4.12	%
Consumer, direct	78,904		3,978		6.73	%	78,687		4,143		7.04	%
Total loans	3,196,260		104,810		4.34	%	2,801,373		107,326		5.07	%
Less: Allowance for credit losses(d)	(44,323)						(21,117)
Net loans	3,151,937		104,810		4.40	%	2,780,256		107,326		5.12	%
Total earning assets	4,261,624		119,984		3.73	%	3,772,208		128,587		4.52	%
Goodwill and other intangible assets	180,291						172,175
Other assets	264,238						235,280
Total assets	$	4,706,153					$	4,179,663
Interest-bearing deposits:
Savings accounts	$	558,514	$	140	0.03	%	$	506,847	$	326	0.09	%
Governmental deposit accounts	366,139		1,671		0.61	%	325,773		2,396		0.98	%
Interest-bearing demand accounts	652,198		385		0.08	%	597,089		857		0.19	%
Money market accounts	547,291		1,248		0.30	%	414,966		1,972		0.64	%
Retail certificates of deposit	479,185		5,453		1.52	%	457,030		5,750		1.68	%
Brokered deposits	214,516		1,685		1.05	%	282,473		5,421		2.57	%
Total interest-bearing deposits	2,817,843		10,582		0.50	%	2,584,178		16,722		0.87	%
Borrowed funds:
Short-term FHLB advances	160,287		2,285		1.90	%	194,398		3,342		2.30	%
Repurchase agreements and other	45,613		70		0.26	%	46,328		214		0.62	%
Total short-term borrowings	205,900		2,355		1.54	%	240,726		3,556		1.97	%
Long-term FHLB advances	109,536		1,341		1.64	%	91,359		1,409		2.06	%

Repurchase agreement and other borrowings	9,148		288		5.40	%	7,347		402		7.30	%
Total long-term borrowings	118,684		1,629		1.93	%	98,706		1,811		2.45	%
Total borrowed funds	324,584		3,984		1.64	%	339,432		5,367		2.11	%
Total interest-bearing liabilities	3,142,427		14,566		0.62	%	2,923,610		22,089		1.01	%
Non-interest-bearing deposits	892,301						642,276
Other liabilities	92,986						56,075
Total liabilities	4,127,714						3,621,961

Total stockholders’ equity	578,439						557,702

Total liabilities and stockholders’ equity	$	4,706,153					$	4,179,663
Interest rate spread (c)			$	105,418	3.11	%			$	106,498	3.51	%
Net interest margin (c)					3.27	%					3.74	%

(a)The ~~fourth quarter amounts~~three and nine month periods ended September 30, 2019 do not reflect an adjustment related to ~~Peoples'~~the balance sheet interest rate swap transactions. Interest related to interest rate swap transactions is included in interest expense on short-term FHLB advances and interest expense on retail certificates of ~~$310,000.~~deposit.

(b)Average balances are based on carrying value.

(c)Interest income and 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 $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 tax.

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~~(d)~~ (e)Average balances include nonaccrual and impaired loans. 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.

(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 third quarter of 2020 and the first nine months of 2020 due to the PPP loans and the premium finance loans acquired.

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




	Three Months Ended September 30, 2020 Compared to												Nine Months Ended September 30, 2020 Compared to
(Dollars in thousands)	June 30, 2020						September 30, 2019						September 30, 2019
Increase (decrease) in:	Rate		Volume		Total (a)		Rate		Volume		Total (a)		Rate		Volume		Total (a)
INTEREST INCOME:
Short-term investments	$	47	$	(62)	$	(15)	$	(1,765)	$	1,292	$	(473)	$	(1,775)	$	1,147	$	(628)

Investment Securities (b) (c):
Taxable	(1,124)		(232)		(1,356)		(2,867)		(287)		(3,154)		(4,991)		(400)		(5,391)
Nontaxable	(11)		(13)		(24)		(1)		(95)		(96)		(2)		(66)		(68)
Total investment income	(1,135)		(245)		(1,380)		(2,868)		(382)		(3,250)		(4,993)		(466)		(5,459)
Loans (b)(c):
Construction	538		(585)		(47)		(267)		133		(134)		(628)		(416)		(1,044)
Commercial real estate, other	(514)		495		(19)		(3,628)		1,175		(2,453)		(6,687)		1,246		(5,441)
Commercial and industrial	(1,907)		3,081		1,174		(15,258)		17,164		1,906		(11,269)		13,679		2,410
Residential real estate	(142)		(245)		(387)		(715)		682		(33)		411		1,339		1,750
Home equity lines of credit	(179)		(36)		(215)		(605)		(94)		(699)		(1,156)		(141)		(1,297)
Consumer, indirect	(606)		1,155		549		84		567		651		533		738		1,271
Consumer, direct	(202)		242		40		(172)		9		(163)		(163)		(2)		(165)
Total loan income	(3,012)		4,107		1,095		(20,561)		19,636		(925)		(18,959)		16,443		(2,516)
Total interest income	$	(4,100)	$	3,800	$	(300)	$	(25,194)	$	20,546	$	(4,648)	$	(25,727)	$	17,124	$	(8,603)
INTEREST EXPENSE:
Deposits:
Savings accounts	$	(4)	$	5	$	1	$	(186)	$	94	$	(92)	$	(235)	$	49	$	(186)
Governmental deposit accounts	30		36		66		(1,290)		810		(480)		(1,145)		420		(725)
Interest-bearing demand accounts	(15)		10		(5)		(521)		209		(312)		(591)		119		(472)
Money market accounts	(201)		56		(145)		(1,929)		1,357		(572)		(1,492)		768		(724)
Retail certificates of deposit	(296)		(50)		(346)		(609)		(122)		(731)		(694)		397		(297)
Brokered deposits	(968)		782		(186)		(1,290)		(13)		(1,303)		(2,655)		(1,081)		(3,736)
Total deposit cost	(1,454)		839		(615)		(5,825)		2,335		(3,490)		(6,812)		672		(6,140)
Borrowed funds:
Short-term borrowings	184		(16)		168		(113)		(295)		(408)		(1,016)		(185)		(1,201)
Long-term borrowings	122		(227)		(105)		(554)		491		(63)		(432)		250		(182)
Total borrowed funds cost	306		(243)		63		(667)		196		(471)		(1,448)		65		(1,383)
Total interest expense	(1,148)		596		(552)		(6,492)		2,531		(3,961)		(8,260)		737		(7,523)
Fully tax-equivalent net interest income	$	(2,952)	$	3,204	$	252	$	(18,702)	$	18,015	$	(687)	$	(17,467)	$	16,387	$	(1,080)

(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.

(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.~~

~~(e) Average balances include nonaccrual and impaired loans. 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.~~

~~(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.~~

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

Three Months Ended March 31, 2020 Compared to
(Dollars in thousands) December 31, 2019 March 31, 2019
Increase (decrease) in: Rate Volume
Total ^(a)
Rate Volume
Total ^(a)
INTEREST INCOME:
Short-term investments (b) $ 494 $ (232) $ 262 $ (778) $ 838 $ 60
Investment Securities (c):
Taxable (140) (13) (153) (4,967) 4,548 (419)
Nontaxable (2) (23) (25) (209) 358 149
Total investment income (142) (36) (178) (5,176) 4,906 (270)
Loans (c):

Construction (665) 608 (57) (63) (418) (481)
Commercial real estate, other (1,654) 362 (1,292) (2,736) 2,197 (539)
Commercial and industrial (1,694) 1,379 (315) (4,243) 3,986 (257)
Residential real estate 436 12 448 691 753 1,444
Home equity lines of credit (62) (35) (97) (141) 56 (85)
Consumer, indirect (68) (78) (146) 253 68 321
Consumer, direct (2) (65) (67) 102 63 165
Total loan income (3,709) 2,183 (1,526) (6,137) 6,705 568
Total interest income $ (3,357) $ 1,915 $ (1,442) $ (12,091) $ 12,449 $ 358
INTEREST EXPENSE:
Deposits:
Savings accounts $ (37) $ — $ (37) $ (69) $ 52 $ (17)
Governmental deposit accounts (267) 158 (109) 94 64 158
Interest-bearing demand accounts (4) (2) (6) (101) 102 1
Money market accounts (295) 195 (100) 25 117 142
Retail certificates of deposit (186) (7) (193) 272 370 642
Brokered certificates of deposit (161) (253) (414) (499) (642) (1,141)
Total deposit cost (950) 91 (859) (278) 63 (215)
Borrowed funds:
Short-term borrowings (104) (13) (117) (394) 260 (134)
Long-term borrowings (357) 391 34 (117) 30 (87)
Total borrowed funds cost (461) 378 (83) (511) 290 (221)
Total interest expense (1,411) 469 (942) (789) 353 (436)
Fully tax-equivalent net interest income (b) $ (1,946) $ 1,446 $ (500) $ (11,302) $ 12,096 $ 794

~~(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.~~

~~(b)The comparison to the three months ended December 31, 2019 reflects an adjustment in the fourth quarter of 2019 related to Peoples' balance sheet interest rate swap transactions of $310,000.~~tax.

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

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Net interest income ~~was impacted by one less calendar day in the first quarter of 2020~~increased 1% compared to the linked ~~quarter. Net interest~~quarter, as the PPP loan income and ~~net interest margin were both~~premium finance loan income, coupled with reduced deposit and borrowing costs, more than offset reductions in loan and securities yields. The third quarter of 2020 continued to be impacted by the ~~declining interest rate environment during the first quarter of 2020, which resulted in lower yields on the loan and the investment securities portfolios. The Board of Governors of~~actions taken by the Federal Reserve ~~System~~earlier in the year in response to the COVID-19 pandemic. In late March, the Federal Reserve lowered the Federal Funds effective target range by 150 basis points during the first quarter of 2020 to 0.00% to 0.25%.

~~Table~~ The majority of ~~Contents~~

Peoples' variable rate ~~commercial loans are subject~~loan portfolio is tied to ~~changes~~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 $636,000 higher than in the ~~London Interbank Offered Rate~~linked quarter, thereby reducing net interest income and net interest margin. Net interest margin decreased 5 basis points compared to the ~~prime rate, both of which declined~~linked quarter driven by reduced accretion during the ~~first~~quarter.

Net interest income for the third quarter of 2020. Yields on investment securities were negatively impacted by higher prepayment speeds, which increased premium amortization. These declines were partially offset by lower deposit costs, primarily due2020 decreased $635,000, or 2%, compared to athe third quarter of 2019. Net interest margin decreased 52 basis points compared to 3.66% for the third quarter of 2019. The decrease ~~in interest rates paid on deposits.~~

~~The increase~~ in net interest income compared to the ~~first~~third quarter of 2019 was driven by ~~higher interest income~~lower yields on loans ~~combined~~and investments, offset by PPP loan income and premium finance loan income coupled with lower interest ~~rates~~expense paid on deposits, ~~which were partially offset by a decline in interest income on investment securities. The increase in interest income on loans was primarily due to higher loan balances,~~all of which were impacted by the ~~acquired First Prestonsburg loans. The decrease in investment securities~~Federal Reserve's reaction to COVID-19.

For the first nine months of 2020, net interest income ~~was mostly related~~declined $1.1 million, or 1%, compared to the ~~higher premium amortization associated with faster prepayment speeds. The decline in~~first nine months of 2019 and net interest margin ~~was largely driven~~decreased 47 basis points to 3.27%. The lower net interest income and net interest margin 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 ~~lower yields on investment securities due~~Federal Reserve's reaction to ~~a decline in~~COVID-19. Funding costs declined compared to the first nine months of 2019, as interest rates on deposits were lowered and ~~higher premium amortization.~~borrowing costs were controlled.

Accretion income, net of amortization expense, from acquisitions was ~~$1.1~~$547,000 for the third quarter of 2020, $955,000 for the linked quarter and $1.2 million for the ~~first quarter of 2020, $1.8 million for the fourth quarter of 2019, and $722,000 for the first~~third quarter of 2019, which added 115 basis points, 189 basis points and 812 basis points, respectively, to net interest margin. ~~Net accretion~~Accretion income, innet of amortization expense, from acquisitions was $2.6 million for the ~~fourth quarter of~~nine months ended September 30, 2020, compared to $3.1 million for the nine months ended September 30, 2019, ~~was boosted by an acquired commercial loan that paid off during the quarter,~~ which ~~positively impacted the~~added 8 basis points and 11 basis points, respectively, to net interest ~~margin~~margin. Accelerated amortization was the result of increased prepayments and refinance activity caused by ~~6 basis points. The increase in net accretion income compared to~~ the ~~first quarter of 2019 was due to the First Prestonsburg acquisition.~~low interest rate environment.

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 ~~(Recovery of)~~ Credit Losses

The following table details Peoples’ provision for ~~(recovery of)~~ credit losses:


		Three Months Ended																Three Months Ended										Nine Months Ended
		March 31, 2020			December 31, 2019			March 31, 2019				September 30, 2020			June 30, 2020			September 30, 2019				September 30,
(Dollars in thousands)	(Dollars in thousands)																				September 30, 2020	June 30, 2020			September 30, 2019				2020	2019
Provision for (recovery of) other credit losses		$	16,824		$	999		$	(360)
Provision for other credit losses											Provision for other credit losses	$	4,574		$	11,773		$	731			$	33,171		$	846
Provision for checking account overdraft credit losses	Provision for checking account overdraft credit losses	145			137			97			Provision for checking account overdraft credit losses	154			61			274				360			522
Total provision for (recovery of) credit losses		$	16,969		$	1,136		$	(263)
Provision for credit losses											Provision for credit losses	$	4,728		$	11,834		$	1,005			$	33,531		$	1,368
As a percentage of average total loans (a)	As a percentage of average total loans (a)	2.37		%	0.16		%	(0.04)		%	As a percentage of average total loans (a)	0.55		%	1.46		%	0.14		%		1.40		%	0.07		%
(a) Presented on an annualized basis.	(a) Presented on an annualized basis.										(a) Presented on an annualized basis.

The provision for credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates. During the third quarter of 2020, the provision for credit losses was driven by the economic forecasts utilized within Peoples' CECL model, which predicted lower levels of defaults due to the COVID-19 pandemic in the current quarter, compared to the prior quarter. Peoples recorded a lower provision for credit losses during the third quarter of 2020, compared to the linked quarter, driven primarily by the improvement in the one-year economic forecast used for the third quarter, which was less severe than the deterioration in the one-year economic forecast used for the second quarter. For the first nine months of 2020, Peoples recorded a significant aggregate provision for credit losses related to the impacts from the economic assumptions used in estimating the allowance for credit losses under the CECL model. The COVID-19 pandemic caused the economic outlook and assumptions, used in the CECL model, to be unfavorable and, as a result, caused the need for a higher allowance for credit losses for the year. Net charge-offs for the third quarter of 2020 were $735,000, or 0.08% of average total loans annualized, compared to net recoveries of $369,000, or (0.05)% of average total loans annualized, for the linked quarter and net charge-offs of $777,000, or 0.11% of average total loans annualized, for the third 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

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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 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.

The provision for credit losses for the first quarter of 2020 was primarily due to the economic downturn related to COVID-19 and the resulting impact on the economic assumptions used in estimating the allowance of credit losses under the CECL model. Net charge-offs for the first quarter of 2020 were $498,000, or 0.07% of average total loans annualized, compared to net charge-offs of $1.2 million, or 0.16% of average total loans annualized, for the linked quarter and net recoveries of $1.0 million, or 0.15% of average total loans annualized, for the first quarter of 2019.

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

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

Net gains (losses) ~~gains~~ include gains and losses on investment securities, asset disposals and other transactions, which are recognized in total non-interest income. The following table details Peoples’ net gains (losses) ~~gains:~~:


		Three Months Ended											Three Months Ended							Nine Months Ended
		March 31, 2020		December 31, 2019		March 31, 2019			September 30, 2020		June 30, 2020		September 30, 2019			September 30,
(Dollars in thousands)	(Dollars in thousands)														September 30, 2020	June 30, 2020		September 30, 2019			2020	2019
Net gain on investment securities	Net gain on investment securities	$	319	$	94	$	30	Net gain on investment securities	$	2	$	62	$	97

Net loss on asset disposals and other transactions:
Net (loss) gain on asset disposals and other transactions:								Net (loss) gain on asset disposals and other transactions:
Net loss on other assets	Net loss on other assets	$	(70)	$	(188)	$	(157)	Net loss on other assets	$	(43)	$	(145)	$	(73)		$	(258)	$	(504)
Net loss on OREO		(17)		(44)		(25)

Net gain (loss) on OREO								Net gain (loss) on OREO	15		1		(5)			(1)		(54)

Net gain on other transactions	Net gain on other transactions	—		3		—		Net gain on other transactions	—		22		—			22		5
Net loss on asset disposals and other transactions	Net loss on asset disposals and other transactions	$	(87)	$	(229)	$	(182)	Net loss on asset disposals and other transactions	$	(28)	$	(122)	$	(78)		$	(237)	$	(553)

During the ~~first~~third quarter of 2020, Peoples ~~sold investment securities to lock in gains. Net losses~~recognized a net loss on other assets ~~during~~related to the ~~first~~sale of a former bank branch. During the second quarter of 2020, ~~and the linked quarter were driven by~~Peoples recognized net losses on repossessed assets. ~~Net~~During the third quarter of 2019, net losses were incurred on the disposal of fixed assets.

For the first nine months of 2020, net gains on investment securities were recorded related to the sale of investment securities that primarily occurred in the first quarter, while the net loss on other assets ~~during~~was driven by losses on repossessed assets. For the first ~~quarter~~nine months of 2019, ~~included $118,000~~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

~~Insurance income comprised the largest portion of the first quarter 2020 total non-interest income. The following table details Peoples' insurance income:~~

Three Months Ended
March 31,
2020 December 31,
2019 March 31,
2019
(Dollars in thousands)
Property and casualty insurance commissions 2,590 2,645 2,674
Life and health insurance commissions 102 513 359
Performance-based commissions 1,291 35 1,419
Other fees and charges 147 116 169
Insurance income $ 4,130 $ 3,309 $ 4,621

Revenue related to performance-based commissions is primarily recognized in the first quarter of each year and is a core component of insurance income. The decline in life and health insurance commissions compared to the fourth quarter of 2019 was related to the timing of recognition of premiums.

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											Three Months Ended							Nine Months Ended
		March 31, 2020		December 31, 2019		March 31, 2019			September 30, 2020		June 30, 2020		September 30, 2019			September 30,
(Dollars in thousands)	(Dollars in thousands)														September 30, 2020	June 30, 2020		September 30, 2019			2020	2019

E-banking income	E-banking income	$	3,280	$	3,849	$	2,987	E-banking income	$	3,765	$	3,523	$	3,577		$	10,568	$	9,831

Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to ~~the~~ customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. The ~~decrease~~increase in e-banking income compared to the linked quarter was driven by the ~~reduced~~increased usage of debit cards, ~~which is typically higher in~~due to the ~~fourth quarter~~lifting of ~~each year~~many restrictions and ~~was negatively impacted during the first quarter of 2020 by~~ the stay-at-home orders put in place in Peoples' markets at the end of the first quarter ~~related~~of 2020, in response to COVID-19. ~~The increase in~~In the first nine months, e-banking ~~income~~grew 7% compared to the ~~first quarter~~previous year due partially to the full nine-month impact of ~~2019 was~~ the ~~result of~~First Prestonsburg acquired accounts and the increased usage of debit cards by more ~~customers, which includes~~customers.

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The following table details Peoples' insurance income:


	Three Months Ended						Nine Months Ended
	September 30, 2020		June 30, 2020		September 30, 2019		September 30,
(Dollars in thousands)							2020		2019


Property and casualty insurance commissions	2,528		2,506		2,606		7,624		7,960


Life and health insurance commissions	965		427		567		1,494		1,552
Performance-based commissions	8		138		74		1,437		1,495
Other fees and charges	107		120		139		374		486
Insurance income	$	3,608	$	3,191	$	3,386	$	10,929	$	11,493

The 13% increase in insurance income for the ~~impact~~third quarter of ~~additional cardholders obtained~~2020, compared to the linked quarter, was largely related to a one-time $591,000 revenue recognition adjustment recorded for life and health insurance commissions in the ~~acquisition~~third quarter of ~~First Prestonsburg.~~2020.

Peoples' fiduciary and 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

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services business. The following tables detail Peoples’ trust and investment income and related assets under administration and management:


		Three Months Ended											Three Months Ended							Nine Months Ended
		March 31, 2020		December 31, 2019		March 31, 2019			September 30, 2020		June 30, 2020		September 30, 2019			September 30,
(Dollars in thousands)	(Dollars in thousands)														September 30, 2020	June 30, 2020		September 30, 2019			2020	2019
Fiduciary income	Fiduciary income	$	1,622	$	1,667	$	1,636	Fiduciary income	$	1,710	$	1,780	$	1,621
Brokerage income	Brokerage income	1,160		1,147		965		Brokerage income	1,165		999		1,048			3,324		3,051
Employee benefits fees	Employee benefits fees	480		627		511		Employee benefits fees	560		537		536			1,577		1,573
Trust and investment income	Trust and investment income	$	3,262	$	3,441	$	3,112	Trust and investment income	$	3,435	$	3,316	$	3,205		$	10,013	$	9,718

~~Employee benefits~~Fiduciary income ~~for~~is driven by managed asset balances near the ~~first~~end of the quarter of 2020 ~~declined~~along with annual tax preparation fees, generally recorded in the second quarter of the year, when the work is completed. 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 increase compared to the ~~fourth~~second quarter of ~~2019 primarily due to a decrease~~2020.

The following table details Peoples' assets under administration and management:


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

Trust	$	1,609,270	$	1,552,785	$	1,385,161	$	1,572,933	$	1,504,036
Brokerage	921,688		885,138		816,260		944,002		904,191
Total	$	2,530,958	$	2,437,923	$	2,201,421	$	2,516,935	$	2,408,227
Quarterly average	$	2,510,978	$	2,351,701	$	2,425,849	$	2,458,770	$	2,397,515

The increase in ~~the~~ assets under administration and management from $2.4 billion at June 30, 2020 to $2.5 billion at September 30, 2020, was due to the ~~end of~~improvements in the ~~first quarter of 2020 resulting from the market decline.~~

March 31,
2020 December 31,
2019 September 30,
2019 June 30,
2019 March 31,
2019
(Dollars in thousands)
Assets under administration and management:
Trust $ 1,385,161 $ 1,572,933 $ 1,504,036 $ 1,501,110 $ 1,471,422
Brokerage 816,260 944,002 904,191 887,745 863,286
Total $ 2,201,421 $ 2,516,935 $ 2,408,227 $ 2,388,855 $ 2,334,708
Quarterly average $ 2,425,849 $ 2,458,770 $ 2,397,515 $ 2,356,121 $ 2,312,098
stock market.

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


		Three Months Ended											Three Months Ended							Nine Months Ended
		March 31, 2020		December 31, 2019		March 31, 2019			September 30, 2020		June 30, 2020		September 30, 2019			September 30,
(Dollars in thousands)	(Dollars in thousands)														September 30, 2020	June 30, 2020		September 30, 2019			2020	2019
Overdraft and non-sufficient funds fees	Overdraft and non-sufficient funds fees	$	1,649	$	1,920	$	1,433	Overdraft and non-sufficient funds fees	$	1,216	$	876	$	1,970
Account maintenance fees	Account maintenance fees	980		1,019		752		Account maintenance fees	848		849		1,049			2,677		2,813
Other fees and charges	Other fees and charges	191		210		156		Other fees and charges	202		184		214			577		589
Deposit account service charges	Deposit account service charges	$	2,820	$	3,149	$	2,341	Deposit account service charges	$	2,266	$	1,909	$	3,233		$	6,995	$	8,551

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. The decline in the first quarter of 2020 in overdraft and non-sufficient funds fees from the fourth quarter of 2019 was primarily due to seasonality of customer activity combined with a disruption of customer activity at the end of the first quarter of 2020 as a result of the developments related to COVID-19. Income from deposit account service charges ~~for the first quarter of 2020 were up~~increased compared to the ~~year-ago~~linked quarter ~~primarily due~~and declined from the third quarter of 2019 and first nine months of 2019. The increase in the current quarter, compared to the ~~First Prestonsburg acquisition, coupled with fully implemented new~~prior quarter, was the result of higher overdraft and non-sufficient funds. For the three

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and nine months ended September 30, 2020 compared to the prior year periods, the decreases in deposit account ~~fee schedules~~service fees, which ~~were put in place in March 2019.~~was directly correlated to the developments related to COVID-19, specifically the PPP loan proceeds, fiscal stimulus provided by the government and changed customer habits.

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


		Three Months Ended									Three Months Ended				Nine Months Ended
		March 31, 2020		December 31, 2019		March 31, 2019			September 30, 2020	June 30, 2020	September 30, 2019		September 30,
(Dollars in thousands)	(Dollars in thousands)											September 30, 2020	June 30, 2020	September 30, 2019		2020	2019

Mortgage banking income	Mortgage banking income	$	750	$	1,336	$	788	Mortgage banking income	2,658	938	1,204		4,346	2,992
Bank owned life insurance income	Bank owned life insurance income	582		968		485		Bank owned life insurance income	462	470	487		1,514	1,462
Commercial loan swap fees	Commercial loan swap fees	244		794		146		Commercial loan swap fees	68	955	772		1,267	1,434
Other non-interest income	Other non-interest income	437		452		1,101		Other non-interest income	534	422	510		1,393	2,113

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 ~~decrease~~increases in mortgage banking income from the ~~fourth~~linked quarter, third quarter of 2019 ~~was~~and first nine months of 2019 were mainly due to ~~a seasonal decline combined with a disruption of customer activity as a result~~higher refinancings because of the ~~developments related to the COVID-19 pandemic. Additionally, mortgage banking income during the first quarter of 2020 included a $182,000 write-down of mortgage servicing rights.~~interest rate environment.

In the ~~first~~third quarter of 2020, Peoples sold ~~approximately $22.0~~$35.2 million in loans to the secondary market with servicing retained and sold ~~approximately $14.0~~$68.2 million in loans with servicing released, compared to ~~approximately $27.8~~$21.4 million and ~~$17.6~~$42.0 million,

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respectively, in the linked quarter, and ~~approximately $13.7~~$31.7 million and ~~$10.9~~$15.6 million, respectively, in the ~~first~~third quarter of 2019. The volume of sales has a direct impact on the amount of mortgage banking income.

Bank owned life insurance income during the first quarter of 2020 included the recognition of an additional $109,000 of tax-free death benefits during 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 quarter of 2019.

Commercial loan swap fees are largely dependent on timing, interest rates, and the volume of customer activity. Commercial loan swap fees ~~declined from a record high~~ in the third quarter of 2020 decreased $887,000 compared to the linked quarter ~~reflecting a typically slower~~and $704,000 compared to the third quarter of 2019, in each case driven by decreased customer demand. For the first nine months of 2020, commercial loan swap income was down compared to the same period in 2019, due to the larger size of the transactions in 2019.

Bank owned life insurance income was relatively flat compared to the prior quarter and third quarter of 2019. For the ~~impact of COVID-19, which slowed customer demand late~~nine months ended September 30, 2020, bank owned life insurance was up due to a $109,000 tax-free death benefit recognized in the first quarter of ~~2020. The increase compared to the first quarter of 2019~~2020, which was ~~driven by slightly higher customer demand, given the low rate environment and the favorable rates that customers can lock in by utilizing a swap.~~

~~Other non-interest income for the first quarter of 2019 included $787,000 of income related to the sale of restricted Class B Visa stock~~not duplicated during the ~~first quarter of~~nine months ended September 30, 2019.

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											Three Months Ended							Nine Months Ended
		March 31, 2020		December 31, 2019		March 31, 2019			September 30, 2020		June 30, 2020		September 30, 2019			September 30,
(Dollars in thousands)	(Dollars in thousands)														September 30, 2020	June 30, 2020		September 30, 2019			2020	2019
Base salaries and wages	Base salaries and wages	$	12,696	$	13,016	$	11,874	Base salaries and wages	$	13,019	$	12,774	$	12,592
Sales-based and incentive compensation	Sales-based and incentive compensation	2,662		3,159		2,609		Sales-based and incentive compensation	3,493		3,165		2,986			9,320		8,691
Employee benefits	Employee benefits	2,544		1,972		2,690		Employee benefits	1,930		1,997		1,869			6,471		6,525
Payroll taxes and other employment costs								Payroll taxes and other employment costs	1,148		1,074		1,256			3,584		3,841
Stock-based compensation	Stock-based compensation	1,383		567		1,208		Stock-based compensation	632		970		950			2,985		3,088
Payroll taxes and other employment costs		1,362		950		1,377
Deferred personnel costs	Deferred personnel costs	(729)		(761)		(556)		Deferred personnel costs	(812)		(1,995)		(722)			(3,536)		(2,007)
Salaries and employee benefit costs	Salaries and employee benefit costs	$	19,918	$	18,903	$	19,202	Salaries and employee benefit costs	$	19,410	$	17,985	$	18,931		$	57,313	$	58,957
Full-time equivalent employees:	Full-time equivalent employees:							Full-time equivalent employees:
Actual at end of period	Actual at end of period	898		900		859		Actual at end of period	886		894		910			886		910
Average during the period	Average during the period	898		910		869		Average during the period	890		892		913			893		897

~~In both comparisons, base~~Base salaries and wages ~~were impacted by~~increased 2% compared to the linked quarter and 3% compared to the third quarter of 2019. The increase for the third quarter of 2020 compared to linked quarter was primarily due to severance expense of $192,000 recognized in the third quarter of 2020. The key driver of the increase for the third quarter of 2020 compared to the third quarter of 2019 was the annual merit increases and the continued movement towards a $15 per hour minimum wage throughout Peoples' ~~organization. The $15 per hour minimum wage was phased in beginning in 2018 and~~organization that was largely implemented as of January 1, 2020. ~~Compared to the linked quarter, these increases were offset by a decline in severance expense~~

Table of $257,000 and additional expense during the fourth quarter of 2019 related to employees who carried paid-time-off balances into 2020. Compared to the first quarter of 2019, base salaries and wages were also impacted by additional employees, primarily as a result of the First Prestonsburg acquisition in April 2019.Contents

The ~~decrease~~increase in sales-based and incentive compensation for the ~~first~~third quarter of 2020 compared to the ~~fourth~~second quarter of ~~2019,~~2020 was ~~related~~primarily due to ~~overall company performance measures used in calculating incentive awards, combined with lower~~higher sales-based compensation ~~from~~related to mortgage banking reflecting the ~~reduced~~increased volume of real estate loans ~~for sale~~sold in the secondary market.

The increase in employee benefits for the first quarter of 2020, compared to the linked quarter, was primarily due to annual contributions to employee health benefit accounts which resulted in an expense of $427,000. These contributions occur primarily in the first quarter of each year. Additionally, Peoples' 401(k) contributions increased $174,000 compared to the linked quarter due to 401(k) contributions for employees who reached maximum contributions during 2019, which reset at January 1, 2020, as well as a higher percentage match (from 4% match to 5%) incentive. Compared to the first quarter of 2019, the decline in employee benefits was driven by lower medical insurance costs, partially offset by an increase in expense related to 401(k) contributions compared to the first quarter of 2019.

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. The $1.4 million of stock-based

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Stock-based compensation for the ~~first~~third quarter of 2020 which was an increase of $816,000 compared to the fourth quarter of 2019, included $464,000 of expense related to stock grants to retirement eligible individuals, and $349,000 of expense related to the annual vesting of prior stock grants.

~~The increase in payroll taxes and other employment costs,~~declined compared to the linked quarter, ~~included higher social security~~due to a $396,000 award of unrestricted common shares to associates at the level of Assistant Vice President and ~~unemployment taxes. Certain higher earners reached their individual taxable earnings limit for social security and unemployment taxes prior to or~~below that occurred during the ~~fourth quarter of 2019. Those limits reset at the beginning of the new calendar year, resulting in a higher expense during the first~~second quarter of 2020 ~~compared to~~but was not repeated in the ~~fourth~~third quarter of ~~2019.~~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 in 2020 compared to 2019.

~~The increase~~ Materially impacting the comparison was the recognition of $921,000 in ~~full-time equivalent employees~~deferred personnel costs during the second quarter related to the origination of PPP loans. In addition, higher production in residential real estate and commercial loans during the third quarter of 2020 contributed to the change in deferred personnel costs compared to the linked quarter. Increased production in residential real estate and indirect consumer loans drove up deferred personnel costs compared to the first ~~quarter~~nine months of 2019, ~~was mainly due~~with the first nine months of 2020 also being impacted by the additional deferred costs related to ~~additional employees from~~ the ~~First Prestonsburg acquisition.~~

PPP loan originations.

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


		Three Months Ended											Three Months Ended							Nine Months Ended
		March 31, 2020		December 31, 2019		March 31, 2019			September 30, 2020		June 30, 2020		September 30, 2019			September 30,
(Dollars in thousands)	(Dollars in thousands)														September 30, 2020	June 30, 2020		September 30, 2019			2020	2019
Depreciation	Depreciation	$	1,455	$	1,508	$	1,249	Depreciation	$	1,507	$	1,557	$	1,451
Repairs and maintenance costs	Repairs and maintenance costs	757		728		770		Repairs and maintenance costs	767		701		803			2,225		2,288
Net rent expense	Net rent expense	305		302		288		Net rent expense	340		315		182			960		720
Property taxes, utilities and other costs	Property taxes, utilities and other costs	637		685		671		Property taxes, utilities and other costs	769		578		662			1,984		2,006
Net occupancy and equipment expense	Net occupancy and equipment expense	$	3,154	$	3,223	$	2,978	Net occupancy and equipment expense	$	3,383	$	3,151	$	3,098		$	9,688	$	9,208

Compared to the ~~first~~third quarter of 2019, and the nine months ended September 30, 2019, net occupancy and equipment expense was impacted by increased net rent expense and depreciation related to investments in technological infrastructure and equipment (mainly ATMs), and ~~the~~branding for additional full-service bank branches from the First Prestonsburg ~~acquisition, six of which are owned.~~acquisition.

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


		Three Months Ended										Three Months Ended					Nine Months Ended
		March 31, 2020		December 31, 2019		March 31, 2019			September 30, 2020		June 30, 2020	September 30, 2019			September 30,
(Dollars in thousands)	(Dollars in thousands)													September 30, 2020	June 30, 2020	September 30, 2019		2020	2019
E-banking expense	E-banking expense	$	1,865	$	1,846	$	1,577	E-banking expense	$	2,095	1,879	$	2,070
Data processing and software expense	Data processing and software expense	1,752		1,648		1,545		Data processing and software expense	1,838		1,754	1,572			5,344	4,684
Professional fees	Professional fees	1,693		1,931		1,276		Professional fees	1,720		1,834	1,544			5,247	5,164
Franchise tax expense	Franchise tax expense	882		797		705		Franchise tax expense	882		881	797			2,645	2,274
Amortization of other intangible assets	Amortization of other intangible assets	729		888		694		Amortization of other intangible assets	857		728	953			2,314	2,471
FDIC insurance premiums								FDIC insurance premiums	570		152	—			717	752
Marketing expense								Marketing expense	456		632	634			1,561	1,718
Foreclosed real estate and other loan expenses	Foreclosed real estate and other loan expenses	578		632		255		Foreclosed real estate and other loan expenses	342		335	600			1,255	1,324
Marketing expense		473		573		594
Communication expense	Communication expense	280		318		278		Communication expense	283		294	268			857	863
FDIC insurance (credits) premiums		(5)		(150)		371
Other non-interest expense	Other non-interest expense	3,006		2,912		2,385		Other non-interest expense	2,479		2,180	2,526			7,665	10,974

E-banking expense was up compared to the ~~first~~linked quarter, ~~of 2019~~ due to an increased usage by customers ~~completing~~as a ~~higher~~result of the COVID-19 pandemic, which in turn increased the volume of transactions ~~using their~~involving debit cards and Peoples' ~~Internet~~internet and mobile banking service. The increase in expenses related to Peoples' ~~Internet~~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~~and the annual contractual increase in the cost of each unit of service in ~~Internet~~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

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banking system, including making certain mobile banking tools available to customers; software upgrades; and additional network capacity and security features.

Professional fees decreased $114,000 from the ~~fourth~~second quarter of ~~2019,~~2020, primarily due to lower legal ~~expenses.~~expenses and exam and audit fees. Compared to the ~~first~~third quarter of 2019, professional fees were up due ~~to recruiting~~an increase in exam and audit fees and ~~consulting work performed during the first quarter of 2020.~~

~~Peoples' amortization of~~ other intangible assets is driven by acquisition-related activity. Amortization of other intangible assets for the first quarter of 2020 declined compared to the fourth quarter of 2019 as a result of the declining amortization from previous

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~~acquisitions. Compared to the first quarter of 2019, amortization of intangible assets increased mainly due to additional amortization related to the acquisition of First Prestonsburg.~~professional fees.

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 first ~~quarter~~nine months of 2020 compared to the ~~fourth quarter of~~comparable period in 2019 due to higher equity as of December 31, 2019 compared to December 31, ~~2018. Expenses related to state franchise taxes increased in the first quarter of 2020 compared to the first quarter of 2019 primarily due to~~2018, coupled with additional taxes in Kentucky as a result of the First Prestonsburg acquisition in 2019.

~~Marketing expense decreased~~Peoples' amortization of other intangible assets is driven by acquisition-related activity. Amortization of other intangible assets for the third quarter of 2020 was up compared to the ~~fourth~~second quarter of 2019 and the first quarter of 2019, due to the timing of product marketing campaigns. Marketing expense during 2019 included brand awareness and product marketing campaigns due to Peoples' expanded footprint2020 as a result of the ~~First Prestonsburg acquisition in 2019.~~

~~Foreclosed real estate and other loan expenses increased compared~~amortization expense associated with the premium finance acquisition. Compared to the ~~first~~third quarter of 2019, ~~primarily~~and first nine months of 2019, amortization of other intangible assets declined due to the ~~increase in costs related~~reduced amortization from previous acquisitions.

Peoples used credits to ~~the higher production of residential real estate mortgage loans sold to the secondary market, which were driven by customer demand resulting from the decline in interest rates~~partially offset its FDIC insurance premium during the ~~latter half of 2019 and the first~~second quarter of 2020. ~~Higher credit bureau expense and dealer participation payments related~~However, there were credits available to ~~higher indirect consumer lending for~~offset the ~~quarter also contributed to the increase.~~

~~Peoples recognized credits to its FDIC insurance premiums related to its quarterly assessments during the first quarter of 2020 and the fourth~~entire third quarter of 2019 ~~compared to an expense during the first quarter of 2019.~~FDIC insurance premium. The FDIC insurance ~~premiums~~ credits were related to the level of the ~~federal~~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 ~~cannot reasonably anticipate any future recognition~~utilized the remaining credits that had been issued to it in the second quarter of ~~credits, as~~2020. Additionally, one of the ~~DIF~~factors that is ~~analyzed on a quarterly basis, and~~used to calculate the FDIC insurance premium is the ~~premise~~bank's leverage ratio. The calculation of that ratio includes the PPP loans, unlike the other capital ratios. This difference in calculation also contributed to the increase in the FDIC insurance premium for ~~receiving credits.~~the third quarter of 2020.

Marketing expense decreased compared to the second quarter of 2020 due to COVID-19-related expenses incurred during the second quarter of 2020, which included a $250,000 donation to food banks and pantries in Peoples' geographic area. Marketing expense decreased compared to the third quarter of 2019 due to decreases in electronic and print media, ad agency fees and other public relations expenses.

Foreclosed real estate and other loan expenses increased slightly compared to the prior quarter. Compared to the third quarter of 2019, foreclosed real estate and other loan expenses declined mostly due to higher deferral of costs associated with increased origination volume of consumer indirect loans during the third quarter of 2020.

Other non-interest expense ~~for~~increased $299,000 compared to the ~~first~~linked quarter, and was mostly due to higher acquisition-related expenses and increased pension settlement charges. Peoples recognized pension settlement charges during the third quarter of 2020 ~~increased $621,000~~of $531,000, compared to $151,000 for the second quarter of 2020 and none during the third quarter of 2019. For the first nine months of 2020, other non-interest expense decreased $3.3 million, compared to the first ~~quarter~~nine months of ~~2019. The increase~~2019, and was ~~primarily due to~~mostly driven by a reduction of $6.8 million in acquisition-related expenses, and travel and entertainment expenses of $747,000. These decreases were partially offset by pension settlement charges of ~~$368,000 and expenses of $135,000 related to COVID-19 included in other non-interest expense~~$1.1 million recognized during ~~the first quarter of~~ 2020, ~~for which there were~~while no similar ~~expenses in the first quarter of~~costs were incurred during 2019. ~~COVID-19 expenses consisted of a $100,000 donation to Peoples' employee hardship and disaster relief fund and technology costs related to remote access for employees.~~

Income Tax Expense ~~(Benefit)~~

Peoples recorded an income tax ~~benefit~~expense of ~~$156,000~~$2.6 million for the ~~first~~third quarter of 2020, compared to an expense of ~~$2.8~~$1.1 million for the linked quarter and an expense of ~~$3.4~~$3.3 million for the ~~first~~third quarter of 2019. The income tax ~~benefit~~expense during the ~~first~~third quarter of 2020 was driven by ~~a pretax net loss,~~pre-tax income of $12.8 million, which was impacted by the ~~result of a $17.0~~$4.7 million provision for credit losses recorded during the quarter. The variance between each of the comparative periods was the result of pre-tax income in 2020 related to the variability in the provision for credit losses recorded during the first nine months of 2020 and an additional income tax expense adjustment of $575,000 and $288,000 in the third and second quarters of 2020, respectively.

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.

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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 all gains and losses, minus total non-interest 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~~and losses included in earnings.

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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																Three Months Ended										Nine Months Ended
		March 31, 2020			December 31, 2019			March 31, 2019				September 30, 2020			June 30, 2020			September 30, 2019				September 30,
(Dollars in thousands)	(Dollars in thousands)																				September 30, 2020	June 30, 2020			September 30, 2019				2020	2019
Pre-provision net revenue:	Pre-provision net revenue:										Pre-provision net revenue:
(Loss) income before income taxes		$	(921)		$	17,627		$	17,746
Income before income taxes											Income before income taxes	$	12,846		$	5,885		18,149				$	17,810		$	47,731
Add: provision for credit losses (a)	Add: provision for credit losses (a)	16,969			1,136			—			Add: provision for credit losses (a)	4,728			11,834			1,005				33,531			1,368

Add: net loss on OREO		17			44			25
Add: loss on OREO											Add: loss on OREO	—			—			5				17			54
Add: loss on investment securities											Add: loss on investment securities	—			—			—				—			57
Add: loss on other assets											Add: loss on other assets	43			145			73				258			504

Add: net loss on other assets		70			188			157
Less: gain on OREO											Less: gain on OREO	15			1			—				16			—

Less: recovery of credit losses (a)		—			—			263
Less: net gain on investment securities		319			94			30
Less: gain on investment securities											Less: gain on investment securities	2			62			97				383			127

Less: gain on other transactions	Less: gain on other transactions	—			3			—			Less: gain on other transactions	—			22			—				22			5
Pre-provision net revenue	Pre-provision net revenue	$	15,816		$	18,898		$	17,635		Pre-provision net revenue	$	17,600		$	17,779		$	19,135			$	51,195		$	49,582

Total average assets	Total average assets	$	4,381,627		$	4,350,414		$	3,985,621		Total average assets	$	4,906,614		$	4,828,016		$	4,311,389			$	4,706,153		$	4,179,663
Pre-provision net revenue to total average assets (annualized)	Pre-provision net revenue to total average assets (annualized)	1.45		%	1.72		%	1.79		%	Pre-provision net revenue to total average assets (annualized)	1.43		%	1.48		%	1.76		%		1.45		%	1.59		%

Weighted-average common shares outstanding - diluted	Weighted-average common shares outstanding - diluted	20,538,214			20,559,127			19,508,868			Weighted-average common shares outstanding - diluted	19,637,689			19,858,880			20,595,769				19,998,353			20,178,634
Pre-provision net revenue per common share - diluted	Pre-provision net revenue per common share - diluted	$0.77			$0.91			$0.90			Pre-provision net revenue per common share - diluted	$	0.90		$0.89			$0.92				$2.55			$	2.44

(a)On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model. Prior to the adoption of 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 ~~decline~~decrease in PPNR during the ~~ratio~~third quarter of ~~PPNR, and PPNR per diluted common share~~2020 was mostly due to ~~total assets~~an increase in ~~both comparisons was driven by~~non-interest expense compared to the ~~impact of traditional seasonal factors, combined with the recent developments related to COVID-19~~linked quarter and the ~~reactions~~third quarter of ~~governmental authorities, individuals and businesses, and~~2019. Compared to the ~~impact on~~first nine months of 2019, PPNR increased mostly due to acquisition-related expenses incurred during the ~~economy, which negatively impacted revenues while expenses increased.~~2019 periods coupled with a decrease in net interest income due to the low interest rate environment.

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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-US GAAP since it excludes the impact of all acquisition-related expenses, pension settlement charges, severance expenses, and ~~COVID-19 expenses.~~COVID-19-related expense.

The following tables provide reconciliations of this non-US GAAP measure to the amounts reported in Peoples' Unaudited Consolidated Financial Statements for the periods presented:

Three Months Ended
March 31,
2020 December 31,
2019 March 31,
2019
(Dollars in thousands)
Core non-interest expense:
Total non-interest expense $ 34,325 $ 33,521 $ 31,860
Less: acquisition-related expenses 30 65 253
Less: pension settlement charges 368 — —
Less: severance expenses 13 270 —
Less: COVID-19 expenses 140 — —
Core non-interest expense $ 33,774 $ 33,186 $ 31,607

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	Three Months Ended						Nine Months Ended
	September 30, 2020		June 30, 2020		September 30, 2019		September 30,
(Dollars in thousands)							2020		2019

Core non-interest expense:
Total non-interest expense	$	34,315	$	31,805	$	32,993	$	100,445	103,729

Less: acquisition-related expenses	335		47		199		412		7,222
Less: pension settlement charges	531		151		—		1,050		—
Less: severance expenses	192		79		88		284		130

Less: COVID-19-related expense	148		918		—		1,206		—
Core non-interest expense	$	33,109	$	30,610	$	32,706	$	97,493	$	96,377

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 fully tax-equivalent net interest income plus total non-interest income excluding net gains and losses. This measure is non-US GAAP since it excludes amortization of other intangible assets and all gains ~~and/or~~and losses included in earnings, and uses fully tax-equivalent net interest income.

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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																Three Months Ended										Nine Months Ended
		March 31, 2020			December 31, 2019			March 31, 2019				September 30, 2020			June 30, 2020			September 30, 2019				September 30,
(Dollars in thousands)	(Dollars in thousands)																				September 30, 2020	June 30, 2020			September 30, 2019				2020	2019

Efficiency ratio:	Efficiency ratio:										Efficiency ratio:
Total non-interest expense	Total non-interest expense	$	34,325		$	33,521		$	31,860		Total non-interest expense	$	34,315		$	31,805		$	32,993			$	100,445		$	103,729
Less: amortization of other intangible assets	Less: amortization of other intangible assets	729			888			694			Less: amortization of other intangible assets	857			728			953				2,314			2,471
Adjusted total non-interest expense	Adjusted total non-interest expense	$	33,596		$	32,633		$	31,166		Adjusted total non-interest expense	$	33,458		$	31,077		$	32,040			$	98,131		$	101,258

Total non-interest income	Total non-interest income	$	15,737		$	17,163		$	15,429		Total non-interest income	$	16,770		$	14,664		$	16,393			$	47,171		$	47,111
Less: net gain on investment securities	Less: net gain on investment securities	319			94			30			Less: net gain on investment securities	2			62			97				383			70
Less: net loss on asset disposals and other transactions	Less: net loss on asset disposals and other transactions	(87)			(229)			(182)			Less: net loss on asset disposals and other transactions	(28)			(122)			(78)				(237)			(553)
Total non-interest income excluding net gains and losses	Total non-interest income excluding net gains and losses	$	15,505		$	17,298		$	15,581		Total non-interest income excluding net gains and losses	$	16,796		$	14,724		$	16,374			$	47,025		$	47,594

Net interest income	Net interest income	$	34,636		$	35,121		$	33,914		Net interest income	$	35,119		$	34,860		$	35,754			$	104,615		$	105,717
Add: fully tax-equivalent adjustment (a)	Add: fully tax-equivalent adjustment (a)	272			287			200			Add: fully tax-equivalent adjustment (a)	262			269			314				803			781
Net interest income on a fully tax-equivalent basis	Net interest income on a fully tax-equivalent basis	$	34,908		$	35,408		$	34,114		Net interest income on a fully tax-equivalent basis	$	35,381		$	35,129		$	36,068			$	105,418		$	106,498

Adjusted revenue	Adjusted revenue	$	50,413		$	52,706		$	49,695		Adjusted revenue	$	52,177		$	49,853		$	52,442			$	152,443		$	154,092

Efficiency ratio	Efficiency ratio	66.64		%	61.92		%	62.71		%	Efficiency ratio	64.12		%	62.34		%	61.10		%		64.37		%	65.71		%

Efficiency ratio adjusted for non-core items:	Efficiency ratio adjusted for non-core items:										Efficiency ratio adjusted for non-core items:
Core non-interest expense	Core non-interest expense	$	33,774		$	33,186		$	31,607		Core non-interest expense	$	33,109		$	30,610		$	32,706			$	97,493		$	96,377
Less: amortization of other intangible assets	Less: amortization of other intangible assets	729			888			694			Less: amortization of other intangible assets	857			728			953				2,314			2,471
Adjusted core non-interest expense	Adjusted core non-interest expense	$	33,045		$	32,298		$	30,913		Adjusted core non-interest expense	$	32,252		$	29,882		$	31,753			$	95,179		$	93,906

Core non-interest income excluding net gains and losses	Core non-interest income excluding net gains and losses	$	15,505		$	17,298		$	15,581		Core non-interest income excluding net gains and losses	$	16,796		$	14,724		$	16,374			$	47,025		$	47,594
Net interest income on a fully tax-equivalent basis	Net interest income on a fully tax-equivalent basis	34,908			35,408			34,114			Net interest income on a fully tax-equivalent basis	35,381			35,129			36,068				105,418			106,498
Adjusted revenue	Adjusted revenue	$	50,413		$	52,706		$	49,695		Adjusted revenue	$	52,177		$	49,853		$	52,442			$	152,443		$	154,092

Efficiency ratio adjusted for non-core items	Efficiency ratio adjusted for non-core items	65.55		%	61.28		%	62.21		%	Efficiency ratio adjusted for non-core items	61.81		%	59.94		%	60.55		%		62.44		%	60.94		%

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

The efficiency ratio ~~and~~increase compared to the linked quarter, was driven by higher non-interest expense. Compared to the third quarter of 2019, the efficiency ratio increased mainly due to the acquisition-related expenses that were recognized during the 2019 period. The efficiency ratio adjusted for non-core items ~~for~~was impacted by higher core non-interest expenses, primarily FDIC insurance premiums, in the ~~first~~third quarter of 2020, ~~were~~compared to the second quarter of 2020. The efficiency ratio adjusted for non-core items was negatively impacted by ~~traditional seasonal factors, combined with~~lower revenue and higher core non-interest expenses, primarily FDIC insurance premiums, compared to the ~~recent developments related to COVID-19 and the reactions~~first nine months of ~~governmental authorities, individuals and businesses, and the impact on the economy. These factors drove the decline in revenue, while expenses increased.~~2019.

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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..~~COVID-19-related 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																Three Months Ended										Nine Months Ended
		March 31, 2020			December 31, 2019			March 31, 2019				September 30, 2020			June 30, 2020			September 30, 2019				September 30,
(Dollars in thousands)	(Dollars in thousands)																				September 30, 2020	June 30, 2020			September 30, 2019				2020	2019

Annualized net (loss) income adjusted for non-core items:
Net (loss) income		$	(765)		$	14,860		$	14,369
Annualized net income adjusted for non-core items:											Annualized net income adjusted for non-core items:
Net income											Net income	$	10,210		$	4,749		$	14,868			$	14,194		$	38,835

Less: net gain on investment securities	Less: net gain on investment securities	319			94			30			Less: net gain on investment securities	2			62			97				383			70
Add: tax effect of net gain on investment securities (a)	Add: tax effect of net gain on investment securities (a)	67			20			6			Add: tax effect of net gain on investment securities (a)	—			13			20				80			15
Add: net loss on asset disposals and other transactions	Add: net loss on asset disposals and other transactions	87			229			182			Add: net loss on asset disposals and other transactions	28			28			78				237			553
Less: tax effect of net loss on asset disposals and other transactions (a)	Less: tax effect of net loss on asset disposals and other transactions (a)	18			48			38			Less: tax effect of net loss on asset disposals and other transactions (a)	6			6			16				50			116

Add: acquisition-related expenses	Add: acquisition-related expenses	30			65			253			Add: acquisition-related expenses	335			47			199				412			7,222
Less: tax effect of acquisition-related expenses (a)	Less: tax effect of acquisition-related expenses (a)	6			14			53			Less: tax effect of acquisition-related expenses (a)	70			10			42				87			1,517
Add: pension settlement charges	Add: pension settlement charges	368			—			—			Add: pension settlement charges	531			151			—				1,050			—
Less: tax effect of pension settlement charges (a)	Less: tax effect of pension settlement charges (a)	77			—			—			Less: tax effect of pension settlement charges (a)	112			32			—				221			—
Add: severance expenses	Add: severance expenses	13			270			—			Add: severance expenses	192			79			88				284			130
Less: tax effect of severance expenses (a)	Less: tax effect of severance expenses (a)	3			57			—			Less: tax effect of severance expenses (a)	40			17			18				60			27
Add: COVID-19 expenses		140			—			—
Less: tax effect of COVID-19 (a)		29			—			—
Add: COVID-19-related expenses											Add: COVID-19-related expenses	148			918			—				1,206			—
Less: tax effect of COVID-19-related expenses (a)											Less: tax effect of COVID-19-related expenses (a)	31			193			—				253			—

Net (loss) income adjusted for non-core items (after tax)		$	(512)		$	15,231		$	14,689
Net income adjusted for non-core items (after tax)											Net income adjusted for non-core items (after tax)	$	11,183		$	5,665		$	15,080			$	16,409		$	45,025
Days in the period	Days in the period	91			92			90			Days in the period	92			91			92				274			273
Days in the year	Days in the year	366			365			365			Days in the year	366			366			365				366			365
Annualized net (loss) income		$	(3,077)		$	58,955		$	58,274
Annualized net (loss) income adjusted for non-core items (after tax)		$	(2,059)		$	60,427		$	59,572
Annualized net income											Annualized net income	$	40,618		$	19,100		$	58,987			$	18,960		$	51,922
Annualized net income adjusted for non-core items (after tax)											Annualized net income adjusted for non-core items (after tax)	$	44,489		$	22,785		$	59,828			$	21,919		$	60,198
Return on average assets:	Return on average assets:										Return on average assets:
Annualized net (loss) income		$	(3,077)		$	58,955		$	58,274
Annualized net income											Annualized net income	$	40,618		$	19,100		$	58,987			$	18,960		$	51,922
Total average assets	Total average assets	4,381,627			4,350,414			3,985,621			Total average assets	4,906,614			4,828,016			4,311,389				4,706,153			4,179,663
Return on average assets	Return on average assets	(0.07)		%	1.36		%	1.46		%	Return on average assets	0.83		%	0.40		%	1.37		%		0.40		%	1.24		%
Return on average assets adjusted for non-core items:	Return on average assets adjusted for non-core items:																		Return on average assets adjusted for non-core items:
Annualized net (loss) income adjusted for non-core items (after tax)		$	(2,059)		$	60,427		$	59,572
Annualized net income adjusted for non-core items (after tax)											Annualized net income adjusted for non-core items (after tax)	$	44,489		$	22,785		$	59,828			$	21,919		$	60,198
Total average assets	Total average assets	4,381,627			4,350,414			3,985,621			Total average assets	4,906,614			4,828,016			4,311,389				4,706,153			4,179,663
Return on average assets adjusted for non-core items	Return on average assets adjusted for non-core items	(0.05)		%	1.39		%	1.49		%	Return on average assets adjusted for non-core items	0.91		%	0.47		%	1.39		%		0.47		%	1.44		%

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

The ~~negative returns~~return on average assets and the return on average assets adjusted for non-core items inboth improved during the ~~first~~third quarter of 2020, compared to the linked quarter. The improvements were ~~driven by the $17.0 million~~mostly due to a reduction in provision for credit losses ~~recorded~~compared to the linked quarter, coupled with higher total non-interest income. The return on average assets and the return on average assets adjusted for ~~expected~~non-core items both declined during the third quarter of 2020, compared to the third quarter of 2019. These declines were primarily caused by the provision for credit losses ~~due~~of $4.7 million recorded during the third quarter of 2020 drove most of the decline in the ratios. The return on average assets and the return on average assets adjusted for non-core items both decreased during the first nine months of 2020, compared to the ~~economic downturn related to the impacts~~first nine months of ~~COVID-19 pandemic during the quarter and the resulting impact on the economic assumptions used in estimating the allowance of~~2019. The provision for credit losses ~~under~~totaled $33.5 million for the CECL model. Future provisioning will be directly related to changes in the economic assumptions, mainly U.S. and Ohio unemployment levels and Ohio Gross Domestic Product, as well as other credit quality indicators.

nine

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months ended September 30, 2020, and was largely the reason for the decrease in the ratios. 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.”

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

The return on average tangible equity ratio is a key financial measure used to monitor performance. This ratio is calculated as annualized net ~~(loss)~~ income (less the after-tax impact of amortization of other intangible assets) divided by average tangible equity. This measure is 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																Three Months Ended										Nine Months Ended
		March 31, 2020			December 31, 2019			March 31, 2019				September 30, 2020			June 30, 2020			September 30, 2019				September 30,
(Dollars in thousands)	(Dollars in thousands)																				September 30, 2020	June 30, 2020			September 30, 2019				2020	2019
Annualized net (loss) income excluding amortization of other intangible assets:
Net (loss) income		$	(765)		$	14,860		$	14,369
Annualized net income excluding amortization of other intangible assets:											Annualized net income excluding amortization of other intangible assets:
Net income											Net income	$	10,210		$	4,749		$	14,868			$	14,194		$	38,835
Add: amortization of other intangible assets	Add: amortization of other intangible assets	729			888			694			Add: amortization of other intangible assets	857			728			953				2,314			2,471
Less: tax effect of amortization of other intangible assets (a)	Less: tax effect of amortization of other intangible assets (a)	153			186			146			Less: tax effect of amortization of other intangible assets (a)	180			153			200				486			519
Net (loss) income excluding amortization of other intangible assets		$	(189)		$	15,562		$	14,917
Net income excluding amortization of other intangible assets											Net income excluding amortization of other intangible assets	$	10,887		$	5,324		$	15,621			$	16,022		$	40,787
Days in the period	Days in the period	91			92			90			Days in the period	92			91			92				274			273
Days in the year	Days in the year	366			365			365			Days in the year	366			366			365				366			365
Annualized net (loss) income		$	(3,077)		$	58,955		$	58,274
Annualized net (loss) income excluding amortization of other intangible assets		$	(760)		$	61,741		$	60,497
Annualized net income											Annualized net income	$	40,618		$	19,100		$	58,987			$	18,960		$	51,922
Annualized net income excluding amortization of other intangible assets											Annualized net income excluding amortization of other intangible assets	$	43,311		$	21,413		$	61,975			$	21,402		$	54,532
Average tangible equity:	Average tangible equity:												Average tangible equity:
Total average stockholders' equity	Total average stockholders' equity	$	596,246		$	591,112		$	524,196		Total average stockholders' equity	$	567,055		$	572,141		$	583,269			$	578,439		$	557,702
Less: average goodwill and other intangible assets	Less: average goodwill and other intangible assets	177,984			178,163			161,673			Less: average goodwill and other intangible assets	185,816			177,012			179,487				180,291			172,175
Average tangible equity	Average tangible equity	$	418,262		$	412,949		$	362,523		Average tangible equity	$	381,239		$	395,129		$	403,782			$	398,148		$	385,527
Return on average stockholders' equity ratio:	Return on average stockholders' equity ratio:												Return on average stockholders' equity ratio:
Annualized net (loss) income		$	(3,077)		$	58,955		$	58,274
Annualized net income											Annualized net income	$	40,618		$	19,100		$	58,987			$	18,960		$	51,922
Average stockholders' equity	Average stockholders' equity	$	596,246		$	591,112		$	524,196		Average stockholders' equity	$	567,055		$	572,141		$	583,269			$	578,439		$	557,702
Return on average stockholders' equity	Return on average stockholders' equity	(0.52)		%	9.97		%	11.12		%	Return on average stockholders' equity	7.16		%	3.34		%	10.11		%		3.28		%	9.31		%
Return on average tangible equity ratio:	Return on average tangible equity ratio:																		Return on average tangible equity ratio:
Annualized net (loss) income excluding amortization of other intangible assets		$	(760)		$	61,741		$	60,497
Annualized net income excluding amortization of other intangible assets											Annualized net income excluding amortization of other intangible assets	$	43,311		$	21,413		$	61,975			$	21,402		$	54,532
Average tangible equity	Average tangible equity	$	418,262		$	412,949		$	362,523		Average tangible equity	$	381,239		$	395,129		$	403,782			$	398,148		$	385,527
Return on average tangible equity	Return on average tangible equity	(0.18)		%	14.95		%	16.69		%	Return on average tangible equity	11.36		%	5.42		%	15.35		%		5.38		%	14.14		%

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

The ~~negative returns~~return on average stockholders' equity and on average tangible equity ratios ~~during~~continued to be impacted by higher provision for credit losses. However, compared to the ~~first~~linked quarter, ~~of 2020 were primarily~~the ratios improved due to a decline in the ~~$17.0 million~~ provision for credit losses ~~recorded for expected credit losses due to~~of $7.1 million from the ~~economic downturn~~second quarter.

For additional information related to the ~~COVID-19 pandemic during the quarter and the resulting impact on the economic assumptions used in estimating the allowance of~~provision for credit losses, ~~under~~refer to the ~~CECL model, which resulted~~sections in ~~a net loss~~this discussion titled “Provision for ~~the first quarter of 2020.~~Credit Losses" and "Allowance for Credit Losses.”

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FINANCIAL CONDITION

Cash and Cash Equivalents

At ~~March 31,~~September 30, 2020, Peoples' interest-bearing deposits in other banks increased ~~$45.2~~$41.4 million from December 31, 2019. The total cash and cash equivalent balance included ~~$34.6~~$22.4 million of excess cash reserves being maintained at the FRB of Cleveland at ~~March 31,~~September 30, 2020, compared to $15.6 million at December 31, 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 needs due to the COVID-19 pandemic.

Through the first ~~three~~nine months of 2020, Peoples' total cash and cash equivalents increased ~~$48.5~~$46.1 million as Peoples' net cash used in investing activities of ~~$51.1~~$517.7 million was less than the sum of net cash provided by financing and operating activities of ~~$81.3~~$507.8 million and ~~$18.2~~$56.0 million, respectively. Peoples' investing activities reflected a net ~~decrease~~increase of ~~$32.3~~$505.2 million in loans and ~~$72.9~~$171.3 million in purchases of available-for-sale investment securities, which were partially offset by ~~$68.7~~$263.4 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 ~~$107.0~~$660.5 million net increase in deposits and $50.0 million of proceeds from long-term borrowings, offset partially by a decrease of ~~$57.3~~$154.9 million in short-term borrowings, as well as the purchase of ~~$10.2~~$25.0 million of treasury stock under the share repurchase program and ~~$6.9~~$20.1 million of cash dividends paid.

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

Investment Securities

The following table provides information regarding Peoples’ investment portfolio:


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

U.S. government sponsored agencies	U.S. government sponsored agencies	$	6,361	$	8,209	$	12,145	$	19,051	$	—	U.S. government sponsored agencies	$	5,383	$	5,396	$	6,361	$	8,209	$	12,145
States and political subdivisions	States and political subdivisions	108,812		114,104		115,613		125,418		84,827		States and political subdivisions	104,126		107,032		108,812		114,104		115,613
Residential mortgage-backed securities	Residential mortgage-backed securities	823,893		791,009		835,172		748,132		706,976		Residential mortgage-backed securities	726,992		748,867		823,893		791,009		835,172
Commercial mortgage-backed securities	Commercial mortgage-backed securities	17,061		18,088		20,461		22,664		6,649		Commercial mortgage-backed securities	10,568		12,157		17,061		18,088		20,461
Bank-issued trust preferred securities	Bank-issued trust preferred securities	4,708		4,691		4,644		4,099		4,118		Bank-issued trust preferred securities	4,633		4,399		4,708		4,691		4,644

Total fair value	Total fair value	$	960,835	$	936,101	$	988,035	$	919,364	$	802,570	Total fair value	$	851,702	$	877,851	$	960,835	$	936,101	$	988,035��
Total amortized cost	Total amortized cost	$	932,179	$	929,395	$	976,286	$	910,431	$	806,641	Total amortized cost	$	829,899	$	853,072	$	932,179	$	929,395	$	976,286
Net unrealized gain (loss)		$	28,656	$	6,706	$	11,749	$	8,933	$	(4,071)
Net unrealized gain												Net unrealized gain	$	21,803	$	24,779	$	28,656	$	6,706	$	11,749
Held-to-maturity securities, at amortized cost:	Held-to-maturity securities, at amortized cost:													Held-to-maturity securities, at amortized cost:
Obligations of:	Obligations of:											Obligations of:
States and political subdivisions (a)	States and political subdivisions (a)	3,838		$	4,346	$	4,395	$	4,398	$	4,401	States and political subdivisions (a)	$	3,539	$	3,538	$	3,838	$	4.346	$	4,395
Residential mortgage-backed securities	Residential mortgage-backed securities	29,070		21,494		22,412		23,335		28,348		Residential mortgage-backed securities	26,926		28,075		29,070		21,494		22,412
Commercial mortgage-backed securities	Commercial mortgage-backed securities	5,830		5,907		7,022		7,106		2,857		Commercial mortgage-backed securities	5,678		5,754		5,830		5,907		7,022
Total amortized cost	Total amortized cost	$	38,738	$	31,747	$	33,829	$	34,839	$	35,606	Total amortized cost	$	36,143	$	37,367	$	38,738	$	27,405.346	$	33,829
Other investment securities	Other investment securities	$	46,924	$	42,730	$	43,045	$	43,508	$	41,449	Other investment securities	$	40,715	$	42,656	$	46,924	$	42,730	$	43,045
Total investment securities:	Total investment securities:											Total investment securities:
Amortized cost	Amortized cost	$	1,017,841	$	1,003,872	$	1,053,160	$	988,778	$	883,696	Amortized cost	$	906,757	$	933,095	$	1,017,841	$	1,003,872	$	1,053,160
Carrying value	Carrying value	$	1,046,497	$	1,010,578	$	1,064,909	$	997,711	$	879,625	Carrying value	$	928,560	$	957,874	$	1,046,497	$	1,006,236.346	$	1,064,909

(a) Amortized cost is presented net of the allowance for credit losses of ~~$6,000.~~$6,000 at September 30, 2020, June 30, 2020 and March 31, 2020.

At ~~March 31,~~September 30, 2020, the fair value of available-for-sale securities ~~were up~~declined $26.1 million, or 3%, compared to ~~December 31, 2019 primarily due to increases in fair value driven by overall declines in market interest rates during the first quarter of~~ June 30,
2020. ~~Compared to December 31, 2019, the increase in held-to-maturity securities was driven by purchases during the quarter.~~ The ~~increases in investment securities at March 31, 2020~~decrease compared to ~~March 31, 2019~~all prior periods was driven by the paydowns and maturities of securities, primarily residential mortgage-backed securities. Not all of these proceeds were reinvested into the investment portfolio mostly due to low reinvestment rates on investment securities, ~~acquired in the First Prestonsburg acquisition, combined~~coupled with ~~increases in fair value driven by overall declines in market interest rates during the latter half of 2019 and the first quarter of~~liquidity needs as deposits declined compared to June 30, 2020.

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

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Loans

The following table provides information regarding outstanding loan balances:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019			(Dollars in thousands)	September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
Originated loans:	Originated loans:																Originated loans:
Construction	Construction	$	106,415		$	83,283		$	100,338		$	102,904		$	116,992		Construction	$	103,948		$	105,493		$	106,415		$	83,283		$	100,338
Commercial real estate, other	Commercial real estate, other	707,339			671,576			659,103			641,061			630,679			Commercial real estate, other	752,480			738,292			707,339			671,576			659,103
Commercial real estate	Commercial real estate	813,754			754,859			759,441			743,965			747,671			Commercial real estate	856,428			843,785			813,754			754,859			759,441
Commercial and industrial	Commercial and industrial	611,791			622,175			564,279			548,460			558,070			Commercial and industrial	1,090,521			1,032,970			611,791			622,175			564,279
Residential real estate	Residential real estate	293,078			314,935			308,964			299,173			297,667			Residential real estate	284,645			285,407			293,078			314,935			308,964
Home equity lines of credit	Home equity lines of credit	91,344			93,013			92,910			90,374			90,831			Home equity lines of credit	91,701			90,612			91,344			93,013			92,910
Consumer, indirect	Consumer, indirect	418,022			417,127			423,217			419,595			410,172			Consumer, indirect	491,663			450,296			418,022			417,127			423,217
Consumer, direct	Consumer, direct	71,230			70,852			72,699			72,209			69,710			Consumer, direct	75,106			74,614			71,230			70,852			72,699
Consumer	Consumer	489,252			487,979			495,916			491,804			479,882			Consumer	566,769			524,910			489,252			487,979			495,916
Deposit account overdrafts	Deposit account overdrafts	610			878			1,081			676			518			Deposit account overdrafts	519			592			610			878			1,081
Total originated loans	Total originated loans	$	2,299,829		$	2,273,839		$	2,222,591		$	2,174,452		$	2,174,639		Total originated loans	$	2,890,583		$	2,778,276		$	2,299,829		$	2,273,839		$	2,222,591
Acquired loans (a):	Acquired loans (a):																Acquired loans (a):
Construction	Construction	$	4,450		$	5,235		$	4,435		$	6,775		$	7,966		Construction	$	4,103		$	4,460		$	4,450		$	5,235		$	4,435
Commercial real estate, other	Commercial real estate, other	190,478			161,662			171,096			201,909			171,785			Commercial real estate, other	160,759			176,128			190,478			161,662			171,096
Commercial real estate	Commercial real estate	194,928			166,897			175,531			208,684			179,751			Commercial real estate	164,862			180,588			194,928			166,897			175,531
Commercial and industrial	Commercial and industrial	42,739			40,818			43,961			51,506			34,837			Commercial and industrial	77,613			37,356			42,739			40,818			43,961
Residential real estate	Residential real estate	332,288			346,541			358,053			348,439			308,137			Residential real estate	304,804			327,677			332,288			346,541			358,053
Home equity lines of credit	Home equity lines of credit	36,667			39,691			41,942			41,262			38,084			Home equity lines of credit	30,234			32,772			36,667			39,691			41,942
Consumer, indirect	Consumer, indirect	44			58			67			90			111			Consumer, indirect	36			38			44			58			67
Consumer, direct	Consumer, direct	4,942			5,681			8,171			9,100			2,021			Consumer, direct	3,953			4,312			4,942			5,681			8,171
Consumer	Consumer	4,986			5,739			8,238			9,190			2,132			Consumer	3,989			4,350			4,986			5,739			8,238
Total acquired loans	Total acquired loans	$	611,608		$	599,686		$	627,725		$	659,081		$	562,941		Total acquired loans	$	581,502		$	582,743		$	611,608		$	599,686		$	627,725
Total loans	Total loans	$	2,911,437		$	2,873,525		$	2,850,316		$	2,833,533		$	2,737,580		Total loans	$	3,472,085		$	3,361,019		$	2,911,437		$	2,873,525		$	2,850,316

Percent of loans to total loans:	Percent of loans to total loans:																Percent of loans to total loans:
Construction	Construction	3.8		%	3.1		%	3.8		%	3.9		%	4.6		%	Construction	3.1		%	3.3		%	3.8		%	3.1		%	3.8		%
Commercial real estate, other	Commercial real estate, other	30.8		%	29.0		%	29.1		%	29.7		%	29.3		%	Commercial real estate, other	26.3		%	27.2		%	30.8		%	29.0		%	29.1		%
Commercial real estate	Commercial real estate	34.6		%	32.1		%	32.9		%	33.6		%	33.9		%	Commercial real estate	29.4		%	30.5		%	34.6		%	32.1		%	32.9		%
Commercial and industrial	Commercial and industrial	22.5		%	23.1		%	21.3		%	21.2		%	21.7		%	Commercial and industrial	33.6		%	31.9		%	22.5		%	23.1		%	21.3		%
Residential real estate	Residential real estate	21.5		%	23.0		%	23.4		%	22.9		%	22.1		%	Residential real estate	17.0		%	18.2		%	21.5		%	23.0		%	23.4		%
Home equity lines of credit	Home equity lines of credit	4.4		%	4.6		%	4.7		%	4.6		%	4.7		%	Home equity lines of credit	3.5		%	3.7		%	4.4		%	4.6		%	4.7		%
Consumer, indirect	Consumer, indirect	14.4		%	14.5		%	14.9		%	14.8		%	15.0		%	Consumer, indirect	14.2		%	13.4		%	14.4		%	14.5		%	14.9		%
Consumer, direct	Consumer, direct	2.6		%	2.7		%	2.8		%	2.9		%	2.6		%	Consumer, direct	2.3		%	2.3		%	2.6		%	2.7		%	2.8		%
Consumer	Consumer	17.0		%	17.2		%	17.7		%	17.7		%	17.6		%	Consumer	16.5		%	15.7		%	17.0		%	17.2		%	17.7		%

Total percentage	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	Residential real estate loans being serviced for others	$	503,158		$	496,802		$	488,724		$	473,443		$	464,575		Residential real estate loans being serviced for others	$	490,170		$	491,545		$	503,158		$	496,802		$	488,724

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

Period-end total loan balances at ~~March 31,~~September 30, 2020 increased ~~$37.9~~$111.1 million, or 5%3%, compared to June 30, 2020. The increase compared to June 30, 2020 was mostly driven by loans from the premium finance acquisition completed at the beginning of the third quarter of 2020, which totaled $104.1 million in loan balances at September 30, 2020, and were included in the acquired commercial and industrial loan balances. Excluding the PPP loan balances, Peoples' originated loans grew by 16% annualized compared to ~~December 31, 2019, and $173.9~~June 30, 2020. The growth was due to loans acquired from the premium finance acquisition, higher consumer indirect loan balances, which were up $41.4 million, or ~~6%,~~37% annualized, while commercial real estate loan balances increased $14.2 million, or 8% annualized, compared to ~~March 31, 2019.~~June 30, 2020.

The increase compared to ~~December 31,~~September 30, 2019 was ~~driven by~~largely due to the PPP loans added during the second quarter of 2020, coupled with growth in ~~originated and acquired~~ commercial real estate, ~~loan balances, and originated construction loan balances. These increases were partially offset by declines in originated and acquired residential real estate loan balances and originated~~ commercial and industrial, ~~loan~~and consumer indirect balances.

~~The increase compared~~ Acquired loans increased due to ~~March 31, 2019 was driven by originated loan balances,~~the premium finance acquisition, which increased ~~$125.2 million, or 6%. The increase in originated loan balances compared to March 31, 2019, was driven by growth in originated commercial real estate loan balances and originated~~the commercial and industrial ~~loan~~ balances, ~~partially~~but was offset by a ~~decline~~decrease in ~~originated construction~~balances in all other loan ~~balances. Acquired~~segments, as these loans either payoff or are re-underwritten, at which point Peoples no longer considers the loan ~~balances increased $48.7 million, or 9%, driven by loans acquired from First Prestonsburg and the purchase of residential real estate loans.~~acquired.

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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 ~~March 31,~~September 30, 2020:


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

Construction:	Construction:									Construction:
Apartment complexes										Apartment complexes	$	42,967	$	49,000	$	91,967	41.5	%
Assisted living facilities and nursing homes	Assisted living facilities and nursing homes	$	29,020	$	32,719	$	61,739	31.5	%	Assisted living facilities and nursing homes	17,614		30,258		47,872		21.6	%
Apartment complexes		24,780		24,450		49,230		25.1	%
Educational services		18,623		—		18,623		9.5	%
Mixed used facilities		6,650		663		7,313		3.7	%
Retail										Retail	2,387		10,847		13,234		6.0	%
Lodging and lodging related										Lodging and lodging related	—		10,301		10,301		4.6	%
Gas station facilities										Gas station facilities	6,613		37		6,650		3.0	%
Office buildings										Office buildings	6,124		43		6,167		2.8	%
Land only										Land only	5,133		737		5,870		2.6	%
Land development	Land development	4,786		2,161		6,947		3.5	%	Land development	4,998		690		5,688		2.6	%
Retail		3,431		2,363		5,794		3.0	%
Land only		5,031		851		5,882		3.0	%
Residential property	Residential property	1,880		3,386		5,266		2.7	%	Residential property	2,061		3,018		5,079		2.3	%
Office buildings		3,178		2,176		5,354		2.7	%

Other (a)	Other (a)	13,486		16,593		29,977		15.3	%	Other (a)	20,154		8,561		28,715		13.0	%
Total construction	Total construction	$	110,865	$	85,362	$	196,125	100.0	%	Total construction	$	108,051	$	113,492	$	221,543	100.0	%

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

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(Dollars in thousands)	(Dollars in thousands)	Outstanding Balance		Loan Commitments		Total Exposure		% of Total		(Dollars in thousands)	Outstanding Balance		Loan Commitments		Total Exposure		% of Total
Commercial real estate, other:	Commercial real estate, other:									Commercial real estate, other:
Office buildings and complexes:	Office buildings and complexes:									Office buildings and complexes:
Owner occupied	Owner occupied	$	74,850	$	3,180	$	78,030	8.9	%	Owner occupied	$	73,353	$	1,541	$	74,894	8.0	%
Non-owner occupied	Non-owner occupied	66,680		4,126		70,806		8.1	%	Non-owner occupied	62,463		3,235		65,698		7.0	%
Total office buildings and complexes	Total office buildings and complexes	141,530		7,306		148,836		17.0	%	Total office buildings and complexes	135,816		4,776		140,592		15.0	%
Apartment complexes										Apartment complexes	106,136		7,000		113,136		12.0	%
Mixed-use facilities:	Mixed-use facilities:									Mixed-use facilities:
Owner occupied	Owner occupied	58,394		1,493		59,887		6.9	%	Owner occupied	56,726		1,594		58,320		6.2	%
Non-owner occupied	Non-owner occupied	42,580		532		43,112		4.9	%	Non-owner occupied	37,890		732		38,622		4.1	%
Total mixed-use facilities	Total mixed-use facilities	100,974		2,025		102,999		11.8	%	Total mixed-use facilities	94,616		2,326		96,942		10.3	%
Retail facilities:	Retail facilities:									Retail facilities:
Owner occupied	Owner occupied	39,005		612		39,617		4.5	%	Owner occupied	39,159		1,120		40,279		4.3	%
Non-owner occupied	Non-owner occupied	56,931		98		57,029		6.5	%	Non-owner occupied	56,140		250		56,390		6.0	%
Total retail facilities	Total retail facilities	95,936		710		96,646		11.0	%	Total retail facilities	95,299		1,370		96,669		10.3	%
Apartment complexes		83,031		4,596		87,627		10.0	%
Warehouse facilities		64,935		6,528		71,463		8.2	%
Light industrial facilities:	Light industrial facilities:									Light industrial facilities:
Owner occupied	Owner occupied	45,602		1,078		46,680		5.3	%	Owner occupied	51,232		866		52,098		5.5	%
Non-owner occupied	Non-owner occupied	22,235		1,088		23,323		2.7	%	Non-owner occupied	20,987		1,088		22,075		2.3	%
Total light industrial facilities	Total light industrial facilities	67,837		2,166		70,003		8.0	%	Total light industrial facilities	72,219		1,954		74,173		7.8	%
Lodging and lodging related		52,396		846		53,242		6.1	%
Assisted living facilities and nursing homes		42,710		250		42,960		4.9	%

Land only		18,611		1,679		20,290		2.3	%
Day care facilities:
Warehouse facilities:										Warehouse facilities:
Owner occupied	Owner occupied	16,143		544		16,687		1.9	%	Owner occupied	34,742		3,650		38,392		4.1	%
Non-owner occupied	Non-owner occupied	2,288		—		2,288		0.3	%	Non-owner occupied	24,600		6		24,606		2.6	%
Total day care facilities		18,431		544		18,975		2.2	%
Health care facilities:
Total warehouse facilities										Total warehouse facilities	59,342		3,656		62,998		6.7	%
Assisted living facilities and nursing homes										Assisted living facilities and nursing homes	62,657		250		62,907		6.7	%
Lodging and lodging related:										Lodging and lodging related:
Owner occupied	Owner occupied	8,539		140		8,679		1.0	%	Owner occupied	12,573		45		12,618		1.3	%
Non-owner occupied	Non-owner occupied	9,859		2		9,861		1.1	%	Non-owner occupied	40,492		—		40,492		4.3	%
Total health care facilities		18,398		142		18,540		2.1	%
Total lodging and lodging related										Total lodging and lodging related	53,065		45		53,110		5.6	%
Education services:										Education services:
Owner occupied										Owner occupied	13,369		98		13,467		1.4	%
Non-owner occupied										Non-owner occupied	21,512		—		21,512		2.3	%
Total education services										Total education services	34,881		98		34,979		3.7	%
Gas station facilities:	Gas station facilities:									Gas station facilities:
Owner occupied	Owner occupied	12,718		—		12,718		1.5	%	Owner occupied	18,031		—		18,031		1.9	%
Non-owner occupied	Non-owner occupied	4,543		—		4,543		0.5	%	Non-owner occupied	5,059		—		5,059		0.5	%
Total gas station facilities	Total gas station facilities	17,261		—		17,261		2.0	%	Total gas station facilities	23,090		—		23,090		2.4	%
Agriculture										Agriculture	19,586		734		20,320		2.2	%

Other (a)	Other (a)	175,767		4,281		125,046		14.4	%	Other (a)	156,532		6,005		162,537		17.3	%
Total commercial real estate, other	Total commercial real estate, other	$	897,817	$	31,073	$	873,888	100.0	%	Total commercial real estate, other	$	913,239	$	28,214	$	941,453	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. In all other states, the aggregate outstanding balances of commercial loans in each state were not material at either ~~March 31,~~September 30, 2020 or December 31, 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 and/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 has authorized approximately $480 million of loans through May 1, 2020. Peoples will continue to provide PPP loans, to the extent that increases are made to the program.

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Peoples is a PPP participating lender, and as of September 30, 2020, Peoples had principal balances of PPP loans of $472.0 million, net of payoffs during the quarter, included in commercial and industrial loans. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which totaled $11.6 million at September 30, 2020. For the third quarter of 2020, Peoples recorded amortization of net deferred loan origination fees of $1.9 million on PPP loans, and had recorded $3.8 million for the first nine months of 2020. 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 September 30, 2020, Peoples had assisted 176 Ohio small businesses with approximately $10.0 million in loans.

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 qualifications are met.~~needed. 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 May 1, 2020, Peoples had approved forbearance or payment relief for 1,137 customers, for loan balances of $39 million, and executed forbearance or payment relief for over 819 consumer loan customers, with loan balances of nearly $22 million, in obtaining relief through forbearance programs or deferred payments.

In addition, for commercial borrowers who meet certain criteria, Peoples is providing interest-only payment options, principal and interest deferrals, and increased financing. AsPeoples continues to prudently work with borrowers and review any additional requests for deferment more closely. These requests are maintained within the CARES Act guidance and have not exceeded twelve consecutive months of ~~May 1,~~deferred payment.

The majority of the modifications granted to customers expired during the third quarter of 2020, and at September 30, 2020, Peoples had ~~approved $534~~approximately $13.6 million of ~~loan modifications to~~deferments outstanding. Of this total, commercial loan ~~customers. Peoples will continue~~deferments comprised $8.7 million, while consumer loans totaled $4.9 million. Borrowers within the lodging industry account for nearly 60% of the additional deferments requested. The lodging industry continues to ~~work~~be impacted by the COVID-19 pandemic, with ~~its customers in identifying relief solutions during this economic downturn.~~a negative outlook for travel demand among both business and leisure customers.

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.~~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 ~~70%~~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 September 30, 2020, within certain industries that have been impacted:


(Dollars in thousands)	(Dollars in thousands)	Outstanding Balance		% of Total Loans		Loan-to-Value		Total Commitment		(Dollars in thousands)	Outstanding Balance		% of Total Loans		Loan-to-Value		Total Commitment
Restaurants(a)	Restaurants(a)	$	157,485	5.4	%	62.1	%	$	171,051	Restaurants(a)	$	217,275	6.3	%	60.3	%	$	229,645
Multifamily	Multifamily	117,175		4.0	%	60.1	%	146,225		Multifamily	132,602		3.8	%	64.7	%	184,788
Floorplans ~~(a)~~(b)	Floorplans ~~(a)~~(b)	96,536		3.3	%	100.0	%	128,350		Floorplans ~~(a)~~(b)	68,600		2.0	%	100.0	%	146,100
Assisted living facilities and nursing homes(c)	Assisted living facilities and nursing homes(c)	79,515		2.7	%	72.9	%	111,084		Assisted living facilities and nursing homes(c)	95,897		2.8	%	72.3	%	121,990
Lodging and lodging related(d)	Lodging and lodging related(d)	70,605		2.4	%	64.8	%	82,203		Lodging and lodging related(d)	73,893		2.1	%	67.5	%	84,689
Total	Total	$	521,316	17.8	%			$	638,913	Total	$	588,267	17.0	%			$	767,212

(a)Restaurants outstanding balance includes $60.3 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.

Compared to June 30, 2020, outstanding balances to impacted industries decreased $1.1 million, while total commitments grew by $20.1 million, with most of the increase in commitment amounts related to floorplans. The additional floorplan commitment was related to a dealership that is part of a larger auto group and has strong credit metrics.

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Approximately ~~77%~~73% of Peoples' outstanding balance to restaurants iswas to McDonald's franchise operators, which have additional guarantor support, as well as McDonald's corporate assistance with rent and service fee deferments. Peoples had approximately $115.9 million of deferments to restaurant operators granted due to the pandemic. Of the ~~remaining~~$115.9 million of deferments, approximately $95.3 million of the deferments expired in June and July, while another $15.4 million expired at the end of August.

The total restaurant portfolio outstanding balance of restaurant loans, approximately 20% are enhanced with SBA guarantees. As of May 1, 2020, Peoples had modified approximately $129 million of restaurant loans. Peoples approved $121 million in modifications to McDonald’s operators and $8 million to non-McDonald’s operators. The total portfolio outstanding balances of non-McDonald’s operators was ~~$37~~$58.7 million at ~~March 31, 2020.~~September 30, 2020, which included $27.4 million of PPP loans. The loans to non-McDonald's operators included $4.8 million of loans for which there is a government guarantee enhancement through the CARES Act. Two loans remained on deferment at September 30, 2020, totaling approximately $2.3 million in outstanding balances.

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~~accounted for ~~40%~~45% of the portfolio balances. The top five relationships consist of five properties with an average loan-to-value of ~~68%~~70%. 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~~One of the largest ~~loan~~loans in the portfolio accounts for ~~14%~~11% of the portfolio ~~balance.~~balances. The loan has notable guarantor support, with a reported unencumbered liquidity level of more than $200 million.

For floorplan loans, Peoples has a ~~robust~~detailed 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 ~~May 1,~~September 30, 2020, Peoples had no requests from these customers for relief.

~~Table of Contents~~

The majority of Peoples' lodging and lodging related outstanding balances are loans to larger established franchises. This portfolio includes $2.3 million of PPP loans. The top ~~five~~three relationships, in terms of aggregate credit exposures, account for ~~84%~~70% of the portfolio balance. ~~The top five relationships consist~~Peoples has provided payment relief to 80% of ~~six~~the lodging and lodging related portfolio, which consists of primarily 13 properties, ~~with~~which have an average loan-to-value ratio of ~~56%~~68%. Peoples' commercial loan policy for this specific property type is a maximum loan-to-value of 65%. These ~~relationships~~properties include ten nationally franchised locations, while two of the remaining properties are cabin rentals, which have ~~average~~not been as heavily impacted by the pandemic. The guarantor liquidity is strong on half of ~~greater than $1 million. Additional support is provided by guarantor strength on~~ the ~~majority of these relationships. As of May 1, 2020, Peoples had modified approximately $70 million of~~properties securing the lodging and lodging related ~~loans.~~portfolio.

Peoples' exposure to energy loans was not material at ~~March 31,~~September 30, 2020. Energy loan balances were ~~$6.1~~$3.8 million, or less than 1% of total loans, as of ~~March 31,~~September 30, 2020, with a total commitment of ~~$8.7~~$5.6 million. Peoples' energy loans are mostly to operators ~~with~~who provide support services for oil and gas companies.

Allowance for Credit Losses

The amount of the allowance for 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 expected within the loan portfolio.

The following details management's allocation of the allowance for credit losses:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019			(Dollars in thousands)	September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
Commercial real estate	Commercial real estate	$	13,884		$	7,333		$	8,466		$	8,245		$	8,297		Commercial real estate	$	21,549		$	21,810		$	13,884		$	7,333		$	8,466
Commercial and industrial	Commercial and industrial	8,743			8,432			7,162			7,197			6,743			Commercial and industrial	14,085			10,106			8,743			8,432			7,162
Total commercial	Total commercial	22,627			15,765			15,628			15,442			15,040			Total commercial	35,634			31,916			22,627			15,765			15,628
Residential real estate	Residential real estate	5,744			1,191			1,162			1,184			1,213			Residential real estate	5,988			6,380			5,744			1,191			1,162
Home equity lines of credit	Home equity lines of credit	1,695			546			567			598			608			Home equity lines of credit	1,797			1,755			1,695			546			567
Consumer, indirect	Consumer, indirect	10,878			2,937			3,247			3,172			3,133			Consumer, indirect	12,772			12,293			10,878			2,937			3,247
Consumer, direct	Consumer, direct	1,803			294			339			342			351			Consumer, direct	1,861			1,941			1,803			294			339
Consumer	Consumer	12,681			3,231			3,586			3,514			3,484			Consumer	14,633			14,234			12,681			3,231			3,586
Deposit account overdrafts	Deposit account overdrafts	86			94			128			86			61			Deposit account overdrafts	76			77			86			94			128
Originated allowance for credit losses	Originated allowance for credit losses	42,833			20,827			21,071			20,824			20,406			Originated allowance for credit losses	58,128			54,362			42,833			20,827			21,071

Acquired allowance for credit losses^(1)(a)	Acquired allowance for credit losses^(1)(a)	—			729			514			533			533			Acquired allowance for credit losses^(1)(a)	—			—			—			729			514
Allowance for credit losses^(2)(b)	Allowance for credit losses^(2)(b)	$	42,833		$	21,556		$	21,585		$	21,357		$	20,939		Allowance for credit losses^(2)(b)	$	58,128		$	54,362		$	42,833		$	21,556		$	21,585
As a percent of total loans	As a percent of total loans	1.47		%	0.75		%	0.76		%	0.75		%	0.76		%	As a percent of total loans	1.67		%	1.62		%	1.47		%	0.75		%	0.76		%

~~(1)~~(a) 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 ~~current expected credit loss~~CECL model.

~~(2)~~(b) As of March 31, 2020, Peoples calculated the allowance for credit losses using the ~~current expected credit loss~~CECL model, while previous periods used the incurred loss model.

~~At March 31, 2020, the allowance for loan losses was $42.8 million, compared to $21.6 million at December 31, 2019 and $20.9 million at March 31, 2019. The ratio~~

Table of ~~the allowance for loan losses as a percent of total loans was 1.47% at March 31, 2020, compared to 0.75% at December 31, 2019 and 0.76% at March 31, 2019.~~ Contents

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 toon 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.

During the third quarter of 2020, Peoples recorded a specific reserve of $1.9 million on a commercial relationship that had been uniquely impacted by COVID-19. In addition, Peoples increased its allowance for credit losses mostly due to the premium finance company acquisition completed on July 1, 2020, which included $84.8 million in loans at the acquisition date. The economic ~~forecast used in~~forecasts at the ~~March 31,~~end of September 2020 ~~calculation~~included more positive indications within unemployment and Ohio Gross Domestic Product compared to June 30, 2020. The PPP loans originated during the second and third quarter of 2020 are guaranteed by the SBA, and therefore, had no impact on the allowance for credit losses at September 30, 2020 and June 30, 2020. The PPP loans did have a negative impact on the allowance for credit losses as a percent of total loans at September 30, 2020 and June 30, 2020, as they were included in total loans but had no related allowance for credit losses. The PPP loans reduced the allowance for credit losses as a percent of total loans by 26 basis points at September 30, 2020 and 25 basis points at June 30, 2020.

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 Ohio, and lower Ohio Gross Domestic Product, which ~~drove much of~~are the ~~increase~~key assumptions within the CECL model, compared to March 31, 2020 and January 1, 2020. This was similar to the impact that COVID-19 had on economic forecasts at March 31, 2020, which also resulted in ~~the~~a higher allowance for credit losses ~~at March~~compared to December 31, ~~2020.~~2019.

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 Notes to the Unaudited Consolidated Financial Statements.

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The following table summarizes Peoples’ net charge-offs and recoveries:


		Three Months Ended																												Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019			(Dollars in thousands)	September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
Gross charge-offs:	Gross charge-offs:																Gross charge-offs:

Commercial real estate, other	Commercial real estate, other	$	10		$	—		$	—		$	43		$	113		Commercial real estate, other	$	109		$	135		$	10		$	—		$	—

Commercial and industrial	Commercial and industrial	937			738			261			—			63			Commercial and industrial	148			15			937			738			261
Residential real estate	Residential real estate	118			55			81			67			109			Residential real estate	121			16			118			55			81
Home equity lines of credit	Home equity lines of credit	14			10			36			—			9			Home equity lines of credit	—			9			14			10			36
Consumer, indirect	Consumer, indirect	721			563			447			346			473			Consumer, indirect	370			336			721			563			447
Consumer, direct	Consumer, direct	62			61			54			33			63			Consumer, direct	15			51			62			61			54
Consumer	Consumer	783			624			501			379			536			Consumer	385			387			783			624			501
Deposit account overdrafts	Deposit account overdrafts	213			219			283			176			173			Deposit account overdrafts	202			119			213			219			283
Total gross charge-offs	Total gross charge-offs	$	2,075		$	1,646		$	1,162		$	665		$	1,003		Total gross charge-offs	$	965		$	681		$	2,075		$	1,646		$	1,162
Recoveries:	Recoveries:																Recoveries:

Commercial real estate, other	Commercial real estate, other	$	116		$	53		$	86		$	2		$	10		Commercial real estate, other	$	4		$	6		$	116		$	53		$	86

Commercial and industrial	Commercial and industrial	1,204			322			81			228			1,784			Commercial and industrial	—			805			1,204			322			81
Residential real estate	Residential real estate	57			9			87			102			31			Residential real estate	100			100			57			9			87
Home equity lines of credit	Home equity lines of credit	1			1			8			1			1			Home equity lines of credit	2			8			1			1			8
Consumer, indirect	Consumer, indirect	125			41			67			47			115			Consumer, indirect	64			72			125			41			67
Consumer, direct	Consumer, direct	14			7			5			27			13			Consumer, direct	13			10			14			7			5
Consumer	Consumer	139			48			72			74			128			Consumer	77			82			139			48			72
Deposit account overdrafts	Deposit account overdrafts	60			48			51			50			56			Deposit account overdrafts	47			49			60			48			51
Total recoveries	Total recoveries	$	1,577		$	481		$	385		$	457		$	2,010		Total recoveries	$	230		$	1,050		$	1,577		$	481		$	385
Net charge-offs (recoveries):	Net charge-offs (recoveries):																Net charge-offs (recoveries):

Commercial real estate, other	Commercial real estate, other	$	(106)		$	(53)		$	(86)		$	41		$	103		Commercial real estate, other	$	105		$	129		$	(106)		$	(53)		$	(86)

Commercial and industrial	Commercial and industrial	(267)			416			180			(228)			(1,721)			Commercial and industrial	148			(790)			(267)			416			180
Residential real estate	Residential real estate	61			46			(6)			(35)			78			Residential real estate	21			(84)			61			46			(6)
Home equity lines of credit	Home equity lines of credit	13			9			28			(1)			8			Home equity lines of credit	(2)			1			13			9			28
Consumer, indirect	Consumer, indirect	596			522			380			299			358			Consumer, indirect	306			264			596			522			380
Consumer, direct	Consumer, direct	48			54			49			6			50			Consumer, direct	2			41			48			54			49
Consumer	Consumer	644			576			429			305			408			Consumer	308			305			644			576			429
Deposit account overdrafts	Deposit account overdrafts	153			171			232			126			117			Deposit account overdrafts	155			70			153			171			232
Total net charge-offs (recoveries)	Total net charge-offs (recoveries)	$	498		$	1,165		$	777		$	208		$	(1,007)		Total net charge-offs (recoveries)	$	735		$	(369)		$	498		$	1,165		$	777
Ratio of net charge-offs (recoveries) to average total loans (annualized):	Ratio of net charge-offs (recoveries) to average total loans (annualized):																														Ratio of net charge-offs (recoveries) to average total loans (annualized):

Commercial real estate, other	Commercial real estate, other	(0.01)		%	—		%	(0.01)		%	0.01		%	0.02		%	Commercial real estate, other	0.01		%	0.02		%	(0.01)		%	(0.01)		%	(0.01)		%
Commercial real estate		(0.01)		%	(0.01)		%	(0.01)		%	0.01		%	0.02		%

Commercial and industrial	Commercial and industrial	(0.04)		%	0.06		%	0.03		%	(0.03)		%	(0.26)		%	Commercial and industrial	0.02		%	(0.11)		%	(0.04)		%	0.06		%	0.03		%
Residential real estate	Residential real estate	0.01		%	0.01		%	—		%	—		%	0.01		%	Residential real estate	—		%	(0.01)		%	0.01		%	0.01		%	—		%

Consumer, indirect	Consumer, indirect	0.08		%	0.07		%	0.05		%	0.03		%	0.05		%	Consumer, indirect	0.03		%	0.03		%	0.08		%	0.07		%	0.05		%
Consumer, other		0.01		%	0.01		%	0.01		%	—		%	0.01		%
Consumer, direct																	Consumer, direct	—		%	0.01		%	0.01		%	0.01		%	0.01		%
Consumer	Consumer	0.09		%	0.08		%	0.06		%	0.03		%	0.06		%	Consumer	0.03		%	0.04		%	0.09		%	0.08		%	0.06		%
Deposit account overdrafts	Deposit account overdrafts	0.02		%	0.02		%	0.03		%	0.02		%	0.02		%	Deposit account overdrafts	0.02		%	0.01		%	0.02		%	0.02		%	0.03		%
Total	Total	0.07		%	0.16		%	0.11		%	0.03		%	(0.15)		%	Total	0.08		%	(0.05)		%	0.07		%	0.16		%	0.11		%

Each with "--%" not meaningful.

Net charge-offs during the third quarter of 2020 were 0.08% of average total loans on an annualized basis. The increases in net charge-offs during the third quarter of 2020 compared to the linked quarter and the first quarter of 2020 ~~continued~~were related to ~~be low as~~ a ~~result of relatively stable asset quality metrics. The first quarters~~$750,000 recovery during the second quarter of 2020 ~~and 2019 included recoveries of~~on a single commercial loan relationship that had been previously charged-off, while a $1.2 million ~~and $1.8 million, respectively, recorded~~recovery occurred during the first quarter of 2020 on ~~a previously charged-off commercial loan.~~the same relationship.

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The following table details Peoples’ nonperforming assets:

(Dollars in thousands) March 31,
2020 December 31,
2019 September 30,
2019 June 30,
2019 March 31,
2019
Loans 90+ days past due and accruing (a):
Construction $ — $ — $ — $ 230 $ —
Commercial real estate, other — 907 582 557 15
   Commercial real estate — 907 582 787 15
Commercial and industrial 806 155 572 261 50
Residential real estate 557 2,677 3,095 2,291 963
Home equity lines of credit 143 108 183 53 42
Consumer, indirect — — — — 4
Consumer, direct 37 85 83 57 —
   Consumer 37 85 83 57 4
Total loans 90+ days past due and accruing $ 1,543 $ 3,932 $ 4,515 $ 3,449 $ 1,074
Nonaccrual loans (a):
Construction $ 99 411 $ 230 $ 688 $ 703
Commercial real estate, other 9,167 6,699 6,723 6,427 6,459
   Commercial real estate 9,266 7,110 6,953 7,115 7,162
Commercial and industrial 4,408 1,824 883 1,748 1,719
Residential real estate 6,156 4,471 4,237 3,868 4,479
Home equity lines of credit 978 955 893 1,001 1,065
Consumer, indirect 637 629 568 383 440
Consumer, direct 122 48 55 13 17
   Consumer 759 677 623 396 457
Total nonaccrual loans $ 21,567 $ 15,037 $ 13,589 $ 14,128 $ 14,882
Nonaccrual troubled debt restructurings ("TDRs"):
Commercial real estate, other $ 410 $ 102 $ 112 $ 122 $ 127
Commercial and industrial 602 331 332 332 332
Residential real estate 2,484 1,890 1,770 1,664 1,389
Home equity lines of credit 174 210 194 193 195
Consumer, indirect 197 211 203 152 159
Consumer, direct 48 — — — 5
   Consumer 245 211 203 152 164
Total nonaccrual TDRs $ 3,915 $ 2,744 $ 2,611 $ 2,463 $ 2,207
Total nonperforming loans ("NPLs") $ 27,025 $ 21,713 $ 20,715 $ 20,040 $ 18,163
OREO:
Commercial $ 145 $ 145 $ 145 $ — $ —
Residential $ 81 $ 82 $ 144 $ 123 $ 81
Total OREO $ 226 $ 227 $ 289 $ 123 $ 81
Total nonperforming assets ("NPAs") $ 27,251 $ 21,940 $ 21,004 $ 20,163 $ 18,244
Criticized loans (b) $ 90,881 $ 96,830 $ 100,434 $ 97,016 $ 89,812
Classified loans (c) 68,787 66,154 58,938 63,048 47,327


(Dollars in thousands)	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019
Loans 90+ days past due and accruing (a):

Commercial real estate, other	$	80	$	130	$	—	$	907	$	582

Commercial and industrial	74		—		806		155		572
Residential real estate	2,548		1,618		557		2,677		3,095
Home equity lines of credit	27		46		143		108		183
Consumer, indirect	86		57		—		—		—
Consumer, direct	—		29		37		85		83
Consumer	86		86		37		85		83
Total loans 90+ days past due and accruing	$	2,815	$	1,880	$	1,543	$	3,932	$	4,515
Nonaccrual loans (a):
Construction	$	4	$	4	$	99	411		$	230
Commercial real estate, other	8,762		9,413		9,167		6,699		6,723
Commercial real estate	8,766		9,417		9,266		7,110		6,953
Commercial and industrial	4,067		4,745		4,408		1,824		883
Residential real estate	6,027		8,867		6,156		4,471		4,237
Home equity lines of credit	754		687		978		955		893
Consumer, indirect	801		802		637		629		568
Consumer, direct	148		208		122		48		55
Consumer	949		1,010		759		677		623
Total nonaccrual loans	$	20,563	$	24,726	$	21,567	$	15,037	$	13,589
Nonaccrual troubled debt restructurings ("TDRs"):

Commercial real estate, other	$	772	$	265	$	410	$	102	$	112
Commercial and industrial	2,250		—		602		331		332
Residential real estate	2,481		38		2,484		1,890		1,770
Home equity lines of credit	165		—		174		210		194
Consumer, indirect	160		—		197		211		203
Consumer, direct	45		—		48		—		—
Consumer	205		—		245		211		203
Total nonaccrual TDRs	$	5,873	$	303	$	3,915	$	2,744	$	2,611
Total nonperforming loans ("NPLs")	$	29,251	$	26,909	$	27,025	$	21,713	$	20,715
OREO:
Commercial	$	145	$	145	$	145	$	145	$	145
Residential	$	148	$	91	$	81	$	82	$	144
Total OREO	$	293	$	236	$	226	$	227	$	289
Total nonperforming assets ("NPAs")	$	29,544	$	27,145	$	27,251	$	21,940	$	21,004
Criticized loans (b)	$	123,219	$	105,499	$	90,881	$	96,830	$	100,434
Classified loans (c)	76,009		66,567		68,787		66,154		58,938

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

Asset Quality Ratios:	Asset Quality Ratios:											Asset Quality Ratios:
NPLs as a percent of total loans (d)(e)	NPLs as a percent of total loans (d)(e)	0.93	%	0.75	%	0.73	%	0.71	%	0.66	%	NPLs as a percent of total loans (d)(e)	0.84	%	0.80	%	0.93	%	0.75	%	0.73	%
NPAs as a percent of total assets (d)(e)	NPAs as a percent of total assets (d)(e)	0.61	%	0.50	%	0.48	%	0.47	%	0.45	%	NPAs as a percent of total assets (d)(e)	0.60	%	0.54	%	0.61	%	0.50	%	0.48	%
NPAs as a percent of total loans and OREO (d)(e)	NPAs as a percent of total loans and OREO (d)(e)	0.94	%	0.76	%	0.74	%	0.71	%	0.67	%	NPAs as a percent of total loans and OREO (d)(e)	0.85	%	0.80	%	0.94	%	0.76	%	0.74	%
Allowance for loan losses as a percent of NPLs (d)		158.49	%	99.28	%	104.20	%	106.57	%	115.28	%
Allowance for credit losses as a percent of NPLs (d)(e)												Allowance for credit losses as a percent of NPLs (d)(e)	198.72	%	202.02	%	158.49	%	99.28	%	104.20	%
Criticized loans as a percent of total loans (b)(d)	Criticized loans as a percent of total loans (b)(d)	3.12	%	3.37	%	3.52	%	3.42	%	3.28	%	Criticized loans as a percent of total loans (b)(d)	3.55	%	3.14	%	3.12	%	3.37	%	3.52	%
Classified loans as a percent of total loans (c)(d)	Classified loans as a percent of total loans (c)(d)	2.36	%	2.30	%	2.07	%	2.23	%	1.73	%	Classified loans as a percent of total loans (c)(d)	2.19	%	1.98	%	2.36	%	2.30	%	2.07	%

(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.

(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.

During the third quarter of 2020, nonperforming assets increased $2.4 million compared to June 30, 2020. The growth was partially due to an increase in nonaccrual loans which was related to the relationship for which Peoples placed a specific reserve at September 30, 2020. Loans 90+ days past due and accruing also increased compared to June 30, 2020, and was mostly due to several smaller residential real estate loans. The nonperforming loans as a percent of total loans and nonperforming assets as a percent of total assets ratios increased compared to June 30, 2020, due to the additional nonperforming loans during the third quarter of 2020. The decline in the ratios at June 30, 2020 compared to March 31, 2020, was largely due to the additional PPP loans originated during the second quarter of 2020, which increased total loans and total assets.

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 remaining increases in nonperforming assets compared to December 31, 2019 and March 31, 2019, were primarily due to a $1.5 million commercial relationship and several smaller commercial relationships being placed on nonaccrual. The increase in nonperforming assets at March 31, 2020 compared to March 31, 2019 was also partially due to acquired loans from First Prestonsburg.

Criticized loans, which are those categorized as special mention, substandard or doubtful, ~~decreased $5.9~~increased $17.7 million, or 6%17%, compared to June 30, 2020 and $26.4 million, or 27%, compared to December 31, 2019. The decline was mostly due to paydowns and upgrades of several loans during the quarter. The increase in criticized loans compared to March 31, 2019 was largely related to acquired First Prestonsburg loans, partially offset by the upgrade of several commercial relationships. Classified loans, which are those categorized as substandard or doubtful, ~~increased $2.6~~grew $9.4 million, or 4%14%, compared to June 30, 2020, and were up $9.9 million, or 15%, compared to December 31, ~~2019, driven~~2019. For the third quarter of 2020, $17.5 million of downgrades to criticized loans were related to COVID-19, with classified loans including $9.3 million of COVID-related downgrades.

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 ~~downgrade~~U.S. federal government or any state government related to COVID-19 are not in the scope of ASC 310-40.

On August 3, 2020, federal and state banking regulators issued a ~~commercial loan relationship totaling $3.6 million. The increase in classified loans compared~~joint statement, encouraging financial institutions to ~~March 31, 2019 was driven by~~consider prudent accommodation options to mitigate losses for the ~~downgrades~~borrower and financial institution beyond the initial accommodation period. In this guidance, institutions should also provide consumers with available options for repaying missed payments at the end of ~~four commercial loan relationships totaling $18.8 million.~~their accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable and affordable payments for the long term. These considerations should also include prudent risk management practices at the financial institution based on the credit risk of the borrower. Peoples is actively working with its customers to address any further accommodation needs while carefully evaluating the associated credit risk of the borrowers.

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Deposits

The following table details Peoples’ deposit balances:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019		March 31, 2019		(Dollars in thousands)	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019
Non-interest-bearing deposits (a)	Non-interest-bearing deposits (a)	$	727,266	$	671,208	$	677,232	$	643,058	$	628,464	Non-interest-bearing deposits (a)	$	982,912	$	1,005,732	$	727,266	$	671,208	$	677,232
Interest-bearing deposits:	Interest-bearing deposits:											Interest-bearing deposits:
Interest-bearing demand accounts (a)	Interest-bearing demand accounts (a)	637,011		635,720		622,496		610,464		572,316		Interest-bearing demand accounts (a)	666,134		666,181		637,011		635,720		622,496
Savings accounts	Savings accounts	527,295		521,914		526,372		526,746		477,824		Savings accounts	589,625		580,703		527,295		521,914		526,372
Retail certificates of deposit ("CDs")	Retail certificates of deposit ("CDs")	487,153		490,830		488,942		497,221		404,186		Retail certificates of deposit ("CDs")	461,216		474,593		487,153		490,830		488,942
Money market deposit accounts	Money market deposit accounts	485,999		469,893		441,989		428,213		403,642		Money market deposit accounts	581,398		598,641		485,999		469,893		441,989
Governmental deposit accounts	Governmental deposit accounts	400,184		293,908		337,941		331,754		363,636		Governmental deposit accounts	409,967		377,787		400,184		293,908		337,941
Brokered CDs		133,522		207,939		262,230		326,157		287,345
Brokered deposits												Brokered deposits	260,753		321,247		133,522		207,939		262,230
Total interest-bearing deposits	Total interest-bearing deposits	2,671,164		2,620,204		2,679,970		2,720,555		2,508,949		Total interest-bearing deposits	2,969,093		3,019,152		2,671,164		2,620,204		2,679,970
Total deposits	Total deposits	$	3,398,430	$	3,291,412	$	3,357,202	$	3,363,613	$	3,137,413	Total deposits	$	3,952,005	$	4,024,884	$	3,398,430	$	3,291,412	$	3,357,202

(a)The sum of amounts presented is considered total demand deposits.

At ~~March 31,~~September 30, 2020, period-end deposits ~~were up $107.0~~decreased $72.9 million, or ~~3% compared to December 31, 2019, and increased $261.0 million, or 8%~~2%, compared to ~~March 31,~~June 30, 2020, and increased $594.8 million, or 18%, compared to September 30, 2019. ~~Compared~~The decrease in total deposits compared to ~~December 31, 2019,~~ the ~~majority~~second quarter of ~~the increase~~2020 was ~~seasonal, driven~~related to decreases in brokered deposits and retail CDs, which were partially offset by an increase in governmental ~~deposits of $106.3 million. Non-interest-bearing deposit account balances grew $56.1 million, or 8%, and~~deposits. As brokered CDs ~~were down $74.4 million, or 36%, compared~~and retail CDs matured, the liquidity was used for the purchase of the premium finance company at the beginning of the third quarter of 2020. The growth in non-interest-bearing deposits during the second quarter was related to customers maintaining higher balances, as a result of PPP loan proceeds, fiscal stimulus and changes in customer habits in light of the ~~linked quarter. The increase in period-end deposits compared to March 31, 2019 was primarily driven by the deposits acquired~~COVID-19 pandemic. In prior quarterly periods in the ~~First Prestonsburg acquisition.~~table above, Peoples experienced increases in mostly low-cost deposit categories.

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~~Over~~In the ~~past four quarters,~~prior quarterly periods noted in the table above, Peoples ~~has~~had reduced its reliance on higher-rate brokered ~~CDs,~~deposits, which ~~include~~included one-way buy Certificate of Deposit Account Registry Services. This was partially offset by the issuance of 90-day brokered ~~CDs~~deposits to fund interest rate swaps. During each of the fourth and third ~~quarter~~quarters of 2019, Peoples issued $10.0 million of 90-day brokered ~~CDs~~deposits to fund one interest rate swap with a notional value of $10.0 million. ~~During the second quarter of 2019, Peoples issued $30.0 million of 90-day brokered CDs to fund three $10.0 million interest rate swaps with a notional value in the aggregate of $30.0 million.~~ The ~~swaps~~swap will pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered ~~CDs.~~deposits. The brokered ~~CDs~~deposits are expected to be extended every 90 days through the maturity dates of the swaps.

Total demand deposit accounts comprised ~~40%~~42% of total deposits at ~~both March 31,~~September 30, 2020 and ~~December 31, 2019, compared to 38%~~June 30, 2020, and 39% at ~~March 31,~~September 30, 2019. Peoples continues its deposit strategy of growing low-cost core deposits, such as checking and savings accounts, ~~and relying on higher-cost, non-core~~while utilizing brokered deposits ~~such~~ as ~~brokered CDs~~a funding source when ~~deposits are not available in Peoples' footprint.~~necessary.

Borrowed Funds

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


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019		March 31, 2019		(Dollars in thousands)	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019
Short-term borrowings:	Short-term borrowings:											Short-term borrowings:
Overnight borrowings	Overnight borrowings	$	64,000	$	141,000	$	106,000	$	—	$	24,000	Overnight borrowings	$	—	$	—	$	64,000	$	141,000	$	106,000
FHLB 90-day advances	FHLB 90-day advances	110,000		110,000		110,000		117,200		110,000		FHLB 90-day advances	110,000		110,000		110,000		110,000		110,000
Current portion of long-term FHLB advances	Current portion of long-term FHLB advances	45,000		23,009		23,069		23,129		13,188		Current portion of long-term FHLB advances	25,000		25,000		45,000		23,009		23,069
Retail repurchase agreements	Retail repurchase agreements	40,661		42,968		49,081		46,128		44,175		Retail repurchase agreements	47,063		42,912		40,661		42,968		49,081

Total short-term borrowings	Total short-term borrowings	$	259,661	$	316,977	$	288,150	$	186,457	$	191,363	Total short-term borrowings	$	182,063	$	177,912	$	259,661	$	316,977	$	288,150
Long-term borrowings:	Long-term borrowings:											Long-term borrowings:
FHLB advances	FHLB advances	$	125,300	$	75,672	$	76,785	$	78,324	$	98,670	FHLB advances	$	103,815	$	105,005	$	125,300	$	75,672	$	76,785

Junior subordinated debt securities	Junior subordinated debt securities	7,491		7,451		7,409		7,367		7,325		Junior subordinated debt securities	7,571		7,531		7,491		7,451		7,409
Total long-term borrowings	Total long-term borrowings	$	132,791	$	83,123	$	84,194	$	85,691	$	105,995	Total long-term borrowings	$	111,386	$	112,536	$	132,791	$	83,123	$	84,194
Total borrowed funds	Total borrowed funds	$	392,452	$	400,100	$	372,344	$	272,148	$	297,358	Total borrowed funds	$	293,449	$	290,448	$	392,452	$	400,100	$	372,344

Peoples' overnight borrowings are maintained in connection with the management of Peoples' daily liquidity position. 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 $141.0 million as of March 31, 2020~~Total borrowed funds were relatively flat compared to ~~December 31, 2019, was primarily tied~~June 30, 2020, as Peoples utilized cash and cash equivalents, coupled with paydowns and proceeds from maturities from its investment securities portfolio to ~~the growth in deposits during the quarter.~~satisfy most of its liquidity needs. As of ~~March 31,~~September 30, 2020,

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Peoples had ~~seventeen~~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 remaining $50.0 million of interest rate swaps were funded by 90-day brokered ~~CDs,~~deposits, which are also expected to be extended every 90 days through the maturity dates of the swaps. Peoples continually evaluates the overall balance sheet position given the interest rate environment. The decline in borrowed funds at June 30, 2020, compared to March 31, 2020 was mostly due to the reduced need of overnight borrowings to fund liquidity needs as Peoples experienced an influx in deposit balances during the period, which was mostly related to PPP proceeds and government fiscal stimulus. During the first quarter of 2020, Peoples borrowed $50.0 million ofthrough long-term FHLB putable, non-amortizing fixed-rates advances. ~~Compared to March 31, 2019, the increase in FHLB advances was partially offset by principal payments.~~

Additional information regarding Peoples' interest rate swaps can be found in "Note 9 Derivative Financial Instruments" of the Notes to the Unaudited Consolidated Financial Statements.

Capital/Stockholders’ Equity

At ~~March 31,~~September 30, 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. In 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 of 2.50%, which applies to the common equity tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio. At ~~March 31,~~September 30, 2020, Peoples had a capital conservation buffer of ~~7.38%~~6.33%. As such, Peoples exceeded the minimum ratios including the capital conservation buffer at ~~March 31,~~September 30, 2020.

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The following table details Peoples' risk-based capital levels and corresponding ratios:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019			(Dollars in thousands)	September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
Capital Amounts:	Capital Amounts:																Capital Amounts:
Common Equity Tier 1	Common Equity Tier 1	$	415,768		$	427,415		$	417,468		$	410,978		$	389,394		Common Equity Tier 1	$	398,553		$	408,619		$	415,768		$	427,415		$	417,468
Tier 1	Tier 1	423,259			434,866			424,877			418,345			396,719			Tier 1	406,124			416,150			423,259			434,866			424,877
Total (Tier 1 and Tier 2)	Total (Tier 1 and Tier 2)	459,727			456,422			446,462			439,702			417,658			Total (Tier 1 and Tier 2)	445,101			454,641			459,727			456,422			446,462
Net risk-weighted assets	Net risk-weighted assets	$	2,988,263		$	2,930,355		$	2,933,848		$	2,903,386		$	2,788,935		Net risk-weighted assets	$	3,106,817		$	3,072,178		$	2,988,263		$	2,930,355		$	2,933,848
Capital Ratios:	Capital Ratios:																Capital Ratios:
Common Equity Tier 1	Common Equity Tier 1	13.91		%	14.59		%	14.23		%	14.16		%	13.96		%	Common Equity Tier 1	12.83		%	13.30		%	13.91		%	14.59		%	14.23		%
Tier 1	Tier 1	14.16		%	14.84		%	14.48		%	14.41		%	14.22		%	Tier 1	13.07		%	13.55		%	14.16		%	14.84		%	14.48		%
Total (Tier 1 and Tier 2)	Total (Tier 1 and Tier 2)	15.38		%	15.58		%	15.22		%	15.14		%	14.98		%	Total (Tier 1 and Tier 2)	14.33		%	14.80		%	15.38		%	15.58		%	15.22		%
Tier 1 leverage ratio	Tier 1 leverage ratio	10.06		%	10.41		%	10.28		%	10.26		%	10.31		%	Tier 1 leverage ratio	8.62		%	8.97		%	10.06		%	10.41		%	10.28		%

During the third quarter of 2020, Peoples repurchased 235,684, or $5.0 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 September 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 third quarter of 2020, Peoples' capital ratios at September 30, 2020 compared to June 30, 2020, were impacted by the recognition of goodwill and intangibles associated with the premium finance company acquisition. Additionally, for the third quarter of 2020, net income of $10.2 million exceeded dividends declared of $6.8 million.

The decline in capital ratios at June 30, 2020 compared to March 31, 2020, and December 31, 2019, was related to the low net income recorded during the first and second quarters of 2020, coupled with common share repurchases and dividends declared during those periods. During 2019, Peoples' capital ratios increased primarily due to earnings, which exceeded dividends declared and 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 first two years of application. For the first two years of the phase-in period, 100% of the transition adjustment due

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to ASU 2016-13 is excluded for regulatory capital purposes, along with 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.

During the first quarter of 2020, Peoples repurchased 436,137, or $10.2 million, of common shares pursuant to a previously authorized Rule 10b5-1 plan. Peoples continues to evaluate repurchases under its program as appropriate, based on market conditions and other relevant factors. At March 31, 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 implementation of ASU 2016-13 and the repurchase of common shares during the first quarter of 2020, Peoples' capital ratios at March 31, 2020 compared to December 31, 2019, were impacted by dividends declared of $7.0 million and the net loss of $765,000 during the first quarter of 2020. During 2019, Peoples' capital ratios increased primarily due to earnings, which exceeded dividends declared and paid. Peoples' capital ratios at June 30, 2019 compared to March 31, 2019 were also impacted by the increase in risk-weighted assets, which was largely attributable to the First Prestonsburg acquisition.

In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity. Such ratios represent 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.

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The following table reconciles the calculation of these non-US GAAP financial measures to amounts reported in Peoples' Unaudited Consolidated Financial Statements:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019			(Dollars in thousands)	September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
Tangible equity:	Tangible equity:																Tangible equity:
Total stockholders' equity	Total stockholders' equity	$	583,721		$	594,393		$	588,533		$	579,022		$	535,121		Total stockholders' equity	$	566,856		$	569,177		$	583,721		$	594,393		$	588,533
Less: goodwill and other intangible assets	Less: goodwill and other intangible assets	177,447			177,503			179,126			176,763			161,242			Less: goodwill and other intangible assets	185,397			176,625			177,447			177,503			179,126
Tangible equity	Tangible equity	$	406,274		$	416,890		$	409,407		$	402,259		$	373,879		Tangible equity	$	381,459		$	392,552		$	406,274		$	416,890		$	409,407

Tangible assets:	Tangible assets:																Tangible assets:
Total assets	Total assets	$	4,469,120		$	4,354,165		$	4,396,148		$	4,276,376		$	4,017,119		Total assets	$	4,911,807		$	4,985,819		$	4,469,120		$	4,354,165		$	4,396,148
Less: goodwill and other intangible assets	Less: goodwill and other intangible assets	177,447			177,503			179,126			176,763			161,242			Less: goodwill and other intangible assets	185,397			176,625			177,447			177,503			179,126
Tangible assets	Tangible assets	$	4,291,673		$	4,176,662		$	4,217,022		$	4,099,613		$	3,855,877		Tangible assets	$	4,726,410		$	4,809,194		$	4,291,673		$	4,176,662		$	4,217,022

Tangible book value per common share:	Tangible book value per common share:																		Tangible book value per common share:
Tangible equity	Tangible equity	$	406,274		$	416,890		$	409,407		$	402,259		$	373,879		Tangible equity	$	381,459		$	392,552		$	406,274		$	416,890		$	409,407
Common shares outstanding	Common shares outstanding	20,346,843			20,698,941			20,700,630			20,696,041			19,681,692			Common shares outstanding	19,721,783			19,925,083			20,346,843			20,698,941			20,700,630

Tangible book value per common share	Tangible book value per common share	$	19.97		$	20.14		$	19.78		$	19.44		$	19.00		Tangible book value per common share	$	19.34		$	19.70		$	19.97		$	20.14		$	19.78

Tangible equity to tangible assets ratio:	Tangible equity to tangible assets ratio:																		Tangible equity to tangible assets ratio:
Tangible equity	Tangible equity	$	406,274		$	416,890		$	409,407		$	402,259		$	373,879		Tangible equity	$	381,459		$	392,552		$	406,274		$	416,890		$	409,407
Tangible assets	Tangible assets	$	4,291,673		$	4,176,662		$	4,217,022		$	4,099,613		$	3,855,877		Tangible assets	$	4,726,410		$	4,809,194		$	4,291,673		$	4,176,662		$	4,217,022

Tangible equity to tangible assets	Tangible equity to tangible assets	9.47		%	9.98		%	9.71		%	9.81		%	9.70		%	Tangible equity to tangible assets	8.07		%	8.16		%	9.47		%	9.98		%	9.71		%

Tangible book value per common share declined at September 30, 2020 compared to June 30, 2020. This decline was driven by the goodwill and other intangible assets recorded in connection with the premium finance company acquisition, along with the share repurchase of $5.0 million completed during the third quarter of 2020. The decrease in the tangible book value at June 30, 2020, compared to March 31, 2020, ~~compared~~was due to 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 at September 30, 2020 due to dividends declared exceeding net income during the second quarter of 2020, coupled with the common share repurchases during the quarter. Compared to December 31, 2019, ~~due to~~Peoples' net income has been reduced by higher provision for credit losses, and when coupled with the ~~decrease in~~dividends declared and common share repurchases, has driven tangible equity partially offset by the decline in common shares outstanding resulting from the repurchase of common shares. The decline in the tangible equity to tangible assets ratio at March 31, 2020 compared to December 31, 2019, was a result of asset growth, driven primarily by an increase in cash and cash equivalents, combined with the decrease in tangible equity. During 2019, the primary contributor to the increases in tangible book value per common share and the tangible equity to tangible assets ratio was net income, partially offset by dividends paid. The slight decline in the tangible equity to tangible assets ratio at September 30, 2019 compared to June 30, 2019, was a result of asset growth, driven primarily by an increase in the investment securities portfolio. Tangible book value per common share and the tangible equity to tangible assets ratio at June 30, 2019 compared to March 31, 2019, were also impacted by the First Prestonsburg acquisition, which increased tangible equity, common shares outstanding, and tangible assets.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 management 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 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") 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

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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 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' 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 (Decrease) in Interest Rate	Increase (Decrease) in Interest Rate	Estimated Increase (Decrease) in Net Interest Income																Estimated Increase (Decrease) in Economic Value of Equity																	Increase (Decrease) in Interest Rate		Estimated Increase (Decrease) in Net Interest Income						Estimated Increase (Decrease) in Economic Value of Equity
(in Basis Points)	(in Basis Points)	March 31, 2020								December 31, 2019					March 31, 2020									December 31, 2019					(in Basis Points)		September 30, 2020						December 31, 2019					September 30, 2020	December 31, 2019
300	300	$	27,315	23.1	%	$	14,806	11.2	%		$	239,503	23.8	%		$	35,743	3.2	%	300	$	20,746	16.1		%	$	14,806	11.2		%		$	149,281	20.8		%		$	35,743	3.2	%
200	200	21,966		18.6	%	12,063		9.1	%		205,089		20.4	%		45,651		4.0	%	200	15,908		12.3		%	12,063		9.1		%		134,490		18.8		%		45,651		4.0	%
100	100	13,172		11.1	%	7,895		6.0	%		107,683		10.7	%		39,137		3.5	%	100	9,645		7.5		%	7,895		6.0		%		87,750		12.2		%		39,137		3.5	%
(100)	(100)	(7,451)		(6.3)	%	(12,524)		(9.5)	%		(69,697)		(6.9)	%		(63,964)		(5.7)	%	(100)	(6,423)		5.0		%	(12,524)		(9.5)		%		(93,294)		(13.0)		%		(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, as well as assumptions regarding prepayment speeds on mortgage-backed securities. ~~Peoples takes a historically conservative approach when determining what repricing rates (i.e. deposit betas) are used~~These and ~~what prepayment speeds are used in~~other modeling ~~interest rate risk. These~~ 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 will prepay. These prepayment speeds ~~effect~~affect the amount forecasted for cash flow reinvestment, premium amortization, and discount accretion assumed in interest rate risk modeling results. This prepayment activity is generally the result of refinancing activity and tends to increase as longer term interest rates decline, much like the 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. 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 the balance sheet, interest rates typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any benefit that might occur as a result of the Federal Reserve ~~Board~~ increasing short-term interest rates in the future 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 ~~March 31,~~September 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 September 30, 2020, the bear steepener scenario resulted in an increase in both net interest income and economic value of equity of 3.5% and 10.6%, 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 September 30, 2020, the bull flattener scenario resulted in a decrease in both net interest income and economic value of equity of 1.3% and 2.1%, respectively. Peoples was within the policy limitations for this alternative scenario as of September 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

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making fixed payments. As of ~~March 31,~~September 30, 2020, Peoples has entered into seventeen interest rate swap contracts with an aggregate notional value of $160.0 million. Additional information regarding Peoples’ interest rate swaps can be found in “Note 149 Derivative Financial Instruments” of the Notes to the Unaudited Consolidated Financial ~~Statement included in this Form 10-Q.~~Statements.

At ~~March 31,~~September 30, 2020, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income and the economic value of 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.

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

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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 Bank's liquidity position remain unchanged from those disclosed in Peoples' 2019 Form 10-K.

At ~~March 31,~~September 30, 2020, Peoples Bank had liquid assets of ~~$249.8~~$116.7 million, which represented ~~5.0%~~2.1% of total assets and unfunded loan commitments. ~~This amount exceeded the minimum level by $150.4 million, or 3.0% of total loans and unfunded commitments, currently required under Peoples' liquidity policy.~~ Peoples also had an additional ~~$106.8~~$102.2 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.

~~At March 31, 2020~~ Peoples had $1.03 billion of loans and investment securities pledged to secure borrowing capacities with the Federal Reserve of Cleveland and Federal Home Loan Bank of Cincinnati. As of April 30, 2020, loans and investment securities pledged to these counterparties had increased by $129.8 million to $1.16 billion to secure additional borrowing capacity. Additionally, Peoples plansis authorized to utilize the Federal Reserve's Paycheck Protection Program Liquidity Facility ~~(PPPLF)~~("PPPLF") to fund originations under the PPP. During the third quarter of 2020, Peoples did not use this borrowing and had no outstanding balance as of September 30, 2020 under the PPPLF.

Since March 31, 2020, there has been an increase in deposit balances due to the influx of funds from the government fiscal 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, which~~credit. This decrease is related to the ~~increase in~~receipt of PPP loan proceeds and other increased cash ~~flow~~flows to certain ~~companies, mainly from PPP proceeds.~~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. Peoples anticipates that deposit balances will decline over time as the funds are used for intended business purposes and the commercial line of credit utilization percentage should revert back to normal averages as time progresses.

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 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 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 Unaudited Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and

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include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional 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)	(Dollars in thousands)	March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019		March 31, 2019		(Dollars in thousands)	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019
Home equity lines of credit	Home equity lines of credit	$	113,605	$	112,464	$	110,127	$	106,456	$	103,343	Home equity lines of credit	$	113,185	$	116,634	$	113,605	$	112,464	$	110,127
Unadvanced construction loans	Unadvanced construction loans	97,153		102,491		87,063		95,266		80,916		Unadvanced construction loans	123,338		113,119		97,153		102,491		87,063
Other loan commitments	Other loan commitments	413,515		353,137		365,343		360,872		308,103		Other loan commitments	498,472		426,776		413,515		353,137		365,343
Loan commitments	Loan commitments	$	624,273	$	568,092	$	562,533	$	562,594	$	492,362	Loan commitments	$	734,995	$	656,529	$	624,273	$	568,092	$	562,533
Standby letters of credit	Standby letters of credit	$	12,883	$	12,498	$	14,983	$	14,658	$	12,371	Standby letters of credit	$	13,177	$	12,280	$	12,883	$	12,498	$	14,983

Management does not anticipate that 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 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” in this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

ITEM 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 ~~March 31,~~September 30, 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.

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 ~~March 31,~~September 30, 2020, that have materially affected, or are reasonably likely to materially affect, Peoples’ internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 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.

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ITEM 1A RISK FACTORS

The 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 and duration of the pandemic and actions taken by governmental and nongovernmental authorities in response to the pandemic.

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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, government 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 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 ~~has~~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 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 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 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 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 ~~non-performing~~nonperforming loans and net charge-offs if commercial and consumer customers are unable to make scheduled loans payments.

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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~~responses of governmental and nongovernmental authorities. In recent ~~weeks,~~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. ~~The~~Many businesses have re-opened; however, the future effects of COVID-19 on economic activity could negatively affect the future banking products Peoples provides, including a decline in loan ~~originations.~~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

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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 ~~been closed except for advance appointments only.~~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 robust as 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 ~~risk.~~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.~~sector and maintained this target range as of September 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 ~~U.S.~~United States of a negative interest rate environment in which interest rates drop below zero, either broadly or for some

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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 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 from earning assets including other-than-temporary impairment on investment securities and sustained repayment shortfalls on loans. It is possible that sources of wholesale funding such as the Federal Home Loan Bank, the Federal Reserve Bank, or the brokered certificate of deposit market would no longer be accessible to fund daily liquidity needs.

~~Because there have been no comparable recent global pandemics that resulted in similar global impact,~~ Peoples does not yet know the full extent of COVID-19’s effects on its business, operations, or the global economy as a ~~whole.~~whole, despite experience and knowledge gained throughout the third quarter of 2020. Any future developments will be

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highly 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 a result of the virus' global economic impact, including the availability of credit, adverse impacts on Peoples' liquidity and any recession that has occurred or may occur in the future.

There have been no other material changes from those risk factors previously disclosed in “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 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 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 ~~March 31,~~September 30, 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⁾
January 1 – 31, 2020 530
⁽²⁾
$ 34.70
⁽²⁾
— $ 14,245,071
February 1 – 29, 2020 60,387
⁽¹⁾⁽³⁾
$ 30.94
⁽¹⁾⁽³⁾
39,296 $ 39,328,468
March 1 – 31, 2020 397,742
^(1)(2)(3)
$ 22.78
^(1)(2)(3)
396,841 $ 30,293,671
Total 458,659 $ 23.87 436,137 $ 30,293,671


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, 2020	56,081	(1)(2)	$	20.41	(1)(2)	55,121	$	19,417,594
August 1 – 31, 2020	156,334	(1)(3)	$	20.45	(1)(3)	155,934	$	16,229,329
September 1 – 30, 2020	25,571	(1)(2)	$	21.27	(1)(2)	24,629	$	15,702,913
Total	237,986		$	20.53		235,684	$	15,702,913

(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 an aggregate of $20 million of its outstanding common shares. Peoples repurchased 16,340 common shares for $498,000 under this share repurchase program during February 2020. On February 28, 2020, Peoples announced that on February 27, 2020, Peoples' Board of Directors ~~authorized~~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 ~~22,956~~55,121, 155,934 and ~~396,841~~24,629 common shares ~~for $672,000 and $9.0 million~~ under ~~this~~the current share repurchase program during ~~February~~July, August, and ~~March~~September 2020, respectively.

(2)Information reported includes ~~530~~960 common shares and ~~544~~942 common shares purchased in open market transactions during ~~January~~July and ~~March,~~September, 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 21,091 common shares and 357~~includes: an aggregate of 400 common shares withheld to satisfy income taxes associated with restricted common shares which were granted under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan and vested during ~~February and March, respectively.~~August 2020.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 OTHER INFORMATION

None

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ITEM 6 EXHIBITS

Exhibit
Number

Description

Exhibit Location

2.12.1

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~~on December 18, 2018, between Peoples Bancorp Inc. and First Prestonsburg Bancshares Inc.⁺

Included as Annex A to the definitive proxy statement/prospectus which forms a part of the Registration Statement of Peoples Bancorp Inc. ("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 Peoples' Registration Statement on Form 8-B 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)

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")

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)

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 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 28, 2018 Form 8-K")

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 to Peoples' June 28, 2018 Form 8-K

10.1

~~Summary of~~ Peoples Bancorp Inc. ~~Annual Incentive Program for executive officers and other employees of~~Change in Control Agreement between Peoples Bancorp Inc. and ~~subsidiaries of Peoples Bancorp Inc. [Effective beginning with the fiscal year beginning January~~Kathryn M. Bailey (adopted October 1, ~~2020]~~2020).

~~Incorporated herein by reference to Exhibit 10.3 to Peoples' Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (File No. 0-16772) ("Peoples 2019 Form 10-K")~~Filed herewith

10.2

~~Summary of perquisites for Executive Officers of~~ Peoples Bancorp Inc. Change in Control Agreement between Peoples Bancorp Inc. and Mark Augenstein (adopted October 1, 2020).

~~Incorporated herein by reference to 10.4 to Peoples' 2019 Form 10-K~~Filed herewith

10.3

~~Summary of Base Salaries for Named Executive Officers of~~ Peoples Bancorp Inc. Change in Control Agreement between Peoples Bancorp Inc. and Tyler J. Wilcox (adopted October 1, 2020).

Filed herewith

~~10.4~~10.4

~~Summary of Compensation for Directors of~~Separation Agreement and General Release between John C. Rogers (executed on October 5, 2020) and Peoples ~~Bancorp Inc.~~Bank (executed on October 6, 2020.

~~Incorporated herein by reference to Exhibit 10.6 to Peoples' 2019 Form 10-K~~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

101.INS

Inline XBRL Instance Document ##