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 northeastern Kentucky. Acquired loans consist of loans purchased in 2012 or thereafter in a business combination. The major classifications of loan balances, excluding loans held for sale, were as follows:



(Dollars in thousands)	June 30, 2016		December 31, 2015
Originated loans:
Commercial real estate, construction	$	88,672	$	63,785
Commercial real estate, other	468,404		471,184
Commercial real estate	557,076		534,969
Commercial and industrial	322,512		288,130
Residential real estate	304,275		288,783
Home equity lines of credit	80,049		74,176
Consumer, indirect	205,980		165,320
Consumer, other	65,717		61,813
Consumer	271,697		227,133
Deposit account overdrafts	1,214		1,448
Total originated loans	$	1,536,823	$	1,414,639
Acquired loans:
Commercial real estate, construction	$	10,321	$	12,114
Commercial real estate, other	240,506		265,092
Commercial real estate	250,827		277,206
Commercial and industrial	55,840		63,589
Residential real estate	250,848		276,772
Home equity lines of credit	28,968		32,253
Consumer, indirect	1,136		1,776
Consumer, other	4,348		6,205
Consumer	5,484		7,981
Total acquired loans	$	591,967	$	657,801
Loans, net of deferred fees and costs	$	2,128,790	$	2,072,440

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



(Dollars in thousands)	June 30, 2016		December 31, 2015
Commercial real estate, other	$	15,220	$	16,893
Commercial and industrial	2,437		3,040
Residential real estate	24,907		27,155
Consumer	139		193
Total outstanding balance	$	42,703	$	47,281
Net carrying amount	$	31,027	$	35,064

Changes in the accretable yield for purchased credit impaired loans for the six months ended June 30, 2016 were as follows:



(Dollars in thousands)	Accretable Yield
Balance, December 31, 2015	$	7,042
Reclassification from nonaccretable to accretable	1,916
Accretion	(967		)
Balance, June 30, 2016	$	7,991

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

Cash flows expected to be collected on purchased credit impaired loans are estimated semi-annually 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 principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary.

Peoples pledges certain loans secured by 1-4 family and multifamily residential mortgages under a blanket collateral agreement to secure borrowings from the FHLB. The amount of such pledged loans totaled $546.1 million and $554.8 million at June 30, 2016 and December 31, 2015, respectively. Peoples also pledges commercial loans to secure borrowings with the FRB. The outstanding balances of these loans totaled $166.4 million and $195.5 million at June 30, 2016 and December 31, 2015, respectively.

Nonaccrual and Past Due Loans

A loan is considered past due if any required principal and interest payments have not been received as of the 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
(Dollars in thousands)	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Originated loans:
Commercial real estate, construction	$	877	$	921	$	—	$	—
Commercial real estate, other	6,711		7,041		1,377		—
Commercial real estate	7,588		7,962		1,377		—
Commercial and industrial	1,827		480		—		680
Residential real estate	3,423		3,057		74		169
Home equity lines of credit	200		321		—		—
Consumer, indirect	46		34		—		—
Consumer, other	8		58		—		1
Consumer	54		92		—		1
Total originated loans	$	13,092	$	11,912	$	1,451	$	850
Acquired loans:
Commercial real estate, other	566		469		2,605		2,425
Commercial real estate	566		469		2,605		2,425
Commercial and industrial	281		247		459		1,306
Residential real estate	1,360		798		1,347		1,353
Home equity lines of credit	278		98		—		35
Consumer, other	5		7		7		—
Total acquired loans	$	2,490	$	1,619	$	4,418	$	5,119
Total loans	$	15,582	$	13,531	$	5,869	$	5,969

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



	Loans Past Due								Current Loans		Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
June 30, 2016
Originated loans:
Commercial real estate, construction	$	—	$	877	$	—	$	877	$	87,795	$	88,672
Commercial real estate, other	1,688		1,988		7,414		11,090		457,314		468,404
Commercial real estate	1,688		2,865		7,414		11,967		545,109		557,076
Commercial and industrial	405		102		1,646		2,153		320,359		322,512
Residential real estate	1,546		1,949		1,010		4,505		299,770		304,275
Home equity lines of credit	151		161		42		354		79,695		80,049
Consumer, indirect	812		61		—		873		205,107		205,980
Consumer, other	230		229		—		459		65,258		65,717
Consumer	1,042		290		—		1,332		270,365		271,697
Deposit account overdrafts	—		—		—		—		1,214		1,214
Total originated loans	$	4,832	$	5,367	$	10,112	$	20,311	$	1,516,512	$	1,536,823
Acquired loans:
Commercial real estate, construction	$	—	$	—	$	40	$	40	$	10,281	$	10,321
Commercial real estate, other	837		396		2,958		4,191		236,315		240,506
Commercial real estate	837		396		2,998		4,231		246,596		250,827
Commercial and industrial	502		53		740		1,295		54,545		55,840
Residential real estate	1,518		1,642		2,177		5,337		245,511		250,848
Home equity lines of credit	—		53		206		259		28,709		28,968
Consumer, indirect	22		—		—		22		1,114		1,136
Consumer, other	18		55		7		80		4,268		4,348
Consumer	40		55		7		102		5,382		5,484
Total acquired loans	$	2,897	$	2,199	$	6,128	$	11,224	$	580,743	$	591,967
Total loans	$	7,729	$	7,566	$	16,240	$	31,535	$	2,097,255	$	2,128,790



	Loans Past Due								Current Loans		Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
December 31, 2015
Originated loans:
Commercial real estate, construction	$	913	$	—	$	8	$	921	$	62,864	$	63,785
Commercial real estate, other	7,260		1,258		379		8,897		462,287		471,184
Commercial real estate	8,173		1,258		387		9,818		525,151		534,969
Commercial and industrial	1,437		215		767		2,419		285,711		288,130
Residential real estate	3,124		1,105		1,263		5,492		283,291		288,783
Home equity lines of credit	161		7		104		272		73,904		74,176
Consumer, indirect	790		168		—		958		164,362		165,320
Consumer, other	597		82		32		711		61,102		61,813
Consumer	1,387		250		32		1,669		225,464		227,133
Deposit account overdrafts	—		—		—		—		1,448		1,448
Total originated loans	$	14,282	$	2,835	$	2,553	$	19,670	$	1,394,969	$	1,414,639
Acquired loans:
Commercial real estate, construction	$	—	$	—	$	40	$	40	$	12,074	$	12,114
Commercial real estate, other	1,592		352		2,730		4,674		260,418		265,092
Commercial real estate	1,592		352		2,770		4,714		272,492		277,206
Commercial and industrial	177		232		1,553		1,962		61,627		63,589
Residential real estate	4,910		2,480		1,745		9,135		267,637		276,772
Home equity lines of credit	318		20		95		433		31,820		32,253
Consumer, indirect	23		—		—		23		1,753		1,776
Consumer, other	67		31		—		98		6,107		6,205
Consumer	90		31		—		121		7,860		7,981
Total acquired loans	$	7,087	$	3,115	$	6,163	$	16,365	$	641,436	$	657,801
Total loans	$	21,369	$	5,950	$	8,716	$	36,035	$	2,036,405	$	2,072,440

Credit Quality Indicators

As discussed in Note 1 of the Notes to the Consolidated Financial Statements included in Peoples' 2015 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.

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

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

“Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an 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 the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for loan losses are taken in the period in which the loan becomes uncollectible. Consequently, Peoples typically does not maintain a recorded investment in loans within this category.

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

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



	Pass Rated (Grades 1 - 4)		Watch (Grade 5)		Substandard (Grade 6)		Doubtful (Grade 7)		Not Rated		Total Loans
(Dollars in thousands)
June 30, 2016
Originated loans:
Commercial real estate, construction	$	87,111	$	—	$	877	$	—	$	684	$	88,672
Commercial real estate, other	444,483		8,486		15,435		—		—		468,404
Commercial real estate	531,594		8,486		16,312		—		684		557,076
Commercial and industrial	285,036		31,721		5,732		—		23		322,512
Residential real estate	20,972		1,161		10,917		208		271,017		304,275
Home equity lines of credit	794		—		140		—		79,115		80,049
Consumer, indirect	97		—		1		—		205,882		205,980
Consumer, other	124		—		—		—		65,593		65,717
Consumer	221		—		1		—		271,475		271,697
Deposit account overdrafts	—		—		—		—		1,214		1,214
Total originated loans	$	838,617	$	41,368	$	33,102	$	208	$	623,528	$	1,536,823
Acquired loans:
Commercial real estate, construction	$	10,321	$	—	$	—	$	—	$	—	$	10,321
Commercial real estate, other	212,597		12,717		15,120		72		—		240,506
Commercial real estate	222,918		12,717		15,120		72		—		250,827
Commercial and industrial	53,878		109		1,657		196		—		55,840
Residential real estate	17,648		660		1,407		—		231,133		250,848
Home equity lines of credit	280		—		—		—		28,688		28,968
Consumer, indirect	81		—		—		—		1,055		1,136
Consumer, other	60		—		—		—		4,288		4,348
Consumer	141		—		—		—		5,343		5,484
Total acquired loans	$	294,865	$	13,486	$	18,184	$	268	$	265,164	$	591,967
Total loans	$	1,133,482	$	54,854	$	51,286	$	476	$	888,692	$	2,128,790



	Pass Rated (Grades 1 - 4)		Watch (Grade 5)		Substandard (Grade 6)		Doubtful (Grade 7)		Not Rated		Total Loans
(Dollars in thousands)
December 31, 2015
Originated loans:
Commercial real estate, construction	$	62,225	$	—	$	913	$	—	$	647	$	63,785
Commercial real estate, other	434,868		18,710		17,595		—		11		471,184
Commercial real estate	497,093		18,710		18,508		—		658		534,969
Commercial and industrial	259,183		23,601		5,344		—		2		288,130
Residential real estate	21,903		1,168		12,282		187		253,243		288,783
Home equity lines of credit	785		—		175		—		73,216		74,176
Consumer, indirect	94		—		3		—		165,223		165,320
Consumer, other	114		—		—		—		61,699		61,813
Consumer	208		—		3		—		226,922		227,133
Deposit account overdrafts	—		—		—		—		1,448		1,448
Total originated loans	$	779,172	$	43,479	$	36,312	$	187	$	555,489	$	1,414,639
Acquired loans:
Commercial real estate, construction	$	12,114	$	—	$	—	$	—	$	—	$	12,114
Commercial real estate, other	233,630		13,866		17,521		75		—		265,092
Commercial real estate	245,744		13,866		17,521		75		—		277,206
Commercial and industrial	56,077		3,078		4,238		196		—		63,589
Residential real estate	18,027		1,409		1,786		—		255,550		276,772
Home equity lines of credit	316		—		—		—		31,937		32,253
Consumer, indirect	130		—		—		—		1,646		1,776
Consumer, other	126		—		—		—		6,079		6,205
Consumer	256		—		—		—		7,725		7,981
Total acquired loans	$	320,420	$	18,353	$	23,545	$	271	$	295,212	$	657,801
Total loans	$	1,099,592	$	61,832	$	59,857	$	458	$	850,701	$	2,072,440

Impaired Loans

The following table summarizes loans classified as impaired:



	Unpaid Principal Balance		Recorded Investment				Total Recorded Investment				Average Recorded Investment		Interest Income Recognized
			With Allowance		Without Allowance				Related Allowance
(Dollars in thousands)
June 30, 2016
Commercial real estate, construction	$	937	$	—	$	920	$	920	$	—	$	937	$	1
Commercial real estate, other	21,013		6,718		13,991		20,709		1,286		20,390		455
Commercial real estate	$	21,950	$	6,718	$	14,911	$	21,629	$	1,286	$	21,327	$	456
Commercial and industrial	4,555		3,261		1,195		4,456		469		3,692		101
Residential real estate	31,589		433		30,330		30,763		127		29,559		771
Home equity lines of credit	1,164		—		1,158		1,158		—		847		28
Consumer, indirect	238		—		222		222		—		153		7
Consumer, other	189		—		185		185		—		180		9
Consumer	427		—		407		407		—		333		16
Total	$	59,685	$	10,412	$	48,001	$	58,413	$	1,882	$	55,758	$	1,372
December 31, 2015
Commercial real estate, construction	$	957	$	—	$	957	$	957	$	—	$	227	$	3
Commercial real estate, other	23,430		6,396		12,772		19,168		1,363		13,070		815
Commercial real estate	$	24,387	$	6,396	$	13,729	$	20,125	$	1,363	$	13,297	$	818
Commercial and industrial	5,670		1,224		4,130		5,354		351		4,049		246
Residential real estate	31,304		370		28,834		29,204		106		26,785		1,354
Home equity lines of credit	425		—		419		419		—		325		18
Consumer, indirect	118		—		103		103		—		84		—
Consumer, other	265		—		195		195		—		210		28
Consumer	383		—		298		298		—		294		28
Total	$	62,169	$	7,990	$	47,410	$	55,400	$	1,820	$	44,750	$	2,464

At June 30, 2016, 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 or not a concession has been granted to the borrower. Key factors considered by Peoples include the borrower's ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to the unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by Peoples generally include one or more modifications to the terms of the loan, such as (i) a reduction in the interest rate for the remaining life of the loan, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new loans with similar risk, (iii) a temporary period of interest-only payments, and (iv) a reduction in the contractual payment amount for either a short period or the remaining term of the loan.

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



		Three Months Ended
		Recorded Investment (1)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
June 30, 2016
Originated loans:
Commercial real estate, other	1	$	57	$	57	$	57
Commercial and industrial	2	22		30		30
Residential real estate	1	36		36		36
Home equity lines of credit	1	11		11		11
Consumer, indirect	4	72		72		72
Consumer, other	2	12		12		12
Consumer	6	84		84		84
Total originated loans	11	210		218		218
Acquired loans:
Residential real estate	5	$	519	$	519	$	516
Home equity lines of credit	3	179		179		177
Consumer, indirect	2	9		9		9
Consumer, other	4	21		21		21
Consumer	6	30		30		30
Total acquired loans	14	$	728	$	728	$	723
June 30, 2015
Originated loans:
Residential real estate	2	$	184	$	184	$	184
Home equity lines of credit	4	92		92		91
Consumer, other	2	10		10		10
Total originated loans	8	$	286	$	286	$	285
Acquired loans:
Commercial real estate, other	1	$	24	$	24	$	24
Residential real estate	2	35		35		35
Home equity lines of credit	1	8		8		8
Total acquired loans	4	$	67	$	67	$	67
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.




		Six Months Ended
		Recorded Investment (1)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
June 30, 2016
Originated loans:
Commercial real estate, other	1	$	57	$	57	$	57
Commercial and industrial	6	$	722	$	730	$	731
Residential real estate	3	120		120		120
Home equity lines of credit	1	11		11		10
Consumer, indirect	5	83		83		82
Consumer, other	4	15		15		14
Consumer	9	98		98		96
Total originated loans	20	$	1,008	$	1,016	$	1,014
Acquired loans:
Residential real estate	10	$	850	$	852	$	846
Home equity lines of credit	3	179		179		177
Consumer, indirect	2	10		10		10
Consumer, other	5	24		24		24
Consumer	7	34		34		34
Total acquired loans	20	$	1,063	$	1,065	$	1,057
June 30, 2015
Originated loans:
Residential real estate	2	$	184	$	184	$	184
Home equity lines of credit	9	308		309		306
Consumer, indirect	1	6		6		6
Consumer, other	2	10		10		10
Consumer	3	16		16		16
Total originated loans	14	$	508	$	509	$	506
Acquired loans:
Commercial real estate, other	1	$	24	$	24	$	24
Residential real estate	2	35		35		35
Home equity lines of credit	1	8		8		8
Total acquired loans	4	$	67	$	67	$	67
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

The following table presents those loans for the six months ended June 30 that were modified as a TDR during the last twelve months that subsequently defaulted (i.e., 90 days or more past due following a modification.)




	June 30, 2016					June 30, 2015
(Dollars in thousands)	Number of Contracts	Recorded Investment (1)		Impact on the Allowance for Loan Losses		Number of Contracts	Recorded Investment (1)		Impact on the Allowance for Loan Losses
Acquired loans:
Commercial and industrial	—	$	—	$	—	2	196		—
Total	—	$	—	$	—	2	$	196	$	—
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

Peoples did not have any originated and acquired loans that were modified as a TDR during the last twelve months that subsequently defaulted. Peoples had no additional 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 months ended June 30, were as follows:



(Dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Home Equity Lines of Credit			Consumer			Deposit Account Overdrafts			Total
Balance, January 1, 2016	$	7,076		$	5,382		$	1,257		$	732		$	1,971		$	121		$	16,539
Charge-offs	—			(1,017		)	(379		)	(29		)	(1,047		)	(334		)	(2,806		)
Recoveries	1,181			250			69			26			600			108			2,234
Net recoveries (charge-offs)	1,181			(767		)	(310		)	(3		)	(447		)	(226		)	(572		)
(Recovery of) provision for loan losses	(721		)	619			349			(45		)	1,223			249			1,674
Balance, June 30, 2016	$	7,536		$	5,234		$	1,296		$	684		$	2,747		$	144		$	17,641

Period-end amount allocated to:
Loans individually evaluated for impairment	$	1,286		$	469		$	127		$	—		$	—		$	—		$	1,882
Loans collectively evaluated for impairment	6,250			4,765			1,169			684			2,747			144			15,759
Ending balance	$	7,536		$	5,234		$	1,296		$	684		$	2,747		$	144		$	17,641

Balance, January 1, 2015	$	9,825		$	4,036		$	1,627		$	694		$	1,587		$	112		$	17,881
Charge-offs	(44		)	(343		)	(282		)	(81		)	(482		)	(323		)	(1,555		)
Recoveries	82			94			159			80			325			93			833
Net recoveries (charge-offs)	38			(249		)	(123		)	(1		)	(157		)	(230		)	(722		)
(Recovery of) provision for loan losses	(2,733		)	3,408			(207		)	45			237			272			1,022
Balance, June 30, 2015	$	7,130		$	7,195		$	1,297		$	738		$	1,667		$	154		$	18,181

Period-end amount allocated to:
Loans individually evaluated for impairment	$	286		$	3,556		$	6		$	—		$	—		$	—		$	3,848
Loans collectively evaluated for impairment	6,844			3,639			1,291			738			1,667			154			14,333
Ending balance	$	7,130		$	7,195		$	1,297		$	738		$	1,667		$	154		$	18,181

The increase in the allowance for loan losses allocated to commercial real estate recorded during the first six months of 2016 compared to the same period of 2015 was related to additional provision needed for loans individually evaluated for impairment. The reduction in the allowance for loan losses allocated to commercial and industrial recorded during the first six months of 2016 compared to the same period of 2015 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 residential real estate, home equity lines of credit and consumer categories of the allowance for originated loan losses and the related provision for originated loan losses recorded during the first six months of 2016 compared to the same period in 2015 were driven by net charge-off activity and increases in the size of the respective loan portfolios.

Allowance for Acquired Loan Losses

Acquired loans are recorded at their fair value as of the acquisition date with no valuation allowance, and monitored for changes in credit quality and subsequent increases or decreases in expected cash flows. Decreases in expected cash flows of acquired credit impaired loans are recognized as an impairment, with the amount of the expected loss included in management's evaluation of the appropriateness of the allowance for loan losses. The methods utilized to estimate the required allowance for loan losses for nonimpaired acquired loans are similar to those utilized for originated loans; however, Peoples records a provision for loan losses only when the computed allowance exceeds the remaining fair value adjustment. As of June 30, 2016, the expected cash flows for both nonimpaired acquired loans and acquired credit impaired loans had decreased from those as of the respective acquisition dates, resulting in Peoples recording provision for loan losses with respect to those acquired loans.

The following table presents activity in the allowance for loan losses for acquired loans for the six months ended June 30:



	Three Months Ended					Six Months Ended
(Dollars in thousands)	June 30, 2016			June 30, 2015		June 30, 2016			June 30, 2015
Purchased credit impaired loans:
Balance, beginning of period	$	202		$	—	$	240		$	—
Charge-offs	(5		)	—		(51		)	—
Recoveries	—			—		—			—
Net charge-offs (recoveries)	(5		)	—		(51		)	—
Provision for loan losses	—			—		8			—
Balance, June 30	$	197		$	—	$	197		$	—