UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~June~~September 30, 2019



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

For the transition period from ____ to ____

Commission File Number: 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 x	Non-accelerated filer o	Smaller reporting company o	Emerging growth company o

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~20,698,571~~20,690,480 common shares, without par value, at ~~July 31,~~October 29, 2019.



Table of Contents

PART I – FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
CONSOLIDATED BALANCE SHEETS (Unaudited)	3
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)	4
CONSOLIDATED 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	3941
SELECTED FINANCIAL DATA	4042
EXECUTIVE SUMMARY	4749
RESULTS OF OPERATIONS	4951
FINANCIAL CONDITION	6466
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	7780
ITEM 4. CONTROLS AND PROCEDURES	7880
PART II – OTHER INFORMATION	7880
ITEM 1. LEGAL PROCEEDINGS	7880
ITEM 1A. RISK FACTORS	7880
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	7981
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	7981
ITEM 4. MINE SAFETY DISCLOSURES	7981
ITEM 5. OTHER INFORMATION	7981
ITEM 6. EXHIBITS	7981
SIGNATURES	8284

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

PEOPLES BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018

(Dollars in thousands)	(Unaudited)						(Unaudited)
Assets
Cash and cash equivalents:
Cash and due from banks	$	56,731		$	61,775		$	68,399		$	61,775
Interest-bearing deposits in other banks	36,692			15,837			53,050			15,837
Total cash and cash equivalents	93,423			77,612			121,449			77,612
Available-for-sale investment securities, at fair value (amortized cost of $910,431 at June 30, 2019 and $804,655 at December 31, 2018)	919,364			791,891
Held-to-maturity investment securities, at amortized cost (fair value of $35,747 at June 30, 2019 and $36,963 at December 31, 2018)	34,839			36,961
Available-for-sale investment securities, at fair value (amortized cost of $976,286 at September 30, 2019 and $804,655 at December 31, 2018)							988,035			791,891
Held-to-maturity investment securities, at amortized cost (fair value of $34,893 at September 30, 2019 and $36,963 at December 31, 2018)							33,829			36,961
Other investment securities	43,508			42,985			43,045			42,985
Total investment securities	997,711			871,837			1,064,909			871,837
Loans, net of deferred fees and costs (a)	2,833,533			2,728,778			2,850,316			2,728,778
Allowance for loan losses	(21,357		)	(20,195		)	(21,585		)	(20,195		)
Net loans	2,812,176			2,708,583			2,828,731			2,708,583
Loans held for sale	5,928			5,470			4,522			5,470
Bank premises and equipment, net of accumulated depreciation	64,451			56,542			63,338			56,542
Bank owned life insurance	69,909			68,934			70,396			68,934
Goodwill	163,292			151,245			166,494			151,245
Other intangible assets	13,471			10,840			12,632			10,840
Other assets	56,015			40,391			63,677			40,391
Total assets	$	4,276,376		$	3,991,454		$	4,396,148		$	3,991,454
Liabilities
Deposits:
Non-interest-bearing	$	643,058		$	607,877		$	677,232		$	607,877
Interest-bearing	2,720,555			2,347,588			2,679,970			2,347,588
Total deposits	3,363,613			2,955,465			3,357,202			2,955,465
Short-term borrowings	186,457			356,198			288,150			356,198
Long-term borrowings	85,691			109,644			84,194			109,644
Accrued expenses and other liabilities	61,593			50,007			78,069			50,007
Total liabilities	3,697,354			3,471,314			3,807,615			3,471,314
Stockholders’ equity
Preferred stock, no par value, 50,000 shares authorized, no shares issued at June 30, 2019 and December 31, 2018	—			—
Common stock, no par value, 24,000,000 shares authorized, 21,142,256 shares issued at June 30, 2019 and 20,124,378 shares issued at December 31, 2018, including shares in treasury	418,950			386,814
Preferred stock, no par value, 50,000 shares authorized, no shares issued at September 30, 2019 and December 31, 2018							—			—
Common stock, no par value, 24,000,000 shares authorized, 21,149,122 shares issued at September 30, 2019 and 20,124,378 shares issued at December 31, 2018, including shares held in treasury							420,070			386,814
Retained earnings	171,410			160,346			179,238			160,346
Accumulated other comprehensive income (loss), net of deferred income taxes	316			(12,933		)	1,089			(12,933		)
Treasury stock, at cost, 489,802 shares at June 30, 2019 and 601,289 shares at December 31, 2018	(11,654		)	(14,087		)
Treasury stock, at cost, 493,742 shares at September 30, 2019 and 601,289 shares at December 31, 2018							(11,864		)	(14,087		)
Total stockholders’ equity	579,022			520,140			588,533			520,140
Total liabilities and stockholders’ equity	$	4,276,376		$	3,991,454		$	4,396,148		$	3,991,454

(a) Also referred to throughout the document as "total loans" and "loans held for investment."

See Notes to the Unaudited Consolidated Financial Statements

Table of Contents

PEOPLES BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended					Nine Months Ended
	June 30,						June 30,						September 30,					September 30,
(Dollars in thousands, except per share data)	2019			2018			2019			2018			2019			2018		2019			2018
Interest income:
Interest and fees on loans	$	36,660		$	31,250		$	70,713		$	58,131		$	36,522		$	33,355	$	107,235		$	91,486
Interest and dividends on taxable investment securities	5,969			5,830			11,779			11,480			5,891			5,577		17,670			17,057
Interest on tax-exempt investment securities	729			635			1,266			1,278			690			613		1,956			1,891
Other interest income	263			54			439			106			506			86		945			192
Total interest income	43,621			37,769			84,197			70,995			43,609			39,631		127,806			110,626
Interest expense:
Interest on deposits	5,719			3,101			10,563			5,314			6,159			4,018		16,722			9,332
Interest on short-term borrowings	1,233			1,175			2,406			2,143			1,150			1,617		3,556			3,760
Interest on long-term borrowings	620			685			1,265			1,371			546			672		1,811			2,043
Total interest expense	7,572			4,961			14,234			8,828			7,855			6,307		22,089			15,135
Net interest income	36,049			32,808			69,963			62,167			35,754			33,324		105,717			95,491
Provision for loan losses	626			1,188			363			3,171			1,005			1,302		1,368			4,473
Net interest income after provision for loan losses	35,423			31,620			69,600			58,996			34,749			32,022		104,349			91,018
Non-interest income:
Electronic banking income													3,577			2,890		9,831			8,460
Insurance income	3,486			3,369			8,107			8,024			3,386			3,388		11,493			11,412
Deposit account service charges													3,233			2,652		8,551			7,160
Trust and investment income	3,401			3,232			6,513			6,300			3,205			3,110		9,718			9,410
Electronic banking income	3,267			2,785			6,254			5,570
Deposit account service charges	2,977			2,388			5,318			4,508
Mortgage banking income	1,000			969			1,788			1,320			1,204			1,060		2,992			2,380
Commercial loan swap fees													772			355		1,434			617
Bank owned life insurance income	490			497			975			965			487			495		1,462			1,460
Commercial loan swap fees	516			146			662			262
Net loss on investment securities	(57		)	(147		)	(27		)	(146		)
Net loss on asset disposals and other transactions	(293		)	(405		)	(475		)	(331		)
Net gain (loss) on investment securities													97			—		70			(146		)
Net (loss) gain on asset disposals and other transactions													(78		)	12		(553		)	(319		)
Other non-interest income	502			421			1,603			1,752			510			391		2,113			2,143
Total non-interest income	15,289			13,255			30,718			28,224			16,393			14,353		47,111			42,577
Non-interest expense:
Salaries and employee benefit costs	20,824			18,025			40,026			34,015			18,931			17,908		58,957			51,923
Net occupancy and equipment expense	3,132			2,803			6,110			5,669			3,098			2,850		9,208			8,519
Professional fees	2,344			3,022			3,620			4,740
Electronic banking expense	1,693			1,407			3,270			2,857			2,070			1,552		5,340			4,409
Data processing and software expense	1,567			1,359			3,112			2,681			1,572			1,408		4,684			4,089
Professional fees													1,544			1,395		5,164			6,135
Amortization of other intangible assets	824			861			1,518			1,615			953			862		2,471			2,477
Franchise tax expense	772			614			1,477			1,258			797			616		2,274			1,874
Marketing expense	490			656			1,084			981			634			456		1,718			1,437
FDIC insurance expense	381			416			752			782
Foreclosed real estate and other loan expenses	469			338			724			550			600			373		1,324			923
Communication expense	317			300			595			644			268			305		863			949
FDIC insurance expense													—			391		752			1,173
Other non-interest expense	6,063			6,170			8,448			8,400			2,526			2,713		10,974			11,113
Total non-interest expense	38,876			35,971			70,736			64,192			32,993			30,829		103,729			95,021
Income before income taxes	11,836			8,904			29,582			23,028			18,149			15,546		47,731			38,574
Income tax expense	2,238			1,012			5,615			3,395			3,281			2,821		8,896			6,216
Net income	$	9,598		$	7,892		$	23,967		$	19,633		$	14,868		$	12,725	$	38,835		$	32,358
Earnings per common share - basic	$	0.47		$	0.41		$	1.20		$	1.05		$	0.72		$	0.65	$	1.93		$	1.70
Earnings per common share - diluted	$	0.46		$	0.41		$	1.19		$	1.04		$	0.72		$	0.65	$	1.91		$	1.69
Weighted-average number of common shares outstanding - basic	20,277,028			19,160,728			19,824,035			18,646,266			20,415,245			19,325,457		20,023,271			18,875,290
Weighted-average number of common shares outstanding - diluted	20,442,366			19,293,381			19,972,350			18,773,169			20,595,769			19,466,865		20,178,634			19,004,087
Cash dividends declared	$	7,035		$	5,466		$	12,903		$	10,237		$	7,040		$	5,472	$	19,943		$	15,709
Cash dividends declared per common share	$	0.34		$	0.28		$	0.64		$	0.54		$	0.34		$	0.28	$	0.98		$	0.82

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						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018			2019			2018			2019			2018
Net income	$	9,598		$	7,892		$	23,967		$	19,633		$	14,868		$	12,725		$	38,835		$	32,358
Other comprehensive income (loss):
Available-for-sale investment securities:
Gross unrealized holding gain (loss) arising during the period	12,947			(2,661		)	21,672			(12,774		)	2,913			(5,813		)	24,585			(18,587		)
Related tax (expense) benefit	(2,719		)	559			(4,551		)	3,737			(612		)	1,221			(5,163		)	4,958
Less: reclassification adjustment for net gain included in net income	(57		)	(147		)	(27		)	(146		)
Related tax benefit	12			31			6			31
Less: reclassification adjustment for net gain (loss) included in net income													97			—			70			(146		)
Related tax (expense) benefit													(21		)	—			(15		)	31
Amounts reclassified out of accumulated other comprehensive loss per ASU 2016-01 (a)	—			—			—			(5,020		)	—			—			—			(5,020		)
Net effect on other comprehensive income (loss)	10,273			(1,986		)	17,142			(13,942		)	2,225			(4,592		)	19,367			(18,534		)
Defined benefit plans:
Net gain arising during the period	—			—			2			—			2			1,177			4			1,177
Related tax expense													(1		)	(247		)	(1		)	(247		)
Amortization of unrecognized loss and service cost on benefit plans	20			26			37			52			17			28			54			80
Related tax expense													(3		)	(6		)	(11		)	(17		)
Recognition of loss due to settlement and curtailment													—			176			—			176
Related tax expense	(4		)	(5		)	(8		)	(11		)	—			(37		)	—			(37		)
Net effect on other comprehensive income	16			21			31			41			15			1,091			46			1,132
Cash flow hedges:
Net (loss) gain arising during the period	(3,134		)	537			(4,967		)	1,915			(1,857		)	651			(6,824		)	2,566
Related tax benefit (expense)	658			(113		)	1,043			(402		)	390			(137		)	1,433			(539		)
Net effect on other comprehensive (loss) income	(2,476		)	424			(3,924		)	1,513			(1,467		)	514			(5,391		)	2,027
Total other comprehensive income (loss), net of tax	7,813			(1,541		)	13,249			(12,388		)	773			(2,987		)	14,022			(15,375		)
Total comprehensive income	$	17,411		$	6,351		$	37,216		$	7,245		$	15,641		$	9,738		$	52,857		$	16,983

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, which resulted in the reclassification of $5.0 million in net unrealized gains on equity investment securities from accumulated other comprehensive loss to retained earnings.

See Notes to the Unaudited Consolidated Financial Statements

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 (Loss) Income						Total Stockholders' Equity
	Common Stock			Retained Earnings						Treasury Stock						Common Stock			Retained Earnings						Treasury Stock
(Dollars in thousands)
Balance, December 31, 2018	$	386,814		$	160,346		$	(12,933	)	$	(14,087	)	$	520,140		$	386,814		$	160,346		$	(12,933	)	$	(14,087	)	$	520,140
Net income	—			23,967			—			—			23,967			—			38,835			—			—			38,835
Other comprehensive income, net of tax	—			—			13,249			—			13,249			—			—			14,022			—			14,022
Cash dividends declared	—			(12,903		)	—			—			(12,903		)	—			(19,943		)	—			—			(19,943		)
Reissuance of treasury stock for common share awards	(2,821		)	—			—			2,821			—			(2,951		)	—			—			2,951			—
Reissuance of treasury stock for deferred compensation plan for Boards of Directors	—			—			—			53			53			—			—			—			53			53
Repurchase of treasury stock in connection with employee incentive plan and under compensation plan for Boards of Directors	—			—			—			(684		)	(684		)	—			—			—			(790		)	(790		)
Common shares repurchased under share repurchase program																—			—			—			(431		)	(431		)
Common shares issued under dividend reinvestment plan	384			—			—			—			384			678			—			—			—			678
Common shares issued under compensation plan for Boards of Directors	52			—			—			157			209			65			—			—			196			261
Common shares issued under employee stock purchase plan	28			—			—			86			114			83			—			—			244			327
Stock-based compensation	2,056			—			—			—			2,056			2,944			—			—			—			2,944
Issuance of common shares related to merger with First Prestonsburg Bancshares Inc.	32,437			—			—			—			32,437			32,437			—			—			—			32,437
Balance, June 30, 2019	$	418,950		$	171,410		$	316		$	(11,654	)	$	579,022
Balance, September 30, 2019																$	420,070		$	179,238		$	1,089		$	(11,864	)	$	588,533

See Notes to the Unaudited Consolidated Financial Statements

Table of Contents

PEOPLES BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Six Months Ended						Nine Months Ended
	June 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018
Net cash provided by operating activities	$	18,821		$	27,499		$	52,528		$	50,263
Investing activities:
Available-for-sale investment securities:
Purchases	(116,433		)	(81,441		)	(246,563		)	(120,492		)
Proceeds from sales	72,481			14,489			72,706			14,489
Proceeds from principal payments, calls and prepayments	70,728			60,088			130,860			93,336
Held-to-maturity investment securities:
Proceeds from principal payments	1,984			2,627			2,939			3,521
Other investment securities:
Purchases	(376		)	(1,089		)	(1,420		)	(2,547		)
Proceeds from sales	3,872			7,111			5,415			7,544
Proceeds from insurance claim	26			—			26			—
Net decrease (increase) in loans held for investment	29,219			(92,582		)	11,993			(113,433		)
Net expenditures for premises and equipment	(1,233		)	(2,721		)	(2,758		)	(3,660		)
Proceeds from sales of other real estate owned	143			265			221			265
Business acquisitions, net of cash received	7,795			4,695			7,813			4,695
Investment in limited partnership and tax credit funds	(44		)	(399		)	(5,021		)	(5,399		)
Net cash provided by (used in) investing activities	68,162			(88,957		)
Net cash used in investing activities							(23,789		)	(121,681		)
Financing activities:
Net (decrease) increase in non-interest-bearing deposits	(23,318		)	364
Net increase in non-interest-bearing deposits							10,856			31,950
Net increase in interest-bearing deposits	173,571			19,705			132,795			79,761
Net (decrease) increase in short-term borrowings	(207,329		)	66,412			(105,636		)	2,515
Payments on long-term borrowings	(849		)	(1,062		)	(2,388		)	(3,092		)
Cash dividends paid	(12,467		)	(10,001		)	(19,212		)	(15,266		)
Repurchase of treasury stock under share repurchase program							(431		)	—
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock	(684		)	(1,143		)	(790		)	(1,271		)
Proceeds from issuance of common shares	6			15			6			24
Contingent consideration payments made after a business combination	(102		)	(224		)
Net cash (used in) provided by financing activities	(71,172		)	74,066
Contingent consideration payments made after a business acquisition							(102		)	(224		)
Net cash provided by financing activities							15,098			94,397
Net increase in cash and cash equivalents	15,811			12,608			43,837			22,979
Cash and cash equivalents at beginning of period	77,612			72,194			77,612			72,194
Cash and cash equivalents at end of period	$	93,423		$	84,802		$	121,449		$	95,173

Supplemental cash flow information:
Interest paid	13,765			8,765			21,902			13,758
Income taxes paid	6,150			6,065			10,050			6,735
Supplemental noncash disclosures:
Transfers from loans to other real estate owned	49			16			153			59

See Notes to the Unaudited Consolidated Financial Statements

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PEOPLES BANCORP INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Summary of Significant Accounting Policies

Basis of Presentation: The accompanying Unaudited Consolidated Financial Statements of Peoples Bancorp Inc. and its subsidiaries ("Peoples" refers to Peoples Bancorp Inc. and its consolidated subsidiaries collectively, except where the context indicates the reference relates solely to Peoples Bancorp Inc.) have been prepared in accordance with accounting principles generally accepted in the United States (“("US ~~GAAP”~~GAAP") for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not contain all of the information and footnotes required by US GAAP for annual financial statements and should be read in conjunction with Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (“("Peoples' 2018 Form ~~10-K”~~10-K").

The accounting and reporting policies followed in the presentation of the accompanying Unaudited Consolidated Financial Statements are consistent with those described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 2018 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 ~~June~~September 30, 2019 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, 2018, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 2018 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 Risk Management, Inc., a wholly-owned subsidiary of Peoples, was formed on August 22, 2019, and is a Nevada-based 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 spread a limited amount of risk among all participants. Peoples Risk Management, Inc. is subject to the regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.

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 accounting pronouncements should be read in conjunction with "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 2018 Form 10-K.

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

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This accounting guidance replaces the current "incurred loss" model for recognizing credit losses with an "expected loss" model, referred to as the Current Expected Credit Loss ("CECL") model. Under the CECL model, Peoples will be required to present certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity 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 Subtopic 326-20, and should be accounted for according to Topic 842.

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

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probable a loss has been incurred. Accordingly, Peoples expects that the adoption of the CECL model will materially affect how the allowance for ~~loan~~credit losses is determined and could require ~~significant~~ increases to the allowance for ~~loan~~credit losses. Moreover, the CECL model may create more volatility in the level of Peoples' allowance for ~~loan losses.~~credit losses and credit loss expense. If required to materially increase the level of allowance for ~~loan~~credit losses for any reason, such increase could adversely affect Peoples' business, financial condition and results of operations.

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The CECL standard will become effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples has a committee that meets regularly to monitor progress and oversee the project. Peoples has implemented a third-party software solution, and is utilizing the tool to run test calculations throughout 2019 in anticipation of the full implementation at the beginning of 2020. Peoples has engaged consultants to assist with the completion of certain aspects of the project plan. Peoples will complete model validation during 2019, and is currently refining the economic forecasting process, documenting accounting policies, reviewing business processes, ~~and~~ evaluating potential changes to the control ~~environment.~~environment and critically reviewing model output. Peoples ~~intends to complete~~completed a test run of its process, inclusive of the model, byat the end of the third quarter of 2019.

Based on current forecasted economic conditions and portfolio balances, Peoples estimates that the impact to the allowance for credit losses for certain portions of the implementation will result in an increase of approximately 25% to 35% of the September 30, 2019 ~~pending any unforeseen circumstances or significant~~ allowance for loan losses balance. This estimate includes the potential impact of modeled results for outstanding loans, impaired loans that are individually evaluated, qualitative factors and investment securities. Approximately two-thirds of the estimated increase is being driven by the establishment of an allowance for credit losses for acquired performing loans, which currently have a small allowance for loan losses. The remainder of the increase is being driven by the duration of longer term consumer loans. This estimate excludes the impact of the unfunded commitment liability and the increase in the allowance for credit losses related to purchased credit deteriorated loans. The impact of these items will be evaluated during the fourth quarter of 2019. The estimates provided are subject to change based upon many factors, including:

•uncertainty around the economic conditions that will exist at implementation;

•the composition, balance and risk characteristics of the loan portfolio at implementation;

changes to the ~~requirements.~~ modeling process based upon results of model validation and further process development and refinement; and

continued execution of the governance framework and review process.

Peoples expects to recognize a one-time cumulative-effect adjustment to the allowance for ~~loan loss provision,~~credit losses, and related tax effect, as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. The cumulative-effect adjustment will be based on the change in the allowance for credit losses for modeled results for outstanding loans, impaired loans that are individually evaluated, qualitative factors, investment securities and the unfunded commitment liability. The impact of the ~~adoption~~implementation for purchased credit deteriorated loans will ~~depend~~be contemplated separately from the one-time cumulative-effect adjustment. Based on ~~relevant data~~the uncertainties around factors that may be present at implementation date, Peoples is in the ~~adoption date, including the characteristics~~process of ~~the loan portfolio, macroeconomic conditions and forecasts. Peoples has not yet determined~~determining the magnitude of any such one-time cumulative-effect adjustment or of the overall impact of the new standard on Peoples' financial condition orand results of operations. There is a three-year phase-in option for regulatory capital effects of the one-time cumulative-effect adjustment, however, Peoples does not currently anticipate opting for the phase-in based upon preliminary projections, but could change its position once closer to implementation.

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' 2018 Form 10‑K.

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

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

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


	Recurring Fair Value Measurements at Reporting Date												Recurring Fair Value Measurements at Reporting Date
	June 30, 2019						December 31, 2018						September 30, 2019						December 31, 2018
(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:
Available-for-sale investment securities:
Obligations of:
U.S. government sponsored agencies	$	—	$	19,051	$	—	$	—	$	—	$	—	$	—	$	12,145	$	—	$	—	$	—	$	—
States and political subdivisions	—		125,418		—		—		88,587		—		—		115,613		—		—		88,587		—
Residential mortgage-backed securities	—		748,132		—		—		692,608		—		—		835,172		—		—		692,608		—
Commercial mortgage-backed securities	—		22,664		—		—		6,707		—		—		20,461		—		—		6,707		—
Bank-issued trust preferred securities	—		4,099		—		—		3,989		—		—		4,644		—		—		3,989		—
Total available-for-sale securities	—		919,364		—		—		791,891		—		—		988,035		—		—		791,891		—
Equity investment securities	111		188		—		94		183		—		121		197		—		94		183		—
Derivative assets (a)	—		9,972		—		—		4,544		—		—		14,301		—		—		4,544		—
Liabilities:
Derivative liabilities (b)	$	—	$	14,020	$	—	$	—	$	3,562	$	—	$	—	$	20,223	$	—	$	—	$	3,562	$	—

(a) 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.

(b) 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.

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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.

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 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
	June 30, 2019						December 31, 2018									September 30, 2019									December 31, 2018
(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

Impaired loans	$	—	$	—	$	32,952		$	—		$	—		$	24,129		$	—		$	—		$	28,300		$	—		$	—		$	24,129
Other real estate owned ("OREO")	—		—		123		—			—			94			—			—			289			—			—			94

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Impaired Loans: Impaired loans are measured and reported at fair value when the amounts to be received are less than the carrying value of the loans. One of the allowable methods for determining the amount of impairment is estimating fair value using the fair value of the collateral for collateral-dependent loans. Management’s determination of the fair value for these loans uses a market approach representing the estimated net proceeds to be received from the sale of the collateral based on observable market prices or the market value provided by independent, licensed or certified appraisers (Level 3), less estimated selling costs. At ~~June~~September 30, 2019, impaired loans with an aggregate principal balance of ~~$43.2~~$38.6 million were outstanding and reported at fair value of ~~$33.0~~$28.3 million. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, Peoples recognized a reduction of $81,000 and an increase of ~~$223,000 and $830,000~~$516,000 in the specific reserve on impaired loans, through the allowance for loan losses.

Other Real Estate Owned: OREO, included in other assets on the Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated 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 Consolidated Balance Sheets.


	Fair Value Measurements of Other Financial Instruments									Fair Value Measurements of Other Financial Instruments
(Dollars in thousands)	Fair Value Hierarchy Level	June 30, 2019				December 31, 2018				Fair Value Hierarchy Level	September 30, 2019				December 31, 2018
		Carrying Amount		Fair Value		Carrying Amount		Fair Value			Carrying Amount		Fair Value		Carrying Amount		Fair Value

Assets:
Cash and cash equivalents	1	$	93,423	$	93,423	$	77,612	$	77,612	1	$	121,449	$	121,449	$	77,612	$	77,612
Held-to-maturity investment securities:
Obligations of:
States and political subdivisions	2	4,398		4,880		4,403		4,896		2	4,395		4,897		4,403		4,896
Residential mortgage-backed securities	2	23,335		23,451		29,044		28,603		2	22,412		22,608		29,044		28,603
Commercial mortgage-backed securities	2	7,106		7,416		3,514		3,464		2	7,022		7,388		3,514		3,464
Total held-to-maturity securities		34,839		35,747		36,961		36,963			33,829		34,893		36,961		36,963
Other investment securities:
Federal Home Loan Bank ("FHLB") stock	2	29,257		29,257		29,367		29,367		2	27,716		27,716		29,367		29,367
Federal Reserve Bank ("FRB") stock	2	12,294		12,294		12,294		12,294		2	13,310		13,310		12,294		12,294
Nonqualified deferred compensation	2	1,293		1,293		987		987		2	1,336		1,336		987		987
Other investment securities	2	365		365		60		60		2	365		365		60		60
Other investment securities (a)		43,209		43,209		42,708		42,708			42,727		42,727		42,708		42,708
Net loans	3	2,812,176		3,076,717		2,708,583		2,907,537		3	2,828,731		3,146,439		2,708,583		2,907,537
Loans held for sale	2	5,928		6,353		5,470		5,492		2	4,522		4,824		5,470		5,492
Bank owned life insurance	3	69,909		69,909		68,934		68,934		3	70,396		70,396		68,934		68,934
Servicing rights (b)	3	2,571		3,617		2,655		4,568		3	2,684		3,439		2,655		4,568
Liabilities:
Deposits	2	$	3,363,613	$	3,335,686	$	2,955,465	$	2,953,452	2	$	3,357,202	$	3,377,795	$	2,955,465	$	2,953,452
Short-term borrowings	2	186,457		187,337		356,198		349,994		2	288,150		289,776		356,198		349,994
Long-term borrowings	2	85,691		84,933		109,644		107,696		2	84,194		84,261		109,644		107,696

(a) Other investment securities, as reported on the Unaudited Consolidated Balance Sheets, also includes equity investment securities for 2019 and 2018, which are reported in the Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis table above.

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

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For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include cash and cash equivalents, demand and other ~~non-maturity~~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 ~~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.

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 market factors in estimating the fair value of loans (Level 3). Fair values for loans are

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

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 are 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).

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 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, ~~banking center networks,~~ and other information required to compute Peoples’ aggregate fair value that are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of Peoples.

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Note 3 Investment Securities

Available-for-sale

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


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2019
September 30, 2019
Obligations of:
U.S. government sponsored agencies	$	18,606	$	445	$	—		$	19,051	$	11,714	$	431	$	—		$	12,145
States and political subdivisions	122,809		2,721		(112		)	125,418		112,647		3,029		(63		)	115,613
Residential mortgage-backed securities	742,164		8,770		(2,802		)	748,132		826,797		11,230		(2,855		)	835,172
Commercial mortgage-backed securities	22,656		148		(140		)	22,664		20,432		137		(108		)	20,461
Bank-issued trust preferred securities	4,196		100		(197		)	4,099		4,696		122		(174		)	4,644
Total available-for-sale securities	$	910,431	$	12,184	$	(3,251	)	$	919,364	$	976,286	$	14,949	$	(3,200	)	$	988,035
December 31, 2018
Obligations of:
States and political subdivisions	$	88,358	$	787	$	(558	)	$	88,587	$	88,358	$	787	$	(558	)	$	88,587
Residential mortgage-backed securities	705,289		2,720		(15,401		)	692,608		705,289		2,720		(15,401		)	692,608
Commercial mortgage-backed securities	6,812		—		(105		)	6,707		6,812		—		(105		)	6,707
Bank-issued trust preferred securities	4,196		75		(282		)	3,989		4,196		75		(282		)	3,989
Total available-for-sale securities	$	804,655	$	3,582	$	(16,346	)	$	791,891	$	804,655	$	3,582	$	(16,346	)	$	791,891

The unrealized losses related to residential mortgage-backed securities at ~~June~~September 30, 2019 and December 31, 2018, were attributed to changes in market interest rates and spreads since the securities were purchased.

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


	Three Months Ended						Six Months Ended						Three Months Ended				Nine Months Ended
	June 30,						June 30,						September 30,				September 30,
(Dollars in thousands)	2019			2018			2019			2018			2019		2018		2019		2018
Gross gains realized	$	30		$	3		$	60		$	5		$	97	$	—	$	157	$	5
Gross losses realized	87			150			87			151			—		—		87		151
Net losses realized	$	(57	)	$	(147	)	$	(27	)	$	(146	)	$	97	$	—	$	70	$	(146	)

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

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


	Less than 12 Months					12 Months or More					Total				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		Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss
June 30, 2019
September 30, 2019
Obligations of:
States and political subdivisions	$	—	$	—	—	$	8,020	$	112	5	$	8,020	$	112	$	—	$	—	—	$	2,632	$	63	1	$	2,632	$	63
Residential mortgage-backed securities	17,932		154		7	226,208		2,648		77	244,140		2,802		176,740		1,267		41	110,378		1,588		42	287,118		2,855
Commercial mortgage-backed securities	—		—		—	6,380		140		5	6,380		140		—		—		—	2,481		108		3	2,481		108
Bank-issued trust preferred securities	—		—		—	1,803		197		2	1,803		197		—		—		—	1,826		174		2	1,826		174
Total	$	17,932	$	154	7	$	242,411	$	3,097	89	$	260,343	$	3,251	$	176,740	$	1,267	41	$	117,317	$	1,933	48	$	294,057	$	3,200
December 31, 2018
Obligations of:
States and political subdivisions	$	10,173	$	18	17	$	19,918	$	540	20	$	30,091	$	558	$	10,173	$	18	17	$	19,918	$	540	20	$	30,091	$	558
Residential mortgage-backed securities	47,562		226		50	517,335		15,175		170	564,897		15,401		47,562		226		50	517,335		15,175		170	564,897		15,401
Commercial mortgage-backed securities	—		—		—	6,707		105		3	6,707		105		—		—		—	6,707		105		3	6,707		105
Bank-issued trust preferred securities	—		—		—	1,718		282		2	1,718		282		—		—		—	1,718		282		2	1,718		282
Total	$	57,735	$	244	67	$	545,678	$	16,102	195	$	603,413	$	16,346	$	57,735	$	244	67	$	545,678	$	16,102	195	$	603,413	$	16,346

Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair value on a quarterly basis. At ~~June~~September 30, 2019, management concluded no individual securities were other-than-temporarily impaired since Peoples did not have the intent to sell, nor was it more likely than not that Peoples would be required to sell, any of the securities with an unrealized loss prior to recovery. Further, the unrealized losses at both ~~June~~September 30, 2019 and December 31, 2018 were largely attributable to changes in market interest rates and spreads since the securities were purchased.

At ~~June~~September 30, 2019, approximately 99% of the mortgage-backed securities with a market value that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1%, or two positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Both of these positions had a fair value of less than 90% of their book value, with an aggregate book and fair value of ~~$211,000~~$208,000 and ~~$147,000,~~$146,000, respectively. Management analyzed the underlying credit quality of these securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low remaining number of loans underlying these securities.

The unrealized losses with respect to the two bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at ~~June~~September 30, 2019 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 ~~June~~September 30, 2019. The weighted-average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date.


(Dollars in thousands)	Within 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total			Within 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total
Amortized cost
Obligations of:
U.S. government sponsored agencies	$	—		$	2,984		$	14,644		$	978		$	18,606		$	—		$	1,992		$	9,722		$	—		$	11,714
States and political subdivisions	4,234			31,186			44,207			43,182			122,809			3,769			28,595			42,723			37,560			112,647
Residential mortgage-backed securities	1			1,919			60,647			679,597			742,164			1			1,703			66,677			758,416			826,797
Commercial mortgage-backed securities	—			17,107			1,848			3,701			22,656			—			15,858			989			3,585			20,432
Bank-issued trust preferred securities	—			—			4,196			—			4,196			—			—			4,696			—			4,696
Total available-for-sale securities	$	4,235		$	53,196		$	125,542		$	727,458		$	910,431		$	3,770		$	48,148		$	124,807		$	799,561		$	976,286
Fair value
Obligations of:
U.S. government sponsored agencies	$	—		$	3,041		$	15,011		$	999		$	19,051		$	—		$	2,053		$	10,092		$	—		$	12,145
States and political subdivisions	4,236			31,477			45,518			44,187			125,418			3,774			28,917			44,334			38,588			115,613
Residential mortgage-backed securities	1			1,934			60,507			685,690			748,132			1			1,731			66,823			766,617			835,172
Commercial mortgage-backed securities	—			17,195			1,904			3,565			22,664			—			15,952			1,027			3,482			20,461
Bank-issued trust preferred securities	—			—			4,099			—			4,099			—			—			4,644			—			4,644
Total available-for-sale securities	$	4,237		$	53,647		$	127,039		$	734,441		$	919,364		$	3,775		$	48,653		$	126,920		$	808,687		$	988,035
Total weighted-average yield	2.36		%	2.52		%	2.77		%	2.93		%	2.88		%	2.26		%	2.52		%	2.74		%	2.83		%	2.80		%

Held-to-Maturity

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


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2019
September 30, 2019
Obligations of:
States and political subdivisions	$	4,398	$	482	$	—		$	4,880	$	4,395	$	502	$	—		$	4,897
Residential mortgage-backed securities	23,335		256		(140		)	23,451		22,412		237		(41		)	22,608
Commercial mortgage-backed securities	7,106		310		—			7,416		7,022		366		—			7,388
Total held-to-maturity securities	$	34,839	$	1,048	$	(140	)	$	35,747	$	33,829	$	1,105	$	(41	)	$	34,893
December 31, 2018
Obligations of:
States and political subdivisions	$	4,403	$	493	$	—		$	4,896	$	4,403	$	493	$	—		$	4,896
Residential mortgage-backed securities	29,044		191		(632		)	28,603		29,044		191		(632		)	28,603
Commercial mortgage-backed securities	3,514		—		(50		)	3,464		3,514		—		(50		)	3,464
Total held-to-maturity securities	$	36,961	$	684	$	(682	)	$	36,963	$	36,961	$	684	$	(682	)	$	36,963

There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for any of the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018.

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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				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		Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss
June 30, 2019
September 30, 2019
Residential mortgage-backed securities	$	—	$	—	—	$	11,639	$	140	3	$	11,639	$	140	$	7,885	$	14	1	$	899	$	27	1	$	8,784	$	41
Total	$	—	$	—	—	$	11,639	$	140	3	$	11,639	$	140	$	7,885	$	14	1	$	899	$	27	1	$	8,784	$	41
December 31, 2018
Residential mortgage-backed securities	$	—	$	—	—	$	13,102	$	632	5	$	13,102	$	632	$	—	$	—	—	$	13,102	$	632	5	$	13,102	$	632
Commercial mortgage-backed securities	—		—		—	3,464		50		1	3,464		50		—		—		—	3,464		50		1	3,464		50
Total	$	—	$	—	—	$	16,566	$	682	6	$	16,566	$	682	$	—	$	—	—	$	16,566	$	682	6	$	16,566	$	682

The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at ~~June~~September 30, 2019. The weighted-average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date.


(Dollars in thousands)	Within 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total			Within 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total
Amortized cost
Obligations of:
States and political subdivisions	$	305		$	—		$	2,984		$	1,109		$	4,398		$	303		$	—		$	2,985		$	1,107		$	4,395
Residential mortgage-backed securities	—			—			4,002			19,333			23,335			—			—			3,842			18,570			22,412
Commercial mortgage-backed securities	—			410			3,893			2,803			7,106			—			404			3,868			2,750			7,022
Total held-to-maturity securities	$	305		$	410		$	10,879		$	23,245		$	34,839		$	303		$	404		$	10,695		$	22,427		$	33,829
Fair value
Obligations of:
States and political subdivisions	$	307		$	—		$	3,458		$	1,115		$	4,880		$	305		$	—		$	3,481		$	1,111		$	4,897
Residential mortgage-backed securities	—			—			4,070			19,381			23,451			—			—			3,916			18,692			22,608
Commercial mortgage-backed securities	—			412			4,196			2,808			7,416			—			410			4,208			2,770			7,388
Total held-to-maturity securities	$	307		$	412		$	11,724		$	23,304		$	35,747		$	305		$	410		$	11,605		$	22,573		$	34,893
Total weighted-average yield	2.62		%	2.29		%	1.49		%	2.81		%	2.83		%	2.61		%	2.29		%	1.49		%	2.82		%	2.39		%

Other Investment Securities

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

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


(Dollars in thousands)	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
FHLB stock	$	29,257	$	29,367	$	27,716	$	29,367
FRB stock	12,294		12,294		13,310		12,294
Nonqualified deferred compensation	1,293		987		1,336		987
Equity investment securities	299		277		318		277
Other investment securities	365		60		365		60
Total other investment securities	$	43,508	$	42,985	$	43,045	$	42,985

Peoples redeemed FHLB stock in order to be in compliance with the requirements of the FHLB of Cincinnati, which totaled $1.5 million during the third quarter of 2019, $1.1 million during the second quarter of 2019, and $1.8 million during the first quarter of 2019. During the second quarter of 2019, ofPeoples acquired $2.8 million FHLB stock ~~to be in compliance with requirements of~~from the ~~FHLB of Cincinnati.~~First Prestonsburg acquisition.

During the three and ~~six~~nine months ended ~~June~~September 30, 2019, Peoples recorded the change in the fair value of equity investment securities held at ~~June~~September 30, 2019 in other non-interest income, resulting in unrealized gains of ~~zero~~$19,000 and ~~$22,000,~~

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$42,000, respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2018, Peoples recorded the change in the fair value of equity investment securities held at ~~June~~September 30, 2018 in other non-interest income, resulting in an unrealized ~~losses~~loss of ~~$658,000~~$16,000 and ~~$198,000,~~

~~Table~~an unrealized gain of ~~Contents~~

$621,000, respectively. Net realized gains on sales of equity investment securities, included in other non-interest income during the first ~~six~~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 due to the litigation liability associated with the stock.

At ~~June~~September 30, 2019, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies. There were no equity investment securities of a single issuer that exceeded 10% of Peoples' stockholders' equity.

Pledged Securities

Peoples had pledged available-for-sale investment securities ~~with carrying values of $499.5 million and $430.0 million at June 30, 2019 and December 31, 2018, respectively,~~ and held-to-maturity investment securities ~~with carrying values of $14.6 million and $16.9 million at June 30, 2019 and December 31, 2018, respectively,~~ to secure public and trust department deposits, and repurchase agreements in accordance with federal and state requirements. Peoples also pledged available-for-sale investment securities ~~with carrying values of $54.3 million and $60.1 million at June 30, 2019 and December 31, 2018, respectively,~~ and held-to-maturity securities ~~with carrying values of $15.6 million and $16.7 million at June 30, 2019 and December 31, 2018, respectively,~~ to secure additional borrowing capacity at the FHLB and the FRB.

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



	Carrying Amount
(Dollars in thousands)	September 30, 2019		December 31, 2018

Securing public and trust department deposits, and repurchase agreements:
Available-for-sale	$	565,093	$	429,987
Held-to-maturity	14,302		16,928

Securing additional borrowing capacity at the FHLB and the FRB:
Available-for-sale	49,911		60,058
Held-to-maturity	14,835		16,731

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Note 4 Loans

Peoples' loan portfolio consists of various types of loans originated primarily as a result of lending opportunities within Peoples' primary market areas of northeastern, central, southwestern and southeastern Ohio, west central West Virginia, and central and eastern Kentucky. Acquired loans consist of loans purchased in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit). The major classifications of loan balances (in each case, net of deferred fees and costs) excluding loans held for sale, were as follows:


(Dollars in thousands)	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Originated loans:
Commercial real estate, construction	$	102,904	$	124,013	$	100,338	$	124,013
Commercial real estate, other	641,061		632,200		659,103		632,200
Commercial real estate	743,965		756,213		759,441		756,213
Commercial and industrial	548,460		530,207		564,279		530,207
Residential real estate	299,173		296,860		308,964		296,860
Home equity lines of credit	90,374		93,326		92,910		93,326
Consumer, indirect	419,595		407,167		423,217		407,167
Consumer, direct	72,209		71,674		72,699		71,674
Consumer	491,804		478,841		495,916		478,841
Deposit account overdrafts	676		583		1,081		583
Total originated loans	$	2,174,452	$	2,156,030	$	2,222,591	$	2,156,030
Acquired loans:
Commercial real estate, construction	$	6,775	$	12,404	$	4,435	$	12,404
Commercial real estate, other	201,909		184,711		171,096		184,711
Commercial real estate	208,684		197,115		175,531		197,115
Commercial and industrial	51,506		35,537		43,961		35,537
Residential real estate	348,439		296,937		358,053		296,937
Home equity lines of credit	41,262		40,653		41,942		40,653
Consumer, indirect	90		136		67		136
Consumer, direct	9,100		2,370		8,171		2,370
Consumer	9,190		2,506		8,238		2,506
Total acquired loans	$	659,081	$	572,748	$	627,725	$	572,748
Total loans	$	2,833,533	$	2,728,778	$	2,850,316	$	2,728,778

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Peoples has acquired various loans through business combinations for which there was, at acquisition, evidence of deterioration of credit quality since origination, and for which it was probable that all contractually required payments would not be collected. The carrying amounts of these purchased credit impaired loans included in the loan balances above are summarized as follows:


(Dollars in thousands)	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Commercial real estate	$	13,116	$	11,955	$	9,063	$	11,955
Commercial and industrial	4,479		1,287		3,791		1,287
Residential real estate	23,509		20,062		24,361		20,062
Consumer	640		58		663		58
Total outstanding balance	$	41,744	$	33,362	$	37,878	$	33,362
Net carrying amount	$	28,125	$	22,475	$	23,796	$	22,475

Changes in the accretable yield for purchased credit impaired loans for the ~~six~~nine months ended ~~June~~September 30 were as follows:


(Dollars in thousands)	June 30, 2019			June 30, 2018			September 30, 2019			September 30, 2018
Balance, beginning of period	$	8,955		$	6,704		$	8,955		$	6,704
Reclassification from nonaccretable to accretable							199			2,019
Additions:
ASB Financial Corp.	—			2,415			—			2,047
First Prestonsburg Bancshares Inc.	3,853			—			3,860			—
Accretion	(1,148		)	(897		)	(1,763		)	(1,392		)
Balance, June 30	$	11,660		$	8,222
Balance, September 30							$	11,251		$	9,378

The fair value of newly acquired loans is determined at the time of acquisition and Peoples completes annual re-estimations of cash flows on acquired purchased credit impaired loans in August of each year. At the end of each quarter, Peoples evaluates factors to determine if a material change has occurred in acquired purchased credit impaired loans, and if a re-estimation is needed. Factors evaluated to determine if a re-estimation is needed include changes in: risk ratings, maturity dates, charge-offs, payoffs, nonaccrual status, loans that have become past due and actual cash flows compared to the projected cash flows from the last re-estimation. Peoples evaluates these changes quarterly and compares the current status or activity to those at the previous cash flow re-estimation date, and the related materiality of the changes. As of ~~June~~September 30, 2019, these changes, when compared to the total loan portfolio and the factors at the last re-estimation date, would not have a material impact on amounts recorded since the last re-estimation. Peoples completed a re-estimation of cash flows on purchased credit impaired loans in August ~~2018.~~2019, resulting in a reclassification from nonaccretable to accretable yield as shown in the table above.

Cash flows expected to be collected on purchased credit impaired loans are estimated by incorporating several key assumptions, similar to the initial estimate of fair value. These key assumptions include probability of default and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income and possibly the principal expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary.

Pledged Loans

Peoples pledges certain loans secured by 1-4 family and multifamily residential mortgages under a blanket collateral agreement to secure borrowings from the FHLB of Cincinnati. The amount of loans pledged under this blanket collateral agreement totaled ~~$488.4~~$485.8 million and $505.7 million at ~~June~~September 30, 2019 and December 31, 2018, respectively. Peoples also pledges commercial loans to secure borrowings with the FRB of Cleveland. The outstanding balances of these loans totaled ~~$153.0~~$171.7 million and $180.9 million at ~~June~~September 30, 2019 and December 31, 2018, respectively.

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


	Nonaccrual Loans				Loans 90+ Days Past Due and Accruing				Nonaccrual Loans				Loans 90+ Days Past Due and Accruing
(Dollars in thousands)	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Originated loans:
Commercial real estate, construction	$	688	$	710	$	—	$	—	$	—	$	710	$	—	$	—
Commercial real estate, other	6,241		6,565		—		786		6,680		6,565		—		786
Commercial real estate	6,929		7,275		—		786		6,680		7,275		—		786
Commercial and industrial	2,044		1,673		—		—		1,120		1,673		298		—
Residential real estate	3,816		4,105		438		398		4,145		4,105		431		398
Home equity lines of credit	452		596		53		7		387		596		134		7
Consumer, indirect	535		480		—		—		771		480		—		—
Consumer, direct	12		56		—		—		53		56		—		—
Consumer	547		536		—		—		824		536		—		—
Total originated loans	$	13,788	$	14,185	$	491	$	1,191	$	13,156	$	14,185	$	863	$	1,191
Acquired loans:
Commercial real estate, construction	$	—	$	—	$	230	$	—	$	230	$	—	$	—	$	—
Commercial real estate, other	308		319		557		15		155		319		582		15
Commercial real estate	308		319		787		15		385		319		582		15
Commercial and industrial	36		36		261		18		95		36		274		18
Residential real estate	1,716		1,921		1,853		1,032		1,862		1,921		2,664		1,032
Home equity lines of credit	742		637		—		—		700		637		49		—
Consumer, direct	1		—		57		—		2		—		83		—
Total acquired loans	$	2,803	$	2,913	$	2,958	$	1,065	$	3,044	$	2,913	$	3,652	$	1,065
Total loans	$	16,591	$	17,098	$	3,449	$	2,256	$	16,200	$	17,098	$	4,515	$	2,256

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


	Loans Past Due								Current Loans		Total Loans		Loans Past Due								Current Loans		Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total						30 - 59 days		60 - 89 days		90 + Days		Total
June 30, 2019
September 30, 2019
Originated loans:
Commercial real estate, construction	$	—	$	—	$	688	$	688	$	102,216	$	102,904	$	—	$	—	$	—	$	—	$	100,338	$	100,338
Commercial real estate, other	—		—		6,050		6,050		635,011		641,061		8		171		6,482		6,661		652,442		659,103
Commercial real estate	—		—		6,738		6,738		737,227		743,965		8		171		6,482		6,661		752,780		759,441
Commercial and industrial	606		3		1,937		2,546		545,914		548,460		429		175		1,279		1,883		562,396		564,279
Residential real estate	1,391		1,177		2,478		5,046		294,127		299,173		1,288		845		2,489		4,622		304,342		308,964
Home equity lines of credit	387		18		461		866		89,508		90,374		95		129		476		700		92,210		92,910
Consumer, indirect	3,024		216		111		3,351		416,244		419,595		2,719		484		215		3,418		419,799		423,217
Consumer, direct	306		17		2		325		71,884		72,209		292		42		6		340		72,359		72,699
Consumer	3,330		233		113		3,676		488,128		491,804		3,011		526		221		3,758		492,158		495,916
Deposit account overdrafts	—		—		—		—		676		676		—		—		—		—		1,081		1,081
Total originated loans	$	5,714	$	1,431	$	11,727	$	18,872	$	2,155,580	$	2,174,452	$	4,831	$	1,846	$	10,947	$	17,624	$	2,204,967	$	2,222,591
Acquired loans:
Commercial real estate, construction	$	—	$	—	$	230	$	230	$	6,545	$	6,775	$	100	$	317	$	230	$	647	$	3,788	$	4,435
Commercial real estate, other	661		728		773		2,162		199,747		201,909		473		290		724		1,487		169,609		171,096
Commercial real estate	661		728		1,003		2,392		206,292		208,684		573		607		954		2,134		173,397		175,531
Commercial and industrial	488		60		297		845		50,661		51,506		159		123		368		650		43,311		43,961
Residential real estate	1,685		2,075		2,700		6,460		341,979		348,439		1,270		1,020		3,252		5,542		352,511		358,053
Home equity lines of credit	228		109		563		900		40,362		41,262		681		42		706		1,429		40,513		41,942
Consumer, indirect	—		—		—		—		90		90		—		—		—		—		67		67
Consumer, direct	88		52		57		197		8,903		9,100		47		19		85		151		8,020		8,171
Consumer	88		52		57		197		8,993		9,190		47		19		85		151		8,087		8,238
Total acquired loans	$	3,150	$	3,024	$	4,620	$	10,794	$	648,287	$	659,081	$	2,730	$	1,811	$	5,365	$	9,906	$	617,819	$	627,725
Total loans	$	8,864	$	4,455	$	16,347	$	29,666	$	2,803,867	$	2,833,533	$	7,561	$	3,657	$	16,312	$	27,530	$	2,822,786	$	2,850,316

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	Loans Past Due								Current Loans		Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
December 31, 2018
Originated loans:
Commercial real estate, construction	$	—	$	—	$	710	$	710	$	123,303	$	124,013
Commercial real estate, other	12		736		7,151		7,899		624,301		632,200
Commercial real estate	12		736		7,861		8,609		747,604		756,213
Commercial and industrial	1,678		3,520		1,297		6,495		523,712		530,207
Residential real estate	4,457		1,319		2,595		8,371		288,489		296,860
Home equity lines of credit	531		30		431		992		92,334		93,326
Consumer, indirect	3,266		488		165		3,919		403,248		407,167
Consumer, direct	308		50		42		400		71,274		71,674
Consumer	3,574		538		207		4,319		474,522		478,841
Deposit account overdrafts	—		—		—		—		583		583
Total originated loans	$	10,252	$	6,143	$	12,391	$	28,786	$	2,127,244	$	2,156,030
Acquired loans:
Commercial real estate, construction	$	511	$	—	$	—	$	511	$	11,893	$	12,404
Commercial real estate, other	523		457		233		1,213		183,498		184,711
Commercial real estate	1,034		457		233		1,724		195,391		197,115
Commercial and industrial	111		13		18		142		35,395		35,537
Residential real estate	6,124		1,823		1,885		9,832		287,105		296,937
Home equity lines of credit	238		233		534		1,005		39,648		40,653
Consumer, indirect	—		—		—		—		136		136
Consumer, direct	23		6		—		29		2,341		2,370
Consumer	23		6		—		29		2,477		2,506
Total acquired loans	$	7,530	$	2,532	$	2,670	$	12,732	$	560,016	$	572,748
Total loans	$	17,782	$	8,675	$	15,061	$	41,518	$	2,687,260	$	2,728,778

Delinquency trends remained stable, as 99.0% of Peoples' portfolio was considered “current” at ~~June~~September 30, 2019, compared to 98.5% at December 31, 2018.

Credit Quality Indicators

As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2018 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. A description of the general characteristics of the risk grades used by Peoples is as follows:

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

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

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

“Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of

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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 loan 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 “not rated.”

The following table summarizes the risk category of loans within Peoples' loan portfolio based upon the most recent analysis performed:


	Pass Rated (Grades 1 - 4)		Special Mention (Grade 5)		Substandard (Grade 6)		Doubtful (Grade 7)		Not Rated		Total Loans		Pass Rated (Grades 1 - 4)		Special Mention (Grade 5)		Substandard (Grade 6)		Doubtful (Grade 7)		Not Rated		Total Loans
(Dollars in thousands)
June 30, 2019
September 30, 2019
Originated loans:
Commercial real estate, construction	$	100,231	$	—	$	1,431	$	—	$	1,242	$	102,904	$	99,569	$	—	$	—	$	—	$	769	$	100,338
Commercial real estate, other	622,966		7,673		10,416		6		—		641,061		626,042		22,003		11,058		—		—		659,103
Commercial real estate	723,197		7,673		11,847		6		1,242		743,965		725,611		22,003		11,058		—		769		759,441
Commercial and industrial	525,738		5,807		16,915		—		—		548,460		544,048		6,341		13,890		—		—		564,279
Residential real estate	13,752		201		14,682		249		270,289		299,173		19,489		177		16,214		226		272,858		308,964
Home equity lines of credit	17		—		—		—		90,357		90,374		1,429		—		—		—		91,481		92,910
Consumer, indirect	—		—		—		—		419,595		419,595		—		—		—		—		423,217		423,217
Consumer, direct	24		—		—		—		72,185		72,209		27		—		—		—		72,672		72,699
Consumer	24		—		—		—		491,780		491,804		27		—		—		—		495,889		495,916
Deposit account overdrafts	—		—		—		—		676		676		—		—		—		—		1,081		1,081
Total originated loans	$	1,262,728	$	13,681	$	43,444	$	255	$	854,344	$	2,174,452	$	1,290,604	$	28,521	$	41,162	$	226	$	862,078	$	2,222,591
Acquired loans:
Commercial real estate, construction	$	4,338	$	1,636	$	801	$	—	$	—	$	6,775	$	2,766	$	920	$	749	$	—	$	—	$	4,435
Commercial real estate, other	178,425		12,700		10,693		91		—		201,909		155,011		7,860		8,139		86		—		171,096
Commercial real estate	182,763		14,336		11,494		91		—		208,684		157,777		8,780		8,888		86		—		175,531
Commercial and industrial	43,171		3,265		5,038		32		—		51,506		39,127		1,049		3,785		—		—		43,961
Residential real estate	17,634		2,686		2,564		130		325,425		348,439		33,453		3,053		4,663		128		316,756		358,053
Home equity lines of credit	81		—		—		—		41,181		41,262		2,017		93		—		—		39,832		41,942
Consumer, indirect	1		—		—		—		89		90		—		—		—		—		67		67
Consumer, direct	19		—		—		—		9,081		9,100		13		—		—		—		8,158		8,171
Consumer	20		—		—		—		9,170		9,190		13		—		—		—		8,225		8,238
Total acquired loans	$	243,669	$	20,287	$	19,096	$	253	$	375,776	$	659,081	$	232,387	$	12,975	$	17,336	$	214	$	364,813	$	627,725
Total loans	$	1,506,397	$	33,968	$	62,540	$	508	$	1,230,120	$	2,833,533	$	1,522,991	$	41,496	$	58,498	$	440	$	1,226,891	$	2,850,316

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	Pass Rated (Grades 1 - 4)		Special Mention (Grade 5)		Substandard (Grade 6)		Doubtful (Grade 7)		Not Rated		Total Loans
(Dollars in thousands)
December 31, 2018
Originated loans:
Commercial real estate, construction	$	121,457	$	—	$	1,472	$	—	$	1,084	$	124,013
Commercial real estate, other	612,099		10,898		9,203		—		—		632,200
Commercial real estate	733,556		10,898		10,675		—		1,084		756,213
Commercial and industrial	476,290		45,990		7,692		—		235		530,207
Residential real estate	14,229		500		11,971		409		269,751		296,860
Home equity lines of credit	453		—		—		—		92,873		93,326
Consumer, indirect	8		—		—		—		407,159		407,167
Consumer, direct	30		—		—		—		71,644		71,674
Consumer	38		—		—		—		478,803		478,841
Deposit account overdrafts	—		—		—		—		583		583
Total originated loans	$	1,224,566	$	57,388	$	30,338	$	409	$	843,329	$	2,156,030
Acquired loans:
Commercial real estate, construction	$	8,976	$	1,795	$	1,633	$	—	$	—	$	12,404
Commercial real estate, other	169,260		7,241		8,114		96		—		184,711
Commercial real estate	178,236		9,036		9,747		96		—		197,115
Commercial and industrial	32,471		2,008		1,058		—		—		35,537
Residential real estate	17,370		1,938		2,033		137		275,459		296,937
Home equity lines of credit	33		—		—		—		40,620		40,653
Consumer, indirect	4		—		—		—		132		136
Consumer, direct	31		—		—		—		2,339		2,370
Consumer	35		—		—		—		2,471		2,506
Total acquired loans	$	228,145	$	12,982	$	12,838	$	233	$	318,550	$	572,748
Total loans	$	1,452,711	$	70,370	$	43,176	$	642	$	1,161,879	$	2,728,778

In the first ~~six~~nine months of 2019, Peoples' classified loans, which are loans categorized as substandard or doubtful, increased compared to the balances at December 31, 2018 mostly due to downgrades during the period combined with loans acquired in the First Prestonsburg merger, which were partially offset by paydowns on classified loans. At ~~June~~September 30, 2019, criticized loans, which are those categorized as special mention, substandard or doubtful, declined compared to the balance at December 31, 2018, largely due to the upgrade of two commercial relationships, partially offset by loans acquired in the First Prestonsburg merger.

At ~~June~~September 30, 2019, Peoples had a total of ~~$2.2~~$1.9 million of loans secured by residential real estate mortgages that were in the process of foreclosure.

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Impaired Loans

The following table summarizes loans classified as impaired:


	Unpaid Principal Balance		Recorded Investment				Total Recorded Investment				Average Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment				Total Recorded Investment				Average Recorded Investment		Interest Income Recognized
			With Allowance		Without Allowance				Related Allowance								With Allowance		Without Allowance				Related Allowance
(Dollars in thousands)
June 30, 2019
September 30, 2019
Commercial real estate, construction	$	1,793	$	—	$	1,706	$	1,706	$	—	$	1,728	$	29	$	780	$	—	$	693	$	693	$	—	$	702	$	1
Commercial real estate, other	15,546		4,753		10,296		15,049		520		14,722		250		15,093		4,754		9,755		14,509		475		13,764		369
Commercial real estate	17,339		4,753		12,002		16,755		520		16,450		279		15,873		4,754		10,448		15,202		475		14,466		370
Commercial and industrial	4,265		1,485		2,731		4,216		449		3,226		47		4,113		999		3,087		4,086		206		2,481		99
Residential real estate	22,195		387		23,170		23,557		53		22,086		629		25,447		381		26,582		26,963		47		23,312		1,065
Home equity lines of credit	1,469		419		1,051		1,470		68		1,343		40		1,433		416		1,019		1,435		43		1,329		61
Consumer, indirect	445		96		356		452		23		413		15		597		195		410		605		30		456		31
Consumer, direct	464		49		415		464		18		207		9		628		43		586		629		10		261		22
Consumer	909		145		771		916		41		620		24		1,225		238		996		1,234		40		717		53
Total	$	46,177	$	7,189	$	39,725	$	46,914	$	1,131	$	43,725	$	1,019	$	48,091	$	6,788	$	42,132	$	48,920	$	811	$	42,305	$	1,648
December 31, 2018
Commercial real estate, construction	$	2,376	$	—	$	2,376	$	2,376	$	—	$	1,732	$	74	$	2,376	$	—	$	2,376	$	2,376	$	—	$	1,732	$	74
Commercial real estate, other	15,464		274		14,946		15,220		119		14,043		455		15,464		274		14,946		15,220		119		14,043		455
Commercial real estate	17,840		274		17,322		17,596		119		15,775		529		17,840		274		17,322		17,596		119		15,775		529
Commercial and industrial	3,305		790		2,436		3,226		157		2,423		72		3,305		790		2,436		3,226		157		2,423		72
Residential real estate	25,990		644		24,034		24,678		154		22,769		1,134		25,990		644		24,034		24,678		154		22,769		1,134
Home equity lines of credit	2,291		424		1,869		2,293		73		1,832		109		2,291		424		1,869		2,293		73		1,832		109
Consumer, indirect	496		—		503		503		—		278		15		496		—		503		503		—		278		15
Consumer, direct	79		22		57		79		6		63		20		79		22		57		79		6		63		20
Consumer	575		22		560		582		6		341		35		575		22		560		582		6		341		35
Total	$	50,001	$	2,154	$	46,221	$	48,375	$	509	$	43,140	$	1,879	$	50,001	$	2,154	$	46,221	$	48,375	$	509	$	43,140	$	1,879

Peoples' impaired loans shown in the table above included loans that were classified as troubled debt restructurings ("TDRs").

In assessing whether or not a borrower is experiencing financial difficulties, Peoples considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the borrower is currently in payment default on any of the borrower's debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the borrower has declared or is in the process of declaring bankruptcy; and (iv) the borrower's projected cash flow is insufficient to satisfy contractual payments due under the original terms of the loan without a modification.

Peoples considers all aspects of the modification to loan terms to determine whether a concession has been granted to the borrower. Key factors considered by Peoples include the borrower's ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to the unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by Peoples generally include one or more modifications to the terms of the loan, such as (i) a reduction in the interest rate for the remaining life of the loan, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new loans with similar risk, (iii) a temporary period of interest-only payments, and (iv) a reduction in the contractual payment amount for either a short period or the remaining term of the loan.

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

Three Months Ended

Recorded Investment (a)
(Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment
June 30, 2019
Originated loans:
Residential real estate 1
$ 37
$ 37
$ 37
Home equity lines of credit 2
60
60
60
Consumer, indirect 7
110
110
110
Consumer, direct 3
41
41
41
Consumer 10
151
151
151
Total originated loans 13
$ 248
$ 248
$ 248
Acquired loans:
Commercial real estate, other 7
$ 725
$ 699
$ 700
Commercial and industrial 4
1,259
1,259
1,259
Residential real estate 35
1,823
1,823
1,823
Home equity lines of credit 7
113
113
113
Consumer, direct 16
340
340
340
Total acquired loans 69
$ 4,260
$ 4,234
$ 4,235
June 30, 2018
Originated loans:
Residential real estate 5
$ 717
$ 717
$ 717
Home equity lines of credit 3
61
61
61
Consumer, indirect 14
230
230
230
Consumer, direct 5
27
27
27
Consumer 19
257
257
257
Total originated loans 27
$ 1,035
$ 1,035
$ 1,035
Acquired loans:
Residential real estate 11
$ 720
$ 720
$ 720
Home equity lines of credit 4
86
86
86
Consumer, direct 3
57
57
57
Total acquired loans 18
$ 863
$ 863
$ 863
(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.



		Three Months Ended
		Recorded Investment (a)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
September 30, 2019
Originated loans:
Consumer, indirect	15	$	205	$	205	$	205
Total originated loans	15	$	205	$	205	$	205
Acquired loans:
Residential real estate	1	$	70	$	70	$	70
Total acquired loans	1	$	70	$	70	$	70
September 30, 2018
Originated loans:
Residential real estate	3	$	87	$	87	$	87
Home equity lines of credit	4	533		533		531
Consumer, indirect	7	150		150		150
Total originated loans	14	$	770	$	770	$	768
Acquired loans:
Residential real estate	3	$	272	$	272	$	272
Home equity lines of credit	1	54		54		54
Total acquired loans	4	$	326	$	326	$	326

(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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Six Months Ended

Recorded Investment (a)
(Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment
June 30, 2019
Originated loans:
Commercial and industrial 2
$ 38
$ 38
$ 35
Residential real estate 3
436
440
437
Home equity lines of credit 4
139
139
139
Consumer, indirect 8
123
123
123
Consumer, direct 5
69
69
67
Consumer 13
192
192
190
Total originated loans 22
$ 805
$ 809
$ 801
Acquired loans:
Commercial real estate, other 7
$ 724
$ 699
$ 700
Commercial and industrial 4
1,259
1,259
1,259
Residential real estate 36
1,847
1,847
1,842
Home equity lines of credit 9
179
179
178
Consumer, direct 16
340
340
340
Total acquired loans 72
$ 4,349
$ 4,324
$ 4,319
June 30, 2018
Originated loans:
Residential real estate 7
$ 910
$ 910
$ 911
Home equity lines of credit 3
61
61
61
Consumer, indirect 21
316
316
302
Consumer, direct 7
31
31
31
Consumer 28
347
347
333
Total originated loans 38
$ 1,318
$ 1,318
$ 1,305
Acquired loans:
Commercial real estate, other 1
$ 50
$ 50
$ 48
Residential real estate 13
989
989
989
Home equity lines of credit 4
86
86
86
Consumer, direct 3
57
57
57
Total acquired loans 21
$ 1,182
$ 1,182
$ 1,180
(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.



		Nine Months Ended
		Recorded Investment (a)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
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 originated loans	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 acquired loans	67	$	4,258	$	4,233	$	4,120
September 30, 2018
Originated loans:
Residential real estate	9	$	871	$	871	$	871
Home equity lines of credit	6	565		565		562
Consumer, indirect	26	454		454		420
Consumer, direct	5	27		27		18
Consumer	31	481		481		438
Total originated loans	46	$	1,917	$	1,917	$	1,871
Acquired loans:
Commercial real estate, other	1	$	50	$	50	$	47
Residential real estate	15	1,258		1,258		1,244
Home equity lines of credit	5	140		140		139
Total acquired loans	21	$	1,448	$	1,448	$	1,430

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


	June 30, 2019					June 30, 2018					September 30, 2019					September 30, 2018
(Dollars in thousands)	Number of Contracts	Recorded Investment (a)		Impact on the Allowance for Loan Losses		Number of Contracts	Recorded Investment (a)		Impact on the Allowance for Loan Losses		Number of Contracts	Recorded Investment (a)		Impact on the Allowance for Loan Losses		Number of Contracts	Recorded Investment (a)		Impact on the Allowance for Loan Losses
Acquired loans:
Home equity lines of credit											—	$	—	$	—	1	$	10	$	—
Consumer, direct	1	$	34	$	—	—	$	—	$	—	2	35		—		—	—		—
Total	1	$	34	$	—	—	$	—	$	—	2	$	35	$	—	1	$	10	$	—
(a) The amount shown is 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 did not have any originated loans that were modified as a TDR during the last twelve months that subsequently defaulted. Peoples had no commitments to lend additional funds to the related debtors whose terms have been modified in a TDR.

Allowance for Originated Loan Losses

Changes in the allowance for originated loan losses for the ~~six~~nine months ended ~~June~~September 30 were as follows:


(Dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Home Equity Lines of Credit			Consumer Indirect			Consumer Direct			Deposit Account Overdrafts			Total			Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Home Equity Lines of Credit			Consumer Indirect			Consumer Direct			Deposit Account Overdrafts			Total
Balance, January 1, 2019	$	8,003		$	6,178		$	1,214		$	618		$	3,214		$	351		$	81		$	19,659		$	8,003		$	6,178		$	1,214		$	618		$	3,214		$	351		$	81		$	19,659
Charge-offs	(153		)	(63		)	(176		)	(9		)	(819		)	(96		)	(349		)	(1,665		)	(153		)	(324		)	(257		)	(45		)	(1,266		)	(150		)	(632		)	(2,827		)
Recoveries	12			2,012			133			2			162			40			106			2,467			98			2,093			220			10			229			45			157			2,852
Net (charge-offs) recoveries	(141		)	1,949			(43		)	(7		)	(657		)	(56		)	(243		)	802			(55		)	1,769			(37		)	(35		)	(1,037		)	(105		)	(475		)	25
Provision for (recoveries of) loan losses	383			(930		)	13			(13		)	615			47			248			363
Balance, June 30, 2019	$	8,245		$	7,197		$	1,184		$	598		$	3,172		$	342		$	86		$	20,824
Provision for (recovery of) loan losses																									518			(785		)	(15		)	(16		)	1,070			93			522			1,387
Balance, September 30, 2019																									$	8,466		$	7,162		$	1,162		$	567		$	3,247		$	339		$	128		$	21,071

Balance, January 1, 2018	$	7,797		$	5,813		$	904		$	693		$	2,944		$	464		$	70		$	18,685		$	7,797		$	5,813		$	904		$	693		$	2,944		$	464		$	70		$	18,685
Charge-offs	(849		)	(38		)	(227		)	(57		)	(1,479		)	(219		)	(420		)	(3,289		)	(849		)	(38		)	(293		)	(67		)	(1,967		)	(297		)	(731		)	(4,242		)
Recoveries	43			—			67			9			272			84			116			591			58			10			98			12			403			114			160			855
Net charge-offs	(806		)	(38		)	(160		)	(48		)	(1,207		)	(135		)	(304		)	(2,698		)	(791		)	(28		)	(195		)	(55		)	(1,564		)	(183		)	(571		)	(3,387		)
Provision for (recovery of) loan losses	1,280			(410		)	261			(27		)	1,602			136			329			3,171
Balance, June 30, 2018	$	8,271		$	5,365		$	1,005		$	618		$	3,339		$	465		$	95		$	19,158
Provision for loan losses																									960			353			290			70			2,043			114			596			4,426
Balance, September 30, 2018																									$	7,966		$	6,138		$	999		$	708		$	3,423		$	395		$	95		$	19,724

The increase in the allowance for loan losses allocated to commercial real estate recorded during the first nine months of 2019 was driven by an increase in the allowance needed for loans individually evaluated for impairment combined with loan growth. The decline in the allowance for loan losses allocated to residential real estate recorded during the first nine months of 2019 was driven by a decrease in the allowance needed for loans individually evaluated for impairment which was offset partially by loan growth. The changes in the commercial and industrial, consumer indirect and consumer direct categories of the allowance for originated loan losses and the related provision for originated loan losses recorded during the nine months of 2019 were driven by net charge-off activity and increases in the size of the respective loan portfolios.

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The following table details the recorded investment and allowance for originated loan losses disaggregated based on impairment method:


(Dollars in thousands)	Commercial Real Estate		Commercial and Industrial		Residential Real Estate		Home Equity Lines of Credit		Consumer Indirect		Consumer Direct		Deposit Account Overdrafts		Total		Commercial Real Estate		Commercial and Industrial		Residential Real Estate		Home Equity Lines of Credit		Consumer Indirect		Consumer Direct		Deposit Account Overdrafts		Total
June 30, 2019
September 30, 2019
Allowance for loan losses allocated to:	Allowance for loan losses allocated to:																Allowance for loan losses allocated to:
Loans individually evaluated for impairment	$	520	$	449	$	53	$	68	$	23	$	18	$	—	$	1,131	$	475	$	206	$	47	$	43	$	30	$	10	$	—	$	811
Loans collectively evaluated for impairment	7,725		6,748		1,131		530		3,149		324		86		19,693		7,991		6,956		1,115		524		3,217		329		128		20,260
Ending balance	$	8,245	$	7,197	$	1,184	$	598	$	3,172	$	342	$	86	$	20,824	$	8,466	$	7,162	$	1,162	$	567	$	3,247	$	339	$	128	$	21,071

Recorded investment in:	Recorded investment in:																Recorded investment in:
Loans individually evaluated for impairment	$	16,755	$	4,216	$	23,557	$	1,470	$	452	$	464	$	—	$	46,914	$	15,202	$	4,086	$	26,963	$	1,435	$	605	$	629	$	—	$	48,920
Loans collectively evaluated for impairment	727,210		544,244		275,616		88,904		419,143		71,745		676		2,127,538		744,239		560,193		282,001		91,475		422,612		72,070		1,081		2,173,671
Ending balance	$	743,965	$	548,460	$	299,173	$	90,374	$	419,595	$	72,209	$	676	$	2,174,452	$	759,441	$	564,279	$	308,964	$	92,910	$	423,217	$	72,699	$	1,081	$	2,222,591

December 31, 2018
Allowance for loan losses allocated to:	Allowance for loan losses allocated to:																Allowance for loan losses allocated to:
Loans individually evaluated for impairment	$	119	$	157	$	154	$	73	$	—	$	6	$	—	$	509	$	119	$	157	$	154	$	73	$	—	$	6	$	—	$	509
Loans collectively evaluated for impairment	7,884		6,021		1,060		545		3,214		345		81		19,150		7,884		6,021		1,060		545		3,214		345		81		19,150
Ending balance	$	8,003	$	6,178	$	1,214	$	618	$	3,214	$	351	$	81	$	19,659	$	8,003	$	6,178	$	1,214	$	618	$	3,214	$	351	$	81	$	19,659

Recorded investment in:	Recorded investment in:																Recorded investment in:
Loans individually evaluated for impairment	$	17,596	$	3,226	$	24,678	$	2,293	$	503	$	79	$	—	$	48,375	$	17,596	$	3,226	$	24,678	$	2,293	$	503	$	79	$	—	$	48,375
Loans collectively evaluated for impairment	738,617		526,981		272,182		91,033		406,664		71,595		583		2,107,655		738,617		526,981		272,182		91,033		406,664		71,595		583		2,107,655
Ending balance	$	756,213	$	530,207	$	296,860	$	93,326	$	407,167	$	71,674	$	583	$	2,156,030	$	756,213	$	530,207	$	296,860	$	93,326	$	407,167	$	71,674	$	583	$	2,156,030

June 30, 2018
September 30, 2018
Allowance for loan losses allocated to:	Allowance for loan losses allocated to:																Allowance for loan losses allocated to:
Loans individually evaluated for impairment	$	1	$	191	$	47	$	14	$	31	$	45	$	—	$	329	$	91	$	191	$	40	$	83	$	140	$	32	$	—	$	577
Loans collectively evaluated for impairment	8,270		5,174		958		604		3,308		420		95		18,829		7,875		5,947		959		625		3,283		363		95		19,147
Ending balance	$	8,271	$	5,365	$	1,005	$	618	$	3,339	$	465	$	95	$	19,158	$	7,966	$	6,138	$	999	$	708	$	3,423	$	395	$	95	$	19,724

Recorded investment in:	Recorded investment in:																Recorded investment in:
Loans individually evaluated for impairment	$	19,162	$	3,173	$	26,497	$	1,736	$	441	$	150	$	—	$	51,159	$	18,375	$	2,185	$	25,147	$	2,270	$	527	$	77	$	—	$	48,581
Loans collectively evaluated for impairment	737,051		468,097		273,437		88,221		372,943		71,395		860		2,012,004		715,907		508,406		274,621		90,622		396,174		72,524		649		2,058,903
Ending balance	$	756,213	$	471,270	$	299,934	$	89,957	$	373,384	$	71,545	$	860	$	2,063,163	$	734,282	$	510,591	$	299,768	$	92,892	$	396,701	$	72,601	$	649	$	2,107,484

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Allowance for Loan Losses for Acquired Loans

Acquired loans are recorded at their fair value as of the acquisition date with no valuation allowance, and monitored for changes in credit quality and subsequent increases or decreases in expected cash flows. Decreases in expected cash flows of acquired purchased credit impaired loans are recognized as an impairment, with the amount of the expected loss included in management's evaluation of the appropriateness of the allowance for loan losses. The methods utilized to estimate the required allowance for loan losses for non-impaired acquired loans are similar to those utilized for originated loans; however, Peoples records a provision for loan losses only when the computed allowance exceeds the remaining fair value adjustment.

The following table presents activity in the allowance for loan losses for acquired loans:

Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Non-impaired loans:
Balance, beginning of period $ 380
$ —
$ 383
$ —
Charge-offs —
—
(3 ) —
Balance, end of period $ 380
$ —
$ 380
$ —

Purchased credit impaired loans:
Balance, beginning of period $ 153
$ 108
$ 153
$ 108
Balance, end of period $ 153
$ 108
$ 153
$ 108

~~The allowance for loan losses for non-impaired acquired loans was established at December 31, 2018.~~



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(Dollars in thousands)	2019			2018		2019			2018
Non-impaired loans:
Balance, beginning of period	$	380		$	—	$	383		$	—
Charge-offs	—			—		(3		)	—
Balance, end of period	$	380		$	—	$	380		$	—

Purchased credit impaired loans:
Balance, beginning of period	$	153		$	108	$	153		$	108
(Recovery of) provision for loan losses	(19		)	47		(19		)	47
Balance, end of period	$	134		$	155	$	134		$	155

Note 5 Long-Term Borrowings

The following table summarizes Peoples' long-term borrowings:


	June 30, 2019				December 31, 2018				September 30, 2019				December 31, 2018
(Dollars in thousands)	Balance		Weighted- Average Rate		Balance		Weighted- Average Rate		Balance		Weighted- Average Rate		Balance		Weighted- Average Rate
FHLB putable, non-amortizing, fixed-rate advances	$	65,000	2.18	%	$	85,000	2.05	%	$	65,000	2.18	%	$	85,000	2.05	%
FHLB amortizing, fixed-rate advances	13,324		1.73	%	17,361		2.09	%	11,785		1.77	%	17,361		2.09	%
Junior subordinated debt securities	7,367		7.34	%	7,283		7.83	%	7,409		7.29	%	7,283		7.83	%
Total long-term borrowings	$	85,691	2.55	%	$	109,644	2.44	%	$	84,194	2.57	%	$	109,644	2.44	%

Peoples continually evaluates its overall balance sheet position given the interest rate environment. During the first ~~six~~nine months of 2019, no additional borrowings were entered into, and ~~two~~three long-term FHLB non-amortizing advances totaling ~~$20.0~~$25.0 million were reclassified to short-term borrowings as the maturity became less than one year.

As of ~~June~~September 30, 2019, Peoples had one remaining FHLB putable option-based advance. The FHLB has the option, at its sole discretion, to terminate the advance after the initial fixed rate period of three months, requiring full repayment of the advance by Peoples prior to the stated maturity. If the advance is terminated prior to maturity, the FHLB will offer Peoples replacement funding at the then-prevailing rate on an advance product then offered by the FHLB, subject to normal FHLB credit and collateral requirements. Peoples is required to make quarterly interest payments.

The amortizing, fixed-rate FHLB advances have a fixed rate for the term of each advance, with remaining maturities ranging from ~~eight~~seven to ~~thirteen~~twelve 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.

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


(Dollars in thousands)	Balance		Weighted-Average Rate		Balance		Weighted-Average Rate
Six months ending December 31, 2019	$	2,568	1.48	%
Three months ending December 31, 2019					$	1,071	1.87	%
Year ending December 31, 2020	2,555		1.35	%	2,555		1.35	%
Year ending December 31, 2021	21,979		1.74	%	21,979		1.74	%
Year ending December 31, 2022	16,521		1.95	%	16,521		1.95	%
Year ending December 31, 2023	1,157		1.06	%	1,157		1.08	%
Thereafter	40,911		3.41	%	40,911		3.40	%
Total long-term borrowings	$	85,691	2.55	%	$	84,194	2.57	%

Effective April 3, 2019, Peoples terminated the Credit Agreement, dated as of March 4, 2016, between Peoples, as Borrower, and Raymond James Bank, N.A., as Lender (the "RJB Credit Agreement"), with a revolving line of credit in the maximum aggregate principal amount of $15.0 million. As of the termination date, April 3, 2019, and December 31, 2018, there were no borrowings outstanding under the RJB Credit Agreement. Additional information regarding the RJB Credit Agreement can be found in "Note 9 Long-Term Borrowings" of the Notes to the Consolidated Financial Statements included in Peoples' 2018 Form 10-K.

Peoples replaced the RBJ Credit Agreement with a short-term revolving line of credit. On April 3, 2019, Peoples entered into a Loan Agreement (the “U.S. Bank Loan Agreement”) with U.S. Bank National Association. The U.S. Bank Loan Agreement has a one-year term and 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.

Note 6 Stockholders’ Equity

The following table details the progression in Peoples’ common shares and treasury stock during the ~~six~~nine months ended ~~June~~September 30, 2019:


	Common Stock	Treasury Stock		Common Stock	Treasury Stock
Shares at December 31, 2018	20,124,378	601,289		20,124,378	601,289
Changes related to stock-based compensation awards:
Release of restricted common shares	—	17,481		—	19,174
Cancellation of restricted common shares	—	3,465		—	10,240
Grant of restricted common shares	—	(122,286	)	—	(133,926	)
Grant of common shares	—	(4,680	)	—	(5,130	)
Changes related to deferred compensation plan for Boards of Directors:
Purchase of treasury stock	—	3,834		—	5,497
Disbursed out of treasury stock	—	(2,187	)	—	(2,187	)
Common shares repurchased under share repurchase program				—	14,175
Common shares issued under dividend reinvestment plan	12,400	—		19,266	—
Common shares issued under compensation plan for Boards of Directors	—	(3,490	)	—	(5,103	)
Common shares issued under employee stock purchase plan	—	(3,624	)	—	(10,287	)
Issuance of common shares related to the merger with First Prestonsburg Bancshares Inc.	1,005,478	—		1,005,478	—
Shares at June 30, 2019	21,142,256	489,802
Shares at September 30, 2019				21,149,122	493,742

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 ~~June~~September 30, 2019, Peoples had no preferred shares issued or outstanding.

The following table details the cash dividends declared per common share during 2019 and the comparable period of 2018:


	2019		2018		2019		2018
First quarter	$	0.30	$	0.26	$	0.30	$	0.26
Second quarter	0.34		0.28		0.34		0.28
Third quarter	0.34		0.28		0.34		0.28
Fourth quarter					0.34		0.30
Total dividends declared	$	0.98	$	0.82	$	1.32	$	1.12

Accumulated Other Comprehensive Income (Loss)

The following table details the change in the components of Peoples’ accumulated other comprehensive income (loss) for the ~~six~~nine months ended ~~June~~September 30, 2019:


(Dollars in thousands)	Unrealized Gain (Loss) on Securities			Unrecognized Net Pension and Postretirement Costs			Unrealized Gain (Loss) on Cash Flow Hedge			Accumulated Other Comprehensive Income (Loss)			Unrealized Gain (Loss) on Securities			Unrecognized Net Pension and Postretirement Costs			Unrealized (Loss) Gain on Cash Flow Hedge			Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2018	$	(10,082	)	$	(3,711	)	$	860		$	(12,933	)	$	(10,082	)	$	(3,711	)	$	860		$	(12,933	)
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax	21			—			—			21			(55		)	—			—			(55		)
Other comprehensive income (loss), net of reclassifications and tax	17,121			31			(3,924		)	13,228			19,422			46			(5,391		)	14,077
Balance, June 30, 2019	$	7,060		$	(3,680	)	$	(3,064	)	$	316
Balance, September 30, 2019													$	9,285		$	(3,665	)	$	(4,531	)	$	1,089

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						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018			2019			2018			2019			2018
Interest cost	$	110		$	105		$	219		$	210		$	109		$	104		$	328		$	314
Expected return on plan assets	(196		)	(146		)	(391		)	(293		)	(195		)	(147		)	(586		)	(440		)
Amortization of net loss	20			27			39			55			19			29			58			84
Net periodic income	$	(66	)	$	(14	)	$	(133	)	$	(28	)
Settlement of benefit obligation													—			176			—			176
Net periodic (income) loss													$	(67	)	$	162		$	(200	)	$	134


	Postretirement Benefits												Postretirement Benefits
	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018			2019			2018			2019			2018
Interest cost	$	1		$	1		$	2		$	2		$	1		$	—		$	3		$	2
Amortization of prior service cost	(1		)	—			(1		)	—			—			—			(1		)	—
Amortization of net loss	—			(1		)	(2		)	(3		)
Amortization of net gain													(2		)	(1		)	(4		)	(4		)
Net periodic income	$	—		$	—		$	(1	)	$	(1	)	$	(1	)	$	(1	)	$	(2	)	$	(2	)

~~There were no~~Under US GAAP, Peoples is required to recognize a settlement ~~charges recorded during any~~gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the ~~three~~service and ~~six months ended June 30, 2019~~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 ~~June 30, 2018 under~~fair value of plan assets are required to be remeasured in order to determine the ~~noncontributory defined benefit pension plan.~~settlement gain or loss.

Note 8 Earnings Per Common Share

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


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(Dollars in thousands, except per common share data)	2019		2018		2019		2018		2019		2018		2019		2018
Distributed earnings allocated to common shareholders	$	6,935	$	5,407	$	12,711	$	10,123	$	6,941	$	5,409	$	19,652	$	15,532
Undistributed earnings allocated to common shareholders	2,568		2,427		11,067		9,389		7,828		7,246		18,900		16,638
Net earnings allocated to common shareholders	$	9,503	$	7,834	$	23,778	$	19,512	$	14,769	$	12,655	$	38,552	$	32,170

Weighted-average common shares outstanding	20,277,028		19,160,728		19,824,035		18,646,266		20,415,245		19,325,457		20,023,271		18,875,290
Effect of potentially dilutive common shares	165,338		132,653		148,315		126,903		180,524		141,408		155,363		128,797
Total weighted-average diluted common shares outstanding	20,442,366		19,293,381		19,972,350		18,773,169		20,595,769		19,466,865		20,178,634		19,004,087

Earnings per common share:
Basic	$	0.47	$	0.41	$	1.20	$	1.05	$	0.72	$	0.65	$	1.93	$	1.70
Diluted	$	0.46	$	0.41	$	1.19	$	1.04	$	0.72	$	0.65	$	1.91	$	1.69
Anti-dilutive common shares excluded from calculation:
Restricted shares	87		—		46		32		844		5,541		720		2,193

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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.

Derivatives and Hedging Activities - Risk Management Objective of Using Derivatives

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 derivatives 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 derivatives 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 ~~June~~September 30, 2019, Peoples had entered into ~~fifteen~~sixteen interest rate swap contracts with an aggregate notional value of ~~$140.0~~$150.0 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, which will continue to be rolled through the life of the swaps. Amounts reported in accumulated other comprehensive income (loss) ("AOCI"), related to derivatives will be reclassified to interest income or expense as interest payments are made or received on Peoples' variable-rate assets or liabilities. During the three and ~~six~~nine months ended ~~June~~September 30, 2019, Peoples had reclassifications of gains to interest expense of ~~$70,000~~$30,000 and ~~$153,000,~~$183,000, respectively, and during the three and ~~six~~nine months ended ~~June~~September 30, 2018, Peoples had reclassifications of gains to interest expense of ~~$28,000~~$2,000 and ~~$16,000,~~$18,000, respectively.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of each derivative 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 derivative hedging 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 used to fund the swaps are matched to the reset dates and payment dates on the receipt of the 3-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 amount of pre-tax AOCI for Peoples' cash flow hedges was $3.9 million at June 30, 2019.~~

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


(Dollars in thousands)	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Notional amount	$	140,000		$	110,000		$	150,000		$	110,000
Weighted average pay rates	2.27		%	2.37		%	2.22		%	2.37		%
Weighted average receive rates	1.80		%	2.57		%	1.53		%	2.57		%
Weighted average maturity	5.6 years			6.2 years			5.7 years			6.2 years
Unrealized gains	$	3,879		$	860
Pre-tax unrealized gains included in AOCI							$	5,736		$	860

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


	Three Months Ended					Six Months Ended						Three Months Ended					Nine Months Ended
	June 30,					June 30,						September 30,					September 30,
(Dollars in thousands)	2019		2018			2019			2018			2019		2018			2019			2018
Amount of loss (gain) recognized in AOCI, pre-tax	$	2,994	$	(529	)	$	4,661		$	(1,907	)	$	1,796	$	(651	)	$	6,457		$	(2,558	)
Amount of (gain) loss recognized in earnings	$	—	$	—		$	(19	)	$	30
Amount of (loss) gain recognized in earnings												$	—	$	—		$	(19	)	$	30

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


	June 30, 2019				December 31, 2018				September 30, 2019				December 31, 2018
(Dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Interest rate swaps related to debt	$	35,000	$	316	$	60,000	$	2,093	$	20,000	$	105	$	60,000	$	2,093
Total included in other assets	$	35,000	$	316	$	60,000	$	2,093	$	20,000	$	105	$	60,000	$	2,093

Included in accrued expenses and other liabilities:
Interest rate swaps related to debt	$	105,000	$	4,363	$	50,000	$	1,111	$	130,000	$	6,026	$	50,000	$	1,111
Total included in accrued expenses and other liabilities	$	105,000	$	4,363	$	50,000	$	1,111	$	130,000	$	6,026	$	50,000	$	1,111

~~At June 30, 2019,~~ Peoples had ~~$14.4~~$21.2 million and no amount of cash pledged at September 30, 2019 and December 31, 2018, respectively, against interest rate swaps related to ~~debt,~~debt; however, the counterparties had pledged no amount of cash and $130,000, ~~respectively.~~respectively, at those dates.

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. Peoples had interest rate swaps associated with commercial loans with a gross notional value of ~~$492.0~~$590.0 million and fair value of ~~$9.7~~$14.2 million of equally offsetting assets and liabilities at ~~June~~September 30, 2019, and a gross notional value of $453.4 million and fair value of $2.5 million of equally offsetting assets and liabilities at December 31, 2018. These interest rate swaps did not have a material impact on Peoples' results of operation or financial condition.

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


	June 30, 2019				December 31, 2018				September 30, 2019				December 31, 2018
(Dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Interest rate swaps related to commercial loans	$	245,996	$	9,656	$	226,662	$	2,451	$	295,070	$	14,197	$	226,662	$	2,451
Total included in other assets	$	245,996	$	9,656	$	226,662	$	2,451	$	295,070	$	14,197	$	226,662	$	2,451

Included in accrued expenses and other liabilities:
Interest rate swaps related to commercial loans	$	245,996	$	9,656	$	226,662	$	2,451	$	295,070	$	14,197	$	226,662	$	2,451
Total included in accrued expenses and other liabilities	$	245,996	$	9,656	$	226,662	$	2,451	$	295,070	$	14,197	$	226,662	$	2,451

Peoples had no cash pledged against interest rate swaps related to commercial loans.

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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 stock awards, stock appreciation rights ("SARs"), performance units and unrestricted common share awards to employees and non-employee directors. The total number of common shares available under the 2006 Equity Plan is 891,340. The maximum number of common shares that can be issued for incentive stock options is 500,000 common shares. Prior to 2007, Peoples granted nonqualified and incentive stock options to employees and nonqualified stock options to non-employee directors under the 2006 Equity Plan and predecessor plans. Since February 2009, Peoples has granted restricted common shares to employees, and periodically to non-employee directors, subject to the terms and conditions prescribed by the 2006 Equity Plan. Additionally, in 2018 and 2019, the Board of Directors granted unrestricted common shares to non-employee directors and to ~~all~~ 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. Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions. Restrictions on restricted common shares awarded to employees typically expire after periods ranging from one to three years. In the first ~~six~~nine months of 2019, Peoples granted an aggregate of ~~117,200~~117,773 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 ~~six~~nine months of 2019, Peoples granted, to certain key employees, an aggregate of ~~5,086~~16,153 restricted 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 ~~six~~nine months ended ~~June~~September 30, 2019:


	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	43,679	$	29.64	175,772	$	31.08	43,679	$	29.64	175,772	$	31.08
Awarded	5,086	32.05		117,200	32.20		16,153	31.35		117,773	32.20
Released	17,500	21.69		33,400	17.86		22,750	24.70		33,400	17.86
Forfeited	2,852	37.79		613	34.50		4,852	35.87		5,388	33.17
Outstanding at June 30	28,413	$	34.16	258,959	$	33.29
Outstanding at September 30							32,230	$	33.05	254,757	$	33.29

For the ~~six~~nine months ended ~~June~~September 30, 2019, the total intrinsic value for restricted common shares released was ~~$1.6~~$1.8 million compared to $3.2 million for the ~~six~~nine months ended ~~June~~September 30, 2018.

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. As of ~~June~~September 30, 2019, one of seven performance unit awards had been forfeited as one of the individuals granted a performance unit award left Peoples before meeting the minimum service requirement to retain the performance unit award. The performance unit awards granted cover the performance period beginning January 1, 2018 and ending on December 31, 2019, and are subject to two performance goals. Twenty-five percent of the performance units subject to each award will vest if, but only if, the related company-specific target performance goal is achieved. The remaining 75% of the performance units subject to each award will vest based on the relative performance of Peoples compared to a defined peer group (measured by percentile ranking) with respect to the related maximum performance goal. If, for the performance period, the target level of achievement for the first performance goal and/or the maximum level of achievement for the second performance goal is not reached, the dollar amount represented by the performance units associated with each performance goal will be adjusted to reflect the level of performance achieved. After the vesting date, the participant will receive that number of common shares of Peoples equal to (i) the aggregate number of

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the participant's performance units (and equivalent dollar value of such performance units) that vested based on the performance achieved under both performance goals (ii) divided by the fair market value of a common share of Peoples on the date the performance units are deemed to have vested (which will be the last day of the performance period) and rounded down to the nearest whole common share.

Stock-Based Compensation

Peoples recognizes stock-based compensation, which is included as a component of Peoples’ salaries and employee benefit costs, for restricted 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 on the grant date, for the portion of awards that is expected to vest over the vesting period. For performance unit awards, Peoples recognizes stock-based compensation over the performance period, based on the portion of the awards that is 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 up to 15%. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized for each period:


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018			2019			2018			2019			2018
Total stock-based compensation expense	$	930		$	424		$	2,138		$	1,510		$	950		$	579		$	3,088		$	2,089
Recognized tax benefit	(195		)	(89		)	(449		)	(317		)	(199		)	(122		)	(648		)	(439		)
Net expense recognized	$	735		$	335		$	1,689		$	1,193		$	751		$	457		$	2,440		$	1,650

Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018. The fair value of restricted common share awards on the grant date is the market price of Peoples' common shares. Total unrecognized stock-based compensation expense related to unvested restricted common share awards was ~~$3.6~~$3.3 million at ~~June~~September 30, 2019, which will be recognized over a weighted-average period of ~~2.1~~2.0 years. On February 14, 2018, an aggregate of 11,112 unrestricted common shares were granted as a one-time special award to all full-time and part-time employees who did not already participate in the 2006 Equity Plan, with a related stock-based compensation expense of $388,000 being recognized. On June 3, 2019, an aggregate of 880 unrestricted common shares were granted as a one-time special award to all full-time and part-time First Prestonsburg employees, with a related stock-based compensation expense of $27,000 being recognized. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, Peoples recorded ~~$11,000~~$46,000 and ~~$50,000,~~$96,000, respectively, of stock-based compensation associated with the performance unit awards and for the three and ~~six~~nine months ended ~~June~~September 30, 2018 recorded ~~$81,000~~$62,000 and ~~$125,000,~~$188,000, respectively. Additionally, Peoples recognized $16,000 and ~~$32,000~~$48,000 of stock-based compensation associated with the employee stock purchase plan, based on purchases by employees thereunder, in the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, and ~~$14,000~~$15,000 and ~~$28,000~~$44,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively.

Unrestricted common shares awarded to non-employee directors are included as a component of Peoples' other non-interest expense. On January 31, 2019, Peoples granted to non-employee directors, an aggregate of 3,200 unrestricted common shares, which resulted in an additional $102,000 of stock-based compensation expense being recognized. On January 31, 2018, Peoples granted, to non-employee directors, an aggregate of 3,600 unrestricted common shares, which resulted in an additional $128,000 of stock-based compensation expense being recognized.

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Note 11 Revenue

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


									Three Months Ended				Nine Months Ended
	Three Months Ended				Six Months Ended				September 30,				September 30,
(Dollars in thousands)	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		2019		2018		2019		2018
Insurance income:
Commission and fees from sale of insurance policies (a)	$	3,306	$	3,193	$	6,339	$	6,382	$	3,173	$	3,159	$	9,512	$	9,541
Fees related to third-party administration services (a)	178		173		347		292		140		131		486		423
Performance-based commissions (b)	2		3		1,421		1,350		73		98		1,495		1,448
Trust and investment income (a)	3,401		3,232		6,513		6,300		3,205		3,110		9,718		9,410
Electronic banking income:
Interchange income (a)	2,747		2,520		5,190		4,784		2,842		2,464		8,032		7,248
Promotional and usage income (a)	520		265		1,064		786		735		426		1,799		1,212
Deposit account service charges:
Ongoing maintenance fees for deposit accounts (a)	1,012		646		1,764		1,321		1,049		691		2,813		2,012
Transactional-based fees (b)	1,965		1,742		3,554		3,187		2,184		1,961		5,738		5,148
Commercial loan swap fees (b)	516		146		662		262		772		355		1,434		617
Other non-interest income transactional-based fees (b)	253		262		424		543		174		228		598		772
Total	$	13,900	$	12,182	$	27,278	$	25,207	$	14,347	$	12,623	$	41,625	$	37,831

Timing of revenue recognition:
Services transferred over time	$	11,164	$	10,029	$	21,217	$	19,865	$	11,144	$	9,981	$	32,360	$	29,846
Services transferred at a point in time	2,736		2,153		6,061		5,342		3,203		2,642		9,265		7,985
Total	$	13,900	$	12,182	$	27,278	$	25,207	$	14,347	$	12,623	$	41,625	$	37,831

(a) Services transferred over time.

(b) Services transferred at a point in time.

Peoples records contract assets for income that has been recognized over a period of time for fulfillment of performance obligations, but has not yet been received related to electronic banking income. This income typically relates to bonuses for which Peoples is eligible, but will not receive until a certain time in the future. Peoples records contract liabilities for payments received for commission income related to the sale of insurance policies, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which income is recognized during the period in which the performance obligations are fulfilled.

The following table details the change in Peoples' contract assets and contract liabilities for the period ended ~~June~~September 30, 2019:


	Contract Assets			Contract Liabilities			Contract Assets			Contract Liabilities
(Dollars in thousands)
Balance, January 1, 2019	$	207		$	5,055		$	207		$	5,055
Additional income receivable	183			—			324			—
Additional deferred income	—			4,013			—			4,468
Receipt of income previously receivable	(11		)	—			(11		)	—
Recognition of income previously deferred	—			(3,521		)	—			(4,211		)
Balance, June 30, 2019	$	379		$	5,547
Balance, September 30, 2019							$	520		$	5,312

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Note 12 Acquisitions

On April 12, 2019, Peoples completed the merger with First Prestonsburg Bancshares Inc. ("First Prestonsburg"). First Prestonsburg merged into Peoples and First Prestonsburg's wholly-owned subsidiary, First Commonwealth Bank of Prestonsburg, Inc. ("First Commonwealth"), which operates nine full-service branches located in eastern and central Kentucky, merged into Peoples Bank. Consideration of $32.4 million was paid by Peoples in the form of 12.512 Peoples common shares ~~of Peoples stock~~ to shareholders of First Prestonsburg for each share of First Prestonsburg common stock they owned, which resulted in the issuance of 1,005,478 Peoples common ~~shares of Peoples stock.~~shares. In addition, immediately prior to the closing of the merger, First Prestonsburg paid a special cash distribution of $140.30 per share (for an aggregate amount of $11.3 million) which was deemed part of the ~~purchase price~~total consideration to its shareholders. As a result, First Prestonsburg shareholders received a total ~~purchase price~~consideration of $43.7 million.

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



(Dollars in thousands, except per share data)
Consideration
Common shares	80,362		80,362
Number of common shares of Peoples issued for each common share of acquired company	12.512		12.512
Price per Peoples common share, based on closing date	$	32.26	$	32.26
Common share consideration	$	32,437	$	32,437

Net Assets at Fair Value
Assets
Cash and due from banks	$	4,998	$	5,016
Interest-bearing deposits in other banks	2,798		2,797
Total cash and cash equivalents	7,796		7,813
Available-for-sale investment securities	137,658		136,596
Other investment securities	3,068		3,077
Total investment securities	140,726		139,673
Total loans	130,407
Loans			129,365
Bank premises and equipment, net of accumulated depreciation	8,255		7,597
Other intangible assets	4,234		4,234
Other assets	2,677		2,207
Total assets	$	294,095	$	290,889
Liabilities
Deposits:
Non-interest-bearing	$	40,089	$	40,089
Interest-bearing	217,151		217,151
Total deposits	257,240		257,240
Short-term borrowings	14,400		14,400
Accrued expenses and other liabilities	2,065		2,061
Total liabilities	$	273,705	$	273,701
Net assets	$	20,390	$	17,188
Goodwill	$	12,047	$	15,249

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The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended September 30, 2019, which resulted in changes to certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded induring the period in which ~~the adjustment is determined~~they occur and, as a result, previously recorded results ~~may change.~~

have changed. The below table reflects the changes in the estimated fair value at September 30, 2019 from balances reported at June 30, 2019:

~~Table of Contents~~



(Dollars in thousands)	Change in Fair Value
Net Assets
Cash and cash equivalents	$	17
Total investment securities	(1,053		)
Loans	(1,042		)
Bank premises and equipment, net of accumulated depreciation	(658		)
Other assets	(470		)
Accrued expenses and other liabilities	(4		)
Change in Goodwill	(3,202		)

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



(Dollars in thousands)	First Prestonsburg		First Prestonsburg
Non-impaired Loans
Contractual cash flows	$	168,903	$	168,729
Nonaccretable difference	19,756		19,745
Expected cash flows	149,147		148,984
Accretable yield	27,789		28,269
Fair value	$	121,358	$	120,715
Credit Impaired Loans
Contractual cash flows	$	17,706	$	17,847
Nonaccretable difference	4,804		5,337
Expected cash flows	12,902		12,510
Accretable yield	3,853		3,860
Fair value	$	9,049	$	8,650

Peoples recorded non-interest expense related primarily to ~~acquisitions~~the First Prestonsburg acquisition of ~~$6.8 million~~$199,000 and ~~$7.0~~$7.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively. ~~Total~~For the three and nine months ended September 30, 2019, total non-interest income ~~declined due to~~included gains of $10,000 and losses of ~~$253,000~~$243,000, respectively, associated with the First Prestonsburg merger. For ~~each of~~ the three and ~~six~~nine months ended ~~June~~September 30, 2019, salaries and employee benefit costs included $68,000 and $2.4 million, respectively, related to change in control agreements, retention and severance bonuses, and regular payroll and taxes after conversion. Professional fees related to the acquisition included ~~$562,000 and $620,000~~a reversal of expense of $6,000 for the three ~~and six~~ months ended ~~June~~September 30, 2019, ~~respectively,~~and expense of $614,000 for the nine months ended September 30, 2019, and other non-interest expenses included ~~$3.7 million~~$93,000 and ~~$3.8~~$3.9 million (mainly contract termination fees) for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively.

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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 ~~twenty~~thirty years. Certain leases contain renewal options and rent escalation clauses calling for rent increases over the term of the lease. Short-term leases of certain facilities and equipment, with lease terms of 12 months or less, are recognized on a straight-line basis over the lease term. At ~~June~~September 30, 2019, Peoples did not have any finance leases or any significant lessor agreements.

Peoples elected certain practical expedients, in accordance with Accounting Standards Codification ("ASC") 842. Peoples elected to recognize a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019 for the implementation of ASU 2016-02. 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 Income:

Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2019 June 30, 2019
Operating lease expense $ 311
618
Short-term lease expense 32
62
Total lease expense $ 343
$ 680

~~Table of Contents~~



	Three Months Ended		Nine Months Ended
(Dollars in thousands)	September 30, 2019		September 30, 2019
Operating lease expense	$	192	815
Short-term lease expense	113		170
Total lease expense	$	305	$	985

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

(Dollars in thousands) June 30, 2019
Right-of-use asset:
     Other assets $ 6,661
Lease liability:
     Accrued expenses and other liabilities $ 6,839

Other information:
     Weighted-average remaining lease term 13.1 years
     Weighted-average discount rate 2.46 %

~~The increased right-of-use asset and lease liability at June 30, 2019 were due to acquired leases associated with the First Prestonsburg merger.~~



(Dollars in thousands)	September 30, 2019
Right-of-use asset:
Other assets	$	6,581
Lease liability:
Accrued expenses and other liabilities	$	6,774
Other information:
Weighted-average remaining lease term	13.3 years
Weighted-average discount rate	2.18		%

The following table summarizes the maturity of remaining lease liabilities:


(Dollars in thousands)	Balance		Balance
Six months ending December 31, 2019	$	10
Three months ending December 31, 2019			$	5
Year ending December 31, 2020	112		81
Year ending December 31, 2021	148		131
Year ending December 31, 2022	700		654
Year ending December 31, 2023	63		59
Thereafter	5,806		5,844
Total lease liability	$	6,839	$	6,774

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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Six Months Ended						At or For the Three Months Ended					At or For the Nine Months Ended
	June 30,						June 30,						September 30,					September 30,
	2019			2018			2019			2018			2019			2018		2019			2018
Operating Data (a)
Total interest income	$	43,621		$	37,769		$	84,197		$	70,995		$	43,609		$	39,631	$	127,806		$	110,626
Total interest expense	7,572			4,961			14,234			8,828			7,855			6,307		22,089			15,135
Net interest income	36,049			32,808			69,963			62,167			35,754			33,324		105,717			95,491
Provision for loan losses	626			1,188			363			3,171			1,005			1,302		1,368			4,473
Net loss on investment securities	(57		)	(147		)	(27		)	(146		)
Net loss on asset disposals and other transactions	(293		)	(405		)	(475		)	(331		)
Net gain (loss) on investment securities													97			—		70			(146		)
Net (loss) gain on asset disposals and other transactions													(78		)	12		(553		)	(319		)
Total non-interest income excluding net gains and losses	15,639			13,807			31,220			28,701			16,374			14,341		47,594			43,042
Total non-interest expense	38,876			35,971			70,736			64,192			32,993			30,829		103,729			95,021
Net income	9,598			7,892			23,967			19,633			14,868			12,725		38,835			32,358
Balance Sheet Data (a)
Total investment securities	$	997,711		$	876,765		$	997,711		$	876,765		$	1,064,909		$	874,159	$	1,064,909		$	874,159
Loans, net of deferred fees and costs ("total loans")	2,833,533			2,686,491			2,833,533			2,686,491			2,850,316			2,707,727		2,850,316			2,707,727
Allowance for loan losses	21,357			19,266			21,357			19,266			21,585			19,879		21,585			19,879
Goodwill and other intangible assets	176,763			163,953			176,763			163,953			179,126			163,401		179,126			163,401
Total assets	4,276,376			3,972,091			4,276,376			3,972,091			4,396,148			4,003,089		4,396,148			4,003,089
Non-interest-bearing deposits	643,058			585,861			643,058			585,861			677,232			617,447		677,232			617,447
Other interest-bearing deposits	2,394,398			2,363,398			2,394,398			2,363,398			2,417,740			2,423,676		2,417,740			2,423,676
Brokered certificates of deposits	326,157			211,062			326,157			211,062			262,230			265,258		262,230			265,258
Short-term borrowings	186,457			360,727			186,457			360,727			288,150			296,830		288,150			296,830
Junior subordinated debentures held by subsidiary trust	7,367			7,195			7,367			7,195			7,409			7,239		7,409			7,239
Other long-term borrowings	85,691			113,085			85,691			113,085			84,194			111,099		84,194			111,099
Total stockholders' equity	579,022			499,339			579,022			499,339			588,533			504,290		588,533			504,290
Tangible assets (b)	4,099,613			3,808,138			4,099,613			3,808,138			4,217,022			3,839,688		4,217,022			3,839,688
Tangible equity (b)	402,259			335,386			402,259			335,386			409,407			340,889		409,407			340,889
Per Common Share Data (a)
Earnings per common share – basic	$	0.47		$	0.41		$	1.20		$	1.05		$	0.72		$	0.65	$	1.93		$	1.70
Earnings per common share – diluted	0.46			0.41			1.19			1.04			0.72			0.65		1.91			1.69
Cash dividends declared per common share	0.34			0.28			0.64			0.54			0.34			0.28		0.98			0.82
Book value per common share (c)	27.98			25.57			27.98			25.57			28.43			25.79		28.43			25.79
Tangible book value per common share (b)(c)	$	19.44		$	17.17		$	19.44		$	17.17		$	19.78		$	17.44	$	19.78		$	17.44
Weighted-average number of common shares outstanding – basic	20,277,028			19,160,728			19,824,035			18,646,266			20,415,245			19,325,457		20,023,271			18,875,290
Weighted-average number of common shares outstanding – diluted	20,442,366			19,283,381			19,972,350			18,773,169			20,595,769			19,466,865		20,178,634			19,004,087
Common shares outstanding at end of period	20,696,041			19,528,952			20,696,041			19,528,952			20,700,630			19,550,014		20,700,630			19,550,014
Closing stock price at end of period	$	32.26		$	37.78		$	32.26		$	37.78		$	31.81		$	35.03	$	31.81		$	35.03

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	At or For the Three Months Ended						At or For the Six Months Ended						At or For the Three Months Ended						At or For the Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Significant Ratios (a)
Return on average stockholders' equity (d)	6.81		%	6.46		%	8.87		%	8.39		%	10.11		%	10.06		%	9.31		%	8.97		%
Return on average tangible equity (d)(e)	10.55		%	10.47		%	13.49		%	13.21		%	15.35		%	15.73		%	14.14		%	14.09		%
Return on average assets (d)	0.91		%	0.81		%	1.17		%	1.06		%	1.37		%	1.26		%	1.24		%	1.13		%
Return on average assets adjusted for non-core items (d)(f)	1.44		%	1.35		%	1.47		%	1.34		%	1.38		%	1.33		%	1.44		%	1.31		%
Average stockholders' equity to average assets	13.33		%	12.57		%	13.24		%	12.60		%	13.53		%	12.55		%	13.34		%	12.58		%
Average total loans to average deposits	86.37		%	89.57		%	87.81		%	88.37		%	84.99		%	90.47		%	86.83		%	89.11		%
Net interest margin (d)(g)	3.77		%	3.74		%	3.78		%	3.70		%	3.66		%	3.68		%	3.74		%	3.69		%
Efficiency ratio (h)	73.24		%	74.96		%	68.09		%	68.53		%	61.10		%	62.58		%	65.71		%	66.48		%
Efficiency ratio adjusted for non-core items (i)	60.21		%	62.03		%	61.19		%	61.73		%	60.72		%	60.80		%	61.03		%	61.41		%
Pre-provision net revenue to total average assets (j)	1.21		%	1.10		%	1.49		%	1.44		%	1.76		%	1.67		%	1.59		%	1.52		%
Dividend payout ratio	73.30		%	69.27		%	53.84		%	52.15		%	47.35		%	43.00		%	51.35		%	48.55		%
Total investment securities as percentage of total assets (c)	23.33		%	22.07		%	23.33		%	22.07		%	24.22		%	21.84		%	24.22		%	21.84		%
Asset Quality Ratios (a)
Nonperforming loans as a percent of total loans (c)(k)	0.71		%	0.67		%	0.71		%	0.67		%	0.73		%	0.67		%	0.73		%	0.67		%
Nonperforming assets as a percent of total assets (c)(k)	0.47		%	0.46		%	0.47		%	0.46		%	0.48		%	0.46		%	0.48		%	0.46		%
Nonperforming assets as a percent of total loans and OREO (c)(k)	0.71		%	0.67		%	0.71		%	0.67		%	0.74		%	0.67		%	0.74		%	0.67		%
Criticized loans as a percent of total loans (c)(l)	3.42		%	4.50		%	3.42		%	4.50		%	3.52		%	4.38		%	3.52		%	4.38		%
Classified loans as a percent of total loans (c)(m)	2.23		%	2.07		%	2.23		%	2.07		%	2.07		%	1.81		%	2.07		%	1.81		%
Allowance for loan losses as a percent of total loans (c)	0.75		%	0.72		%	0.75		%	0.72		%	0.76		%	0.73		%	0.76		%	0.73		%
Allowance for loan losses as a percent of nonperforming loans (c)(k)	106.57		%	106.77		%	106.57		%	106.77		%	104.20		%	109.71		%	104.20		%	109.71		%
Provision for loan losses as a percent of average total loans	0.09		%	0.18		%	0.03		%	0.26		%	0.14		%	0.19		%	0.07		%	0.23		%
Net charge-offs (recoveries) as a percentage of average total loans	0.03		%	0.11		%	(0.06		)%	0.22		%	0.11		%	0.10		%	—		%	0.18		%
Capital Information (a)(c)
Common equity tier 1 capital ratio (n)	14.16		%	13.03		%	14.16		%	13.03		%	14.19		%	13.29		%	14.19		%	13.29		%
Tier 1 risk-based capital ratio	14.41		%	13.29		%	14.41		%	13.29		%	14.45		%	13.55		%	14.45		%	13.55		%
Total risk-based capital ratio (tier 1 and tier 2)	15.14		%	13.99		%	15.14		%	13.99		%	15.18		%	14.27		%	15.18		%	14.27		%
Leverage ratio	10.26		%	9.73		%	10.26		%	9.73		%	10.28		%	9.69		%	10.28		%	9.69		%
Common equity tier 1 capital	$	410,979		$	358,987		$	410,979		$	358,987		$	417,468		$	367,537		$	417,468		$	367,537
Tier 1 capital	418,347			366,182			418,347			366,182			424,877			374,776			424,877			374,776
Total capital (tier 1 and tier 2)	439,704			385,448			439,704			385,448			446,462			394,655			446,462			394,655
Total risk-weighted assets	$	2,903,387		$	2,755,112		$	2,903,387		$	2,755,112		$	2,941,193		$	2,764,951		$	2,941,193		$	2,764,951
Total stockholders' equity to total assets	13.54		%	12.57		%	13.54		%	12.57		%	13.39		%	12.60		%	13.39		%	12.60		%
Tangible equity to tangible assets (b)	9.81		%	9.07		%	9.81		%	9.07		%	9.71		%	8.88		%	9.71		%	8.88		%


(a)	Reflects the impact of the acquisition of First Prestonsburg Bancshares Inc. ("First Prestonsburg") beginning April 12, 2019, and of ASB Financial Corp. ("ASB") beginning April 13, 2018.


(b)	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.”


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


(d)	Ratios are presented on an annualized basis.

(e)

Return on average tangible equity represents a non-US GAAP financial measures 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.~~Ratio (non-US GAAP).”

(f)

Return on average assets adjusted for non-core items represents a non-US GAAP financial measure since it excludes the impact of the Tax Cuts and Jobs Act on the remeasurement of deferred tax assets and deferred tax liabilities, and the after-tax impact of all gains and/or losses, ~~core banking system conversion revenue and expenses,~~ acquisition-related expenses, and pension settlement charges ~~and other non-recurring 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.~~Items (non-US GAAP)."


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

(h)

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

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~~excludes amortization of other intangible assets, and all gains and/or losses included in earnings, and uses fully tax-equivalent net interest income.~~ Additional information regarding the calculation of this non-US GAAP financial measure can be found under the caption “Efficiency ~~Ratio.~~Ratio (non-US GAAP).”

(i)

The efficiency ratio adjusted for non-core items is defined as core non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus core non-interest income excluding all gains and losses. This amount represents a non-US GAAP financial measure since it excludes the impact of all gains and/or losses, ~~and~~ acquisition-related expenses, and pension settlement charges 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.~~Ratio (non-US GAAP).”

(j)

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 loan losses and all gains and/or losses included in earnings. This measure is a key metric used by federal bank regulatory agencies in their evaluation of capital adequacy for financial institutions. Additional information regarding the calculation of this non-US GAAP financial measure can be found under the caption “Pre-Provision Net ~~Revenue.~~Revenue (non-US GAAP).”


(k)	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.


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


(m)	Includes loans categorized as substandard and doubtful.


(n)	Peoples' capital conservation buffer was ~~7.14%~~7.18% at ~~June~~September 30, 2019 and ~~5.99%~~6.27% at ~~June~~September 30, 2018, 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 success, impact, and timing of the implementation of Peoples' business strategies, including the successful integration of the business of First Prestonsburg, and the expansion of consumer lending activity;


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


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

(4)

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


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

(6)

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


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

(8)

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)~~regulations, and the relationship of the U.S. and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated;

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(9)	the existence or exacerbation of general geopolitical instability and uncertainty;


(10)	changes in policy and other regulatory and legal developments, and uncertainty or speculation pending the enactment of such changes;


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


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

(13)

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


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


(15)	Peoples may have more credit risk and higher credit losses to the extent loans are concentrated by location or industry of the borrowers or collateral;

(16)

changes in accounting standards, policies, estimates or procedures, including the extent to which the new current expected credit loss rule issued by the Financial Accounting ~~Standards~~Standard Board in June 2016, which will require banks to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities, as opposed to the current practice of recording losses when it is probable that a loss event has occurred, ~~which~~ may adversely affect Peoples' reported financial condition or results of operations;


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


(18)	the discontinuation of the London Inter-Bank Offered Rate and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;


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


(20)	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;


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


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


(23)	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;


(24)	the costs and effects of new federal and state laws, and other regulatory and legal developments, including the outcome of potential regulatory or other governmental inquiries and legal proceedings and results of regulatory examinations;


(25)	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;


(26)	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;

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(27)	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;


(28)	changes in consumer spending, borrowing and saving habits, whether due to tax reform legislation, changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions, legislative or regulatory initiatives, or other factors, which may be different than anticipated;


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


(30)	the impact on Peoples' businesses, personnel, facilities, or systems, related to fraud, theft, or violence;


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


(32)	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;


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

~~(33)~~(34)

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, 2018 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’ 2018 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 89 locations, including 79 full-service bank branches, and 86 Automated Teller Machines ("ATMs") in northeastern, central, southwestern and southeastern Ohio, west central West Virginia, and central and eastern Kentucky through its financial service units – Peoples Bank and Peoples Insurance Agency, LLC ("Peoples Insurance"), a subsidiary of Peoples Bank. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the Federal Reserve Bank ("FRB") of Cleveland and the Federal Deposit Insurance Corporation (the "FDIC"). Peoples Bank is must also ~~subject to~~follow the regulations ofpromulgated by the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business.

Peoples’ products and services include traditional 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 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 ~~June~~September 30, 2019, which were unchanged from the policies disclosed in Peoples’ 2018 Form 10-K.

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:

◦

~~On April 12,~~During the third quarter of 2019, Peoples ~~completed the previously-announced merger with First Prestonsburg. First Prestonsburg merged into Peoples and First Prestonsburg's wholly-owned subsidiary, First Commonwealth Bank~~repurchased 14,175 of Prestonsburg, Inc., which operated nine full-service bank branches in central and eastern Kentucky, merged into Peoples Bank. Total purchase price of $43.7 million was paid in the merger, of which $11.3 million was in the form of a special cash dividend paid by First Prestonsburg to shareholders of First Prestonsburg prior to the merger with the remainder being paid in the form of an aggregate of 1,005,478 Peoplesits common shares ~~by Peoples. The merger added $130.4 million~~through its share repurchase program for a total 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 $12.0 million of goodwill. These amounts reflect information available through the date of the filing of this Quarterly Report on Form 10-Q. Refer to "Note 12 Acquisitions" of the Notes to the Unaudited Consolidated Financial Statements for additional information.$431,000.

◦

AtOn August 22, 2019, Peoples Risk Management, Inc., a wholly-owned subsidiary of Peoples, was formed. Peoples Risk Management, Inc. is a Nevada-based captive insurance company which insures against certain risks unique to the ~~close~~operations of ~~business on April 13, 2018, Peoples completed the merger with ASB. ASB merged into~~ Peoples and ~~ASB's wholly-owned subsidiary, American Savings Bank, fsb,~~for which ~~operated seven full-service bank branches and two loan production offices in southern Ohio and eastern Kentucky, merged into~~insurance may not be currently available or economically feasible. Peoples ~~Bank. Under~~Risk Management, Inc. pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among all participants. Peoples Risk Management, Inc. is subject to the ~~terms~~regulations of the ~~merger agreement, Peoples paid total consideration~~State of ~~$41.5 million. The merger added $239.2 million~~Nevada and undergoes periodic examinations by the Nevada Division of total loans and loans held for sale in the aggregate, and $198.6 million of total deposits at the acquisition date, after acquisition accounting adjustments. Peoples also recorded $2.6 million of other intangible assets and $18.1 million of goodwill.Insurance.

◦

During the ~~second~~third quarter of 2019, Peoples incurred $189,000 of acquisition-related costs, compared to $7.0 million in the second quarter of 2019, and $674,000 in the third quarter of 2018. During the first nine months of 2019, Peoples incurred $7.5 million of acquisition-related costs, compared to ~~$253,000 in the first quarter of 2019, and $6.3 million in the second quarter of 2018. During the first six months of 2019, Peoples incurred $7.3 million of acquisition-related costs, compared to $6.4~~$7.1 million during the first ~~six~~nine months of 2018. The ~~acquisition~~acquisition-related costs in 2019 and 2018 were primarily related to the First Prestonsburg and ASB ~~mergers,~~acquisitions, respectively, and were primarily related to fees associated with early termination of contracts, severance costs and write-offs associated with assets acquired.

◦

During the third quarter of 2019, Peoples entered into $10.0 million of interest rate swaps, with a notional value in the aggregate of $10.0 million, which became effective immediately and will mature in 2029, with an interest rate of 1.44%. During the second quarter of 2019, Peoples entered into $30.0 million of interest rate swaps, with a notional value in the aggregate of $30.0 million, which became effective immediately and 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.


◦	During the ~~first~~third quarter of 2019, Peoples ~~recognized a $1.8 million recovery on a previously charged-off commercial loan.~~

◦

reported that it will be closing one full-service bank branch located in Kentucky and one full-service bank branch located in West Virginia. During the second quarter of 2019, Peoples closed one full-service bank branch located in West Virginia when the lease expired in June 2019. During the first quarter of 2019, Peoples closed one insurance office located in Ohio when the lease for the location expired at the end of January 2019 and one full-service bank branch located in West Virginia when the lease for the location expired in March 2019. ~~Employees~~Most employees at the closed locations were relocated to other branches or offices.

◦

On April 22, 2019, Peoples Bank signed an agreement to open a Federal Funds liquidity facility with Canadian Imperial Bank of Commerce, which either party may cancel at any time. The $20.0 million line increases Peoples Bank's contingent liquidity funding and will serve to help manage Peoples Bank's daily liquidity needs. As of ~~June~~September 30, 2019, Peoples Bank had not borrowed under the agreement.

◦

On April 12, 2019, Peoples completed the previously-announced merger with First Prestonsburg. First Prestonsburg merged into Peoples and First Prestonsburg's wholly-owned subsidiary, 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 consideration of $43.7 million in the merger, of which $11.3 million was in the form of a special cash dividend paid by First Prestonsburg to shareholders of First Prestonsburg prior to the merger with the remainder being paid in the form of an aggregate of 1,005,478 Peoples common shares by Peoples. The merger added $129.4 million of total 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 million of goodwill. These amounts reflect information available through the date of the filing of this Quarterly

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Report on Form 10-Q. Refer to "Note 12 Acquisitions" of the Notes to the Unaudited Consolidated Financial Statements for additional information.

◦

On April 3, 2019, Peoples entered into a Loan Agreement (the “U.S. Bank Loan Agreement”) with U.S. Bank National Association. The U.S. Bank Loan Agreement has a one-year term and 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.

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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.


◦	Effective April 3, 2019, Peoples terminated the Credit Agreement, dated as of March 4, 2016 between Peoples, as Borrower, and Raymond James Bank, N.A., as Lender (the "RJB Credit Agreement"), ~~with~~which provided for a revolving line of credit in the maximum aggregate principal amount of $15.0 million.


◦	During the first quarter of 2019, Peoples recognized a $1.8 million recovery on a previously charged-off commercial loan.


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


◦	Multiple items impacted Peoples' income tax expense during 2018, primarily as a result of the Tax Cuts and Jobs Act, which lowered the statutory federal corporate income tax rate to 21% as of January 1, 2018, from a previous rate of 35%. There were no similar items in 2019.


▪	Beginning on January 1, 2018, Peoples began recognizing income tax expense at the 21% statutory federal corporate income tax rate.


▪	During the fourth quarter of 2018, Peoples finalized the remeasurement of its net deferred tax assets and liabilities at the new statutory federal corporate income tax rate of 21%, which resulted in a reduction to income tax expense of $705,000 in 2018. The final adjustment was mainly due to Peoples' contribution of $3.2 million to Peoples' defined benefit pension plan during 2018.

▪

During 2018, Peoples released a valuation allowance, which reduced income tax expense by $0.8 million. The valuation allowance was related to a historical tax credit that Peoples had invested in during 2015. Peoples sold $6.7 million of equity investment securities in the second quarter of 2018, which resulted in a capital gain for tax purposes. This capital gain was large enough to offset an anticipated future capital loss, which is expected to be recognized due to the structure of the historical tax credit investment, resulting in the release of the valuation allowance.

◦

~~During the fourth quarter of 2018,~~ Peoples incurred $176,000 and $91,000 in pension settlement costs during the third and fourth quarters of 2018, respectively, 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 first, second or ~~second~~third quarters of 2019 or the first or second quarters of 2018.

◦

On July 31, 2018, Peoples entered into $50.0 million of interest rate swaps, which became effective immediately and will mature between 2021 and 2028, with interest rates ranging from 2.92% to 3.00%. Additionally, the three interest rate swaps acquired with the ASB acquisition matured in July of 2018. These swaps locked in funding rates for $40.0 million, in notional value, in FHLB advances that matured in 2018, which had interest rates ranging from 3.57% to 3.92%. For additional information regarding Peoples' interest rate swaps, refer to "Note 9 Derivative Financial Instruments" of the Notes to the Unaudited Consolidated Financial Statements.

◦

At the close of business on April 13, 2018, Peoples completed the merger with ASB. ASB merged into Peoples, and ASB's wholly-owned subsidiary, American Savings Bank, fsb, which operated seven full-service bank branches and two loan production offices in southern Ohio and eastern Kentucky, merged into Peoples Bank. Under the terms of the merger agreement, Peoples paid total consideration of $41.5 million. The merger added $239.2 million of total loans and loans held for sale in the aggregate, and $198.6 million of total deposits at the acquisition date, after acquisition accounting adjustments. Peoples also recorded $2.6 million of other intangible assets and $18.1 million of goodwill.


◦	On January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of $7.8 million of equity investment securities from available-for-sale investment securities to other investment securities and the ~~reclassification of $5.0 million in net unrealized gains on equity investment securities from accumulated other comprehensive loss to retained earnings.~~

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reclassification of $5.0 million in net unrealized gains on equity investment securities from accumulated other comprehensive loss to retained earnings.

◦

The Federal Reserve Board began ~~tightening monetary policy~~raising interest rates in December 2015 ~~by raising~~when the ~~benchmark~~ Federal Funds ~~Target Rate. Since then, the rate has increased several times from~~effective target range was 0.00% to 0.25%. The last increase was in December 2018, resulting in a ~~range of 0.25% to 0.50% to its current~~target range of 2.25% to 2.50%. ~~Market participants are now expecting two eases this year~~The Federal Reserve Board lowered interest rates once in July 2019 and ~~potentially one early next year. While recent economic numbers have been fairly strong,~~again in September 2019, resulting in a Federal Funds Target Rate of 1.75% to 2.00% by the end of the third quarter. The Federal Funds futures market suggests the Federal Reserve Board is contemplating lowering rates in order to prevent the economy from slipping into what many investors believe is a long-overdue recession. The Federal Reserve Board has also indicated it would pause reducing its balance sheet beginning in September 2019 as planned. As a result,will cut interest rates ~~will likely remain rather low throughout~~again before the ~~rest~~end of 2019. ~~Peoples is closely monitoring~~The impact of trade tariffs, coupled with recent weakness in the manufacturing sector, have given rise to concerns of a slowdown of the US economy, which could potentially lead to additional interest ~~rates, both foreign and domestic; and potential impacts of changes~~rate cuts in ~~interest rates to Peoples' operations.~~2020.

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.

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EXECUTIVE SUMMARY

Peoples recorded net income of ~~$9.6~~$14.9 million for the ~~second~~third quarter of 2019, representing earnings per diluted common share of ~~$0.46,~~$0.72, compared to ~~$14.4~~$9.6 million, or ~~$0.73~~$0.46 per diluted common share, for the ~~first~~second quarter of 2019, and ~~$7.9~~$12.7 million, or ~~$0.41~~$0.65 per diluted share, for the ~~second~~third quarter of 2018. ~~During the second quarter of 2019,~~Acquisition-related costs negatively impacted earnings per diluted common share ~~were negatively impacted~~ by $0.01 per share during the third quarter of 2019, and $0.28 per share ~~for acquisition-related costs.~~during the second quarter of 2019. During the first quarter of 2019, earnings per diluted common share were positively impacted by $0.07 per share for the recovery on a previously charged-off commercial loan and by $0.03 per share for income related to the sale of restricted Class B Visa stock, partially offset by the negative impact of $0.01 per share for acquisition-related costs. During the secondthird quarter of 2018, earnings per diluted common share were negatively impacted by ~~$0.25~~$0.03 per share in acquisition-related costs and ~~were positively impacted by $0.04~~$0.01 per share ~~due to the release of a tax valuation allowance.~~for pension settlement charges.

During the first ~~six~~nine months of 2019, net income was ~~$24.0~~$38.8 million, or ~~$1.19~~$1.91 per diluted share, compared to ~~$19.6~~$32.4 million, or ~~$1.04~~$1.69 per diluted common share, for the same period in 2018. The increased earnings were primarily due to increases in net interest income, deposit account service charges, and electronic banking income, which were partially offset by increased salaries and employee benefit costs, and other non-interest expenses, which were impacted by the First Prestonsburg ~~and ASB mergers,~~acquisition in 2019 ~~compared to~~and the ASB acquisition in 2018. Acquisition-related costs negatively impacted earnings per diluted common share by $0.29 ~~and $0.27~~ during the first ~~six~~nine months of 2019, and $0.28 per share during the first nine months of 2018. Earnings per diluted common share for the first nine months of 2018 ~~respectively.~~were also negatively impacted by $0.01 per share for pension settlement charges, which was offset by an additional $0.04 per share provided by the release of a tax valuation allowance.

Net interest income ~~increased~~was $35.8 million for the third quarter of 2019, down 1% compared to $36.0 million for the second quarter of 2019, ~~up 6%~~and an increase of 7% compared to ~~$33.9~~$33.3 million for the ~~first quarter of 2019, and increased by 10% compared to $32.8 million for the second~~third quarter of 2018. Net interest margin was 3.66% for the third quarter of 2019, compared to 3.77% for the second quarter of 2019, ~~compared to 3.80%~~and 3.68% for the ~~first quarter of 2019, and 3.74% for the second~~third quarter of 2018. The ~~slight~~ decline in net interest income and net interest margin ~~during~~compared to the linked quarter was driven by lower yields on loans, combined with slightly higher costs for time deposits and governmental deposits, which more than offset increased loan yields, driven by the First Prestonsburg merger. Compared to the first quarter of 2019, net interest income was positively impacted by the merger of First Prestonsburg.deposit costs. The increase in net interest income compared to the ~~second~~third quarter of 2018, which was impacted by the acquired First Prestonsburg loans and deposits, was driven by higher yields on loans, combined with ~~the impact of First Prestonsburg earning assets. These were~~higher loan balances, partially offset by higher ~~deposit costs due to increased competition for deposits, combined with additional~~ interest expense ~~related to the acquired First Prestonsburg~~on deposits.

~~For the second quarter of 2019, accretion~~Accretion income, ~~from acquisitions,~~ net of amortization expense, from acquisitions was $1.2 million ~~compared to $722,000~~ for the ~~first quarter~~third and second quarters of 2019, and ~~$523,000~~$612,000 for the ~~second~~third quarter of 2018, which added 12 basis points, 13 basis points, ~~8 basis points,~~ and 67 basis points, respectively, to net interest margin. The ~~growth~~increase in net accretion income compared to the ~~first quarter of 2019 and the second~~third quarter of 2018 was due to the First Prestonsburg ~~merger, specifically the loan discount that was accreted during the quarter.~~acquisition.

For the first ~~six~~nine months of 2019, net interest income was ~~$70.0~~$105.7 million, and net interest margin was ~~3.78%~~3.74%, compared to ~~$62.2~~$95.5 million and ~~3.70%~~3.69%, respectively, ~~during~~for the same period in 2018. The increases were driven by higher interest income on loans due to a combination of loan growth, which was primarily the result of the First Prestonsburg and ASB acquisitions, and higher yields from interest rate increases. ~~The interest~~Interest income ~~from higher average loan balances~~on loans outpaced interest expense from deposits, which increased primarily due to higher rates paid on deposits, combined with additional interest expense related to the recent ~~acquisitions and increased competition for deposits.~~acquisitions. The first ~~six~~nine months of 2018 benefited from proceeds of ~~$589,000~~$588,000 received on an investment ~~securities~~security that had been previously written down due to other-than-temporary impairment ("OTTI"), which added 32 basis points to net interest margin. Peoples recorded no similar proceeds during the first nine months of 2019.

Accretion income, net of amortization expense, from acquisitions was ~~$1.9~~$3.1 million for the first ~~six~~nine months of 2019 and ~~$1.1~~$1.7 million for the first ~~six~~nine months of 2018, which added 1011 basis points and 67 basis points, respectively, to net interest margin. The growth in net accretion income compared to the first ~~six~~nine months of 2018 was largely due to the First Prestonsburg acquisition and, to a lesser extent, the ASB acquisition.

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During the ~~first~~third quarter of 2019, Peoples recorded a provision for loan losses of ~~$626,000,~~$1.0 million, compared to ~~a recovery of loan losses of $263,000~~$626,000 for the ~~first~~second quarter of 2019 and ~~a provision for loan losses of $1.2~~$1.3 million for the ~~second~~third quarter of 2018. Net charge-offs for the ~~second~~third quarter of 2019 were ~~$208,000,~~$777,000, or ~~0.03%~~0.11% of average total loans, compared to ~~net recoveries of $1.0 million,~~$208,000, or ~~0.15%~~0.03% of average total loans, for the linked quarter and ~~net charge-offs of $720,000,~~$687,000, or ~~0.11%~~0.10% of average total loans, for the ~~second~~third quarter of 2018. Net recoveries during the first quarter of 2019 were driven by a $1.8 million recovery recorded on a previously charged-off commercial loan. Given the low net charge-offs in the current quarter, combined with originated loan balances remaining stable during the second quarter of 2019, theThe provision for loan losses during ~~each of~~ the current ~~and linked~~ quarter was ~~lower than historical trends. Provision~~driven by higher net charge-offs and originated loan growth. The provision for loan losses during the first ~~six~~nine months of 2019 was ~~$363,000,~~$1.4 million, compared to ~~$3.2~~$4.5 million for the first ~~six~~nine months of 2018. Net recoveries for the first ~~six~~nine months of 2019 were ~~$799,000,~~$22,000, compared to net charge-offs of ~~$2.7~~$3.4 million, or 0.18% of average total loans, for the first ~~six~~nine months of 2018. The first ~~six~~nine months of 2019 included ~~the~~a $1.8 million recovery recorded on a previously charged-off commercial loan. The first ~~six~~nine months of 2018 included a charge-off of $827,000 on an acquired commercial loan relationship.

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For the ~~second~~third quarter of 2019, total non-interest income ~~declined $140,000,~~was up $1.1 million, or 1%7%, compared to the ~~first~~second quarter of 2019 and was up $2.0 million, or ~~15%~~14%, from the ~~second~~third quarter of 2018. The first quarter of 2019 included $1.4 million of annual performance-based insurance commissions, which are primarily received in the first quarter each year. Additionally, other non-interest income in the first quarter of 2019 included $787,000 of income relatedCompared to ~~the sale of restricted Class B Visa stock. During~~ the second quarter of 2019, ~~these two items were largely offset by increases in a number of categories, including~~electronic banking income was up $310,000, or 9%, income from deposit account service charges increased $256,000, or 9%, commercial loan swap fee income was up $256,000, or 50%, and mortgage banking income increased $204,000, or 20%. These increases were partially offset by a decline of $196,000, or 6%, in trust and investment income, ~~electronic banking income,~~ and ~~mortgage banking~~a decline of $100,000, or 3%, in insurance income. The increase in total non-interest income from the ~~second~~third quarter of 2018 was driven by increases in all non-interest income categories, with the exception of bank owned life insurance and insurance income, which had a slight ~~decrease.~~ decreases.

For the first ~~six~~nine months of 2019, total non-interest income grew 9%11%, as most categories of non-interest income increased, including income from deposit account service charges, which was up $1.4 million, or 19%, and electronic banking income, which increased $1.4 million, or 16%. Commercial loan swap fee income more than doubled and mortgage banking income increased $612,000, or 26%. Realized and ~~commercial loan swap fee income.~~unrealized gains on equity investment securities increased $620,000 compared to the first nine months of 2018, driven by $787,000 of income related to the sale of restricted Class B Visa stock during the first quarter of 2019.

Total non-interest expense ~~increased $7.0~~decreased $5.9 million, or ~~22%~~15%, infor the ~~second~~third quarter of 2019 compared to the ~~first~~second quarter of 2019 and grew ~~$2.9~~$2.2 million, or 8%7%, compared to the ~~second~~third quarter of 2018. The ~~increase~~decline compared to the linked quarter was primarily due to acquisition-related expenses, which totaled $199,000 for the third quarter of ~~First Prestonsburg, coupled with~~2019, compared to $6.8 million for the ~~ongoing cost~~second quarter of ~~running the First Prestonsburg operations.~~2019. The growth in total non-interest expense compared to the ~~second~~third quarter of 2018 was led by higher salaries and employee benefit costs and electronic banking expenses, partially offset by a decline in ~~professional fees.~~FDIC insurance expense. Base salaries, stock-based compensation, and medical insurance were the main contributors to the increase in salaries and employee benefit costs ~~which~~compared to the third quarter of 2018. Base salaries were impacted by ~~employees that have been added in the last twelve months from acquisitions and for future growth, as well as higher medical claims. Base salaries were also impacted by annual~~ merit increases, which included the ~~implementation of~~continued movement towards a $15 per hour minimum wage throughout the company, ~~which~~and the First Prestonsburg and ASB acquisitions. The $15 per hour minimum wage began being phased in during 2018 and will be largely implemented by January 1, 2020. ~~Professional fees declined 22% compared~~The increase in stock-based compensation was driven by higher expense related to ~~the second quarter of 2018, primarily due~~stock grants made to ~~consulting work performed~~retirement eligible grantees combined with Peoples' improved performance during ~~the second quarter of 2018 which~~recent years. The increase in medical insurance was ~~not repeated in 2019.~~driven by higher medical claims.

During the first ~~six~~nine months of 2019, total non-interest expense increased ~~10%~~9% compared to the same period in 2018. This increase was led by higher salaries and employee benefit costs, partially offset by a decline in professional fees. Salaries and employee benefit costs were up primarily due to higher base salaries, medical insurance and stock-based compensation. Base salaries were impacted by ~~the First Prestonsburg and ASB acquisitions, annual~~ merit increases, which included the ~~implementation of~~continued movement towards a $15 per hour minimum wage throughout the company, and ~~employees that have been added in~~ the ~~last twelve months for future growth.~~First Prestonsburg and ASB acquisitions. The increase in medical insurance was driven by higher medical claims. Stock-based compensation increased as a result of ~~the employees that have been added in the last twelve months from~~higher expense related to stock grants made to retirement eligible grantees combined with Peoples' improved performance during recent ~~acquisitions and for future growth.~~years. Professional fees declined ~~24%~~ compared to the first ~~six~~nine months of 2018, mostly due to consulting work performed during the first ~~six~~nine months of 2018 which was not repeated in 2019. Net occupancy and equipment expenses also increased compared to the first nine months of 2018, primarily due to the added facilities obtained in the acquisitions. Peoples also made investments in technology, which resulted in increased electronic banking, and data processing and software expenses.

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 third quarter of 2019 was 61.1%, compared to 73.2% for the second quarter of 2019 ~~was 73.2%, compared to 62.7%~~and 62.6% for the ~~first quarter of 2019 and 75.0% for the second~~third quarter of 2018. The efficiency ratio ~~increased~~improved compared to the linked quarter, driven by ~~higher~~lower acquisition-related expenses. The efficiency ratio, when adjusted for non-core items, was 60.7% for the third quarter of 2019, compared to 60.2% for the second quarter of 2019 ~~compared to 62.2%~~and 60.8% for the ~~first quarter of 2019 and 62.0% for the second~~third quarter of 2018. During the first ~~six~~nine months of 2019, the efficiency ratio was ~~68.1%~~65.7%, compared to ~~68.5%~~66.5% for the same period in 2018. The efficiency ratio, when adjusted for non-core items, during the first ~~six~~nine months of

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2019 ~~was 61.2% and was 61.7%~~improved to 61.0%, compared to 61.4% for the first ~~six~~nine months of ~~2018.~~2018, driven by increases in net interest income and non-interest income.

Income tax expense was ~~$2.2~~$3.3 million for the ~~second~~third quarter of 2019, compared to ~~$3.4~~$2.2 million for the linked quarter and ~~$1.0~~$2.8 million for the ~~second~~third quarter of 2018. The ~~decline~~increase in income tax expense compared to the linked quarter was due to lower pre-tax income. The current quarter included a tax benefit of $59,000 recorded for the vesting of restricted stock during the current quarter, compared to a tax benefit of $133,000 in the linked quarter. The vesting of a majority of stock awards granted by Peoples occurs annually in the first quarter. The increase in income tax expense compared to the secondand third quarter of 2018 was primarily due to higher pre-tax income. For the first ~~six~~nine months of 2019, Peoples recorded income tax expense of ~~$5.6~~$8.9 million, compared to ~~$3.4~~$6.2 million for the same period in the prior year. The year-over-year increase in income tax expense was primarily due to higher pre-tax income. The first ~~six~~nine months of 2019 included a tax benefit of ~~$192,000~~$195,000 recorded for the vesting of restricted stock during the period. The first ~~six~~nine months of 2018 also included an $805,000 valuation allowance release, as well as a tax benefit of ~~$296,000~~$314,000 recorded for the vesting of restricted stock during the period.

At ~~June~~September 30, 2019, total assets were ~~$4.28~~$4.40 billion, compared to $3.99 billion at December 31, 2018. The 7%10% increase compared to December 31, 2018 was primarily due to the First Prestonsburg ~~merger,~~acquisition, which added ~~$294.1~~$290.9 million of assets, including ~~$130.4~~$129.4 million in total loans and $139.7 million in investment securities, after preliminary fair value adjustments.

~~Table of Contents~~

Total liabilities were ~~$3.70~~$3.81 billion at ~~June~~September 30, 2019, up ~~$226.0~~$336.3 million since December 31, 2018. The increase in liabilities during the first ~~six~~nine months of 2019 was primarily due to an increase in deposits of ~~$408.1~~$401.7 million, partially offset by a decline in borrowings of ~~$193.7~~$93.5 million. The growth in deposits compared to December 31, 2018, was mostly due to acquired First Prestonsburg deposit balances, which totaled ~~$232.2~~$214.0 million at ~~June~~September 30, 2019. Retail certificates of deposit ("CDs") grew $102.9 million, of which $65.3 million was from First Prestonsburg. Governmental deposit and brokered CDs were up $64.4 million and $62.3 million, respectively, compared to December 31, 2018.

At ~~June~~September 30, 2019, total stockholders' equity was ~~$579.0~~$588.5 million, an increase of ~~$58.9~~$68.4 million, compared to December 31, 2018. The increase in total stockholders' equity was mostly due to net income of $38.8 million, the $32.4 million of common shares issued in connection with the First Prestonsburg ~~merger, net income of $9.6 million~~acquisition, and other comprehensive income of ~~$7.8~~$14.0 million, partially offset by dividends paid of ~~$7.0~~$19.9 million. Additionally, Peoples repurchased 14,175 of its common shares under its share repurchase program for a total of $431,000 during the third quarter of 2019.

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 monetary policy, the level and degree of pricing competition for both loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities.

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

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


	Three Months Ended						Six Months Ended				Three Months Ended						Nine Months Ended
	June 30, 2019		March 31, 2019		June 30, 2018		June 30,				September 30, 2019		June 30, 2019		September 30, 2018		September 30,
(Dollars in thousands)	June 30, 2019		March 31, 2019		June 30, 2018		2019		2018		September 30, 2019		June 30, 2019		September 30, 2018		2019		2018
Net interest income	$	36,049	33,914		$	32,808	$	69,963	$	62,167	$	35,754	36,049		$	33,324	$	105,717	$	95,491
Taxable equivalent adjustments	267		200		223		467		450		314		267		221		781		670
Fully tax-equivalent net interest income	$	36,316	$	34,114	$	33,033	$	70,430	$	62,617	$	36,068	$	36,316	$	33,545	$	106,498	$	96,161

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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
	June 30, 2019							March 31, 2019							June 30, 2018							September 30, 2019							June 30, 2019							September 30, 2018
(Dollars in thousands)	Average Balance			Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost
Short-term investments	$	27,979		$	263	3.77	%	$	16,247		$	176	4.39	%	$	10,815		$	56	2.00	%	$	62,860		$	506	3.19	%	$	27,979		$	263	3.77	%	$	23,057		$	86	1.48	%
Investment securities (a)(b):
Taxable (c)	874,427			6,006		2.75	%	780,721			5,847		3.00	%	793,497			5,868		2.96	%	896,142			5,986		2.67	%	874,427			6,006		2.75	%	787,081			5,615		2.85	%
Nontaxable	118,241			923		3.12	%	83,319			680		3.26	%	96,991			804		3.32	%	113,806			874		3.07	%	118,241			923		3.12	%	93,958			777		3.31	%
Total investment securities	992,668			6,929		2.79	%	864,040			6,527		3.03	%	890,488			6,672		3.00	%	1,009,948			6,860		2.69	%	992,668			6,929		2.79	%	881,039			6,392		2.90	%
Loans (b)(d):
Commercial real estate, construction	124,334			1,655		5.27	%	131,683			1,732		5.26	%	118,206			1,438		4.81	%	103,758			1,313		4.95	%	124,334			1,655		5.27	%	123,939			1,573		4.97	%
Commercial real estate, other	833,991			11,322		5.37	%	806,181			10,596		5.26	%	840,677			10,434		4.91	%	844,186			11,307		5.24	%	833,991			11,322		5.37	%	852,675			10,934		5.02	%
Commercial and industrial	599,432			8,081		5.33	%	578,954			7,681		5.31	%	503,364			6,216		4.89	%	603,750			8,110		5.26	%	599,432			8,081		5.33	%	526,316			6,844		5.09	%
Residential real estate (e)	646,978			7,918		4.90	%	603,253			6,927		4.59	%	600,799			6,749		4.49	%	648,481			7,903		4.87	%	646,978			7,918		4.90	%	614,914			7,010		4.56	%
Home equity lines of credit	132,395			2,006		6.08	%	131,089			1,860		5.75	%	131,970			1,701		5.17	%	131,898			1,977		5.95	%	132,395			2,006		6.08	%	135,626			1,860		5.44	%
Consumer, indirect	412,986			4,255		4.13	%	409,975			4,088		4.04	%	359,941			3,498		3.90	%	423,694			4,452		4.17	%	412,986			4,255		4.13	%	387,559			3,872		3.96	%
Consumer, direct	80,442			1,459		7.27	%	73,457			1,189		6.56	%	72,820			1,230		6.77	%	82,067			1,495		7.23	%	80,442			1,459		7.27	%	76,171			1,281		6.67	%
Total loans	2,830,558			36,696		5.20	%	2,734,592			34,073		5.00	%	2,627,777			31,266		4.73	%	2,837,834			36,557		5.08	%	2,830,558			36,696		5.16	%	2,717,200			33,374		4.84	%
Allowance for loan losses	(21,311		)					(20,406		)					(19,071		)					(21,620		)					(21,311		)					(19,584		)
Net loans	2,809,247			36,696		5.20	%	2,714,186			34,073		5.04	%	2,608,706			31,266		4.77	%	2,816,214			36,557		5.12	%	2,809,247			36,696		5.20	%	2,697,616			33,374		4.88	%
Total earning assets	3,829,894			43,888		4.56	%	3,594,473			40,776		4.55	%	3,510,009			37,994		4.31	%	3,889,022			43,923		4.47	%	3,829,894			43,888		4.56	%	3,601,712			39,852		4.37	%
Goodwill and other intangible assets	175,169							161,673							161,600							179,487							175,169							163,615
Other assets	234,716							229,475							226,348							242,880							234,716							232,927
Total assets	$	4,239,779						$	3,985,621						$	3,897,957						$	4,311,389						$	4,239,779						$	3,998,254
Deposits:				��
Savings accounts	$	523,295		$	110	0.08	%	$	472,656		$	91	0.08	%	$	477,167		$	69	0.06	%	$	524,025		$	126	0.10	%	$	523,295		$	110	0.08	%	$	476,127		$	84	0.07	%
Governmental deposit accounts	331,607			848		1.03	%	297,537			557		0.76	%	312,999			273		0.35	%	347,625			991		1.13	%	331,607			848		1.03	%	328,806			507		0.61	%
Interest-bearing demand accounts	603,494			231		0.15	%	569,472			247		0.18	%	581,600			202		0.14	%	617,770			378		0.24	%	603,494			231		0.15	%	551,291			157		0.11	%
Money market accounts	414,307			654		0.63	%	395,324			531		0.54	%	393,580			323		0.33	%	434,834			787		0.72	%	414,307			654		0.63	%	395,477			365		0.37	%
Retail certificates of deposit	477,530			2,079		1.75	%	396,977			1,417		1.45	%	395,304			1,242		1.26	%	495,499			2,255		1.81	%	477,530			2,079		1.75	%	402,379			1,372		1.35	%
Brokered certificates of deposit	272,693			1,797		2.64	%	314,163			2,001		2.58	%	187,387			992		2.13	%	261,145			1,622		2.46	%	272,693			1,797		2.64	%	256,780			1,533		2.37	%
Total interest-bearing deposits	2,622,926			5,719		0.87	%	2,446,129			4,844		0.80	%	2,348,037			3,101		0.53	%	2,680,898			6,159		0.91	%	2,622,926			5,719		0.87	%	2,410,860			4,018		0.66	%
Borrowed funds:
Short-term FHLB advances	193,963			1,140		2.36	%	198,643			1,115		2.28	%	225,635			966		1.72	%	190,677			1,086		2.26	%	193,963			1,140		2.36	%	258,742			1,475		2.26	%
Repurchase agreements and other	46,631			93		0.80	%	46,111			58		0.50	%	85,188			209		0.98	%	46,240			64		0.55	%	46,631			93		0.80	%	74,174			142		0.77	%
Total short-term borrowings	240,594			1,233		2.06	%	244,754			1,173		1.94	%	310,823			1,175		1.52	%	236,917			1,150		1.93	%	240,594			1,233		2.06	%	332,916			1,617		1.93	%
Long-term FHLB advances	96,519			491		2.04	%	100,930			508		2.04	%	114,287			559		1.96	%	76,893			410		2.12	%	96,519			491		2.04	%	104,026			537		2.05	%
Other borrowings	7,346			129		7.02	%	7,304			137		7.50	%	7,766			126		6.49	%	7,388			136		7.36	%	7,346			129		7.02	%	7,217			135		7.48	%
Total long-term borrowings	103,865			620		2.39	%	108,234			645		2.41	%	122,053			685		2.25	%	84,281			546		2.58	%	103,865			620		2.39	%	111,243			672		2.40	%
Total borrowed funds	344,459			1,853		2.16	%	352,988			1,818		2.09	%	432,876			1,860		1.72	%	321,198			1,696		2.10	%	344,459			1,853		2.16	%	444,159			2,289		2.05	%
Total interest-bearing liabilities	2,967,385			7,572		1.02	%	2,799,117			6,662		0.96	%	2,780,913			4,961		0.71	%	3,002,096			7,855		1.04	%	2,967,385			7,572		1.02	%	2,855,019			6,307		0.88	%
Non-interest-bearing deposits	654,468							613,924							585,800							657,952							654,468							592,709
Other liabilities	52,934							48,384							41,368							68,072							52,934							48,741
Total liabilities	3,674,787							3,461,425							3,408,081							3,728,120							3,674,787							3,496,469
Total stockholders’ equity	564,992							524,196							489,876							583,269							564,992							501,785
Total liabilities and stockholders’ equity	$	4,239,779						$	3,985,621						$	3,897,957						$	4,311,389						$	4,239,779						$	3,998,254
Interest rate spread (b)				$	36,316	3.54	%				$	34,114	3.59	%				$	33,033	3.60	%				$	36,068	3.43	%				$	36,316	3.54	%				$	33,545	3.49	%
Net interest margin (b)	Net interest margin (b)					3.77	%						3.80	%						3.74	%	Net interest margin (b)					3.66	%						3.77	%						3.68	%

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	For the Six Months Ended														For the Nine Months Ended
	June 30, 2019							June 30, 2018							September 30, 2019								September 30, 2018
(Dollars in thousands)	Average Balance			Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost		Average Balance			Income/ Expense		Yield/Cost			Average Balance			Income/ Expense		Yield/Cost
Short-term investments	$	22,145		$	439	4.00	%	$	11,052		$	106	1.93	%	$	35,867		$	945	3.52	%		$	15,379		$	192	1.67	%
Investment securities (a)(b):
Taxable(c)	827,831			11,853		2.86	%	784,628			11,555		2.95	%	850,852			17,839		2.80	%		785,454			17,169		2.91	%
Nontaxable	100,876			1,603		3.18	%	97,062			1,618		3.33	%	105,233			2,477		3.14	%		96,016			2,395		3.33	%
Total investment securities	928,707			13,456		2.90	%	881,690			13,173		2.99	%	956,085			20,316		2.83	%		881,470			19,564		2.96	%
Loans (b)(c):
Loans (b)(d):
Commercial real estate, construction	127,988			3,387		5.26	%	118,396			2,771		4.66	%	119,823			4,700		5.17	%		120,264			4,344		4.76	%
Commercial real estate, other	820,163			21,918		5.32	%	803,085			19,558		4.84	%	828,258			33,225		5.29	%		819,797			30,492		4.90	%
Commercial and industrial	589,249			15,762		5.32	%	491,643			11,787		4.77	%	594,136			23,872		5.30	%		503,328			18,631		4.88	%
Residential real estate ~~(d)~~(e)	625,236			14,845		4.75	%	546,558			12,058		4.41	%	633,070			22,748		4.79	%		569,593			19,068		4.46	%
Home equity lines of credit	131,746			3,866		5.92	%	120,360			2,972		4.98	%	131,797			5,843		5.93	%		125,505			4,832		5.15	%
Consumer, indirect	411,489			8,343		4.09	%	351,581			6,628		3.80	%	415,602			12,795		4.12	%		363,705			10,500		3.86	%
Consumer, other	76,969			2,648		6.94	%	70,633			2,392		6.83	%	78,687			4,143		7.04	%		72,499			3,673		6.77	%
Total loans	2,782,840			70,769		5.07	%	2,502,256			58,166		4.64	%	2,801,373			107,326		5.07	%		2,574,691			91,540		4.70	%
Less: Allowance for loan losses	(20,861		)					(18,878		)					(21,117		)						(19,116		)
Net loans	2,761,979			70,769		5.12	%	2,483,378			58,166		4.68	%	2,780,256			107,326		5.12	%		2,555,575			91,540		4.75	%
Total earning assets	3,712,831			84,664		4.55	%	3,376,120			71,445		4.23	%	3,772,208			128,587		4.52	%		3,452,424			111,296		4.28	%
Intangible assets	168,458							152,943							172,175							��	156,540
Other assets	232,114							219,268							235,280								223,590
Total assets	$	4,113,403						$	3,748,331						$	4,179,663							$	3,832,554
Deposits:
Savings accounts	$	498,115		$	201	0.08	%	$	465,091		$	133	0.06	%	$	506,847		$	326	0.09	%		$	468,810		$	217	0.06	%
Governmental deposit accounts	314,666			1,405		0.90	%	302,286			490		0.33	%	325,773			2,396		0.98	%		311,223			997		0.43	%
Interest-bearing demand accounts	586,577			478		0.16	%	574,465			423		0.15	%	597,089			857		0.19	%		566,656			580		0.14	%
Money market accounts	404,868			1,185		0.59	%	380,834			549		0.29	%	414,966			1,972		0.64	%		385,768			914		0.32	%
Retail certificates of deposit	437,476			3,496		1.61	%	366,923			2,007		1.10	%	457,030			5,750		1.68	%		378,871			3,379		1.19	%
Brokered certificates of deposit	293,313			3,798		2.61	%	172,101			1,712		2.01	%	282,473			5,421		2.57	%		200,637			3,245		2.16	%
Total interest-bearing deposits	2,535,015			10,563		0.84	%	2,261,700			5,314		0.47	%	2,584,178			16,722		0.87	%		2,311,965			9,332		0.54	%
Borrowed funds:
Short-term FHLB advances	196,290			2,255		2.32	%	185,195			1,629		1.77	%	194,398			3,342		2.30	%		209,980			3,104		1.98	%
Repurchase agreements and other	46,373			151		0.65	%	93,634			514		1.10	%	46,328			214		0.62	%		87,076			656		1.00	%
Total short-term borrowings	242,663			2,406		2.00	%	278,829			2,143		1.55	%	240,726			3,556		1.97	%		297,056			3,760		1.69	%
Long-term FHLB advances	98,712			999		2.04	%	116,628			1,123		1.94	%	91,359			1,409		2.06	%		112,381			1,660		1.97	%
Other borrowings	7,325			266		7.26	%	7,439			248		6.67	%	7,347			402		7.30	%		7,364			383		6.93	%
Total long-term borrowings	106,037			1,265		2.40	%	124,067			1,371		2.22	%	98,706			1,811		2.45	%		119,745			2,043		2.28	%
Total borrowed funds	348,700			3,671		2.12	%	402,896			3,514		1.75	%	339,432			5,367		2.11	%		416,801			5,803		1.86	%
Total interest-bearing liabilities	2,883,715			14,234		0.99	%	2,664,596			8,828		0.67	%	2,923,610			22,089		1.01	%		2,728,766			15,135		0.74	%
Non-interest-bearing deposits	634,308							569,711							642,276								577,461
Other liabilities	50,674							41,872							56,075								44,189
Total liabilities	3,568,697							3,276,179							3,621,961								3,350,416
Total stockholders’ equity	544,706							472,152							557,702								482,138
Total liabilities and stockholders’ equity	$	4,113,403						$	3,748,331						$	4,179,663							$	3,832,554
Interest rate spread (b)				$	70,430	3.56	%				$	62,617	3.56	%				$	106,498	3.51	%					$	96,161	3.54	%
Net interest margin (b)						3.78	%						3.70	%						3.74	%							3.69	%


(a)	Average balances are based on carrying value.


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

(c)

Interest income and yield presented for the second quarter of 2018 include $248,000 of proceeds on an investment security for which an other-than-temporary-impairment had been recorded in previous years. Interest income and yield presented for the first ~~six~~nine months of 2018 include $589,000 of proceeds on an investment security for which an other-than-temporary-impairment had been recorded in previous years.

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


(e)	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 June 30, 2019 Compared to																		Compared to									Three Months Ended September 30, 2019 Compared to																		Compared to
(Dollars in thousands)	March 31, 2019									June 30, 2018									June 30, 2018									June 30, 2019									September 30, 2018									September 30, 2018
Increase (decrease) in:	Rate			Volume			Total ^(a)			Rate			Volume			Total ^(a)			Rate			Volume			Total ^(a)			Rate			Volume			Total ^(a)			Rate			Volume			Total ^(a)			Rate		Volume			Total ^(a)
INTEREST INCOME:
Short-term investments	$	(155	)	$	242		$	87		$	74		$	133		$	207		$	169		$	164		$	333		$	9		$	234		$	243		$	201		$	219		$	420		$	381	$	372		$	753
Investment Securities (b):
Taxable	(2,234		)	2,393			159			(1,908		)	2,046			138			282			16			298			(633		)	613			(20		)	(1,821		)	2,192			371			516		154			670
Nontaxable	(191		)	434			243			(271		)	390			119			(14		)	(1		)	(15		)	(15		)	(34		)	(49		)	(307		)	404			97			60		22			82
Total investment income	(2,425		)	2,827			402			(2,179		)	2,436			257			268			15			283			(648		)	579			(69		)	(2,128		)	2,596			468			576		176			752
Loans (b):
Commercial real estate, construction	11			(88		)	(77		)	140			77			217			380			236			616			(91		)	(251		)	(342		)	(6		)	(254		)	(260		)	382		(26		)	356
Commercial real estate, other	280			446			726			1,424			(536		)	888			1,937			423			2,360			(738		)	723			(15		)	1,001			(628		)	373			2,415		318			2,733
Commercial and industrial	50			350			400			604			1,261			1,865			1,464			2,511			3,975			(288		)	317			29			233			1,033			1,266			1,685		3,556			5,241
Residential real estate	471			520			991			629			540			1,169			965			1,822			2,787			(104		)	89			(15		)	499			394			893			1,461		2,219			3,680
Home equity lines of credit	124			22			146			299			6			305			595			299			894			(25		)	(4		)	(29		)	403			(286		)	117			760		251			1,011
Consumer, indirect	125			42			167			219			538			757			527			1,188			1,715			50			147			197			207			373			580			729		1,566			2,295
Consumer, direct	145			125			270			85			144			229			236			20			256			(48		)	84			36			103			111			214			385		85			470
Total loan income	1,206			1,417			2,623			3,400			2,030			5,430			6,104			6,499			12,603			(1,244		)	1,105			(139		)	2,440			743			3,183			7,817		7,969			15,786
Total interest income	$	(1,374	)	$	4,486		$	3,112		$	1,295		$	4,599		$	5,894		$	6,541		$	6,678		$	13,219		$	(1,883	)	$	1,918		$	35		$	513		$	3,558		$	4,071		$	8,774	$	8,517		$	17,291
INTEREST EXPENSE:
Deposits:
Savings accounts	$	8		$	11		$	19		$	34		$	7		$	41		$	58		$	10		$	68		$	16		$	—		$	16		$	33		$	9		$	42		$	90	$	19		$	109
Governmental deposit accounts	220			71			291			558			17			575			894			21			915			97			46			143			453			31			484			1,351		48			1,399
Interest-bearing demand accounts	(92		)	76			(16		)	21			8			29			46			9			55			141			6			147			200			21			221			244		33			277
Money market accounts	94			29			123			313			18			331			599			37			636			97			36			133			383			39			422			984		74			1,058
Retail certificates of deposit	334			328			662			544			293			837			1,051			438			1,489			84			92			176			522			361			883			1,578		793			2,371
Brokered certificates of deposit	291			(495		)	(204		)	281			524			805			626			1,460			2,086			(107		)	(68		)	(175		)	63			26			89			683		1,493			2,176
Total deposit cost	855			20			875			1,751			867			2,618			3,274			1,975			5,249			328			112			440			1,654			487			2,141			4,930		2,460			7,390
Borrowed funds:
Short-term borrowings	180			(120		)	60			886			(828		)	58			679			(416		)	263			(58		)	(25		)	(83		)	(10		)	(457		)	(467		)	493		(697		)	(204		)
Long-term borrowings	(13		)	(12		)	(25		)	136			(201		)	(65		)	171			(277		)	(106		)	111			(185		)	(74		)	106			(232		)	(126		)	132		(364		)	(232		)
Total borrowed funds cost	167			(132		)	35			1,022			(1,029		)	(7		)	850			(693		)	157			53			(210		)	(157		)	96			(689		)	(593		)	625		(1,061		)	(436		)
Total interest expense	1,022			(112		)	910			2,773			(162		)	2,611			4,124			1,282			5,406			381			(98		)	283			1,750			(202		)	1,548			5,555		1,399			6,954
Net interest income	$	(2,396	)	$	4,598		$	2,202		$	(1,478	)	$	4,761		$	3,283		$	2,417		$	5,396		$	7,813		$	(2,264	)	$	2,016		$	(248	)	$	(1,237	)	$	3,760		$	2,523		$	3,219	$	7,118		$	10,337


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

Net interest income was ~~$36.0~~$35.8 million for the ~~second~~third quarter of 2019, ~~an increase~~a decrease of 6%1% compared to the linked ~~quarter.~~quarter, and an increase of $2.4 million, or 7%, over the third quarter of 2018. Net interest margin was ~~3.77%~~3.66% for the ~~second~~third quarter of 2019, compared to ~~3.80%~~3.77% for the linked quarter, and 3.68% for the third quarter of 2018. Net interest income remained relatively stable although interest rates declined during the quarter, which impacted the loan and investment portfolios. Peoples' variable rate commercial loans are subject to changes in London Interbank Offered Rate and the prime rate, both of which declined during the third quarter of 2019. The net interest margin was impacted by the lower interest rates received on loans. At September 30, 2019, average loan balances as a percent of average total earning assets declined to 73.0%, from 73.9% in the linked quarter. Higher deposit costs were partially offset by lower interest expense on borrowings.

Table of Contents

The ~~slight decline~~increase in net interest ~~margin during~~income compared to the third quarter of 2018 was driven by higher ~~costs for time deposits and governmental deposits, which more than offset increased loan yields, driven by the acquisition of First Prestonsburg. Compared to the first quarter of 2019, net~~ interest income ~~was positively~~on loans, due to higher yields on loans, combined with higher loan balances, which were impacted by the ~~acquisition of~~acquired First ~~Prestonsburg.~~Prestonsburg loans. The higher interest income on loans was partially offset by an increase in interest expense on deposits due to higher rates paid on deposits, combined with additional interest expense related to the acquired First Prestonsburg deposits.

Accretion income, net of amortization expense, from acquisitions was $1.2 million for the third and second ~~quarter~~quarters of 2019, and ~~$722,000~~$612,000 for the ~~first quarter of 2019, which added 13 basis points and 8 basis points, respectively, to net interest margin.~~

~~Table of Contents~~

~~The growth in accretion income compared to the first quarter of 2019 was due to the First Prestonsburg acquisition, specifically the loan discount that was accreted during the quarter.~~

Net interest income for the current quarter increased $3.2 million, or 10%, over the second quarter of 2018. Net interest margin increased 3 basis points compared to 3.74% for the second quarter of 2018. The increase in net interest income compared to the second quarter of 2018 was driven by higher yields on loans combined with the impact of acquired First Prestonsburg loans. These were partially offset by higher deposit costs due to increased competition for deposits, combined with additional interest expense related to the acquired First Prestonsburg deposits. The second quarter of 2018 also benefited from proceeds of $248,000 received on an investment security that had been previously written down due to an OTTI, which added 3 basis points to the net interest margin. Peoples recorded no similar proceeds during the current quarter.

~~Accretion income, net of amortization expense, from acquisitions was $1.2 million for the second quarter of 2019 and $523,000 for the second~~third quarter of 2018, which added 12 basis points, 13 basis points, and 67 basis points, respectively, to net interest margin. The increase in accretion income compared to the ~~second~~third quarter of 2018 was due to the First Prestonsburg acquisition.

For the first ~~six~~nine months of 2019, net interest income grew ~~13%~~11% compared to 2018, and net interest margin grew 85 basis points to ~~3.78%~~3.74%. The increases were driven by higher interest income on loans due to a combination of loan growth, which was primarily the result of the First Prestonsburg acquisition in 2019 and the ASB ~~acquisitions,~~acquisition in 2018, and higher yields from average interest rate increases. The ~~increase in~~ interest income on loan balances outpaced interest expense from deposits, which increased primarily due to ~~loan growth outpaced~~ higher ~~deposit costs, which were due~~rates paid on deposits, combined with additional interest expense related to the recent ~~acquisitions and increased competition for deposits.~~acquisitions. The first ~~six~~nine months of 2018 benefited from proceeds of ~~$589,000~~$588,000 received on an investment ~~securities~~security that had been previously written down due to OTTI, which added 32 basis points to net interest margin. Peoples recorded no similar proceeds during the first ~~six~~nine months of 2019.

Accretion income, net of amortization expense, from acquisitions was ~~$1.9~~$3.1 million for the first ~~six~~nine months of 2019 and ~~$1.1~~$1.7 million for the first ~~six~~nine months of 2018, which added 1011 basis points and 67 basis points, respectively, to net interest margin. The growth in accretion income compared to the first ~~six~~nine months of 2018 was largely due to the First Prestonsburg acquisition and, to a lesser extent, the ASB acquisition.

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)~~ Loan Losses

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


	Three Months Ended									Six Months Ended						Three Months Ended									Nine Months Ended
	June 30, 2019			March 31, 2019			June 30, 2018			June 30,						September 30, 2019			June 30, 2019			September 30, 2018			September 30,
(Dollars in thousands)										2019			2018												2019			2018
Provision for (recovery of) other loan losses	$	475		$	(360	)	$	1,000		$	115		$	2,842
Provision for other loan losses																$	731		$	475		$	1,035		$	846		$	3,877
Provision for checking account overdrafts	151			97			188			248			329			274			151			267			522			596
Provision for (recovery of) loan losses	$	626		$	(263	)	$	1,188		$	363		$	3,171
Provision for loan losses																$	1,005		$	626		$	1,302		$	1,368		$	4,473
As a percentage of average total loans (a)	0.09		%	(0.04		)%	0.18		%	0.03		%	0.26		%	0.14		%	0.09		%	0.19		%	0.07		%	0.23		%
(a) Presented on an annualized basis.

The provision for ~~or recovery of,~~ loan losses recorded represents the amount needed to maintain the appropriate level of the allowance for loan losses based on management’s formal quarterly analysis of the loan portfolio and procedural methodology that estimates the amount of probable credit losses. This process considers various factors that affect losses, such as changes in Peoples’ loan quality, historical loss experience, 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 loan losses during the ~~second~~current quarter ~~and the first six months of 2019~~ was ~~lower than historical trends, given low gross~~driven by higher net charge-offs and ~~high recoveries combined with~~ originated loan ~~balances remaining stable during the first six months of 2019.~~growth. Net charge-offs for the ~~second~~third quarter of 2019 were ~~$208,000,~~$777,000, or ~~0.03%~~0.11% of average total loans, compared to ~~net recoveries of $1.0 million,~~$208,000, or ~~0.15%~~0.03% of average total loans, for the linked quarter and ~~$720,000,~~$687,000, or ~~0.11%~~0.10% of average total loans, for the ~~second~~third quarter of 2018.

Net recoveries ~~during~~for the first ~~quarter~~nine months of 2019 were ~~driven by~~$22,000, compared to net charge-offs of $3.4 million, or 0.18% of average total loans, for the first nine months of 2018. The first nine months of 2019 included a $1.8 million recovery recorded on a previously charged-off commercial loan. ~~Gross charge-offs were $665,000, or 0.09% of average total loans, for the second quarter of 2019, compared to $1.0 million, or 0.15% of average total loans, for the first quarter of 2019, and~~

~~Table of Contents~~

$1.0 million, or 0.15% of average total loans, for the second quarter of 2018. Net recoveries for the first six months of 2019 were $799,000, compared to net charge-offs of $2.7 million for the first six months of 2018. The first ~~six~~nine months of 2018 included a charge-off of $827,000 on an acquired commercial loan relationship. ~~Gross charge-offs were $1.7 million, or 0.12%~~

Table of ~~average total loans, for the first six months of 2019, compared to $3.3 million, or 0.26% of average total loans, for the first six months of 2018.~~Contents

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

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

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


	Three Months Ended									Six Months Ended						Three Months Ended								Nine Months Ended
	June 30, 2019			March 31, 2019			June 30, 2018			June 30,						September 30, 2019			June 30, 2019			September 30, 2018		September 30,
(Dollars in thousands)	June 30, 2019			March 31, 2019			June 30, 2018			2019			2018			September 30, 2019			June 30, 2019			September 30, 2018		2019			2018
Net (loss) gain on investment securities	$	(57	)	$	30		$	(147	)	$	(27	)	$	(146	)
Net gain (loss) on investment securities																$	97		$	(57	)	$	—	$	70		$	(146	)

Net (loss) gain on asset disposals and other transactions:
Net loss on other assets	$	(274	)	$	(157	)	$	(330	)	$	(431	)	$	(251	)
Net (loss) gain on other assets																$	(73	)	$	(274	)	$	12	$	(504	)	$	(239	)
Net (loss) gain on OREO	(24		)	(25		)	14			(49		)	9			(5		)	(24		)	—		(54		)	9
Net loss on debt extinguishment	—			—			(13		)	—			(13		)	—			—			—		—			(13		)
Net gain (loss) on other transactions	5			—			(76		)	5			(76		)	—			5			—		5			(76		)
Net loss on asset disposals and other transactions	$	(293	)	$	(182	)	$	(405	)	$	(475	)	$	(331	)
Net (loss) gain on asset disposals and other transactions																$	(78	)	$	(293	)	$	12	$	(553	)	$	(319	)

During the second quarter of 2019, losses included $253,000 of write-offs of fixed assets acquired from First Prestonsburg. During the first quarter of 2019, net loss on other assets was primarily due to $118,000 of market value write-downs related to closed offices that were held for sale. During the second quarter of 2018, net loss on other assets included losses of $192,000 related to fixed assets acquired from ASB and $147,000 of market value write-downs related to closed offices that were held for sale.

Net losses during the year-to-date period through ~~June~~September 30, 2019 were driven by the write-offs of fixed assets acquired from First Prestonsburg ~~combined with~~and market value write-downs related to closed offices that were held for sale. For the ~~year-to-date period in~~first nine months of 2018, ~~the second quarter~~ losses onwere primarily associated with write-offs of fixed ~~asset disposals, loss on investment securities, and market value write-downs on properties held for sale were partially offset by net gains related to repossessed~~ assets ~~recorded in the first quarter~~acquired from ASB of ~~2018.~~$203,000.

Total Non-Interest Income, Excluding Net Gains and Losses

~~Insurance~~Electronic banking ("e-banking") income comprised the largest portion of the ~~second~~third quarter 2019 total non-interest income. ~~The following table details~~ Peoples' ~~insurance income:~~

Three Months Ended Six Months Ended
June 30,
2019 March 31,
2019 June 30,
2018 June 30,
(Dollars in thousands) 2019 2018
Property and casualty insurance commissions $ 2,680
$ 2,674
$ 2,597
$ 5,354
$ 5,242
Performance-based commissions 2
1,419
3
1,421
1,350
Life and health insurance commissions 626
359
596
985
1,140
Other fees and charges 178
169
173
347
292
Insurance income $ 3,486
$ 4,621
$ 3,369
$ 8,107
$ 8,024

The decline in revenue related to performance-based commissions is due to annual performance-based insurance commissions, which are primarily recognized in the first quarter of each year and are a core component of insurance income.

~~Table of Contents~~

~~Life and health insurance commissions were low in the first six months of 2019 primarily due to an increase in deferred revenue.~~

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 services business. Fiduciary and brokerage income for the second quarter of 2019 increased compared to the first quarter of 2019 and the second quarter of 2018 primarily due to higher market values of accounts. The following tables detail Peoples’ trust and investment income and related assets under administration and management:

Three Months Ended Six Months Ended
June 30,
2019 March 31,
2019 June 30,
2018 June 30,
(Dollars in thousands) 2019 2018
Fiduciary $ 1,837
$ 1,636
$ 1,767
$ 3,473
$ 3,374
Brokerage 1,038
965
989
2,003
1,952
Employee benefits 526
511
476
1,037
974
Trust and investment income $ 3,401
$ 3,112
$ 3,232
$ 6,513
$ 6,300

June 30,
2019 March 31,
2019 December 31,
2018 September 30,
2018 June 30,
2018
(Dollars in thousands)
Trust assets under administration and management $ 1,501,110
$ 1,471,422
$ 1,384,113
$ 1,489,810
$ 1,454,009
Brokerage assets under administration and management 887,745
863,286
849,188
914,172
881,839
Total assets under administration and management $ 2,388,855
$ 2,334,708
$ 2,233,301
$ 2,403,982
$ 2,335,848
Quarterly average $ 2,356,121
$ 2,312,098
$ 2,316,201
$ 2,378,676
$ 2,331,529

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


	Three Months Ended						Six Months Ended				Three Months Ended						Nine Months Ended
	June 30, 2019		March 31, 2019		June 30, 2018		June 30,				September 30, 2019		June 30, 2019		September 30, 2018		September 30,
(Dollars in thousands)	June 30, 2019		March 31, 2019		June 30, 2018		2019		2018		September 30, 2019		June 30, 2019		September 30, 2018		2019		2018
Interchange fees	$	2,747	$	2,443	$	2,520	$	5,190	$	4,784	$	2,842	$	2,747	$	2,464	$	8,032	$	7,248
Promotional and usage income	520		544		265		1,064		786		735		520		426		1,799		1,212
E-banking income	$	3,267	$	2,987	$	2,785	$	6,254	$	5,570	$	3,577	$	3,267	$	2,890	$	9,831	$	8,460

Peoples' e-banking revenue 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 increases in e-banking income in all comparisons were the result of the increased usage of debit cards by more customers, which includes the impact of additional cardholders obtained in the ~~merger with~~acquisition of First Prestonsburg.

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The following table details Peoples' insurance income:



	Three Months Ended							Nine Months Ended
	September 30, 2019		June 30, 2019			September 30, 2018		September 30,
(Dollars in thousands)	September 30, 2019		June 30, 2019			September 30, 2018		2019		2018
Property and casualty insurance commissions	$	2,542	$	3,060		$	2,603	$	7,875	$	7,982
Deferred income from property and casualty insurance commissions	64		(380		)	11		85		(126		)
Total property and casualty insurance commissions	2,606		2,680			2,614		7,960		7,856
Life and health insurance commissions	466		464			454		1,401		1,413
Deferred income from life and health insurance commissions	101		162			91		151		272
Total life and health insurance commissions	567		626			545		1,552		1,685
Performance-based commissions	74		2			98		1,495		1,448
Other fees and charges	139		178			131		486		423
Insurance income	$	3,386	$	3,486		$	3,388	$	11,493	$	11,412

Property and casualty insurance commissions during the second quarter of 2019 included a large policy renewal for which the related income was deferred over the life of the contract. Fluctuations in deferred income from property and casualty, and life and health insurance commissions during the first nine months of 2019, compared to 2018, were driven by timing in revenue recognition upon the satisfaction of related benefit obligations. For more information regarding the recognition of insurance income, refer to "Note 11 Revenue" of the Notes to the Unaudited Consolidated Financial Statements.

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 Six Months Ended
June 30,
2019 March 31,
2019 June 30,
2018 June 30,
(Dollars in thousands) 2019 2018
Overdraft and non-sufficient funds fees $ 1,746
$ 1,433
$ 1,584
$ 3,179
$ 3,023
Account maintenance fees 1,012
752
646
1,764
1,321
Other fees and charges 219
156
158
375
164
Deposit account service charges $ 2,977
$ 2,341
$ 2,388
$ 5,318
$ 4,508

~~Table of Contents~~



	Three Months Ended						Nine Months Ended
	September 30, 2019		June 30, 2019		September 30, 2018		September 30,
(Dollars in thousands)	September 30, 2019		June 30, 2019		September 30, 2018		2019		2018
Overdraft and non-sufficient funds fees	$	1,970	$	1,746	$	1,800	$	5,149	$	4,823
Account maintenance fees	1,049		1,012		691		2,813		2,012
Other fees and charges	214		219		161		589		325
Deposit account service charges	$	3,233	$	2,977	$	2,652	$	8,551	$	7,160

The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Income from deposit account service charges were up compared to the linked quarter, due to ~~a combination of~~ the additional accounts acquired from First ~~Prestonsburg and a new deposit account fee schedule that was implemented in March 2019.~~Prestonsburg. Income from deposit account service charges for the first ~~six~~nine months of 2019 were up compared to a year ago primarily due to the ASB and First Prestonsburg acquisitions, coupled with changes in fee schedules. Peoples implemented a new deposit account fee schedule in March 2019, and it is anticipated that the higher deposit fees associated with the new fee schedule will diminish somewhat over time.

Table of Contents



	Three Months Ended						Nine Months Ended
	September 30, 2019		June 30, 2019		September 30, 2018		September 30,
(Dollars in thousands)	September 30, 2019		June 30, 2019		September 30, 2018		2019		2018
Fiduciary	$	1,621	$	1,837	$	1,626	$	5,094	$	5,000
Brokerage	1,048		1,038		999		3,051		2,951
Employee benefits	536		526		485		1,573		1,459
Trust and investment income	$	3,205	$	3,401	$	3,110	$	9,718	$	9,410

Fiduciary income for the third quarter of 2019 declined compared to the second quarter of 2019 primarily due to seasonal tax return revenue received annually in the second quarter. Employee benefits in 2019 have increased compared to the second quarter of 2019 and the nine months of 2018 due to the continued growth of our business that administers 401k plans for businesses.



	September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
(Dollars in thousands)	September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Assets under administration and management:
Trust	$	1,504,036	$	1,501,110	$	1,471,422	$	1,384,113	$	1,489,810
Brokerage	904,191		887,745		863,286		849,188		914,172
Total	$	2,408,227	$	2,388,855	$	2,334,708	$	2,233,301	$	2,403,982
Quarterly average	$	2,397,515	$	2,356,121	$	2,312,098	$	2,316,201	$	2,378,676

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


	Three Months Ended						Six Months Ended				Three Months Ended						Nine Months Ended
	June 30, 2019		March 31, 2019		June 30, 2018		June 30,				September 30, 2019		June 30, 2019		September 30, 2018		September 30,
(Dollars in thousands)							2019		2018								2019		2018
Mortgage banking income	$	1,000	$	788	$	969	$	1,788	$	1,320	$	1,204	$	1,000	$	1,060	$	2,992	$	2,380
Commercial loan swap fees											772		516		355		1,434		617
Bank owned life insurance income	490		485		497		975		965		487		490		495		1,462		1,460
Commercial loan swap fees	516		146		146		662		262
Other non-interest income	502		1,101		421		1,603		1,752		510		502		391		2,113		2,143

Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and 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 ~~increase~~increases in mortgage banking income from the ~~first~~second quarter of 2019 ~~was~~and the third quarter of 2018 were mainly due to higher sales of real estate loans. Interest rates declined during the third quarter of 2019, resulting in increased customer demand, ~~which is typically seasonally low in~~primarily due to customers refinancing to take advantage of the ~~first quarter of each year.~~lower rates. For the first ~~six~~nine months of 2019, compared to the same period in 2018, the increase in mortgage banking income was ~~largely attributable~~due to ~~gains on sale of real estate~~increased customer demand, which was driven by the decline in mortgage interest rates during the period. Also contributing to the increase were the loans originated by the mortgage origination operation acquired as part of the ASB acquisition.

In the ~~second~~third quarter of 2019, Peoples sold approximately ~~$24.9~~$31.7 million in loans to the secondary market with servicing retained and sold approximately ~~$11.4~~$15.6 million in loans with servicing released, compared to approximately ~~$13.7~~$24.9 million and ~~$10.9~~$11.4 million, respectively, in the linked ~~quarter.~~quarter, and approximately $20.6 million and $19.2 million, respectively, in the third quarter of 2018. For the first ~~six~~nine months of 2019, Peoples sold approximately ~~$38.6~~$70.4 million in loans to the secondary market with servicing retained and sold approximately ~~$22.3~~$37.8 million in loans with servicing released, compared to approximately ~~$29.2~~$49.9 million and ~~$13.6~~$38.1 million, respectively, in the first ~~six~~nine months of 2018. The volume of sales has a direct impact on the amount of mortgage banking income.

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Commercial loan swap fees are largely dependent on timing, interest rates, and the volume of customer activity. The increase in all comparisons was driven by ~~a combination of an increase in the average size of each transaction and~~ higher customer demand, given the current rate environment and the favorable longer term rates that customers can lock in by utilizing a swap.

~~Compared to~~For the ~~linked quarter,~~first nine months of 2019, other non-interest income ~~declined primarily due to lower~~included an increase in income from equity investment securities ~~which~~of $620,000 compared to the same period of 2018. The increase in income from equity investment securities was ~~down $809,000. During the first quarter of 2019, Peoples recognized~~driven by $787,000 of income related to the sale of restricted Class B Visa stock during 2019, which had been held at a carrying cost and fair value of zero due to the litigation liability associated with the stock. ~~Other non-interest income for~~For the first ~~six~~nine months of 2019 ~~was down~~ compared to the same period of 2018, ~~due to~~other non-interest income also included a ~~decrease~~decline in Small Business Administration income of ~~$550,000 and declines in various other small items, partially offset by an increase in income from equity investment securities of $585,000.~~$474,000.

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Non-Interest Expense

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


	Three Months Ended									Six Months Ended						Three Months Ended									Nine Months Ended
	June 30, 2019			March 31, 2019			June 30, 2018			June 30,						September 30, 2019			June 30, 2019			September 30, 2018			September 30,
(Dollars in thousands)										2019			2018												2019			2018
Base salaries and wages	$	14,353		$	11,874		$	12,656		$	26,227		$	23,028		$	12,592		$	14,353		$	11,889		$	38,819		$	34,917
Sales-based and incentive compensation																2,986			3,096			3,125			8,691			8,364
Employee benefits	1,966			2,690			1,485			4,656			3,028			1,869			1,966			1,880			6,525			4,909
Sales-based and incentive compensation	3,096			2,609			3,003			5,705			5,239
Payroll taxes and other employment costs	1,208			1,377			1,036			2,585			2,220			1,256			1,208			1,036			3,841			3,255
Stock-based compensation	930			1,208			424			2,138			1,510			950			930			580			3,088			2,090
Deferred personnel costs	(729		)	(556		)	(579		)	(1,285		)	(1,010		)	(722		)	(729		)	(602		)	(2,007		)	(1,612		)
Salaries and employee benefit costs	$	20,824		$	19,202		$	18,025		$	40,026		$	34,015		$	18,931		$	20,824		$	17,908		$	58,957		$	51,923
Full-time equivalent employees:
Actual at end of period	918			859			862			918			862			910			918			849			910			849
Average during the period	906			869			844			891			820			913			906			860			897			832

The increase in full-time equivalent employees in ~~the second quarter of 2019 and the first six months of~~ 2019 compared to ~~previous periods~~2018 was mainly due to additional employees from the First Prestonsburg ~~acquisition and, in comparison to the 2018 periods, employees that were added in the last twelve months from acquisitions and for future growth.~~acquisition.

~~The increase in~~In all comparisons, base salaries and wages for the second quarter of 2019 compared to the linked quarter was primarily due to acquisition-related expenses of $2.2 million (mainly severance and change in control costs). Compared to the second quarter of 2018, base salaries and wages increased due to a combination of employees that have been added in the last twelve months from acquisitions and for future growth, annualwere impacted by merit increases, which included the ~~implementation of~~continued movement towards a $15 per hour minimum wage throughout the ~~company, and an increase in acquisition-related expenses of $594,000.~~company. The $15 per hour minimum wage began being phased in during 2018 and is expected to be largely implemented by January 1, 2020. ~~For~~Base salaries and wages were also impacted by the ~~first six months~~additional employees, primarily as a result of the First Prestonsburg acquisition in 2019 and the ASB acquisition in 2018. Base salaries and wages included no acquisition-related expenses during the third quarter of 2019, compared to $2.2 million (mainly severance and change in control costs) during the ~~same period~~second quarter of ~~2018,~~2019, and $450,000 during the ~~increase was impacted by the First Prestonsburg~~third quarter of 2018.

The decrease in sales-based and ~~ASB acquisitions, as well as the employees that have been added in the last twelve months for future growth.~~

~~The decline in employee benefits~~incentive compensation for the ~~second~~third quarter of 2019, compared to the ~~linked~~second quarter of 2019, was ~~primarily~~ due to lower ~~medical~~sales-based compensation from insurance, ~~costs of $817,000. Medical insurance costs~~partially offset by higher sales-based compensation from mortgage banking.The decrease in sales-based and incentive compensation for the ~~linked quarter included annual contributions to employee health benefit accounts resulting in an expense of $450,000. These contributions occur primarily in the first~~third quarter of ~~each year.~~ 2019, compared to the third quarter of 2018, was related to overall company performance measures used in calculating incentive awards, partially offset by higher sales-based compensation from mortgage banking, and trust and investments.Compared to the ~~second quarter~~first nine months of 2018, the increase in ~~employee benefits~~sales-based and incentive compensation for the first nine months of 2019 was driven by higher ~~medical insurance costs due primarily to higher medical claims and the~~sales-based compensation from mortgage banking. The increase in mortgage banking compared to the ~~number~~first nine months of ~~plan participants, which~~2018 was ~~impacted by~~largely attributable to the ~~First Prestonsburg~~recent increase in customer demand as interest rates declined, coupled with the mortgage origination operation acquired as part of the ASB acquisition.

The increase in employee benefits in the ~~six-month periods~~nine-month period comparison was impacted by the First Prestonsburg and ASB acquisitions, and included an increase in medical insurance costs of ~~$1.3 million.~~

~~The~~$1.5 million due primarily to higher medical claims and an increase in ~~sales-based and incentive compensation for~~ the ~~second quarter~~number of ~~2019, compared to~~participants in the ~~linked quarter, was due to higher sales-based compensation from~~ insurance mortgage banking and retail lines of business. The increase in sales-based and incentive compensation for the second quarter of 2019, compared to the second quarter of 2018, was due to higher sales-based compensation from the mortgage banking and retail lines of business. Compared to the first six months of 2018, the increase in sales-based and incentive compensation for the first six months of 2019 was driven by higher sales-based compensation from mortgage banking. The increase in mortgage banking growth compared to the first six months of 2018 was largely attributable to the mortgage origination operation acquired as part of the ASB acquisition.plan.

The increases in payroll taxes and other employment costs for periods in 2019 compared to those in 2018 primarily reflected the increases in base salaries and wages.

~~Stock-based~~

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The increases in stock-based compensation ~~declined~~ compared to the ~~linked quarter due largely~~2018 periods were driven by higher expense related to ~~annual~~ stock grants ~~which occur primarily in the first quarter of each year.~~made to retirement eligible grantees combined with Peoples' improved performance during recent years. The majority of ~~the~~ grants are expensed over ~~the~~a three-year vesting period, with the exception of those made to retirement eligible grantees. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. ~~The $1.2 million of stock-based compensation for the first quarter of 2019 included $469,000 of expense related to stock grants to retirement eligible individuals, and $128,000 of expense related~~

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to the annual vesting of prior stock grants. The increase in stock-based compensation compared to the 2018 periods was driven by higher expense related to stock grants made to retirement eligible grantees combined with Peoples' improved performance during recent years.

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


	Three Months Ended						Six Months Ended				Three Months Ended						Nine Months Ended
	June 30, 2019		March 31, 2019		June 30, 2018		June 30,				September 30, 2019		June 30, 2019		September 30, 2018		September 30,
(Dollars in thousands)	June 30, 2019		March 31, 2019		June 30, 2018		2019		2018		September 30, 2019		June 30, 2019		September 30, 2018		2019		2018
Depreciation	$	1,494	$	1,249	$	1,248	$	2,743	$	2,466	$	1,451	$	1,494	$	1,237	$	4,194	$	3,704
Repairs and maintenance costs	715		770		659		1,485		1,507		803		715		697		2,288		2,203
Net rent expense	250		288		235		538		444		182		250		264		720		709
Property taxes, utilities and other costs	673		671		661		1,344		1,252		662		673		652		2,006		1,903
Net occupancy and equipment expense	$	3,132	$	2,978	$	2,803	$	6,110	$	5,669	$	3,098	$	3,132	$	2,850	$	9,208	$	8,519

~~Net~~For the 2019 periods, net occupancy and equipment expense ~~for~~was impacted by the ~~second quarter of 2019 increased primarily due to~~ costs related to the addition of nine full-service bank branches from the First Prestonsburg acquisition, ~~and ongoing increased operating costs associated with the expanded footprint. These increases were~~ partially offset by a reduction in ATM repairs and maintenance costs ~~driven by~~resulting from a new vendor contract. For the first six months of 2019, the increase in net occupancy and equipment expense was driven by additional costs related to the First Prestonsburg and ASB acquisitions, partially offset by a reduction in ATM repairs and maintenance costs driven by the new vendor contract.servicing agreement.

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

Three Months Ended Six Months Ended
June 30,
2019 March 31,
2019 June 30,
2018 June 30,
(Dollars in thousands) 2019 2018
Professional fees $ 2,344
$ 1,276
$ 3,022
$ 3,620
$ 4,740
Electronic banking expense 1,693
1,577
1,407
3,270
2,857
Data processing and software expense 1,567
1,545
1,359
3,112
2,681
Amortization of other intangible assets 824
694
861
1,518
1,615
Franchise tax expense 772
705
614
1,477
1,258
Marketing expense 490
594
656
1,084
981
FDIC insurance expense 381
371
416
752
782
Foreclosed real estate and other loan expenses 469
255
338
724
550
Communication expense 317
278
300
595
644
Other non-interest expense 6,063
2,519
6,170
8,448
8,400

Professional fees increased $1.1 million, or 84%, from the first quarter of 2019, driven by acquisition-related expenses of $562,000 in the current quarter, up from $58,000 in the first quarter of 2019, combined with additional audit and consulting work performed during second quarter of 2019. Professional fees were down compared to the second quarter of 2018, primarily due to consulting work performed during the second quarter of 2018 which was not duplicated in 2019. Professional fees were down compared to the first six months of 2018, mainly due to lower legal expenses and consulting work performed during the first six months of 2018 which was not duplicated in 2019.



	Three Months Ended						Nine Months Ended
	September 30, 2019		June 30, 2019		September 30, 2018		September 30,
(Dollars in thousands)							2019		2018
Electronic banking expense	$	2,070	$	1,693	$	1,552	$	5,340	$	4,409
Data processing and software expense	1,572		1,567		1,408		4,684		4,089
Professional fees	1,544		2,344		1,395		5,164		6,135
Amortization of other intangible assets	953		824		862		2,471		2,477
Franchise tax expense	797		772		616		2,274		1,874
Marketing expense	634		490		456		1,718		1,437
Foreclosed real estate and other loan expenses	600		469		373		1,324		923
Communication expense	268		317		305		863		949
FDIC insurance expense	—		381		391		752		1,173
Other non-interest expense	2,526		6,063		2,713		10,974		11,113

Electronic banking expense was up in each comparison due to an increase in customer accounts and customer usage of mobile and online banking tools, which were impacted by the First Prestonsburg and ASB ~~mergers.~~acquisitions.

~~Data~~The increase in data processing and software expense ~~increased $208,000, or 15%, from the second quarter of 2018, and $431,000, or 16%,~~ compared to ~~the first six months of 2018. The increases were~~prior periods was driven by systems and software upgrades and overall growth, which included: the implementation of enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers; increases in customer accounts and customer usage of mobile and online banking tools; software upgrades; and additional network capacity and security features. Data processing and software expense included ~~$91,000~~$93,000 of acquisition-related expenses in the first ~~six~~nine months of 2019, and $59,000 in the first ~~six~~nine months of 2018.

Professional fees decreased from the second quarter of 2019, driven by a decline in acquisition-related expenses of $566,000, combined with additional consulting work performed during second quarter of 2019 that was not duplicated in the third quarter of 2019. Professional fees were up compared to the third quarter of 2018, primarily due to higher legal expenses. Professional fees were down compared to the first nine months of 2018, mainly due to lower legal expenses and consulting work performed during the first nine months of 2018 compared to the first nine months of 2019.

Peoples' amortization of other intangible assets is driven by acquisition-related activity. Amortization of other intangible assets for the ~~second~~third quarter of 2019 was up compared to the ~~first~~second quarter of 2019 ~~as a result~~due to additional information that was obtained during the three months ended September 30, 2019, which resulted in additional amortization given further refinement of the core deposit intangible asset related to the acquisition of First Prestonsburg.

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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. Expenses related to state franchise taxes, which includes Ohio FIT, increased in 2019 compared to 2018 due to additional equity from the issuance of common shares related to the acquisitions of First Prestonsburg and ASB and from operating results.

Marketing expense ~~was down $104,000, or 18%, for~~increased compared to the second quarter of 2019 ~~compared to~~and the ~~first quarter of 2019, and down $166,000, or 25%, compared to the second~~third quarter of 2018, due to the timing of product marketing campaigns. Additionally, marketing expense was higher during the three and nine months ended September 30, 2019 due to overall increases in spending on brand awareness and product marketing campaigns, Peoples' expanded footprint as a result of the First Prestonsburg acquisition in 2019 and the ASB acquisition in 2018.

~~The~~Foreclosed real estate and other loan expenses increased in all comparisons primarily due to the increase in ~~other~~costs related 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 during the third quarter of 2019, combined with loans originated by the mortgage origination operation acquired as part of the ASB acquisition.

Peoples' FDIC insurance expense declined in the first nine months of 2019 and netted to zero during the third quarter of 2019, as the deposit insurance fund had reached its target threshold for smaller banks to recognize a credit to their insurance expense. This resulted in a reversal of Peoples' second quarter 2019 accrued expense, which was offset then by the third quarter accrual. Peoples cannot reasonably anticipate any future recognition of credits, as the deposit insurance fund is analyzed on a quarterly basis, and is the premise for receiving credits.

Other non-interest expense ~~of $3.5 million~~ for the ~~second~~third quarter of 2019 declined $3.5 million compared to the linked quarter ~~was~~and $187,000 compared to the third quarter of 2018. The decreases were primarily due to acquisition-related expenses of $93,000 in the current quarter compared to $3.7 million (mainly contract termination fees) in the ~~current~~linked quarter, and $163,000 in the third quarter of 2018. The decline in other non-interest expense for the first nine months of 2019 compared to ~~$54,000~~the same period of 2018 of $139,000 was due to small decreases across multiple line items of expense (fraud charges, director fees and stock expense, checking and savings charge-offs and printing and supplies expense). Acquisition-related expenses included in other non-interest expense were $3.9 million and $3.6 million for the ~~linked quarter.~~first nine months of 2019 and 2018, respectively.

Income Tax Expense

For the first ~~six~~nine months of 2019, Peoples recorded income tax expense of ~~$5.6~~$8.9 million, compared to ~~$3.4~~$6.2 million for the same period in the prior year, and the effective tax rate for the first ~~six~~nine months of 2019 was ~~18.9%~~18.6%, compared to ~~14.7%~~16.1% for the first ~~six~~nine months of 2018. The year-over-year increase in income tax expense was primarily due to higher pre-tax ~~income combined with the release of a valuation allowance during the first six months of 2018 of $805,000.~~income. The first ~~six~~nine months of 2019 included a tax benefit of ~~$192,000~~$195,000 recorded for the vesting of restricted stock during the ~~period, compared to~~period. The first nine months of 2018 included an $805,000 valuation allowance release, as well as a tax benefit of ~~$296,000 in~~$314,000 recorded for the ~~first six months~~vesting of ~~2018.~~restricted stock during the period.

Additional information regarding income taxes can be found in "Note 12 Income Taxes" of the Notes to the Consolidated Financial Statements included in Peoples' 2018 Form 10-K.

Pre-Provision Net Revenue (non-US GAAP)

Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income (excluding all gains and losses) minus total non-interest expense while excluding the recovery of, or provision for, loan losses and all gains and losses included in earnings. 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 loan losses and all gains and/or 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									Six Months Ended						Three Months Ended									Nine Months Ended
	June 30, 2019			March 31, 2019			June 30, 2018			June 30,						September 30, 2019			June 30, 2019			September 30, 2018			September 30,
(Dollars in thousands)										2019			2018												2019			2018
Pre-provision net revenue:
Income before income taxes	$	11,836		$	17,746		$	8,904		$	29,582		$	23,028		$	18,149		$	11,836		$	15,546		$	47,731		$	38,574
Add: provision for loan losses	626			—			1,188			363			3,171			1,005			626			1,302			1,368			4,473
Add: loss on debt extinguishment	—			—			13			—			13			—			—			—			—			13
Add: net loss on OREO	24			25			—			49			—			5			24			—			54			—
Add: net loss on investment securities	57			—			147			27			146			—			57			—			57			146
Add: net loss on other assets	274			157			330			431			251			73			274			—			504			239
Add: net loss on other transactions	—			—			76			—			76			—			—			—			—			76
Less: net gain on OREO	—			—			14			—			9			—			—			—			—			9
Less: recovery of loan losses	—			263			—			—			—
Less: net gain on investment securities	—			30			—			—			—			97			—			—			127			—
Less: net gain on other assets																—			—			12			—			—
Less: gain on other transactions	5						—			5			—			—			5			—			5			—
Pre-provision net revenue	$	12,812		$	17,635		$	10,644		$	30,447		$	26,676		$	19,135		$	12,812		$	16,836		$	49,582		$	43,512
Total average assets	$	4,239,779		$	3,985,621		$	3,897,957		$	4,113,403		$	3,748,331		$	4,311,389		$	4,239,779		$	3,998,254		$	4,179,663		$	3,832,554
Pre-provision net revenue to total average assets (a)	1.21		%	1.79		%	1.10		%	1.49		%	1.44		%	1.76		%	1.21		%	1.67		%	1.59		%	1.52		%
(a) Presented on an annualized basis.

~~Pre-provision net revenue~~PPNR and the ratio of ~~pre-provision net revenue~~PPNR to total average assets ~~decreased~~increased in the ~~second~~third quarter of 2019 compared to the linked quarter, due primarily to ~~decreased~~higher income before income taxes ~~mainly as a result of~~reflecting lower acquisition-related ~~expenses of $6.8 million.~~expenses. Compared to the ~~second~~third quarter of 2018, the increase in ~~pre-provision net revenue~~PPNR and ~~pre-provision net revenue~~PPNR to total average assets was driven by higher net interest income. ~~Pre-provision net revenue~~PPNR and the ratio of ~~pre-provision net revenue~~PPNR to total average assets for the first ~~six~~nine months of 2019, compared to the first ~~six~~nine months of 2018, increased primarily due to higher net interest income, ~~before income taxes, as~~with both periods ~~were~~being impacted by acquisition-related ~~expenses.~~expenses of $7.2 million for the first nine months of 2019 and $6.9 million for the first nine months of 2018.

Core Non-Interest Expense (non-US GAAP)

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

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						Six Months Ended				Three Months Ended						Nine Months Ended
	June 30, 2019		March 31, 2019		June 30, 2018		June 30,				September 30, 2019		June 30, 2019		September 30, 2018		September 30,
(Dollars in thousands)	June 30, 2019		March 31, 2019		June 30, 2018		2019		2018		September 30, 2019		June 30, 2019		September 30, 2018		2019		2018
Core non-interest expense:
Total non-interest expense	$	38,876	$	31,860	$	35,971	$	70,736	$	64,192	$	32,993	$	38,876	$	30,829	$	103,729	$	95,021
Less: acquisition-related expenses	6,770		253		6,056		7,023		6,205		199		6,770		675		7,222		6,880
Less: pension settlement charges											—		—		176		—		176
Core non-interest expense	$	32,106	$	31,607	$	29,915	$	63,713	$	57,987	$	32,794	$	32,106	$	29,978	$	96,507	$	87,965

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Efficiency Ratio (non-US GAAP)

The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of 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 losses included in earnings, and uses fully tax-equivalent net interest income.

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


	Three Months Ended									Six Months Ended						Three Months Ended									Nine Months Ended
	June 30, 2019			March 31, 2019			June 30, 2018			June 30,						September 30, 2019			June 30, 2019			September 30, 2018			September 30,
(Dollars in thousands)	June 30, 2019			March 31, 2019			June 30, 2018			2019			2018			September 30, 2019			June 30, 2019			September 30, 2018			2019			2018

Efficiency ratio:
Total non-interest expense	$	38,876		$	31,860		$	35,971		$	70,736		$	64,192		$	32,993		$	38,876		$	30,829		$	103,729		$	95,021
Less: amortization of other intangible assets	824			694			861			1,518			1,615			953			824			862			2,471			2,477
Adjusted total non-interest expense	$	38,052		$	31,166		$	35,110		$	69,218		$	62,577		$	32,040		$	38,052		$	29,967		$	101,258		$	92,544

Total non-interest income	$	15,289		$	15,429		$	13,255		$	30,718		$	28,224		$	16,393		$	15,289		$	14,353		$	47,111		$	42,577
Less: net (loss) gain on investment securities	(57		)	30			(147		)	(27		)	(146		)
Less: net loss on asset disposals and other transactions	(293		)	(182		)	(405		)	(475		)	(331		)
Less: net gain (loss) on investment securities																97			(57		)	—			70			(146		)
Less: net (loss) gain on asset disposals and other transactions																(78		)	(293		)	12			(553		)	(319		)
Total non-interest income excluding net gains and losses	$	15,639		$	15,581		$	13,807		$	31,220		$	28,701		$	16,374		$	15,639		$	14,341		$	47,594		$	43,042

Net interest income	$	36,049		$	33,914		$	32,808		$	69,963		$	62,167		$	35,754		$	36,049		$	33,324		$	105,717		$	95,491
Add: fully tax-equivalent adjustment (a)	267			200			225			467			450			314			267			221			781			670
Net interest income on a fully tax-equivalent basis	$	36,316		$	34,114		$	33,033		$	70,430		$	62,617		$	36,068		$	36,316		$	33,545		$	106,498		$	96,161

Adjusted revenue	$	51,955		$	49,695		$	46,840		$	101,650		$	91,318		$	52,442		$	51,955		$	47,886		$	154,092		$	139,203

Efficiency ratio	73.24		%	62.71		%	74.96		%	68.09		%	68.53		%	61.10		%	73.24		%	62.58		%	65.71		%	66.48		%

Efficiency ratio adjusted for non-core items:
Core non-interest expense	$	32,106		$	31,607		$	29,915		$	63,713		$	57,987		$	32,794		$	32,106		$	29,978		$	96,507		$	87,965
Less: amortization of other intangible assets	824			694			861			1,518			1,615			953			824			862			2,471			2,477
Adjusted core non-interest expense	$	31,282		$	30,913		$	29,054		$	62,195		$	56,372		$	31,841		$	31,282		$	29,116		$	94,036		$	85,488

Total non-interest income excluding net gains and losses	$	15,639		$	15,581		$	13,807		$	31,220		$	28,701		$	16,374		$	15,639		$	14,341		$	47,594		$	43,042
Net interest income on a fully tax-equivalent basis	36,316			34,114			33,033			70,430			62,617			36,068			36,316			33,545			106,498			96,161
Adjusted revenue	$	51,955		$	49,695		$	46,840		$	101,650		$	91,318		$	52,442		$	51,955		$	47,886		$	154,092		$	139,203

Efficiency ratio adjusted for non-core items	60.21		%	62.21		%	62.03		%	61.19		%	61.73		%	60.72		%	60.21		%	60.80		%	61.03		%	61.41		%

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

The ~~increase~~improvement in the efficiency ratio compared to the linked quarter was driven by ~~an increase~~a decrease in acquisition-related expenses of ~~$6.5~~$6.6 million. The efficiency ratio adjusted for non-core items ~~declined~~increased compared to ~~both~~ the linked quarter ~~and~~primarily due to the ~~second~~lack of growth in net interest income given the impact of the rate environment, offset partially by growth in earnings assets. The efficiency ratio adjusted for non-core items improved compared to the third quarter of 2018, mostly due to higher net interest ~~income.~~income and increased fee revenue. Management is targeting an efficiency ratio of ~~59%~~60% to ~~61%~~62% for the full year of 2019, after excluding acquisition-related expenses and other non-core ~~acquisition-related~~ expenses.

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Return on Average Assets Adjusted for Non-Core Items (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 ratio adjusted for non-core items represents a non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, and acquisition-related expenses.

~~Table of Contents~~

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


	Three Months Ended									Six Months Ended						Three Months Ended									Nine Months Ended
	June 30, 2019			March 31, 2019			June 30, 2018			June 30,						September 30, 2019			June 30, 2019			September 30, 2018			September 30,
(Dollars in thousands)										2019			2018												2019			2018

Annualized net income adjusted for non-core items:	Annualized net income adjusted for non-core items:															Annualized net income adjusted for non-core items:
Net income	$	9,598		$	14,369		$	7,892		$	23,967		$	19,633		$	14,868		$	9,598		$	12,725		$	38,835		$	32,358
Add: net loss on investment securities	57			—			147			27			146			—			57			—			—			146
Less: tax effect of net loss on investment securities (a)	12			—			31			6			31			—			12			—			—			31
Less: net gain on investment securities	—			30			—			—			—			97			—			—			70			—
Add: tax effect of net gain on investment securities (a)	—			6			—			—			—			20			—			—			15			—
Add: net loss on asset disposals and other transactions	293			182			405			475			331			78			293			—			553			319
Less: tax effect of net loss on asset disposals and other transactions (a)	62			38			85			100			70			16			62			—			116			67
Less: net gain on asset disposals and other transactions (a)																—			—			12			—			—
Add: tax effect of net loss on asset disposals and other transactions (a)																—			—			3			—			—
Add: acquisition-related expenses	6,770			253			6,056			7,023			6,205			199			6,770			675			7,222			6,880
Less: tax effect of acquisition-related expenses (a)	1,422			53			1,272			1,475			1,303			42			1,422			142			1,517			1,445
Add: pension settlement charges (a)																—			—			176			—			176
Less: tax effect of pension settlement charges (a)																—			—			37			—			37
Less: release of deferred tax asset valuation allowance																—			—			—			—			805
Net income adjusted for non-core items	$	15,222		$	14,689		$	13,112		$	29,911		$	24,911		$	15,010		$	15,222		$	13,388		$	44,922		$	37,494
Days in the quarter	91			90			91			181			181
Days in the period																92			91			92			273			273
Days in the year	365			365			365			365			365			365			365			365			365			365
Annualized net income	$	38,497		$	58,274		$	31,655		$	48,331		$	39,591		$	58,987		$	38,497		$	50,485		$	51,922		$	43,263
Annualized net income adjusted for non-core items	$	61,055		$	59,572		$	52,592		$	60,318		$	50,235		$	59,551		$	61,055		$	53,115		$	60,061		$	50,129
Return on average assets:
Annualized net income	$	38,497		$	58,274		$	31,655		$	48,331		$	39,591		$	58,987		$	38,497		$	50,485		$	51,922		$	43,263
Total average assets	4,239,779			3,985,621			3,897,957			4,113,403			3,748,331			4,311,389			4,239,779			3,998,254			4,179,663			3,832,554
Return on average assets	0.91		%	1.46		%	0.81		%	1.17		%	1.06		%	1.37		%	0.91		%	1.26		%	1.24		%	1.13		%
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 income adjusted for non-core items	$	61,055		$	59,572		$	52,592		$	60,318		$	50,235		$	59,551		$	61,055		$	53,115		$	60,061		$	50,129
Total average assets	4,239,779			3,985,621			3,897,957			4,113,403			3,748,331			4,311,389			4,239,779			3,998,254			4,179,663			3,832,554
Return on average assets adjusted for non-core items	1.44		%	1.49		%	1.35		%	1.47		%	1.34		%	1.38		%	1.44		%	1.33		%	1.44		%	1.31		%

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

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The return on average assets ~~declined~~increased in the ~~second~~third quarter of 2019 compared to the linked quarter, driven by ~~an increase~~a decline in acquisition-related expenses of ~~$6.5~~$6.6 million compared to the linked quarter, ~~combined with~~partially offset by higher average assets, which resulted from the First Prestonsburg ~~merger. Compared~~acquisition. The decline in the return on average assets adjusted for non-core items in the third quarter of 2019 compared to the ~~second~~linked quarter ~~of 2018,~~was driven by the increase in average assets, combined with the slight decline in net interest income. The increases in return on average assets ~~was~~and return on average assets adjusted for non-core items compared to the third quarter and first nine months of 2018, which were impacted by the First Prestonsburg acquisition, and the ASB acquisition in the nine month comparison, were driven by higher net interest income, higher non-interest income, and a lower provision for loan losses, partially offset by an increase in average assets. The return on average assets increased in the first six months of 2019 compared to the same period of 2018, driven by higher net interest income, a lower provision for loan losses, and higher non-interest income compared to the linked quarter, partially offset by an increase in average assets, all of which were impacted by the First Prestonsburg and ASB mergers.

The return on average assets adjusted for non-core items declined in the second quarter of 2019 compared to the linked quarter, driven by the increase in average assets, combined with relatively unchanged non-interest income. Compared to the second quarter of 2018, the increase in return on average assets adjusted for non-core items was driven by higher net interest income, non-interest income, and a lower provision for loan losses, partially offset by an increase in average assets. The return on average assets adjusted for non-core items increased in the first six months of 2019 compared to the same period of 2018, driven by higher net interest income, a lower provision for loan losses, and higher non-interest income compared to the

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~~linked quarter, partially offset by an increase in average assets, all of which were impacted by the First Prestonsburg and ASB mergers.~~

Return on Average Tangible Equity (non-US GAAP)

The return on average tangible equity ratio is a key financial measure used to monitor performance. The return on tangible equity is calculated as net income (less the after-tax impact of amortization of other intangible assets) divided by tangible equity. The return on tangible equity is calculated as net income (less the after-tax impact of amortization of other intangible assets) divided by 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									Six Months Ended						Three Months Ended									Nine Months Ended
	June 30, 2019			March 31, 2019			June 30, 2018			June 30,						September 30, 2019			June 30, 2019			September 30, 2018			September 30,
(Dollars in thousands)	June 30, 2019			March 31, 2019			June 30, 2018			2019			2018			September 30, 2019			June 30, 2019			September 30, 2018			2019			2018
Annualized net income excluding amortization of other intangible assets:	Annualized net income excluding amortization of other intangible assets:															Annualized net income excluding amortization of other intangible assets:
Net income	$	9,598		$	14,369		$	7,892		$	23,967		$	19,633		$	14,868		$	9,598		$	12,725		$	38,835		$	32,358
Add: amortization of other intangible assets	824			694			861			1,518			1,615			953			824			862			2,471			2,477
Less: tax effect of amortization of other intangible assets (a)	173			146			181			319			339			200			173			181			519			520
Net income excluding amortization of other intangible assets	$	10,249		$	14,917		$	8,572		$	25,166		$	20,909		$	15,621		$	10,249		$	13,406		$	40,787		$	34,315
Days in the quarter	91			90			91			181			181
Days in the period																92			91			92			273			273
Days in the year	365			365			365			365			365			365			365			365			365			365
Annualized net income	$	38,497		$	58,274		$	31,655		$	48,331		$	39,591		$	58,987		$	38,497		$	50,485		$	51,922		$	43,263
Annualized net income excluding amortization of other intangible assets	$	41,109		$	60,497		$	34,382		$	50,749		$	42,165		$	61,975		$	41,109		$	53,187		$	54,532		$	45,879
Average tangible equity:	Average tangible equity:															Average tangible equity:
Total average stockholders' equity	$	564,992		$	524,196		$	489,876		$	544,706		$	472,152		$	583,269		$	564,992		$	501,785		$	557,702		$	482,138
Less: average goodwill and other intangible assets	175,169			161,673			161,600			168,458			152,943			179,487			175,169			163,615			172,175			156,540
Average tangible equity	$	389,823		$	362,523		$	328,276		$	376,248		$	319,209		$	403,782		$	389,823		$	338,170		$	385,527		$	325,598
Return on average stockholders' equity ratio:	Return on average stockholders' equity ratio:															Return on average stockholders' equity ratio:
Annualized net income	$	38,497		$	58,274		$	31,655		$	48,331		$	39,591		$	58,987		$	38,497		$	50,485		$	51,922		$	43,263
Average stockholders' equity	$	564,992		$	524,196		$	489,876		$	544,706		$	472,152		$	583,269		$	564,992		$	501,785		$	557,702		$	482,138
Return on average stockholders' equity	6.81		%	11.12		%	6.46		%	8.87		%	8.39		%	10.11		%	6.81		%	10.06		%	9.31		%	8.97		%
Return on average tangible equity ratio:	Return on average tangible equity ratio:															Return on average tangible equity ratio:
Annualized net income excluding amortization of other intangible assets	$	41,109		$	60,497		$	34,382		$	50,749		$	42,165		$	61,975		$	41,109		$	53,187		$	54,532		$	45,879
Average tangible equity	$	389,823		$	362,523		$	328,276		$	376,248		$	319,209		$	403,782		$	389,823		$	338,170		$	385,527		$	325,598
Return on average tangible equity	10.55		%	16.69		%	10.47		%	13.49		%	13.21		%	15.35		%	10.55		%	15.73		%	14.14		%	14.09		%

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

~~The~~Compared to the linked quarter, the return on average stockholders' equity and on average tangible stockholders' equity ratios were up, primarily due to the decline in acquisition-related costs compared to the second quarter of 2019. Compared to the third quarter of 2018, the return on average stockholders' equity and on average tangible stockholders' equity ratios were impacted by the First Prestonsburg acquisition, which ~~created increases in capital and decreased income for the second quarter of 2019 due to the acquisition-related costs.~~increased capital. The return on average stockholders' equity and the return on average tangible stockholders' equity ratios increased in the first ~~six~~nine months of 2019 compared to the first ~~six~~nine months of 2018, reflecting an increase in net income, which was partially offset by dividends declared and paid during the ~~period.~~

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period. Compared to the first nine months of 2018, these ratios were also impacted by the First Prestonsburg acquisition and, to a lesser extent, the ASB acquisition, which increased capital.

FINANCIAL CONDITION

Cash and Cash Equivalents

At ~~June~~September 30, 2019, Peoples' interest-bearing deposits in other banks increased ~~$20.9~~$37.2 million from December 31, 2018. The total cash and cash equivalent balance included ~~$19.8~~$9.9 million of excess cash reserves being maintained at the FRB of Cleveland at ~~June~~September 30, 2019, compared to $11.2 million at December 31, 2018. 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.

Through the first ~~six~~nine months of 2019, Peoples' total cash and cash equivalents increased ~~$15.8~~$43.8 million as Peoples' net cash provided used in ~~financing~~investing activities of ~~$71.2~~$23.8 million was less than the sum of net cash provided by ~~investing~~operating and ~~operating~~financing activities of ~~$68.2~~$52.5 million and ~~$18.8~~$15.1 million, respectively. Peoples' investing activities reflected a net decrease of ~~$29.2~~$12.0 million in loans and ~~$145.2~~$246.6 million in purchases of available-for-sale investment securities, which were partially offset by $206.5 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment ~~securities, which were partially offset by purchases of $116.4 million in available-for-sale investment~~ securities. Financing activities included a ~~$207.3~~$143.7 million net increase in deposits, offset partially by a decrease of $105.6 million in short-term borrowings, as well as ~~$12.5~~$19.2 million of cash dividends ~~paid, offset partially by a net increase of $150.3 million in deposits.~~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)	June 30, 2019		March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			September 30, 2019		June 30, 2019		March 31, 2019			December 31, 2018			September 30, 2018
Available-for-sale securities, at fair value:	Available-for-sale securities, at fair value:														Available-for-sale securities, at fair value:
Obligations of:
U.S. Treasury and government agencies	$	—	$	—		$	—		$	—		$	43
U.S. government sponsored agencies	19,051		—			—			—			—			$	12,145	$	19,051	$	—		$	—		$	—
States and political subdivisions	125,418		84,827			88,587			93,790			96,913			115,613		125,418		84,827			88,587			93,790
Residential mortgage-backed securities	748,132		706,976			692,608			688,656			688,002			835,172		748,132		706,976			692,608			688,656
Commercial mortgage-backed securities	22,664		6,649			6,707			6,713			6,799			20,461		22,664		6,649			6,707			6,713
Bank-issued trust preferred securities	4,099		4,118			3,989			4,166			4,167			4,644		4,099		4,118			3,989			4,166
Total fair value	$	919,364	$	802,570		$	791,891		$	793,325		$	795,924		$	988,035	$	919,364	$	802,570		$	791,891		$	793,325
Total amortized cost	$	910,431	$	806,641		$	804,655		$	819,431		$	816,217		$	976,286	$	910,431	$	806,641		$	804,655		$	819,431
Net unrealized gain (loss)	$	8,933	$	(4,071	)	$	(12,764	)	$	(26,106	)	$	(20,293	)	$	11,749	$	8,933	$	(4,071	)	$	(12,764	)	$	(26,106	)
Held-to-maturity securities, at amortized cost:	Held-to-maturity securities, at amortized cost:														Held-to-maturity securities, at amortized cost:
Obligations of:
States and political subdivisions	$	4,398	$	4,401		$	4,403		$	4,451		$	4,530		$	4,395	$	4,398	$	4,401		$	4,403		$	4,451
Residential mortgage-backed securities	23,335		28,348			29,044			29,765			30,668			22,412		23,335		28,348			29,044			29,765
Commercial mortgage-backed securities	7,106		2,857			3,514			3,574			3,636			7,022		7,106		2,857			3,514			3,574
Total amortized cost	$	34,839	$	35,606		$	36,961		$	37,790		$	38,834		$	33,829	$	34,839	$	35,606		$	36,961		$	37,790
Other investment securities	$	43,508	$	41,449		$	42,985		$	43,044		$	42,007		$	43,045	$	43,508	$	41,449		$	42,985		$	43,044
Total investment securities:
Amortized cost	$	988,778	$	883,696		$	884,601		$	900,265		$	897,058		$	1,053,160	$	988,778	$	883,696		$	884,601		$	900,265
Carrying value	$	997,711	$	879,625		$	871,837		$	874,159		$	876,765		$	1,064,909	$	997,711	$	879,625		$	871,837		$	874,159

~~During~~At September 30, 2019, available-for-sale securities were up compared to June 30, 2019, as Peoples deployed excess liquidity in investment securities during the ~~second quarter of~~quarter. The increases in investment securities at September 30, 2019 ~~Peoples~~compared to March 31, 2019 and prior periods was driven by the investment securities acquired in the First Prestonsburg acquisition,

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combined with increases in fair value driven by overall declines in market interest rates during the later half of the first nine months of 2019. In the First Prestonsburg acquisition, Peoples acquired investment securities totaling ~~$140.7~~$139.7 million and subsequently sold ~~approximately~~ $65.1 million of acquired available-for-sale investment securities. In April and May of 2019, $53.7 million inof the proceeds were reinvested. ~~Available-for-sale residential mortgage-backed securities~~

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were up at March 31, 2019, compared to December 31, 2018, primarily due to an increase in fair value driven by overall declines in market interest rates during the quarter. At December 31, 2018, the amortized cost of available-for-sale securities declined compared to September 30, 2018, as securities matured and were not replaced.

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)	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018
Gross originated loans:
Commercial real estate, construction	$	102,904		$	116,992		$	124,013		$	103,562		$	107,255		$	100,338		$	102,904		$	116,992		$	124,013		$	103,562
Commercial real estate, other	641,061			630,679			632,200			630,720			650,512			659,103			641,061			630,679			632,200			630,720
Commercial real estate	743,965			747,671			756,213			734,282			757,767			759,441			743,965			747,671			756,213			734,282
Commercial and industrial	548,460			558,070			530,207			510,591			471,270			564,279			548,460			558,070			530,207			510,591
Residential real estate	299,173			297,667			296,860			299,768			299,934			308,964			299,173			297,667			296,860			299,768
Home equity lines of credit	90,374			90,831			93,326			92,892			89,957			92,910			90,374			90,831			93,326			92,892
Consumer, indirect	419,595			410,172			407,167			396,701			373,384			423,217			419,595			410,172			407,167			396,701
Consumer, direct	72,209			69,710			71,674			72,601			71,545			72,699			72,209			69,710			71,674			72,601
Consumer	491,804			479,882			478,841			469,302			444,929			495,916			491,804			479,882			478,841			469,302
Deposit account overdrafts	676			518			583			649			860			1,081			676			518			583			649
Total originated loans	$	2,174,452		$	2,174,639		$	2,156,030		$	2,107,484		$	2,064,717		$	2,222,591		$	2,174,452		$	2,174,639		$	2,156,030		$	2,107,484
Gross acquired loans (a):
Commercial real estate, construction	$	6,775		$	7,966		$	12,404		$	13,050		$	14,780		$	4,435		$	6,775		$	7,966		$	12,404		$	13,050
Commercial real estate, other	201,909			171,785			184,711			191,993			207,195			171,096			201,909			171,785			184,711			191,993
Commercial real estate	208,684			179,751			197,115			205,043			221,975			175,531			208,684			179,751			197,115			205,043
Commercial and industrial	51,506			34,837			35,537			41,188			40,938			43,961			51,506			34,837			35,537			41,188
Residential real estate	348,439			308,137			296,937			308,178			309,629			358,053			348,439			308,137			296,937			308,178
Home equity lines of credit	41,262			38,084			40,653			42,961			45,933			41,942			41,262			38,084			40,653			42,961
Consumer, indirect	90			111			136			161			198			67			90			111			136			161
Consumer, direct	9,100			2,021			2,370			2,712			3,101			8,171			9,100			2,021			2,370			2,712
Consumer	9,190			2,132			2,506			2,873			3,299			8,238			9,190			2,132			2,506			2,873
Total acquired loans	$	659,081		$	562,941		$	572,748		$	600,243		$	621,774		$	627,725		$	659,081		$	562,941		$	572,748		$	600,243
Total loans	$	2,833,533		$	2,737,580		$	2,728,778		$	2,707,727		$	2,686,491		$	2,850,316		$	2,833,533		$	2,737,580		$	2,728,778		$	2,707,727
Average total loans	$	2,830,558		$	2,734,592		$	2,718,620		$	2,717,200		$	2,627,777		$	2,837,834		$	2,830,558		$	2,734,592		$	2,718,620		$	2,717,200
Average allowance for loan losses	(21,311		)	(20,406		)	(20,079		)	(19,584		)	(19,071		)	(21,620		)	(21,311		)	(20,406		)	(20,079		)	(19,584		)
Average loans, net of average allowance for loan losses	$	2,809,247		$	2,714,186		$	2,698,541		$	2,697,616		$	2,608,706		$	2,816,214		$	2,809,247		$	2,714,186		$	2,698,541		$	2,697,616
Percent of loans to total loans:
Commercial real estate, construction	3.9		%	4.6		%	5.1		%	4.3		%	4.5		%	3.8		%	3.9		%	4.6		%	5.1		%	4.3		%
Commercial real estate, other	29.7		%	29.3		%	29.9		%	30.4		%	31.9		%	29.1		%	29.7		%	29.3		%	29.9		%	30.4		%
Commercial real estate	33.6		%	33.9		%	35.0		%	34.7		%	36.4		%	32.9		%	33.6		%	33.9		%	35.0		%	34.7		%
Commercial and industrial	21.2		%	21.7		%	20.7		%	20.3		%	19.1		%	21.3		%	21.2		%	21.7		%	20.7		%	20.3		%
Residential real estate	22.9		%	22.1		%	21.8		%	22.5		%	22.7		%	23.4		%	22.9		%	22.1		%	21.8		%	22.5		%
Home equity lines of credit	4.6		%	4.7		%	4.9		%	5.0		%	5.1		%	4.7		%	4.6		%	4.7		%	4.9		%	5.0		%
Consumer, indirect	14.8		%	15.0		%	14.9		%	14.7		%	13.9		%	14.9		%	14.8		%	15.0		%	14.9		%	14.7		%
Consumer, direct	2.9		%	2.6		%	2.7		%	2.8		%	2.8		%	2.8		%	2.9		%	2.6		%	2.7		%	2.8		%
Consumer	17.7		%	17.6		%	17.6		%	17.5		%	16.7		%	17.7		%	17.7		%	17.6		%	17.6		%	17.5		%
Deposit account overdrafts (b)	NM			NM			NM			NM			NM			NM			NM			NM			NM			NM
Total percentage	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%
Residential real estate loans being serviced for others	$	473,443		$	464,575		$	461,256		$	458,999		$	451,391		$	488,724		$	473,443		$	464,575		$	461,256		$	458,999


(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).


(b)	Not meaningful.

~~Table of Contents~~

As of ~~June~~September 30, 2019, balances in loan accounts acquired from First Prestonsburg totaled ~~$125.3~~$115.9 million, including ~~$52.1~~$53.0 million in residential real estate loans, ~~$42.4~~$36.4 million in commercial real estate loans, ~~$7.4 million in consumer, direct loans, $17.7~~$13.7 million in commercial and industrial loans, $6.7 million in consumer, direct loans, and ~~$5.8~~$6.1 million in home equity lines of credit.

Table of Contents

Period-end total loan balances at September 30, 2019 increased $16.8 million, or 2% annualized, compared to June 30, 2019, ~~increased $96.0~~$121.5 million, ~~compared to March 31, 2019, $104.8 million~~or 6% annualized, compared to December 31, 2018, and ~~$147.0~~$142.6 million, or 5%, compared to ~~June~~September 30, 2018. Originated loan balances ~~declined $187,000~~were up $48.1 million, or 9% annualized, compared to ~~March 31,~~June 30, 2019, ~~and increased $18.4~~$66.6 million, or 4% annualized, compared to December 31, 2018, and ~~$109.7~~$115.1 million, or 5%, compared to ~~June~~September 30, 2018. Loan originations during the first ~~half~~nine months of 2019 were higher than in ~~recent years~~the prior year for the same period, however, significantly higher loan paydowns experienced during the first ~~half~~nine months of 2019 minimized the impact of the increased production on loan growth ~~for all comparison periods. Compared~~compared to ~~period-end total loan balances at March~~December 31, 2018 and September 30, 2018.

The increase compared to June 30, 2019 ~~originated~~was driven by residential real estate and commercial and industrial loan ~~balances declined $9.6~~growth of $19.4 million and $8.3 million, respectively. During the third quarter of 2019, Peoples purchased $9.8 million of 1-4 family first lien mortgages, which had the largest impact on residential real estate loan growth compared to June 30, 2019 These increases were partially offset by ~~growth~~declines in ~~originated~~commercial real estate loans of $12.8 million and construction loans of $4.9 million. Compared to December 31, 2018, commercial loan balances were up $24.1 million, or 2% annualized, residential real estate loans increased $73.2 million, or 16% annualized, and consumer indirect loans ~~of $9.4 million.~~

~~Commercial and industrial loan balances grew $18.3~~were up $16.0 million, ~~compared to December 31, 2018. Growth~~or 5% annualized. The increase in residential real estate loans ~~of $71.2 million was driven by the First Prestonsburg acquisition, combined with~~compared to December 31, 2018, included the purchase of $9.8 million and $19.0 million of 1-4 family first lien mortgages, during the third and first ~~quarter~~quarters of ~~2019.~~

2019, respectively. Compared to ~~June~~September 30, 2018, ~~originated loan growth of $109.7~~residential real estate loans increased $59.1 million, or 5%10%, ~~was led by an increase in~~ commercial ~~and industrial loans of $77.2~~loan balances were up $52.1 million, or ~~16%~~3%, and consumer indirect ~~consumer lending growth of $46.2~~loans were up $26.4 million, or ~~12%~~7%.

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 ~~June~~September 30, 2019:


(Dollars in thousands)	Outstanding Balance		Loan Commitments		Total Exposure		% of Total		Outstanding Balance		Loan Commitments		Total Exposure		% of Total
Commercial real estate, construction:
Apartment complexes									$	23,041	$	31,693	$	54,734	27.5	%
Assisted living facilities and nursing homes	$	17,745	$	29,268	$	47,013	23.7	%	20,491		24,736		45,227		22.8	%
Apartment complexes	15,767		14,818		30,585		15.4	%
Office buildings									18,892		3,564		22,456		11.3	%
Educational services	8,538		19,895		28,433		14.3	%	—		19,895		19,895		10.0	%
Office buildings	15,775		7,702		23,477		11.8	%
Mixed used facility	17,729		4,902		22,631		11.4	%
Mixed used facilities									14,722		3,684		18,406		9.3	%
Retail									3,213		2,616		5,829		2.9	%
Industrial	8,271		—		8,271		4.2	%	5,123		—		5,123		2.6	%
Child care	5,930		95		6,025		3.0	%
Retail	1,797		4,035		5,832		2.9	%
Warehouse	4,280		1,333		5,613		2.9	%
Land Only									4,183		1,057		5,240		2.6	%
Residential property	2,465		2,714		5,179		2.6	%	1,788		3,011		4,799		2.4	%
Land Development									2,265		1,917		4,182		2.1	%
Other (a)	11,382		4,057		15,439		7.8	%	11,055		1,838		12,893		6.5	%
Total commercial real estate, construction	$	109,679	$	88,819	$	198,498	100.0	%	$	104,773	$	94,011	$	198,784	100.0	%


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

6769

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(Dollars in thousands)	Outstanding Balance		Loan Commitments		Total Exposure		% of Total		Outstanding Balance		Loan Commitments		Total Exposure		% of Total
Commercial real estate, other:
Office buildings and complexes:
Owner occupied	$	73,617	$	1,822	$	75,439	8.6	%	$	69,033	$	2,943	$	71,976	8.3	%
Non-owner occupied	52,739		4,591		57,330		6.5	%	56,487		3,094		59,581		6.9	%
Total office buildings and complexes	126,356		6,413		132,769		15.1	%	125,520		6,037		131,557		15.2	%
Mixed-use facilities:
Owner occupied	36,567		864		37,431		4.3	%	47,421		338		47,759		5.5	%
Non-owner occupied	71,527		785		72,312		8.2	%	63,796		595		64,391		7.5	%
Total mixed-use facilities	108,094		1,649		109,743		12.5	%	111,217		933		112,150		13.0	%
Apartment complexes	77,535		849		78,384		8.9	%	72,594		1,005		73,599		8.5	%
Retail facilities:
Owner occupied	29,202		714		29,916		3.5	%	28,805		561		29,366		3.4	%
Non-owner occupied	39,602		98		39,700		4.5	%	39,189		98		39,287		4.6	%
Total retail facilities	68,804		812		69,616		8.0	%	67,994		659		68,653		8.0	%
Industrial facilities:
Light industrial facilities:
Owner occupied	46,056		127		46,183		5.2	%	46,639		163		46,802		5.4	%
Non-owner occupied	16,782		1,088		17,870		2.0	%	17,908		1,088		18,996		2.2	%
Total light industrial facilities	62,838		1,215		64,053		7.2	%	64,547		1,251		65,798		7.6	%
Warehouse facilities	56,048		4,898		60,946		6.9	%	61,346		4,166		65,512		7.6	%
Lodging and lodging related	30,901		—		30,901		3.5	%	33,710		—		33,710		3.9	%
Assisted living facilities and nursing homes	30,915		282		31,197		3.5	%	27,353		291		27,644		3.2	%
Land only	16,383		2,177		18,560		2.1	%
Other (a)	265,096		18,693		283,788		32.3	%	265,918		18,804		284,722		33.0	%
Total commercial real estate, other	$	842,970	$	36,988	$	879,957	100.0	%	$	830,199	$	33,146	$	863,345	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, West Virginia and Kentucky. In all other states, the aggregate outstanding balances of commercial loans in each state were not material at either ~~June~~September 30, 2019 or December 31, 2018.

~~Table of Contents~~

Allowance for Loan Losses

The amount of the allowance for loan losses at the end of each period represents management's estimate of expected losses from existing loans based upon its quarterly analysis of the loan portfolio. While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses incurred within the loan portfolio.

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


(Dollars in thousands)	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018
Commercial real estate	$	8,245		$	8,297		$	8,003		$	7,966		$	8,271		$	8,466		$	8,245		$	8,297		$	8,003		$	7,966
Commercial and industrial	7,197			6,743			6,178			6,138			5,365			7,162			7,197			6,743			6,178			6,138
Total commercial	15,442			15,040			14,181			14,104			13,636			15,628			15,442			15,040			14,181			14,104
Residential real estate	1,184			1,213			1,214			999			1,005			1,162			1,184			1,213			1,214			999
Home equity lines of credit	598			608			618			708			618			567			598			608			618			708
Consumer, indirect	3,172			3,133			3,214			3,423			3,339			3,247			3,172			3,133			3,214			3,423
Consumer, direct	342			351			351			395			465			339			342			351			351			395
Consumer	3,514			3,484			3,565			3,818			3,804			3,586			3,514			3,484			3,565			3,818
Deposit account overdrafts	86			61			81			95			95			128			86			61			81			95
Originated allowance for loan losses	20,824			20,406			19,659			19,724			19,158			21,071			20,824			20,406			19,659			19,724
Acquired allowance for loan losses	533			533			536			155			108			514			533			533			536			155
Allowance for loan losses	$	21,357		$	20,939		$	20,195		$	19,879		$	19,266		$	21,585		$	21,357		$	20,939		$	20,195		$	19,879
As a percent of total loans	0.75		%	0.76		%	0.74		%	0.73		%	0.72		%	0.76		%	0.75		%	0.76		%	0.74		%	0.73		%

Table of Contents

At ~~June~~September 30, 2019, the allowance for loan losses was ~~$21.4~~$21.6 million, compared to $20.2 million at December 31, 2018 and ~~$19.3~~$19.9 million at ~~June~~September 30, 2018. The ratio of the allowance for loan losses as a percent of total loans was ~~0.75%~~0.76% at ~~June~~September 30, 2019, compared to 0.74% at December 31, 2018 and ~~0.72%~~0.73% at ~~June~~September 30, 2018. The ratio includes all acquired loans, from both First Prestonsburg and previous acquisitions since 2012, of ~~$659.1~~$627.7 million and allowance for acquired loan losses of ~~$533,000.~~$514,000. The increase in the allowance for loan losses over time was mainly the result of loan growth. ~~The increase during~~Compared to December 31, 2018 and September 30, 2018, the ~~first quarter of 2019 was~~increases in the allowance for loan losses were also impacted by increases in the ~~specific~~ reserve on ~~a non-accrual loan.~~impaired loans.

The significant allocations of allowance for loan losses to commercial loans reflect the higher credit risk associated with this type of lending and the size of this loan category in relationship to the entire loan portfolio. The allowance allocated to the residential real estate and consumer loan categories is based upon Peoples' allowance methodology for homogeneous pools of loans. The fluctuations in these allocations have been directionally consistent with the changes in loan quality, loss experience and loan balances in these categories.

The current allowance for loan loss calculation will be replaced as of January 1, 2020 with a new model, referred to as the Current Expected Credit Loss ("CECL") model. For additional information see "Note 1 Summary of Significant Accounting Policies" 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)	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018
Gross charge-offs:
Commercial real estate, other	$	43		$	113		$	—		$	—		$	7		$	—		$	43		$	113		$	—		$	—
Commercial and industrial	—			63			—			—			7			261			—			63			—			—
Residential real estate	67			109			64			66			82			81			67			109			64			66
Home equity lines of credit	—			9			40			10			20			36			—			9			40			10
Consumer, indirect	346			473			548			488			550			447			346			473			548			488
Consumer, direct	33			63			61			78			109			54			33			63			61			78
Consumer	379			536			609			566			659			501			379			536			609			566
Deposit account overdrafts	176			173			234			311			215			283			176			173			234			311
Total gross charge-offs	$	665		$	1,003		$	947		$	953		$	990		$	1,162		$	665		$	1,003		$	947		$	953
Recoveries:
Commercial real estate, other	$	2		$	10		$	2		$	15		$	28		$	86		$	2		$	10		$	2		$	15
Commercial and industrial	228			1,784			8			10			—			81			228			1,784			8			10
Residential real estate	102			31			133			32			41			87			102			31			133			32
Home equity lines of credit	1			1			2			3			2			8			1			1			2			3
Consumer, indirect	47			115			71			131			138			67			47			115			71			131
Consumer, direct	27			13			25			31			15			5			27			13			25			31
Consumer	74			128			96			162			153			72			74			128			96			162
Deposit account overdrafts	50			56			45			44			46			51			50			56			45			44
Total recoveries	$	457		$	2,010		$	286		$	266		$	270		$	385		$	457		$	2,010		$	286		$	266
Net charge-offs (recoveries):
Commercial real estate, other	$	41		$	103		$	(2	)	$	(15	)	$	(21	)	$	(86	)	$	41		$	103		$	(2	)	$	(15	)
Commercial and industrial	(228		)	(1,721		)	(8		)	(10		)	7			180			(228		)	(1,721		)	(8		)	(10		)
Residential real estate	(35		)	78			(69		)	34			41			(6		)	(35		)	78			(69		)	34
Home equity lines of credit	(1		)	8			38			7			18			28			(1		)	8			38			7
Consumer, indirect	299			358			477			357			412			380			299			358			477			357
Consumer, direct	6			50			36			47			94			49			6			50			36			47
Consumer	305			408			513			404			506			429			305			408			513			404
Deposit account overdrafts	126			117			189			267			169			232			126			117			189			267
Total net charge-offs (recoveries)	$	208		$	(1,007	)	$	661		$	687		$	720		$	777		$	208		$	(1,007	)	$	661		$	687
Ratio of net charge-offs 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	0.01		%	0.02		%	—		%	—		%	—		%	(0.01		)%	0.01		%	0.02		%	—		%	—		%
Commercial and industrial	(0.03		)%	(0.26		)%	—		%	—		%	—		%	0.03		%	(0.03		)%	(0.26		)%	—		%	—		%
Residential real estate	—		%	0.01		%	(0.01		)%	—		%	0.01		%	—		%	—		%	0.01		%	(0.01		)%	—		%
Home equity lines of credit	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Consumer, indirect	0.03		%	0.05		%	0.07		%	0.05		%	0.06		%	0.05		%	0.03		%	0.05		%	0.07		%	0.05		%
Consumer, other	—		%	0.01		%	0.01		%	0.01		%	0.01		%	0.01		%	—		%	0.01		%	0.01		%	0.01		%
Consumer	0.03		%	0.06		%	0.08		%	0.06		%	0.07		%	0.06		%	0.03		%	0.06		%	0.08		%	0.06		%
Deposit account overdrafts	0.02		%	0.02		%	0.03		%	0.04		%	0.03		%	0.03		%	0.02		%	0.02		%	0.03		%	0.04		%
Total	0.03		%	(0.15		)%	0.10		%	0.10		%	0.11		%	0.11		%	0.03		%	(0.15		)%	0.10		%	0.10		%

Each with "--%" not meaningful.

~~Table~~Net charge-offs during the third quarter of ~~Contents~~

2019 continued to be low as a result of relatively strong asset quality metrics. During the second quarter of 2019, net charge-offs had remained relatively low, as gross charge-offs were down compared to prior periods. The net recoveries during the first quarter of 2019 were driven by the recognition of a $1.8 million recovery on a previously charged-off commercial loan. During the ~~third and~~ fourth ~~quarters~~quarter of 2018, the net charge-offs decreased as Peoples' asset quality remained stable. For the third quarter of 2019 compared to the third quarter of 2018, the ratio of net charge-offs to average total loans was relatively low.

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The following table details Peoples’ nonperforming assets:


(Dollars in thousands)	June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018		June 30, 2018		September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Loans 90+ days past due and accruing:
Commercial real estate, construction	$	230	$	—	$	—	$	401	$	—	$	—	$	230	$	—	$	—	$	401
Commercial real estate, other	557		15		801		60		615		582		557		15		801		60
Commercial real estate	787		15		801		461		615		582		787		15		801		461
Commercial and industrial	261		50		18		—		—		572		261		50		18		—
Residential real estate	2,291		963		1,430		1,338		1,308		3,095		2,291		963		1,430		1,338
Home equity lines of credit	53		42		7		84		6		183		53		42		7		84
Consumer, indirect	—		4		—		2		—		—		—		4		—		2
Consumer, direct	57		—		—		—		46		83		57		—		—		—
Consumer	57		4		—		2		46		83		57		4		—		2
Total loans 90+ days past due and accruing	$	3,449	$	1,074	$	2,256	$	1,885	$	1,975	$	4,515	$	3,449	$	1,074	$	2,256	$	1,885
Nonaccrual loans:
Commercial real estate, construction	$	688	$	703	$	710	$	725	$	725	$	230	$	688	$	703	$	710	$	725
Commercial real estate, other	6,427		6,459		6,730		6,751		6,422		6,723		6,427		6,459		6,730		6,751
Commercial real estate	7,115		7,162		7,440		7,476		7,147		6,953		7,115		7,162		7,440		7,476
Commercial and industrial	1,748		1,719		1,304		939		1,265		883		1,748		1,719		1,304		939
Residential real estate	3,868		4,479		4,075		3,725		3,770		4,237		3,868		4,479		4,075		3,725
Home equity lines of credit	1,001		1,065		1,023		796		681		893		1,001		1,065		1,023		796
Consumer, indirect	383		440		324		286		221		568		383		440		324		286
Consumer, direct	13		17		56		14		12		55		13		17		56		14
Consumer	396		457		380		300		233		623		396		457		380		300
Total nonaccrual loans	$	14,128	$	14,882	$	14,222	$	13,236	$	13,096	$	13,589	$	14,128	$	14,882	$	14,222	$	13,236
Nonaccrual troubled debt restructurings ("TDRs"):
Commercial real estate, other	$	122	$	127	$	154	$	186	$	236	$	112	$	122	$	127	$	154	$	186
Commercial and industrial	332		332		405		430		436		332		332		332		405		430
Residential real estate	1,664		1,389		1,951		2,087		2,132		1,770		1,664		1,389		1,951		2,087
Home equity lines of credit	193		195		210		160		71		194		193		195		210		160
Consumer, indirect	152		159		156		119		93		203		152		159		156		119
Consumer, direct	—		5		—		17		5		—		—		5		—		17
Consumer	152		164		156		136		98		203		152		164		156		136
Total nonaccrual TDRs	$	2,463	$	2,207	$	2,876	$	2,999	$	2,973	$	2,611	$	2,463	$	2,207	$	2,876	$	2,999
Total nonperforming loans ("NPLs")	$	20,040	$	18,163	$	19,354	$	18,120	$	18,044	$	20,715	$	20,040	$	18,163	$	19,354	$	18,120
OREO:
Commercial											$	145	$	—	$	—	$	—	$	—
Residential	$	123	$	81	$	94	$	106	$	63	$	144	$	123	$	81	$	94	$	106
Total OREO	$	123	$	81	$	94	$	106	$	63	$	289	$	123	$	81	$	94	$	106
Total nonperforming assets ("NPAs")	$	20,163	$	18,244	$	19,448	$	18,226	$	18,107	$	21,004	$	20,163	$	18,244	$	19,448	$	18,226
Criticized loans (a)	$	97,016	$	89,812	$	114,188	$	118,703	$	120,809	$	100,434	$	97,016	$	89,812	$	114,188	$	118,703
Classified loans (b)	63,048		47,327		43,818		49,058		55,596		58,938		63,048		47,327		43,818		49,058

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(Dollars in thousands)	June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018		June 30, 2018		September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Asset Quality Ratios:
NPLs as a percent of total loans (c)(d)	0.71	%	0.66	%	0.71	%	0.67	%	0.67	%	0.73	%	0.71	%	0.66	%	0.71	%	0.67	%
NPAs as a percent of total assets (c)(d)	0.47	%	0.45	%	0.49	%	0.46	%	0.46	%	0.48	%	0.47	%	0.45	%	0.49	%	0.46	%
NPAs as a percent of total loans and OREO (c)(d)	0.71	%	0.67	%	0.71	%	0.67	%	0.67	%	0.74	%	0.71	%	0.67	%	0.71	%	0.67	%
Allowance for loan losses as a percent of NPLs (c)	106.57	%	115.28	%	104.35	%	109.71	%	106.77	%	104.20	%	106.57	%	115.28	%	104.35	%	109.71	%
Criticized loans as a percent of total loans (a)(c)	3.42	%	3.28	%	4.18	%	4.38	%	4.50	%	3.52	%	3.42	%	3.28	%	4.18	%	4.38	%
Classified loans as a percent of total loans (b)(c)	2.23	%	1.73	%	1.61	%	1.81	%	2.07	%	2.07	%	2.23	%	1.73	%	1.61	%	1.81	%

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

(b) Includes loans categorized as substandard or doubtful.

(d) Nonperforming loans include loans 90+ days past due and accruing, troubled debt restructurings and nonaccrual loans. Nonperforming assets include nonperforming loans and OREO.

~~Nonperforming~~The increase in nonperforming assets ~~increased $1.9 million,~~of $841,000, or ~~11%~~4%, compared to June 30, 2019, was due to several smaller acquired relationships that have become 90+ days past due and are still accruing. The increase in nonperforming assets at September 30, 2019 compared to March 31, 2019, ~~and were up $2.1 million, or 11%, compared to June 30, 2018. The increase compared to March 31, 2019,~~as well as previous periods, was partially due to acquired loans from First Prestonsburg, which comprised ~~$0.7~~$1.5 million of nonperforming assets at ~~June~~September 30, 2019, with the remainder due to smaller relationships that have become 90+ days past due and are still accruing. Classified loans, which are those categorized as substandard or doubtful, ~~increased $15.7~~declined $4.1 million, or ~~33%~~7%, compared to ~~March 31, 2019, and were up $7.5 million, or 13%, from~~ June 30, ~~2018.~~2019, due to paydowns on several relationships. The increase in classified loans during the second quarter of 2019 was largely related to acquired First Prestonsburg loans, coupled with downgrades of two commercial loan relationships totaling $8.5 million during the second quarter of 2019. Criticized loans, which are those categorized as special mention, substandard or doubtful, increased ~~$7.2~~$3.4 million, or ~~8%, compared to March 31, 2019, and decreased $23.8 million, or 20%~~4%, compared to June 30, ~~2018.~~2019. The increase was mostly due to two relationships being downgraded, which were partially offset by upgrades of several loans. The increase in criticized loans during the second quarter of 2019 was largely related to acquired First Prestonsburg loans.

Deposits

The following table details Peoples’ deposit balances:


(Dollars in thousands)	June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018		June 30, 2018		September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Non-interest-bearing deposits (a)	$	643,058	$	628,464	$	607,877	$	617,447	$	585,861	$	677,232	$	643,058	$	628,464	$	607,877	$	617,447
Interest-bearing deposits:
Interest-bearing demand accounts (a)	610,464		572,316		573,702		547,172		570,359		622,496		610,464		572,316		573,702		547,172
Savings accounts	526,746		477,824		468,500		473,240		480,615		526,372		526,746		477,824		468,500		473,240
Retail certificates of deposit ("CDs")	497,221		404,186		394,335		402,309		406,214		488,942		497,221		404,186		394,335		402,309
Money market deposit accounts	428,213		403,642		379,878		391,377		389,893		441,989		428,213		403,642		379,878		391,377
Governmental deposit accounts	331,754		363,636		267,319		344,320		305,255		337,941		331,754		363,636		267,319		344,320
Brokered CDs	326,157		287,345		263,854		265,258		211,062		262,230		326,157		287,345		263,854		265,258
Total interest-bearing deposits	2,720,555		2,508,949		2,347,588		2,423,676		2,363,398		2,679,970		2,720,555		2,508,949		2,347,588		2,423,676
Total deposits	$	3,363,613	$	3,137,413	$	2,955,465	$	3,041,123	$	2,949,259	$	3,357,202	$	3,363,613	$	3,137,413	$	2,955,465	$	3,041,123


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

At September 30, 2019, period-end deposits decreased $6.4 million, compared to June 30, 2019, and increased $401.7 million, or 14%, compared to December 31, 2018, and $316.1 million, or 10%, compared to September 30, 2018. Compared to June 30, 2019, higher-rate brokered CDs and retail CDs declined and were partially offset by increases in non-interest-bearing, money market and lower-cost interest-bearing demand deposit account balances. Brokered CDs and retail CDs were down $63.9 million, or 20%, and $8.3 million, or 2%, respectively. Non-interest-bearing deposit account balances increased $34.2 million, or 5%, while money market deposit accounts and interest-bearing demand deposit accounts were up $13.8 million, or 3%, and $12.0 million, or 2%, respectively. The increase in non-interest-bearing deposit account balances was primarily driven by two customer relationships that maintained balances that were higher than at June 30, 2019 and it is

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anticipated these balances will decline by year-end. The increase compared to December 31, 2018 and September 30, 2018 was primarily driven by the deposits acquired in the First Prestonsburg acquisition.

As of ~~June~~September 30, 2019, the balances in deposit accounts acquired from First Prestonsburg totaled ~~$232.2~~$214.0 million, including ~~$65.3 million of retail CDs, $62.8~~$62.3 million of interest-bearing demand accounts, ~~$55.7~~$54.0 million of retail CDs, $53.1 million of savings accounts, ~~$33.4~~$30.1 million of non-interest-bearing demand accounts, and ~~$15.1~~$14.5 million of money market accounts.

At June 30, 2019, period-end deposits increased $226.2 million, or 7%, compared to March 31, 2019, $408.1 million, or 14%, compared to December 31, 2018, and $414.4 million, or 14%, compared to June 30, 2018. Compared toDuring the linked quarter, the growth was driven by the First Prestonsburg acquisition, partially offset by a seasonal decline of $31.9 million in governmental deposits, which are typically higher during the firstthird quarter of ~~each year.~~2019, Peoples issued $10.0 million of 90-day brokered CDs to fund one $10.0 million 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 during~~million. The brokered CDs issued in the second quarter of ~~2019.~~2019 matured in the third quarter. The CDs were replaced with 90-day brokered CDs. The swaps will pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered CDs.

~~Table~~ The brokered CDs will be extended every 90 days through the maturity dates of ~~Contents~~

the swaps.

Total demand deposit accounts comprised 39% of total deposits at September 30, 2019, compared to 37% of total deposits at June 30, 2019, ~~compared to~~ 38% ~~of total deposits~~ at March 31, 2019, 40% at December 31, 2018, and 38% at September ~~30, 2018, and 39% at June~~ 30, 2018. Peoples continues its deposit strategy of growing low-cost core deposits, such as checking and savings accounts, ~~and retail CDs when possible,~~ and relying on higher-cost, non-core deposits, such as brokered CDs when deposits are not available in Peoples' footprint.

Borrowed Funds

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


(Dollars in thousands)	June 30, 2019		March 31, 2019		December 31, 2018			September 30, 2018			June 30, 2018			September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018			September 30, 2018
Short-term borrowings:
FHLB overnight borrowings	$	—	$	24,000	$	165,000		$	102,000		$	173,000		$	106,000	$	—	$	24,000	$	165,000		$	102,000
FHLB 90-day advances	117,200		110,000		110,000			100,000			13,000			110,000		117,200		110,000		110,000			100,000
Current portion of long-term FHLB advances	23,129		13,188		30,000			30,000			98,566			23,069		23,129		13,188		30,000			30,000
Retail repurchase agreements	46,128		44,175		51,202			64,840			76,177			49,081		46,128		44,175		51,202			64,840
Unamortized debt issuance cost (a)	—		—		(4		)	(10		)	(16		)	—		—		—		(4		)	(10		)
Total short-term borrowings	$	186,457	$	191,363	$	356,198		$	296,830		$	360,727		$	288,150	$	186,457	$	191,363	$	356,198		$	296,830
Long-term borrowings:
FHLB advances	$	78,324	$	98,670	$	102,361		$	103,860		$	105,890		$	76,785	$	78,324	$	98,670	$	102,361		$	103,860
Junior subordinated debt securities	7,367		7,325		7,283			7,239			7,195			7,409		7,367		7,325		7,283			7,239
Total long-term borrowings	$	85,691	$	105,995	$	109,644		$	111,099		$	113,085		$	84,194	$	85,691	$	105,995	$	109,644		$	111,099
Total borrowed funds	$	272,148	$	297,358	$	465,842		$	407,929		$	473,812		$	372,344	$	272,148	$	297,358	$	465,842		$	407,929


(a)	Unamortized debt issuance cost iswas related to the cost associated with the Credit Agreement with Raymond James Bank, N.A., which was a short-term obligation that was terminated as of ~~March 31,~~April 3, 2019.

Peoples' short-term FHLB advances generally consist of overnight borrowings 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. ~~Overnight~~The increase in overnight borrowings of $106.0 million as of September 30, 2019 compared to June 30, 2019, ~~declined $24 million compared to March 31, 2019, primarily due~~was tied to the ~~increase~~growth in ~~deposit balances~~earning assets during the quarter. As of ~~June~~September 30, 2019, Peoples had ~~fifteen~~sixteen effective interest rate swaps, with an aggregate notional value of ~~$140.0~~$150.0 million, $110.0 million of which ~~was~~were funded by FHLB 90-day advances, which are expected to extend every 90 days through the maturity dates of the swaps. The remaining ~~$30.0~~$40.0 million of interest rate swaps ~~was~~were funded by 90-day brokered CDs, which will also 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. Long-term FHLB advances declined at June 30, 2019 compared to March 31, 2019 due to transfers to short-term borrowings. At March 31, 2019 compared to December 31, 2018, long-term FHLB advances declined due to principal payments.

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

Capital/Stockholders’ Equity

At ~~June~~September 30, 2019, 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,

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equity repurchases and compensation, Peoples must exceed the three minimum required ratios by at least the capital conservation buffer. The capital conservation buffer was phased in from 0.625% beginning January 1, 2016 to 2.50% by January 1, 2019, and applies to the common equity tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio. At ~~June~~September 30, 2019, Peoples had a capital conservation buffer of ~~7.14%~~7.18%, compared to 2.50% for the fully phased-in capital conservation buffer required at January 1, 2019. As such, Peoples exceeded the minimum ratios including the capital conservation buffer at ~~June~~September 30, 2019.

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


(Dollars in thousands)	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018
Capital Amounts:
Common Equity Tier 1	$	410,979		$	389,393		$	378,855		$	367,537		$	358,987		$	417,468		$	410,979		$	389,394		$	378,855		$	367,537
Tier 1	418,347			396,719			386,138			374,776			366,182			424,877			418,347			396,719			386,138			374,776
Total (Tier 1 and Tier 2)	439,704			417,657			406,333			394,655			385,448			446,462			439,704			417,658			406,333			394,655
Net risk-weighted assets	$	2,903,387		$	2,788,934		$	2,782,995		$	2,764,951		$	2,755,112		$	2,941,193		$	2,903,387		$	2,788,935		$	2,773,383		$	2,764,951
Capital Ratios:
Common Equity Tier 1	14.16		%	13.96		%	13.61		%	13.29		%	13.03		%	14.19		%	14.16		%	13.96		%	13.66		%	13.29		%
Tier 1	14.41		%	14.22		%	13.87		%	13.55		%	13.29		%	14.45		%	14.41		%	14.22		%	13.92		%	13.55		%
Total (Tier 1 and Tier 2)	15.14		%	14.98		%	14.60		%	14.27		%	13.99		%	15.18		%	15.14		%	14.98		%	14.65		%	14.27		%
Leverage ratio	10.26		%	10.31		%	9.99		%	9.69		%	9.73		%	10.28		%	10.26		%	10.31		%	9.99		%	9.69		%

Peoples' capital ratios at September 30, 2019 increased compared to the linked quarter due to earnings during the third quarter of 2019, which exceeded the dividends declared and paid during the quarter by $7.8 million. Peoples' capital ratios at June 30, 2019 increased compared to the linked quarter due to earnings during the second quarter of 2019, which exceeded the dividends declared and paid during the quarter by $2.6 million. The capital ratios at June 30, 2019 were also impacted by the increase in risk-weighted assets, which was largely attributable to the First Prestonsburg ~~merger.~~acquisition. The capital ratios increased at March 31, 2019 compared to December 31, 2018 due to increased equity as earnings exceeded the dividends declared. Peoples' capital ratios at December 31, 2018 increased compared to September 30, 2018 due primarily to increased earnings, which was largely driven by loan growth. The capital ratios increased at September 30, 2018 compared to June 30, 2018 due to increased equity as earnings exceeded the dividends declared, while net risk-weighted assets decreased slightly in relation to some large payoffs that were higher volatility commercial real estate loans. The leverage ratio at September 30, 2018 decreased slightly compared to June 30, 2018 due to the increase in average assets in the third quarter of 2018 compared to the second quarter as ASB was acquired on April 13, 2018.

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)	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018
Tangible equity:
Total stockholders' equity	$	579,022		$	535,121		$	520,140		$	504,290		$	499,339		$	588,533		$	579,022		$	535,121		$	520,140		$	504,290
Less: goodwill and other intangible assets	176,763			161,242			162,085			163,401			163,953			179,126			176,763			161,242			162,085			163,401
Tangible equity	$	402,259		$	373,879		$	358,055		$	340,889		$	335,386		$	409,407		$	402,259		$	373,879		$	358,055		$	340,889
Tangible assets:
Total assets	$	4,276,376		$	4,017,119		$	3,991,454		$	4,003,089		$	3,972,091		$	4,396,148		$	4,276,376		$	4,017,119		$	3,991,454		$	4,003,089
Less: goodwill and other intangible assets	176,763			161,242			162,085			163,401			163,953			179,126			176,763			161,242			162,085			163,401
Tangible assets	$	4,099,613		$	3,855,877		$	3,829,369		$	3,839,688		$	3,808,138		$	4,217,022		$	4,099,613		$	3,855,877		$	3,829,369		$	3,839,688
Tangible book value per common share:	Tangible book value per common share:															Tangible book value per common share:
Tangible equity	$	402,259		$	373,879		$	358,055		$	340,889		$	335,386		$	409,407		$	402,259		$	373,879		$	358,055		$	340,889
Common shares outstanding	20,696,041			19,681,692			19,565,029			19,550,014			19,528,952			20,700,630			20,696,041			19,681,692			19,565,029			19,550,014
Tangible book value per common share	$	19.44		$	19.00		$	18.30		$	17.44		$	17.17		$	19.78		$	19.44		$	19.00		$	18.30		$	17.44
Tangible equity to tangible assets ratio:	Tangible equity to tangible assets ratio:															Tangible equity to tangible assets ratio:
Tangible equity	$	402,259		$	373,879		$	358,055		$	340,889		$	335,386		$	409,407		$	402,259		$	373,879		$	358,055		$	340,889
Tangible assets	$	4,099,613		$	3,855,877		$	3,829,369		$	3,839,688		$	3,808,138		$	4,217,022		$	4,099,613		$	3,855,877		$	3,829,369		$	3,839,688
Tangible equity to tangible assets	9.81		%	9.70		%	9.35		%	8.88		%	8.81		%	9.71		%	9.81		%	9.70		%	9.35		%	8.88		%

The primary contributor to the increase in tangible book value per share at September 30, 2019 compared to June 30, 2019, 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. The increase in the tangible equity to tangible assets ratio at June 30, 2019 compared to March 31, 2019, was due largely to the issuance of equity in the form of common shares in connection with the First Prestonsburg ~~merger~~acquisition combined with higher retained earnings and other comprehensive income, given the increase in the market value of available-for-sale investment securities, during the second quarter of 2019, offset partially by higher tangible assets attributable primarily to the First Prestonsburg ~~merger.~~acquisition. The increase in the tangible equity to tangible assets ratio at March 31, 2018 compared to December 31, 2018 ~~as well as previous periods,~~and September 30, 2018, was the result of higher retained earnings, combined with an increase in the market value of available-for-sale investment securities.

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 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

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level of IRR. The methods used by ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' 2018 Form 10-K.

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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):


Increase (Decrease) in Interest Rate	Estimated Increase (Decrease) in Net Interest Income										Estimated (Decrease) Increase in Economic Value of Equity										Estimated Increase (Decrease) in Net Interest Income										Estimated Increase (Decrease) in Economic Value of Equity
(in Basis Points)	June 30, 2019					December 31, 2018					June 30, 2019					December 31, 2018					September 30, 2019					December 31, 2018					September 30, 2019					December 31, 2018
300	$	13,557		10.1	%	$	7,351		5.5	%	$	(11,969	)	(1.1	)%	$	(22,088	)	(2.1	)%	$	16,897		13.0	%	$	7,351		5.5	%	$	79,690		7.4	%	$	(22,088	)	(2.1	)%
200	11,046			8.3	%	5,780			4.3	%	24,680			2.2	%	(7,191		)	(0.7	)%	13,889			10.7	%	5,780			4.3	%	84,199			7.8	%	(7,191		)	(0.7	)%
100	7,478			5.6	%	3,588			2.7	%	25,125			2.2	%	3,926			0.4	%	9,205			7.1	%	3,588			2.7	%	59,470			5.5	%	3,926			0.4	%
(100)	(11,962		)	(9.0	)%	(9,075		)	(6.8	)%	(41,465		)	(3.7	)%	(44,512		)	(4.2	)%	(12,630		)	(9.7	)%	(9,075		)	(6.8	)%	(70,881		)	(6.6	)%	(44,512		)	(4.2	)%
(200)	(23,702		)	(17.7	)%	(23,712		)	(17.6	)%	(95,175		)	(8.5	)%	(130,769		)	(12.4	)%	(21,147		)	(16.3	)%	(23,712		)	(17.6	)%	(122,534		)	(11.3	)%	(130,769		)	(12.4	)%

Estimated changes in net interest income and economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest ~~rates.~~rates as well as assumptions regarding prepayment speeds on mortgage-backed securities. Peoples takes a historically conservative approach when determining what repricing rates ~~(deposit~~(i.e. deposit betas) are used and what prepayment speeds are used in modeling interest rate risk. These assumptions are monitored closely by Peoples ~~and are updated at least annually.~~on an ongoing basis. The actual deposit betas experienced ~~recently~~ by Peoples recently in the repricing of non-maturity deposits are lower than those used in ~~Peoples’~~Peoples' current interest rate risk ~~modeling.~~model. While Peoples has benefited from this trend in the ~~current~~past, the changing interest rate ~~and competitor~~ environment ~~as it has provided for~~poses potential risks to continued growth in ~~Peoples’~~net interest income.

With respect to investment prepayment speeds, the assumptions used are projecting the rate that the underlying mortgages prepay and cash flows are reinvested, generally as a result of refinancing activity. This activity 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. ~~However, in recent months,~~ Peoples ~~has experienced~~generally takes a more ~~pressure on margin expansion and rate competition in its markets.~~conservative approach regarding prepayment speed assumptions.

Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. This includes 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. At ~~June~~September 30, 2019, the U.S. Treasury and LIBOR swap curves were inverted for certain tenors. Given the shape of market yield curves at ~~June~~September 30, 2019, consideration of the bull steepener scenario yields insights which were not captured by parallel shifts. The key insight presented by the bull steepener scenario highlights the risk to net interest income when long-term yields remain constant while short-term rates fall. In such a scenario, Peoples’ funding costs, which are correlated with short-term rates, decline while asset yields, which are correlated with long-term rates, remain constant.

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 cash flows from a counterparty in exchange for Peoples making fixed payments. The swaps are funded through either rolling 90-day FHLB advances or rolling 90-day brokered certificates of deposit, the rate on which is hedged by receipt of the three-month LIBOR component of the swaps. The net result is that, given interest rates are near historical lows, Peoples can obtain funding at swap rates which are significantly lower than rates available on alternative sources of funding, especially overnight and shorter term funding. As of September 30, 2019, Peoples has entered into sixteen interest rate swap contracts with an aggregate notional value of $150.0 million. Additional information regarding Peoples’ interest rate swaps can be found in “Note 14 Derivative Financial Instruments” of the Notes to the Unconsolidated Financial Statement included in this Form 10-Q.

At ~~June~~September 30, 2019, Peoples' consolidated balance sheet was positioned to benefit from rising interest rates in terms of potential impact on net interest income. The table above illustrates this point as changes to net interest income increase in the rising rate scenarios. The increase in asset sensitivity from December 31, 2018 was largely attributable to the high balance of governmental deposits. Peoples’ overnight FHLB borrowing position, which had declined substantially from December 31, 2018 to June 30, 2019 as a result of increased public funds deposits, ultimately led to a decline in liability sensitivityadditional interest rate swaps added in the ~~first half~~second and third quarters of ~~the year. The increased public funds deposit balances are expected to decline through September~~ 2019. While parallel interest rate shock scenarios are useful in assessing the level of interest rate risk inherent in the balance sheet, interest rates typically move in a non-parallel manner with differences in the timing, direction, and magnitude of changes in short-term

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and long-term interest rates. Thus, any benefit that might occur as a result of the Federal Reserve ~~increasing~~lowering short-term interest rates in the future could be offset by ~~an inverse movement~~a greater reduction in long-term interest rates.

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' 2018 Form 10-K.

At ~~June~~September 30, 2019, Peoples Bank had liquid assets of ~~$261.9~~$286.6 million, which represented ~~5.6%~~5.9% of total assets and unfunded loan commitments. This amount exceeded the minimum level by ~~$168.2~~$189.0 million, or ~~3.6%~~3.9% of total loans and

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unfunded commitments, currently required under Peoples' liquidity policy. Peoples also had an additional ~~$115.0~~$112.1 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 cash flows from the investment portfolio, along with the availability of other funding sources, will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.

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 Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional 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.

The following table details the total contractual amount of loan commitments and standby letters of credit:


(Dollars in thousands)	June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018		June 30, 2018		September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Home equity lines of credit	$	106,456	$	103,343	$	101,265	$	101,651	$	103,975	$	110,127	$	106,456	$	103,343	$	101,265	$	101,651
Unadvanced construction loans	95,266		80,916		74,734		71,836		87,477		87,063		95,266		80,916		74,734		71,836
Other loan commitments	360,872		308,103		314,271		324,059		319,519		365,343		360,872		308,103		314,271		324,059
Loan commitments	$	562,594	$	492,362	$	490,270	$	497,546	$	510,971	$	562,533	$	562,594	$	492,362	$	490,270	$	497,546
Standby letters of credit	$	14,658	$	12,371	$	10,214	$	9,979	$	20,354	$	14,983	$	14,658	$	12,371	$	10,214	$	9,979

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.

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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.

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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 ~~June~~September 30, 2019. 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 ~~June~~September 30, 2019, that have materially affected, or are reasonably likely to materially affect, Peoples’ internal control over financial reporting.

PART II

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.

ITEM 1A RISK FACTORS

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 ~~June~~September 30, 2019, Peoples had entered into ~~fifteen~~sixteen interest rate swap contracts, which were effective with an aggregate notional value of ~~$140.0~~$150.0 million. Although Peoples expects that each of the hedging relationships will continue to be highly effective as described above, it has not assumed that there will be no ineffectiveness in the hedging relationships. Additional information regarding Peoples' interest rate swaps can be found in "Note 14 Derivative Financial Instruments" of the Notes to the Consolidated Financial Statements included in Peoples' 2018 Form 10-K and "Note 9 Derivative Financial Instruments" of the Notes to the Unconsolidated Financial Statements in this Form 10-Q.

There have been no other material changes from those risk factors previously disclosed in “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 2018 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 ~~June~~September 30, 2019:

Period
(a)
Total Number of Common Shares Purchased

(b)
Average Price Paid per Common Share

(c)
Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾
(d)
Maximum
Number ( or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs⁽¹⁾
April 1-30, 2019 —

$ —
—
$ 15,049,184
May 1-31, 2019 ^{(2) (3)}
3,728
32.60
—
15,049,184
June 1-30, 2019 ^{(2) (3)}
2,724
31.23
—
15,049,184
Total 6,452
$ 32.02
—
$ 15,049,184



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, 2019 ^{(2) (3)}	1,248	$	32.25	—	$	15,049,184
August 1-31, 2019 ⁽²⁾	988	30.79		—	15,049,184
September 1-30, 2019 ^{(1) (3)}	14,657	30.40		14,175	14,618,757
Total	16,893	$	30.56	14,175	$	14,618,757


(1)	On November 3, 2015, Peoples announced that on that same date, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to $20.0 million of its outstanding common shares. No14,175 common shares were purchased under this share repurchase program during ~~the three months ended June 30,~~September 2019.


(2)	Information reported includes ~~3,160~~705 common shares and ~~2,239~~988 common shares withheld to ~~pay~~satisfy income taxes associated with restricted common shares, which vested during ~~May~~July and ~~June,~~August, respectively.

(3)

Information reported includes ~~568~~543 common shares and ~~485~~482 common shares purchased in open market transactions during ~~May~~July and ~~June,~~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.

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

2.1	Agreement and Plan of Merger, dated as of October 23, 2017, between Peoples Bancorp Inc. and ASB Financial Corp.⁺	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. 333-222054)

2.2	Agreement and Plan of Merger, dated as of October 29, 2018, as amended 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 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 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 Secretary of State of the State of Ohio on January 28, 2009, evidencing adoption of amendments by the Board of Directors of Peoples Bancorp Inc. to Article FOURTH of 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 were 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 to the SEC upon request. ^P~~Filed the exhibit~~Exhibit filed with the SEC in paper originally and 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 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	~~Loan Agreement, made and entered into as of April 3, 2019, between Peoples Bancorp Inc., as Borrower, and U.S. Bank National Association, as Lender~~	~~Incorporated herein by reference to Exhibit 10.1 to Peoples' Current Report on Form 8-K dated and filed on April 9, 2019 (File No. 0-16772) ("Peoples' April 9, 2019 Form 8-K")~~

~~10.2~~	~~Revolving Credit Note issued by Peoples Bancorp Inc. on April 3, 2019 to U.S. Bank National Association in the principal amount of $20,000,000~~	~~Incorporated herein by reference to Exhibit 10.2 to Peoples' April 9, 2019 Form 8-K~~

~~10.3~~	Peoples Bancorp Inc. Amended and Restated Nonqualified Deferred Compensation Plan (adopted effective July 11, 2019)	~~Filed herewith~~Incorporated herein by reference to Exhibit 10.3 to Peoples' Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 (File No. 0-16772)

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

32	Section 1350 Certifications	Furnished herewith

101.INS	XBRL Instance Document	Submitted electronically herewith #

101.SCH	XBRL Taxonomy Extension Schema Document	Submitted electronically herewith #

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Submitted electronically herewith #

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Submitted electronically herewith #

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Submitted electronically herewith #

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Submitted electronically herewith #

# Attached as Exhibit 101 to the Quarterly Report on Form 10-Q for the quarterly period ended ~~June~~September 30, 2019 of Peoples Bancorp Inc. are the following documents formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (Unaudited) at ~~June~~September 30, 2019 and December 31, 2018; (ii) Consolidated Statements of Income (Unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018; (iii) Consolidated Statements of Comprehensive Income (Unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018; (iv) Consolidated Statement of Stockholders' Equity (Unaudited) for the ~~six~~nine months ended ~~June~~September 30, 2019; (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~six~~nine months ended ~~March 31,~~September 30, 2019 and 2018; and (vi) Notes to the Unaudited Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			PEOPLES BANCORP INC.

Date:	~~August 1,~~October 30, 2019	By: /s/	CHARLES W. SULERZYSKI
			Charles W. Sulerzyski
			President and Chief Executive Officer


Date:	~~August 1,~~October 30, 2019	By: /s/	JOHN C. ROGERS
			John C. Rogers
			Executive Vice President,
			Chief Financial Officer and Treasurer

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