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)	September 30, 2019		December 31, 2018
Originated loans:
Commercial real estate, construction	$	100,338	$	124,013
Commercial real estate, other	659,103		632,200
Commercial real estate	759,441		756,213
Commercial and industrial	564,279		530,207
Residential real estate	308,964		296,860
Home equity lines of credit	92,910		93,326
Consumer, indirect	423,217		407,167
Consumer, direct	72,699		71,674
Consumer	495,916		478,841
Deposit account overdrafts	1,081		583
Total originated loans	$	2,222,591	$	2,156,030
Acquired loans:
Commercial real estate, construction	$	4,435	$	12,404
Commercial real estate, other	171,096		184,711
Commercial real estate	175,531		197,115
Commercial and industrial	43,961		35,537
Residential real estate	358,053		296,937
Home equity lines of credit	41,942		40,653
Consumer, indirect	67		136
Consumer, direct	8,171		2,370
Consumer	8,238		2,506
Total acquired loans	$	627,725	$	572,748
Total loans	$	2,850,316	$	2,728,778

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)	September 30, 2019		December 31, 2018
Commercial real estate	$	9,063	$	11,955
Commercial and industrial	3,791		1,287
Residential real estate	24,361		20,062
Consumer	663		58
Total outstanding balance	$	37,878	$	33,362
Net carrying amount	$	23,796	$	22,475

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



(Dollars in thousands)	September 30, 2019			September 30, 2018
Balance, beginning of period	$	8,955		$	6,704
Reclassification from nonaccretable to accretable	199			2,019
Additions:
ASB Financial Corp.	—			2,047
First Prestonsburg Bancshares Inc.	3,860			—
Accretion	(1,763		)	(1,392		)
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 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 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 $485.8 million and $505.7 million at 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 $171.7 million and $180.9 million at September 30, 2019 and December 31, 2018, 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)	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Originated loans:
Commercial real estate, construction	$	—	$	710	$	—	$	—
Commercial real estate, other	6,680		6,565		—		786
Commercial real estate	6,680		7,275		—		786
Commercial and industrial	1,120		1,673		298		—
Residential real estate	4,145		4,105		431		398
Home equity lines of credit	387		596		134		7
Consumer, indirect	771		480		—		—
Consumer, direct	53		56		—		—
Consumer	824		536		—		—
Total originated loans	$	13,156	$	14,185	$	863	$	1,191
Acquired loans:
Commercial real estate, construction	$	230	$	—	$	—	$	—
Commercial real estate, other	155		319		582		15
Commercial real estate	385		319		582		15
Commercial and industrial	95		36		274		18
Residential real estate	1,862		1,921		2,664		1,032
Home equity lines of credit	700		637		49		—
Consumer, direct	2		—		83		—
Total acquired loans	$	3,044	$	2,913	$	3,652	$	1,065
Total loans	$	16,200	$	17,098	$	4,515	$	2,256

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
September 30, 2019
Originated loans:
Commercial real estate, construction	$	—	$	—	$	—	$	—	$	100,338	$	100,338
Commercial real estate, other	8		171		6,482		6,661		652,442		659,103
Commercial real estate	8		171		6,482		6,661		752,780		759,441
Commercial and industrial	429		175		1,279		1,883		562,396		564,279
Residential real estate	1,288		845		2,489		4,622		304,342		308,964
Home equity lines of credit	95		129		476		700		92,210		92,910
Consumer, indirect	2,719		484		215		3,418		419,799		423,217
Consumer, direct	292		42		6		340		72,359		72,699
Consumer	3,011		526		221		3,758		492,158		495,916
Deposit account overdrafts	—		—		—		—		1,081		1,081
Total originated loans	$	4,831	$	1,846	$	10,947	$	17,624	$	2,204,967	$	2,222,591
Acquired loans:
Commercial real estate, construction	$	100	$	317	$	230	$	647	$	3,788	$	4,435
Commercial real estate, other	473		290		724		1,487		169,609		171,096
Commercial real estate	573		607		954		2,134		173,397		175,531
Commercial and industrial	159		123		368		650		43,311		43,961
Residential real estate	1,270		1,020		3,252		5,542		352,511		358,053
Home equity lines of credit	681		42		706		1,429		40,513		41,942
Consumer, indirect	—		—		—		—		67		67
Consumer, direct	47		19		85		151		8,020		8,171
Consumer	47		19		85		151		8,087		8,238
Total acquired loans	$	2,730	$	1,811	$	5,365	$	9,906	$	617,819	$	627,725
Total loans	$	7,561	$	3,657	$	16,312	$	27,530	$	2,822,786	$	2,850,316



	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 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 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
(Dollars in thousands)
September 30, 2019
Originated loans:
Commercial real estate, construction	$	99,569	$	—	$	—	$	—	$	769	$	100,338
Commercial real estate, other	626,042		22,003		11,058		—		—		659,103
Commercial real estate	725,611		22,003		11,058		—		769		759,441
Commercial and industrial	544,048		6,341		13,890		—		—		564,279
Residential real estate	19,489		177		16,214		226		272,858		308,964
Home equity lines of credit	1,429		—		—		—		91,481		92,910
Consumer, indirect	—		—		—		—		423,217		423,217
Consumer, direct	27		—		—		—		72,672		72,699
Consumer	27		—		—		—		495,889		495,916
Deposit account overdrafts	—		—		—		—		1,081		1,081
Total originated loans	$	1,290,604	$	28,521	$	41,162	$	226	$	862,078	$	2,222,591
Acquired loans:
Commercial real estate, construction	$	2,766	$	920	$	749	$	—	$	—	$	4,435
Commercial real estate, other	155,011		7,860		8,139		86		—		171,096
Commercial real estate	157,777		8,780		8,888		86		—		175,531
Commercial and industrial	39,127		1,049		3,785		—		—		43,961
Residential real estate	33,453		3,053		4,663		128		316,756		358,053
Home equity lines of credit	2,017		93		—		—		39,832		41,942
Consumer, indirect	—		—		—		—		67		67
Consumer, direct	13		—		—		—		8,158		8,171
Consumer	13		—		—		—		8,225		8,238
Total acquired loans	$	232,387	$	12,975	$	17,336	$	214	$	364,813	$	627,725
Total loans	$	1,522,991	$	41,496	$	58,498	$	440	$	1,226,891	$	2,850,316



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

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)
September 30, 2019
Commercial real estate, construction	$	780	$	—	$	693	$	693	$	—	$	702	$	1
Commercial real estate, other	15,093		4,754		9,755		14,509		475		13,764		369
Commercial real estate	15,873		4,754		10,448		15,202		475		14,466		370
Commercial and industrial	4,113		999		3,087		4,086		206		2,481		99
Residential real estate	25,447		381		26,582		26,963		47		23,312		1,065
Home equity lines of credit	1,433		416		1,019		1,435		43		1,329		61
Consumer, indirect	597		195		410		605		30		456		31
Consumer, direct	628		43		586		629		10		261		22
Consumer	1,225		238		996		1,234		40		717		53
Total	$	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
Commercial real estate, other	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
Commercial and industrial	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
Home equity lines of credit	2,291		424		1,869		2,293		73		1,832		109
Consumer, indirect	496		—		503		503		—		278		15
Consumer, direct	79		22		57		79		6		63		20
Consumer	575		22		560		582		6		341		35
Total	$	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.

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



		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.



		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.

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 nine-month periods ended September 30:



	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
Acquired loans:
Home equity lines of credit	—	$	—	$	—	1	$	10	$	—
Consumer, direct	2	35		—		—	—		—
Total	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 nine months ended 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
Balance, January 1, 2019	$	8,003		$	6,178		$	1,214		$	618		$	3,214		$	351		$	81		$	19,659
Charge-offs	(153		)	(324		)	(257		)	(45		)	(1,266		)	(150		)	(632		)	(2,827		)
Recoveries	98			2,093			220			10			229			45			157			2,852
Net (charge-offs) recoveries	(55		)	1,769			(37		)	(35		)	(1,037		)	(105		)	(475		)	25
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
Charge-offs	(849		)	(38		)	(293		)	(67		)	(1,967		)	(297		)	(731		)	(4,242		)
Recoveries	58			10			98			12			403			114			160			855
Net charge-offs	(791		)	(28		)	(195		)	(55		)	(1,564		)	(183		)	(571		)	(3,387		)
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.

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
September 30, 2019
Allowance for loan losses allocated to:
Loans individually evaluated for impairment	$	475	$	206	$	47	$	43	$	30	$	10	$	—	$	811
Loans collectively evaluated for impairment	7,991		6,956		1,115		524		3,217		329		128		20,260
Ending balance	$	8,466	$	7,162	$	1,162	$	567	$	3,247	$	339	$	128	$	21,071

Recorded investment in:
Loans individually evaluated for impairment	$	15,202	$	4,086	$	26,963	$	1,435	$	605	$	629	$	—	$	48,920
Loans collectively evaluated for impairment	744,239		560,193		282,001		91,475		422,612		72,070		1,081		2,173,671
Ending balance	$	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:
Loans individually evaluated for impairment	$	119	$	157	$	154	$	73	$	—	$	6	$	—	$	509
Loans collectively evaluated for impairment	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

Recorded investment in:
Loans individually evaluated for impairment	$	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
Ending balance	$	756,213	$	530,207	$	296,860	$	93,326	$	407,167	$	71,674	$	583	$	2,156,030

September 30, 2018
Allowance for loan losses allocated to:
Loans individually evaluated for impairment	$	91	$	191	$	40	$	83	$	140	$	32	$	—	$	577
Loans collectively evaluated for impairment	7,875		5,947		959		625		3,283		363		95		19,147
Ending balance	$	7,966	$	6,138	$	999	$	708	$	3,423	$	395	$	95	$	19,724

Recorded investment in:
Loans individually evaluated for impairment	$	18,375	$	2,185	$	25,147	$	2,270	$	527	$	77	$	—	$	48,581
Loans collectively evaluated for impairment	715,907		508,406		274,621		90,622		396,174		72,524		649		2,058,903
Ending balance	$	734,282	$	510,591	$	299,768	$	92,892	$	396,701	$	72,601	$	649	$	2,107,484

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					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