Documents Incorporated by Reference:
Portions of Registrant's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held April 26,
2012, are incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART 1
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures (not applicable)
ITEM 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
ITEM 9A.
ITEM 9B.
Controls and Procedures
Other Information
PART III
ITEM 10.
ITEM 11.
Directors, Executive Officers and Corporate Governance
Executive Compensation
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
ITEM 13.
ITEM 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
3
15
20
20
21
21
22
24
25
58
58
58
58
58
103
103
104
105
105
106
107
108
2
As used in this Annual Report on Form 10-K (“Form 10-K”), “Peoples” refers to Peoples Bancorp Inc. and its
consolidated subsidiaries collectively, except where the context indicates the reference relates solely to the registrant,
Peoples Bancorp Inc. Unless otherwise indicated, all note references contained in this Form 10-K refer to the Notes to the
Consolidated Financial Statements included in Item 8 of this Form 10-K.
PART I
ITEM 1. BUSINESS
Corporate Overview
Peoples Bancorp Inc. is an Ohio corporation and a financial holding company organized in 1980. Peoples operates
principally through its wholly-owned subsidiary, Peoples Bank, National Association (“Peoples Bank”). As of the date of
this Form 10-K, Peoples' other wholly-owned subsidiaries included Peoples Investment Company and PEBO Capital Trust
I. Peoples Bank owned Peoples Insurance Agency, LLC (“Peoples Insurance”) and PBNA, L.L.C., an asset management
company. Peoples Investment Company owned Peoples Capital Corporation.
Peoples Bank was first chartered in 1902 as an Ohio banking corporation under the name “The Peoples Banking and
Trust Company” in Marietta, Ohio, and was later reorganized as a national banking association under its current name in
2000. Peoples Insurance was first chartered in 1994 as an Ohio corporation under the name “Northwest Territory Property
and Casualty Insurance Agency, Inc.” In late 1995, Peoples Insurance was awarded insurance agency powers in the State
of Ohio, becoming the first insurance agency in Ohio to be affiliated with a financial institution. In 2009, Peoples
Insurance was converted from an Ohio corporation to an Ohio limited liability company under its current name.
Peoples Investment Company, its subsidiary, Peoples Capital Corporation, and PBNA, L.L.C. were formed in 2001 to
optimize Peoples' consolidated capital position and provide new investment opportunities as a means of enhancing
profitability. These opportunities include, but are not limited to, investments in low-income housing tax credit funds or
projects, venture capital and other higher risk investments, which are either limited or restricted as investments by Peoples
Bank. Presently, the operations of these companies do not represent a material part of Peoples' overall business activities.
Business Overview
Peoples makes available a complete line of banking, investment, insurance and trust solutions through its financial
units – Peoples Bank, Peoples Insurance and Peoples Financial Advisors (a division of Peoples Bank). These products and
services include the following:
various demand deposit accounts, savings accounts, money market accounts and certificates of deposit
commercial, consumer and real estate mortgage loans (both commercial and residential) and lines of credit
debit and automated teller machine (“ATM”) cards
corporate and personal trust services
safe deposit rental facilities
travelers checks, money orders and cashier's checks
full range of life, health and property and casualty insurance products
custom-tailored fiduciary and wealth management services
Peoples' financial products and services are offered through its financial service locations and ATMs in Ohio, West
Virginia and Kentucky, as well as telephone and internet-based banking through both PCs and mobile devices. Brokerage
services are offered exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices. Peoples
also makes available credit cards to consumers and businesses, as well as merchant credit card processing services, through
joint marketing arrangements with third parties.
Peoples' business activities are currently confined to one reporting unit and reportable segment, which is community
banking. For a discussion of Peoples' financial performance for the fiscal year ended December 31, 2011, see Peoples'
Consolidated Financial Statements and Notes to the Consolidated Financial Statements found in Item 8 of this Form 10-K.
Peoples has a history of expanding its business, including its customer base and primary market area, through a
combination of internal growth and targeted acquisitions. The internal growth has included the opening of de novo banking
and loan production offices located in or near Peoples' existing market area. Acquisitions have consisted of traditional
banking offices, both individually and as part of entire institutions, and insurance agencies. The primary objectives of
Peoples' expansion efforts include: (1) provide opportunities to integrate non-traditional products and services, such as
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insurance and investments, with the traditional banking products offered to its clients; (2) increase market share in existing
markets; (3) expand Peoples' core financial service businesses of banking, insurance and wealth management and (4)
improve operating efficiency by redirecting resources to offices and markets with greater growth potential.
Recent Corporate Developments
As more fully described in Note 11 of the Notes to the Consolidated Financial Statements, Peoples received $39
million of equity capital from the United States Department of the Treasury (the “U.S. Treasury”) on January 30,
2009. This new equity capital was obtained under the TARP Capital Purchase Program and was in the form of 39,000
Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference of
$1,000 per share (the “Series A Preferred Shares”) and a 10-year warrant to purchase 313,505 Peoples' common shares (the
“Warrant”). During 2011, Peoples repurchased the entire 39,000 Series A Preferred Shares from the U.S. Treasury at their
liquidation value of $39.0 million. On February 15, 2012, Peoples repurchased the Warrant for an aggregate price of $1.2
million. Additional information regarding the TARP Capital Purchase Program and the restrictions imposed on Peoples can
be found under the “TARP Capital Purchase Program” heading in the “Supervision and Regulation” section included later
in this Item 1.
Primary Market Area and Customers
Peoples considers its primary market area to consist of the counties where it has a physical presence and neighboring
counties. This market area currently includes the counties of Athens, Belmont, Fairfield, Franklin, Gallia, Guernsey,
Meigs, Morgan, Muskingum, Noble, Tuscarawas and Washington in Ohio; Cabell, Kanawha, Mason, Wetzel and Wood in
West Virginia; and Boyd and Greenup in Kentucky. This market area encompasses the Metropolitan Statistical Areas
(“MSA”) of Parkersburg-Marietta-Vienna, WV-OH, Charleston, WV and Huntington-Ashland, WV-KY-OH, and portions
of the Columbus, OH and Wheeling, WV-OH MSAs. This primary market area largely consists of rural or small urban
areas with a diverse group of industries and employers. Principal industries in this area include health care, education and
other social services; plastics and petrochemical manufacturing; oil, gas and coal production; and tourism and other
service-related industries. Because of this diversity, Peoples is not dependent upon any single industry segment for its
business opportunities.
Lending Activities
Peoples Bank originates various types of loans, including commercial and commercial real estate loans, residential real
estate loans, home equity lines of credit, real estate construction loans, and consumer loans. Peoples Bank's lending
activities are focused principally on lending opportunities within its primary market areas, although Peoples Bank
occasionally originates loans outside its primary markets related to existing customer relationships. In general, Peoples
Bank retains the majority of loans it originates; however, certain longer-term fixed-rate mortgage loan originations,
primarily one-to-four family residential mortgages, are sold into the secondary market.
Peoples Bank's loans consist of credits to borrowers spread over a broad range of industrial classifications. At
December 31, 2011, Peoples Bank had no concentration of loans to borrowers engaged in the same or similar industries
that exceeded 10% of total loans nor had any loans outstanding to non-U.S. entities.
Legal Lending Limit
Federal regulations impose a limit on the aggregate amount a financial institution may lend to one borrower,
including certain related or affiliated borrowers. This legal lending limit is generally 15% of the institution's total
capital, as defined by risk-based capital regulations, plus any allowance for loan losses not already included in total
capital. At December 31, 2011, Peoples Bank's legal lending limit was approximately $26.2 million. During 2011,
Peoples Bank did not extend credit to any one borrower or group of affiliated borrowers in excess of its legal lending
limit.
Commercial Lending
Commercial, financial and agricultural loans (“commercial loans”), including loans secured by commercial real
estate, represent the largest portion of Peoples' total loan portfolio, comprising approximately 58.7% of total loans at
December 31, 2011. Commercial lending inherently involves a significant degree of risk of loss since commercial
loan relationships generally involve larger loan balances than other loan classes. Additionally, repayment of
commercial loans normally depends on adequate cash flows of a business, which can be negatively impacted by
adverse changes in the general economy or in a specific industry.
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Commercial Lending Practices. Loan terms include amortization schedules and interest rates commensurate with the
purpose of each loan, the source of repayment and the risk involved. The majority of Peoples' commercial loans
carry variable interest rates equal to an underlying index rate plus a margin. Peoples Bank occasionally originates
commercial loans with fixed interest rates for periods generally ranging from 3 to 5 years. The primary analytical
technique used in determining whether to grant a commercial loan is the review of a schedule of cash flows to
evaluate whether the borrower's anticipated future cash flows will be adequate to service both interest and
principal due.
On an annual basis, Peoples Bank evaluates all loan relationships whose aggregate debt to Peoples Bank is
greater than $500,000 for possible credit deterioration. This loan review process provides Peoples Bank with
opportunities to identify potential problem loans and take proactive actions to assure repayment of the loan or
minimize Peoples Bank's risk of loss, such as reviewing the relationship more frequently based upon the loan
quality rating and aggregate debt outstanding. Upon detection of the reduced ability of a borrower to meet cash
flow obligations, the loan is reviewed for possible downgrading or placement on nonaccrual status.
Real Estate Loans
While commercial loans comprise the largest portion of Peoples' loan portfolio, generating residential real estate
loans remains a major focus of Peoples' lending efforts, whether the loans are ultimately sold into the secondary
market or retained in Peoples' loan portfolio. At December 31, 2011, portfolio residential real estate loans comprised
23.4% of total loans. Peoples also had $3.2 million of residential real estate loans held for sale and was servicing
$275.7 million of loans, consisting primarily of one-to-four family residential mortgages, previously sold in the
secondary market.
Peoples Bank originates both fixed-rate and adjustable-rate real estate loans. Typically, the longer-term fixed-rate
real estate loans are sold in the secondary market, with Peoples retaining servicing rights on those loans. In select
cases, Peoples Bank may retain certain fixed-rate real estate loans or sell the loans without retaining the servicing
rights.
Real Estate Lending Practices. Peoples Bank typically requires residential real estate loan amounts to be no more than
80% of the purchase price or the appraised value of the real estate securing the loan, whichever is lower, unless
private mortgage insurance is obtained by the borrower for the percentage exceeding 80%. In limited
circumstances, Peoples Bank may lend up to 100% of the appraised value of the real estate, although such
lending currently is limited to loans that qualify under established federally backed rural housing programs. The
risk conditions of real estate loans are considered during underwriting for the purposes of establishing an interest
rate commensurate with the risks inherent in mortgage lending and the remaining equity of the home, if any.
Real estate loans are typically secured by first mortgages with evidence of title in favor of Peoples Bank in
the form of an attorney's opinion of the title or a title insurance policy. Peoples Bank also requires proof of hazard
insurance, with Peoples Bank named as the mortgagee and loss payee. Licensed appraisals are required for all
real estate loans.
Home Equity Lines of Credit
Peoples Bank originates home equity lines of credit that provide consumers with greater flexibility in financing
personal expenditures. At December 31, 2011, home equity lines of credit comprised 5.1% of Peoples' total loans.
Peoples Bank currently offers home equity lines of credit with a prime-based variable rate for the entire 10-year term
of the loan. Peoples Bank also offers a home equity line of credit whose terms include a fixed rate for the first five
years and converting to a variable interest rate for the remaining five years. At December 31, 2011, total outstanding
principal balances and available credit amounts of these convertible rate home equity lines of credit were $16.8 million
and $22.5 million, respectively, and the weighted-average remaining maturity was 4.2 years.
Home Equity Lending Practices. Home equity lines of credit are generally made as second mortgages by Peoples
Bank. The maximum amount of a home equity line of credit is generally limited to 80% of the appraised value of
the property less the balance of the first mortgage. Peoples Bank may lend up to 90% of the appraised value of
the property at higher interest rates that are commensurate with the additional risk being assumed in these
situations. The home equity lines of credit are written with ten-year terms and are subject to review upon request
for renewal.
Construction Loans
Peoples Bank originates various construction loans to provide temporary financing during the construction phase
for commercial and residential properties. At December 31, 2011, construction loans comprised 3.3% of Peoples' loan
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portfolio. Construction financing is generally considered to involve the highest risk since Peoples Bank is dependent
largely upon the accuracy of the initial estimate of the property's value at completion of construction and the estimated
cost (including interest) of construction. If the estimated construction cost proves to be inaccurate, Peoples Bank may
be required to advance funds beyond the amount originally committed to enable completion of the project. In certain
cases, such as real estate development projects, repayment of construction loans occurs as a result of subsequent sales
of the developed real estate.
Construction Lending Practices. Peoples Bank's construction lending is focused primarily on commercial and
residential projects of select real estate developers and homebuilders. These projects include the construction of
office, retail or industrial complexes and real estate development for either residential or commercial uses. The
underwriting criteria for construction loans is generally the same as for non-construction loans.
To mitigate the risk of construction lending, Peoples Bank requires periodic site inspections by a construction
loan manager, appraiser or architect to ensure appropriate completion of the project prior to any disbursements.
Construction loans are structured to provide sufficient time to complete construction, including consideration for
weather or other variables that influence completion time, although Peoples Bank generally requires the term to be
less than two years.
Consumer Lending
Peoples Bank's consumer lending activities primarily involve loans secured by automobiles, boats, recreational
vehicles and other personal property. At December 31, 2011, consumer loans comprised 9.3% of Peoples' loan
portfolio.
Consumer Lending Practices. Consumer loans generally involve more risk as to collectability than real estate mortgage
loans because of the type and nature of the collateral and, in certain instances, the absence of collateral. As a
result, consumer lending collections are dependent upon the borrower's continued financial stability, and are at
more risk from adverse changes in personal circumstances. In addition, application of various state and federal
laws, including bankruptcy and insolvency laws, could limit the amount that may be recovered under these loans.
Credit approval for consumer loans typically requires demonstration of sufficiency of income to repay principal
and interest due, stability of employment, credit history and sufficient collateral for secured loans. It is the policy
of Peoples Bank to review its consumer loan portfolio monthly and to charge-off loans that do not meet its
standards, and to adhere strictly to all laws and regulations governing consumer lending. A qualified compliance
officer is responsible for monitoring regulatory compliance performance and for advising and updating loan
personnel.
Peoples Bank makes available optional credit life insurance and accident and health insurance to all qualified
borrowers, thus reducing risk of loss when a borrower's income is terminated or interrupted due to accident,
disability or death.
Overdraft Privilege
Peoples Bank grants Overdraft Privilege to qualified customers. Overdraft Privilege is a service that provides
overdraft protection to retail deposit customers by establishing an Overdraft Privilege amount. After a 30-day waiting
period to verify deposit ability, each new checking account usually receives an Overdraft Privilege amount of either
$400 or $700, based on the type of account and other parameters. Once established, customers are permitted to
overdraw their checking account at Peoples Bank's discretion, up to their Overdraft Privilege limit, with each item
being charged Peoples Bank's regular overdraft fee. Customers repay the overdraft with their next deposit. Overdraft
Privilege is designed to allow Peoples Bank to fill the void between traditional overdraft protection, such as a line of
credit, and “check cashing stores”. Under federal banking regulations, Peoples Bank is required to obtain the consent
of its customers in order to apply Overdraft Privilege to ATM and one-time debit card transactions. While Overdraft
Privilege generates fee income, Peoples maintains an allowance for losses from checking accounts with overdrafts
deemed uncollectible. This allowance, along with the related provision and net charge-offs, is included in Peoples'
allowance for loan losses.
Investment Activities
Investment securities comprise a significant portion of Peoples' total assets. The majority of Peoples' investment
activities are conducted through Peoples Bank, although Peoples and its non-banking subsidiaries engage in investment
activities from time-to-time. Investment activity by Peoples Bank is subject to certain regulatory guidelines and limitations
on the types of securities eligible for purchase. As a result, the investment securities owned by Peoples Bank include
obligations of the U.S. Treasury, agencies and corporations of the U.S. government, including mortgage-backed securities,
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bank eligible obligations of any state or political subdivision in the U.S. and bank eligible corporate obligations, including
private-label mortgage-backed securities. The investments owned by Peoples are comprised of common stocks issued by
various unrelated banking holding companies and tax-exempt municipal obligations. The investments owned by Peoples'
non-banking subsidiaries currently consist of tax credit funds and corporate obligations.
Peoples' investment activities are governed internally by a written, Board-approved policy, which is administered by
Peoples' Asset-Liability Management Committee (“ALCO”). The primary purpose of Peoples' investment portfolio is to:
(1) employ excess funds not needed for loan demand; (2) provide a source of liquid assets to accommodate unanticipated
deposit and loan fluctuations and overall liquidity needs; (3) provide eligible securities to secure public and trust funds; and
(4) earn the maximum overall return commensurate with the investment's risk and corporate needs. Investment strategies
to achieve these objectives are reviewed and approved by the ALCO. In its evaluation of investment strategies, the ALCO
considers various factors, including the interest rate environment, balance sheet mix, actual and anticipated loan demand,
funding opportunities and Peoples' overall interest rate sensitivity. The ALCO also has much broader responsibilities,
which are discussed in the “Interest Rate Sensitivity and Liquidity” section of “Management's Discussion and Analysis of
Financial Condition and Results of Operations” included in Item 7 of in this Form 10-K.
Funding Sources
Peoples' primary sources of funds for lending and investing activities are interest-bearing and non-interest-bearing
deposits. Cash flows from both the loan and investment portfolios, which include scheduled payments, as well as
prepayments, calls and maturities, also provide a relatively stable source of funds. Peoples also utilizes a variety of short-
term and long-term borrowings to fund asset growth and satisfy liquidity needs. Peoples' funding sources are monitored
and managed through Peoples' asset-liability management process, which is discussed further in the “Interest Rate
Sensitivity and Liquidity” section of “Management's Discussion and Analysis of Financial Condition and Results of
Operation” included in Item 7 of this Form 10-K.
The following is a brief description of the various sources of funds utilized by Peoples:
Deposits
Peoples obtains deposits principally from individuals and businesses within its primary market area by offering a
broad selection of deposit products to clients. Retail deposit account terms vary with respect to the minimum balance
required, the time the funds must remain on deposit and service charge schedules. Interest rates paid on specific
deposit types are determined based on (1) the interest rates offered by competitors, (2) the anticipated amount and
timing of funding needs, (3) the availability and cost of alternative sources of funding and (4) the anticipated future
economic conditions and interest rates. Retail deposits are attractive sources of funding because of their stability and
relative cost in addition to providing opportunities for Peoples to build long-term client relationships through the
cross-selling of its other products and services.
Peoples also offers its customers the ability to receive up to $30 million in federal deposit insurance coverage for
certificates of deposit (“CDs”) through the Certificate of Deposit Account Registry Service, ("CDARS"), program.
Under this program, funds from large customer deposits are placed into CDs issued by other members of the CDARS
network in increments below the federal deposit insurance limits to ensure both principal and interest remain eligible
for insurance.
Peoples occasionally obtains deposits from clients outside Peoples' primary market area, generally in the form of
CDs and often through deposit brokers. These deposits are used to supplement Peoples' retail deposits to fund loans
originated to customers located outside Peoples' primary market area, as well as provide diversity in funding sources.
While these deposits may carry slightly higher interest costs than other wholesale funds, they do not require Peoples to
secure the funds with collateral, unlike most other borrowed funds.
Additional information regarding the amounts and composition of Peoples' deposits can be found in the
“Deposits” section of “Management's Discussion and Analysis of Financial Condition and Results of Operation”
included in Item 7 of this Form 10-K and in Note 7 of the Notes to the Consolidated Financial Statements.
Borrowed Funds
Peoples obtains funds through a variety of short-term and long-term borrowings, which typically include advances
from the Federal Home Loan Bank of Cincinnati (“FHLB”), Federal Funds purchased, advances from the Federal
Reserve Discount Window and repurchase agreements. Occasionally, Peoples obtains funds from unrelated financial
institutions in the form of loans or revolving lines of credit. Short-term borrowings are used generally to manage
Peoples' daily liquidity needs since they typically may be repaid, in whole or part, at any time without a penalty.
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Long-term borrowings provide cost-effective options for funding asset growth and satisfying capital needs, due to the
variety of pricing and maturity options available.
Additional information regarding the amounts and composition of Peoples' borrowed funds can be found in the
“Borrowed Funds” section of “Management's Discussion and Analysis of Financial Condition and Results of
Operation” included in Item 7 of this Form 10-K and in Notes 8 and 9 of the Notes to the Consolidated Financial
Statements.
Peoples has an established statutory business trust subsidiary (PEBO Capital Trust I) that was formed for the sole
purpose of issuing preferred securities and investing the proceeds in junior subordinated debt securities of Peoples.
The trust preferred securities qualify as Tier 1 capital for regulatory capital purposes, subject to certain quantitative
limits and qualitative standards. Additional information can be found in Note 10 of the Notes to the Consolidated
Financial Statements.
Competition
Peoples experiences intense competition within its primary market area due to the presence of several national,
regional and local financial institutions and other service providers, including finance companies, insurance agencies and
mutual funds. Competition within the financial service industry continues to increase as a result of mergers between, and
expansion of, financial service providers within and outside of Peoples' primary market areas. In addition, the deregulation
of the financial services industry (see the discussion of the Gramm-Leach-Bliley Act of 1999 in the section of this item
captioned “Supervision and Regulation – Bank Holding Company Act”) has allowed securities firms and insurance
companies that have elected to become financial holding companies to acquire commercial banks and other financial
institutions, which can create additional competitive pressure.
Peoples primarily competes based on client service, convenience and responsiveness to customer needs, available
products, rates of interest on loans and deposits, and the availability and pricing of trust, brokerage and insurance services.
However, some competitors may have greater resources and, as such, higher lending limits than Peoples, which adversely
affects Peoples' ability to compete. Peoples' business strategy includes the use of a “needs-based” sales and service
approach to serve customers and incentives intended to promote customers' continued use of multiple financial products
and services. In addition, Peoples continues to emphasize the integration of traditional commercial banking products with
non-traditional financial products, such as insurance and investment products.
Peoples historically has focused on providing its full range of products and services in smaller metropolitan markets
rather than major metropolitan areas. While management believes Peoples has developed a level of expertise in serving the
financial service needs of smaller communities, Peoples' primary market area has expanded into larger metropolitan areas,
such as central Ohio. These larger areas typically contain entrenched service providers with an existing customer base
much larger than Peoples' initial entry position. As a result, Peoples may be forced to compete more aggressively in order
to grow its market share in these areas, which could reduce current and future profit potential from such markets.
Employees
At December 31, 2011, Peoples had 513 full-time equivalent employees.
Intellectual Property and Proprietary Rights
Peoples has registered the service marks “Peoples Bank (with logo)”, “Peoples Bancorp (with logo)”, “Peoples
Financial Advisors (with logo)”, “Connect Card”, “Peoples Bank” and “peoplesbancorp.com” with the U.S. Patent and
Trademark Office. These service marks currently have expiration dates ranging from 2014 to 2017. Peoples may renew
the registrations of service marks with the U.S. Patent and Trademark Office generally for additional 10-year periods
indefinitely, provided it continues to use the service marks and files appropriate maintenance and renewal documentation
with the U.S. Patent and Trademark Office at times required by the federal trademark laws and regulations.
Peoples has a proprietary interest in the Internet domain name “pebo.com”. Internet domain names in the U.S. and in
foreign countries are regulated, but the laws and regulations governing the Internet are continually evolving.
Supervision and Regulation
Peoples and its subsidiaries are subject to extensive supervision and regulation by federal and state agencies. The
regulation of financial holding companies and their subsidiaries is intended primarily for the protection of consumers,
depositors, borrowers, the federal deposit insurance fund and the banking system as a whole and not for the protection of
8
shareholders. The following is a summary of the regulatory agencies, statutes and related regulations that have, or could
have, a material impact on Peoples' business. This discussion is qualified in its entirety by reference to such regulations
and statutes.
Financial Holding Company
Peoples is a legal entity separate and distinct from its subsidiaries and affiliated companies. As a financial holding
company, Peoples is subject to regulation under the Bank Holding Company Act of 1956, as amended (the “BHC
Act”), and to inspection, examination and supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board").
The Federal Reserve Board also has extensive enforcement authority over financial holding companies. In
general, the Federal Reserve Board may initiate enforcement actions for violations of laws and regulations and unsafe
or unsound practices. The Federal Reserve Board may assess civil money penalties, issue cease and desist or removal
orders and require that a financial holding company divest subsidiaries, including subsidiary banks. Peoples is also
required to file reports and other information with the Federal Reserve Board regarding its business operations and
those of its subsidiaries.
Subsidiary Bank
Peoples Bank is subject to regulation and examination primarily by the Office of the Comptroller of the Currency
(the "OCC") and secondarily by the Federal Reserve Board and the Federal Deposit Insurance Corporation (the
“FDIC”). OCC regulations govern permissible activities, capital requirements, dividend limitations, investments, loans
and other matters. The OCC has the authority to impose sanctions on Peoples Bank and, under certain circumstances,
may place Peoples Bank into receivership.
Peoples Bank is subject to certain restrictions imposed by the Federal Reserve Act and Federal Reserve Board
regulations regarding such matters as the maintenance of reserves against deposits, extensions of credit to the financial
holding company or any of its subsidiaries, investments in the stock or other securities of the financial holding
company or its subsidiaries and the taking of such stock or securities as collateral for loans to any borrower.
Non-Banking Subsidiaries
Peoples' non-banking subsidiaries are also subject to regulation by the Federal Reserve Board and other applicable
federal and state agencies. Peoples Insurance, as a licensed insurance agency, is subject to regulation by the Ohio
Department of Insurance and the state insurance regulatory agencies of those states where it may conduct business.
Other Regulatory Agencies
Securities and Exchange Commission (“SEC”) and NASDAQ Stock Market LLC (“NASDAQ”). Peoples is also
under the jurisdiction of the SEC and certain state securities commissions for matters relating to the offering
and sale of its securities. Peoples is subject to the disclosure and regulatory requirements of the Securities
Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and the regulations promulgated thereunder, as administered by the SEC. Peoples' common
shares are listed with NASDAQ under the symbol “PEBO” and Peoples is subject to the rules for NASDAQ
listed companies.
Federal Home Loan Bank. Peoples Bank is a member of the FHLB, which provides credit to its members in the
form of advances. As a member of the FHLB, Peoples Bank must maintain an investment in the capital stock
of the FHLB in a specified amount. Upon the origination or renewal of an advance, the FHLB is required by
law to obtain and maintain a security interest in certain types of collateral. The FHLB is required to establish
standards of community investment or service that its members must maintain for continued access to long-
term advances from the FHLB. The standards take into account a member's performance under the
Community Reinvestment Act of 1977 (the "CRA") and its record of lending to first-time homebuyers.
Federal Deposit Insurance Corporation /Depository Insurance. The FDIC is an independent federal agency which
insures the deposits, up to prescribed statutory limits, of federally-insured banks and savings associations and
safeguards the safety and soundness of the financial institution industry. Peoples Bank's deposits are insured
up to applicable limits by Deposit Insurance Fund of the FDIC and subject to deposit insurance assessments
to maintain the Deposit Insurance Fund.
On February 7, 2011, the FDIC approved a final rule that changed the deposit insurance assessment base
from domestic deposits to average assets minus average tangible equity, as required by the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), beginning with the second quarter of
2011. In addition, the final rule also adopted a new large-bank pricing assessment scheme and established a
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target size for the Deposit Insurance Fund. Specifically, the final rule set a target size for the Deposit
Insurance Fund at 2 percent of insured deposits and implements a lower assessment rate schedule when the
fund reaches 1.15 percent and, in lieu of dividends, provides for a lower rate schedule when the reserve ratio
reaches 2 percent and 2.5 percent.
The FDIC may terminate insurance coverage upon a finding that an insured depository institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition, or has violated any applicable
law, regulation, rule, order or condition enacted or imposed by the institution's regulatory agency.
U.S. Treasury and Special Inspector General. As a result of Peoples' participation in the TARP Capital Purchase
Program, Peoples was also subject in 2011 to the regulatory authority granted to the U.S. Treasury and the
Special Inspector General for the Troubled Assets Relief Program under the Emergency Economic
Stabilization Act of 2008 (“EESA”) and the American Recovery and Reinvestment Act of 2009 (the
“ARRA”), as discussed below under the caption “TARP Capital Purchase Program”.
Dodd-Frank Act
Federal regulators continue to implement many provisions of the Dodd-Frank Act, which was signed into law by
President Obama on July 21, 2010. The Dodd-Frank Act created many new restrictions and an expanded framework of
regulatory oversight for financial institutions, including depository institutions. Currently, federal regulators are still in
the process of drafting the implementing regulations for many portions of the Dodd-Frank Act. Peoples is closely
monitoring all relevant sections of the Dodd-Frank Act to ensure continued compliance with these regulatory
requirements. The following discussion summarizes significant aspects of the Dodd-Frank Act that may affect Peoples
and Peoples Bank:
•
•
•
•
•
•
•
•
•
•
•
the Consumer Financial Protection Bureau has been established and empowered to exercise broad regulatory,
supervisory and enforcement authority with respect to both new and existing consumer financial protection laws;
the Dodd-Frank Act restricts the preemption of state law by federal law and disallows subsidiaries and affiliates
of national banks from availing themselves of such preemption;
the deposit insurance assessment base for federal deposit insurance has been expanded from domestic deposits
to average assets minus average tangible equity;
the Dodd-Frank Act instructs appropriate federal banking agencies to make the capital requirements for banks
and savings and loan holding companies and insured depository institutions countercyclical so that the amount
of capital required to be maintained increases in times of economic expansion and decreases in times of economic
contraction, consistent with safety and soundness;
the prohibition on the payment of interest on demand deposits has been repealed, effective July 21, 2011, thereby
permitting depository institutions to pay interest on business transaction and other accounts;
the standard maximum amount of deposit insurance per customer has been permanently increased to $250,000
and non-interest-bearing transaction accounts have unlimited deposit insurance through January 1, 2013;
financial holding companies, such as Peoples, are required to be well capitalized and well managed and must
continue to be both well capitalized and well managed in order to acquire banks located outside their home state;
the Dodd-Frank Act extended the application to most bank holding companies of the same leverage and risk-
based capital requirements that apply to insured depository institutions, which, among other things, will disallow
treatment of trust preferred securities as Tier 1 capital under certain circumstances;
new corporate governance requirements, which are generally applicable to most larger public companies, now
require new compensation practices, including, but not limited to, providing shareholders the opportunity to cast
a non-binding vote on executive compensation, to consider the independence of compensation advisors and new
executive compensation disclosure requirements;
the Dodd-Frank Act amended the Electronic Fund Transfer Act to, among other things, give the Federal Reserve
Board the authority to establish rules regarding interchange fees charged for electronic debit transactions by
payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees
be reasonable and proportional to the actual cost of a transaction to the issuer; and
the authority of the Federal Reserve Board to examine financial holding companies and their non-bank
subsidiaries was expanded.
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Many aspects of the Dodd-Frank Act are still subject to rulemaking and will take effect over several years, making
it difficult to anticipate the overall financial impact on Peoples, its subsidiaries, their respective customers or the
financial services industry more generally.
Bank Holding Company Act
In general, the BHC Act limits the business of bank holding companies to banking, managing or controlling banks
and other activities that the Federal Reserve Board has determined to be so closely related to banking as to be a proper
incident thereto. As a result of the Gramm-Leach-Bliley Act of 1999 - also known as the Financial Services
Modernization Act of 1999 - which amended the BHC Act, bank holding companies that are financial holding
companies may engage in any activity, or acquire and retain the shares of a company engaged in any activity that is
either (1) financial in nature or incidental to such financial activity (as determined by the Federal Reserve Board in
consultation with the OCC) or (2) complementary to a financial activity, and that does not pose a substantial risk to the
safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal
Reserve Board). Activities that are financial in nature include securities underwriting and dealing, insurance
underwriting and making merchant banking investments. In 2002, Peoples elected, and received approval from the
Federal Reserve Board, to become a financial holding company.
In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire a
company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the
financial holding company must have received a rating of at least “satisfactory” in its most recent examination under
the CRA, which is more fully discussed in the section captioned “Community Reinvestment Act” included later in this
item. In addition, financial holding companies like Peoples are permitted to acquire companies engaged in activities
that are financial in nature and in activities that are incidental and complementary to financial activities without prior
Federal Reserve Board approval.
The BHC Act and other federal and state statutes regulate acquisitions of commercial banks. The BHC Act
requires the prior approval of the Federal Reserve Board for the direct or indirect acquisition of more than 5% of the
voting shares of a commercial bank or its parent holding company. Under the federal Bank Merger Act, the prior
approval of the OCC is required for a national bank to merge with another bank or purchase the assets or assume the
deposits of another bank. In reviewing applications seeking approval of merger and acquisition transactions, the bank
regulatory authorities will consider, among other things, the competitive effect and public benefits of the transactions,
the capital position of the combined organization, the applicant's performance record under the CRA and fair housing
laws and the effectiveness of the subject organizations in combating money laundering activities.
Under Federal Reserve Board policy, a financial holding company is expected to act as a source of financial
strength to each subsidiary bank and to commit resources to support each subsidiary bank. Under this policy, the
Federal Reserve Board may require a financial holding company to contribute additional capital to an undercapitalized
subsidiary bank and may disapprove of the payment of dividends to the shareholders if the Federal Reserve Board
believes the payment of such dividends would be an unsafe or unsound practice.
Capital Adequacy and Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, identifies
five capital categories for insured depository institutions and requires the respective federal regulatory agencies to
implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital
requirements within such categories. The federal regulatory agencies, including the Federal Reserve Board and the
OCC, have adopted substantially similar regulatory capital guidelines and regulations consistent with the requirements
of FDICIA, as well as established a system of prompt corrective action to resolve certain of the problems of
undercapitalized institutions. This system is based on five capital level categories for insured depository institutions:
“well capitalized”; “adequately capitalized”; “undercapitalized”; “significantly undercapitalized” and “critically
undercapitalized”.
The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a
bank's capital level. For example, the banking agencies must appoint a receiver or conservator for a bank within 90
days after it becomes “critically undercapitalized” unless the bank's primary regulator determines, with the
concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise
may be significantly affected depending on a bank's capital category. For example, a bank that is not “well
capitalized” generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than
the prevailing rate in its market, and the holding company of any undercapitalized bank must guarantee, in part,
specific aspects of the bank's capital plan for the plan to be acceptable.
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Both Peoples and Peoples Bank are subject to risk-based capital requirements and guidelines imposed by their
respective primary regulatory agencies. These capital guidelines and regulations are based on the 1998 capital accord
of the Basel Committee on Banking Supervision (the “Basel Committee”) and divide the capital of Peoples and
Peoples Bank into two tiers:
•
•
“Tier 1 capital” consists of (1) common shareholders' equity; (2) qualifying perpetual preferred stock and
trust preferred securities (up to 25% of total Tier 1 capital); and (3) minority interests in equity accounts of
consolidated subsidiaries, less goodwill and certain other deductions including intangible assets and net
unrealized gains and losses on available-for-sale securities.
“Tier 2 capital” consists primarily of allowance for loan losses and net unrealized gains on certain available-
for-sale equity securities, subject to limitations established by the guidelines, as well as any qualifying
perpetual preferred stock and trust preferred securities amounts excluded from Tier 1 capital. Tier 2 capital
may also include, among other things, certain amounts of hybrid capital instruments, mandatory convertible
debt and subordinated debt.
In addition, each asset on Peoples and Peoples Bank's balance sheets, as well as credit equivalent amounts of
certain derivatives and off-balance sheet items, are assigned to one of several broad risk weight categories: 0%, 20%,
50%, 100% and in some cases 200%, resulting in a calculation of “total risk-weighted assets”.
Peoples and Peoples Bank are required to maintain sufficient capital to meet both a risk-based asset ratio test and
leverage ratio test. From time to time, the regulatory agencies may require Peoples and Peoples Bank to maintain
capital above these minimum levels should certain conditions exist, such as deterioration of their financial condition or
growth in assets, either actual or expected. Additional information regarding Peoples and Peoples Bank's risk-based
capital requirements and ratios can be found in Note 17 of the Notes to the Consolidated Financial Statements.
In November 2007, the U.S. federal regulatory agencies adopted a definitive final rule for implementing new
capital standards - referred to as “Basel II” - which applied only to banking organizations and organizations with assets
of at least $250 billion or on-balance sheet foreign exposures of at least $10 billion. The Dodd-Frank Act requires the
Federal Reserve Board, the OCC and the FDIC to adopt regulations imposing a continuing “floor” of the Basel I-based
capital requirements in cases where any future changes in capital regulations would permit lower requirements. In
December 2010, the Federal Reserve Board, the OCC and the FDIC issued a joint notice of proposed rulemaking that
would implement this requirement for banks and bank holding companies larger than Peoples Bank and Peoples.
In December 2010, the Basel Committee released its final framework for strengthening international capital and
liquidity regulation, now officially identified by the Basel Committee as “Basel III”. Basel III, when implemented by
the U.S. banking agencies and fully phased-in, will require bank holding companies and their bank subsidiaries to
maintain substantially more capital, with a greater emphasis on common equity. However, the U.S. federal regulatory
agencies are considering the extent to which Basel III principles will be applied to smaller bank holding companies
and banks, such as Peoples and Peoples Bank.
The Basel III final capital framework, among other things, (1) introduces as a new capital measure “Common
Equity Tier 1” (“CET1”); (2) specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments
meeting specified requirements; (3) defines CET1 narrowly by requiring that most adjustments to regulatory capital
measures be made to CET1 and not to the other components of capital and (4) expands the scope of the adjustments as
compared to existing regulations, including establishing the concept of a “capital conservation buffer” and
“countercyclical capital buffer”.
The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking
institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the conservation buffer (or
below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face
constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The
implementation of the capital conservation buffer will begin on January 1, 2016 at 0.625% and be phased in over a
four-year period, increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019.
The countercyclical capital buffer generally is to be imposed when national regulators determine that excess
aggregate credit growth becomes associated with a buildup of systemic risk. This amount would be a CET1 add-on to
the capital conservation buffer in the range of 0% to 2.5% when fully implemented - potentially resulting in total
buffers of between 2.5% and 5%.
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The Basel III final framework provides for a number of new deductions from and adjustments to CET1. These
include, for example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable
income and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that
any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.
Implementation of the deductions and other adjustments to CET1 will begin on January 1, 2014, and will be phased-in
over a five-year period (20% per year).
As previously noted, the implementation of the Basel III final framework will be phased-in over the period of
January 1, 2013, to January 1, 2019. During this period, the minimum capital ratios banking institutions will be
required to maintain, including any required capital conservation buffer, will increase as follows:
Capital Ratio
CETI to risk-weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Current
Amount
none
4%
8%
As of
January 1,
2013
2019
3.5%
4.5%
8%
7%
8.5%
10.5%
Notwithstanding its release of the Basel III framework as a final framework, the Basel Committee is considering
further amendments to Basel III, including the imposition of additional capital surcharges on globally systemically
important financial institutions. In addition to Basel III, the Dodd-Frank Act requires or permits the federal banking
agencies to adopt regulations affecting banking institutions' capital requirements in a number of respects, including
potentially more stringent capital requirements for systemically important financial institutions. Accordingly, the
regulations ultimately applicable to Peoples may be substantially different from the Basel III final framework as
published in December 2010.
Community Reinvestment Act
The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent with
safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs
of its market areas by, among other things, providing credit to low and moderate-income individuals and communities.
Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. As of
December 31, 2011, the OCC's most recent performance evaluation of Peoples Bank resulted in an overall rating of
“Satisfactory”.
TARP Capital Purchase Program
Pursuant to its authority under EESA, the U.S. Treasury created the TARP Capital Purchase Program under which
the U.S. Treasury was authorized to invest up to $250 billion in senior preferred stock of U.S. banks and savings
associations or their holding companies. As discussed in more detail in Note 11 of the Notes to the Consolidated
Financial Statements, Peoples elected to participate in the TARP Capital Purchase Program and sold the Series A
Preferred Shares and the Warrant for $39 million to the U.S. Treasury on January 30, 2009. As part of its participation
in the TARP Capital Purchase Program, Peoples agreed that, until such time as the U.S. Treasury ceased to own any
debt or equity securities of Peoples acquired pursuant to the TARP Capital Purchase Program (other than the Warrant if
the U.S. Treasury ceased to own the Series A Preferred Shares), Peoples would be subject to various requirements and
restrictions imposed on TARP Capital Purchase Program participants, including, but not limited to, restrictions on
common share dividends and repurchases. Thereafter, on February 17, 2009, President Obama signed into law the
ARRA enacted by the U.S. Congress. The ARRA, among other things, imposed certain new executive compensation
and corporate expenditure limits on all current and future TARP Capital Purchase Program recipients.
On February 2, 2011, Peoples completed a partial repurchase of the Series A Preferred Shares issued to the U.S.
Treasury. Thereafter, on December 28, 2011, Peoples completed the repurchase of the Series A Preferred Shares issued
to the U.S. Treasury. On February 15, 2012, Peoples completed the repurchase of the Warrant issued to the U.S.
Treasury.
Dividend Restrictions
Current federal banking regulations impose restrictions on Peoples Bank's ability to pay dividends to Peoples.
These restrictions include a limit on the amount of dividends that may be paid in a given year without prior approval of
the OCC and a prohibition on paying dividends that would cause Peoples Bank's total capital to be less than the
required minimum levels under the risk-based capital requirements imposed by the OCC. Peoples Bank's regulators
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may prohibit the payment of dividends at any time if the regulators determine the dividends represent unsafe and/or
unsound banking practices or reduce Peoples Bank's total capital below adequate levels. For further discussion
regarding regulatory restrictions on dividends, see Note 17 of the Notes to the Consolidated Financial Statements.
Peoples' ability to pay dividends to its shareholders may also be restricted. Current Federal Reserve Board policy
requires a financial holding company to act as a source of financial strength to each of its banking subsidiaries. Under
this policy, the Federal Reserve Board may require Peoples to commit resources or contribute additional capital to
Peoples Bank, which could restrict the amount of cash available for dividends. The Federal Reserve Board requires a
bank holding company to provide advance notification of, and obtain approval for, the declaration and payment of
dividends to common shareholders under certain conditions.
Peoples also has entered into certain agreements that place restrictions on dividends. Specifically, Peoples will be
prohibited from paying dividends on its common shares if it suspends interest payments related to the trust preferred
securities issued by its trust subsidiary. Additional information regarding Peoples' trust subsidiary can be found in
Note 10 of the Notes to the Consolidated Financial Statements.
Even when the legal ability exists, Peoples or Peoples Bank may decide to limit the payment of dividends in order
to retain earnings for corporate use.
Customer Privacy and Other Consumer Protections
Peoples Bank is subject to regulations limiting the ability of financial institutions to disclose non-public
information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to
consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a
nonaffiliated party. Peoples Bank is also subject to numerous federal and state laws aimed at protecting consumers,
including the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Equal Credit
Opportunity Act, the Truth in Lending Act, the Bank Secrecy Act, the Community Reinvestment Act and the Fair
Credit Reporting Act.
USA Patriot Act
The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (the “USA Patriot Act”) and related regulations, among other things, require financial
institutions to establish programs specifying procedures for obtaining identifying information from customers and
establishing enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity.
Peoples Bank has established policies and procedures that Peoples believes comply with the requirements of the USA
Patriot Act.
Monetary Policy
The Federal Reserve Board regulates money and credit conditions and interest rates in order to influence general
economic conditions primarily through open market operations in U.S. government securities, changes in the discount
rate on bank borrowings, and changes in the reserve requirements against depository institutions' deposits. These
policies and regulations significantly affect the overall growth and distribution of loans, investments and deposits, as
well as interest rates charged on loans and paid on deposits.
The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of
financial institutions in the past and are expected to continue to have significant effects in the future. In view of the
changing conditions in the economy, the money markets and the activities of monetary and fiscal authorities, Peoples
can make no definitive predictions as to future changes in interest rates, credit availability or deposit levels.
Executive and Incentive Compensation
In June 2010, the Federal Reserve Board, the OCC and the FDIC issued joint interagency guidance on incentive
compensation policies (the “Joint Guidance”) intended to ensure that the incentive compensation policies of banking
organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
This principles-based guidance, which covers all employees that have the ability to materially affect the risk profile of
an organization, either individually or as part of a group, is based upon the key principles that a banking organization's
incentive compensation arrangements should: (1) provide incentives that do not encourage risk-taking beyond the
organization's ability to effectively identify and manage risks; (2) be compatible with effective internal controls and
risk management; and (3) be supported by strong corporate governance, including active and effective oversight by the
organization's board of directors.
Pursuant to the Joint Guidance, the Federal Reserve Board will review as part of a regular, risk-focused
examination process, the incentive compensation arrangements of financial institutions such as Peoples. Such reviews
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will be tailored to each organization based on the scope and complexity of the organization's activities and the
prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in
reports of examination and deficiencies will be incorporated into the institution's supervisory ratings, which can affect
the institution's ability to make acquisitions and take other actions. Enforcement actions may be taken against an
institution if its incentive compensation arrangements, or related risk-management control or governance processes,
pose a risk to the organization's safety and soundness and prompt and effective measures are not being taken to correct
the deficiencies.
On February 7, 2011, federal banking regulatory agencies jointly issued proposed rules on incentive-based
compensation arrangements under applicable provisions of the Dodd-Frank Act (the “Proposed Rules”). The Proposed
Rules generally apply to financial institutions with $1.0 billion or more in assets that maintain incentive-based
compensation arrangements for certain covered employees. The Proposed Rules: (i) prohibit covered financial
institutions from maintaining incentive-based compensation arrangements that encourage covered persons to expose
the institution to inappropriate risk by providing the covered person with “excessive” compensation; (ii) prohibit
covered financial institutions from establishing or maintaining incentive-based compensation arrangements for
covered persons that encourage inappropriate risks that could lead to a material financial loss; (iii) require covered
financial institutions to maintain policies and procedures appropriate to their size, complexity and use of incentive-
based compensation to help ensure compliance with the Proposed Rules; and (iv) require covered financial institutions
to provide enhanced disclosure to regulators regarding their incentive-based compensation arrangements for covered
persons within 90 days following the end of the fiscal year. Final rules related to incentive-based compensation
arrangements are excepted to be issued in the latter half of 2012.
Public companies will also be required, once stock exchanges impose additional listing requirements under the
Dodd-Frank Act, to implement “clawback” procedures for incentive compensation payments and to disclose the details
of the procedures which allow recovery of incentive compensation that was paid on the basis of erroneous financial
information necessitating a restatement due to material noncompliance with financial reporting requirements. This
clawback policy is intended to apply to compensation paid within a three-year look-back window of the restatement
and would cover all executives who received incentive awards.
The Dodd-Frank Act also provides shareholders the opportunity to cast a non-binding vote on executive
compensation practices, imposes new executive compensation disclosure requirements, and contains additional
considerations of the independence of compensation advisors.
Future Legislation
Various and significant legislation affecting financial institutions and the financial industry is from time to time
introduced by the U.S. Congress, as evidenced by the sweeping reforms in the Dodd-Frank Act adopted in 2010. Such
legislation may continue to change banking statutes and the operating environment of Peoples and its subsidiaries in
substantial and unpredictable ways, and could significantly increase or decrease costs of doing business, limit or
expand permissible activities or affect the competitive balance among financial institutions. With the enactment of the
Dodd-Frank Act and the continuing implementation of final rules and regulations thereunder, the nature and extent of
future legislative and regulatory changes affecting financial institutions remains very unpredictable.
Website Access to Peoples' SEC Filings
Peoples maintains an Internet website at www.peoplesbancorp.com (this uniform resource locator, or URL, is an
inactive textual reference only and is not intended to incorporate Peoples' Internet website into this Form 10-K). Peoples
makes available free of charge on or through its website, its annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, as soon as reasonably practicable after Peoples electronically files each such report or amendment with, or
furnishes it to, the SEC.
ITEM 1A. RISK FACTORS
The following are certain risks that management believes are specific to Peoples' business. This should not be viewed
as an all-inclusive list of risks or presenting the risk factors listed in any particular order. Additional risks that are not
presently known or that Peoples presently deems to be immaterial could also have a material, adverse impact on Peoples'
business, financial condition or results of operations.
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• Conditions in the financial markets, the real estate markets and economic conditions generally may adversely
affect Peoples' business.
Beginning in the latter half of 2007 and continuing throughout 2011, negative developments in the capital markets
resulted in uncertainty in the financial markets and an economic downturn. Business activity across a wide range of
industries and regions decreased substantially causing the U.S. economy to be in a recession from December 2007
through June 2009. Since 2007, the general housing market also has been weak, resulting in decreased home prices
and increased delinquencies and foreclosures. These conditions caused significant write-downs of asset values by
financial institutions, including government-sponsored entities and major commercial and investment banks. These
write-downs have caused many financial institutions to seek additional capital or to merge with larger and stronger
institutions. Some financial institutions have failed.
Peoples' financial performance generally is highly dependent upon the business environment and economic
conditions in the markets where it operates and, to a lesser extent, the U.S as a whole. The local economies of the
majority of Peoples' market area historically have been less robust than the economy of the nation as a whole and
typically are not subject to the same fluctuations as the national economy. In general, a favorable business
environment and economic conditions are generally characterized by, among other factors, economic growth, efficient
capital markets, low inflation, low unemployment, high business and investor confidence, and strong business
earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth,
business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and
capital; increases in inflation or interest rates; high unemployment; natural disasters; or a combination of these or other
factors.
Overall, the business environment and general economic conditions in 2011 were adverse for many households
and businesses in the U.S. and worldwide. While some economic indicators show signs of improvement, many
businesses, states and municipalities are still in serious difficulty, due to reduced cash flow and weakened financial
condition. Further, there can be no assurance this improvement will continue. A lack of a return to favorable
economic conditions in a reasonable timeframe could have an adverse affect on Peoples' asset quality, deposit levels
and loan demand and, therefore, Peoples' financial condition and results of operations. Because a significant amount
of Peoples' loans are secured by either commercial or residential real estate, additional decreases in real estate values
could adversely affect the value of property used as collateral and Peoples' ability to sell the collateral upon
foreclosure.
• Legislative or regulatory changes or actions, or significant litigation, could adversely impact Peoples or the
businesses in which it is engaged.
The banking industry is heavily regulated under both federal and state law. Peoples is subject to regulation and
supervision by the Federal Reserve Board, and Peoples Bank is subject to regulation and supervision by the OCC, and
secondarily the FDIC. These regulations are primarily intended to protect depositors and the Deposit Insurance Fund,
not Peoples' common shareholders. Peoples' non-bank subsidiaries are also subject to the supervision of the Federal
Reserve Board, in addition to other regulatory and self-regulatory agencies, including the SEC and state securities and
insurance regulators.
Regulations affecting banks and financial services businesses are undergoing continuous change, and management
cannot predict the effect of those changes. The impact of any changes to laws and regulations or other actions by
regulatory agencies could adversely affect Peoples' business. Regulatory authorities have extensive discretion in
connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation
of an institution, the classification of assets and the adequacy of an institution's allowance for loan losses. Additionally,
actions by regulatory agencies or significant litigation against Peoples could cause Peoples to devote significant time
and resources to defending its business and may lead to penalties that materially affect Peoples and its shareholders.
Further information about government regulation of Peoples' business can be found under the caption “Supervision
and Regulation” in Item 1 of this Form 10-K.
• The recently enacted Dodd-Frank Act may adversely impact Peoples' results of operations, financial condition
or liquidity.
On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act represents a comprehensive
overhaul of the financial services industry within the U.S. There are a number of reform provisions that are likely to
significantly impact the ways in which banks and bank holding companies, including Peoples and Peoples Bank, do
business. Many provisions of the Dodd-Frank Act will not be implemented immediately and will require interpretation
and rule making by federal regulators. Peoples is closely monitoring all relevant sections of the Dodd-Frank Act to
ensure continued compliance with laws and regulations. While the ultimate effect of the Dodd-Frank Act on Peoples
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and Peoples Bank cannot currently be determined, the law and its implementing rules and regulations are likely to
result in increased compliance costs and fees paid to regulators, along with possible restrictions on Peoples' and
Peoples Bank's operations, all of which may have a material adverse affect on Peoples' operating results and financial
condition. A detailed discussion regarding the Dodd-Frank Act can be found under the caption “Supervision and
Regulation” in Item 1 of this Form 10-K.
• Removal or reduction in stimulus activities or financial stabilization efforts by the federal government and
other agencies may significantly affect Peoples' financial condition and results of operations.
The Federal Reserve Board, the U.S. Congress, the U.S. Treasury, the FDIC and others have taken numerous
actions to stimulate economic activity, as well as address the current liquidity and credit situation in the financial
markets. These measures include actions to encourage loan restructuring and modification for homeowners; the
establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering
of the federal funds rate; and coordinated efforts to address liquidity and other weaknesses in the banking sector.
The long-term effect of actions already taken as well as new legislation is unknown. Continued or renewed
instability in the financial markets could weaken public confidence in financial institutions and adversely affect
Peoples' ability to attract and retain new customers. Further, the removal or reduction in any of the economic stimulus
or financial stabilization programs could cause higher market interest rates, which may have an adverse affect on
Peoples' business, earnings and financial condition.
• Defaults by larger financial institutions could adversely affect Peoples' business, earnings and financial
condition.
The commercial soundness of many financial institutions may be closely interrelated as a result of relationships
between and among the institutions. As a result, concerns about, or a default or threatened default by, one institution
could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This
“systemic risk” may adversely affect Peoples' business.
Additionally, Peoples' investment portfolio continues to include investments in individual bank-issued trust
preferred securities. Under current market conditions, the fair value of these security types is based predominately on
the present value of cash flows expected to be received in future periods. Significant defaults by other financial
institutions could adversely affect conditions within the financial services industry, thereby causing investors to require
higher rates of return for these investments. These factors could cause Peoples to recognize additional impairment
losses on its investment in bank-issued trust preferred securities in future periods.
• Increases in FDIC insurance premiums may have a material adverse affect on Peoples' earnings.
The number of bank failures has increased significantly since 2007, which dramatically increased resolution costs
of the FDIC and depleted the Deposit Insurance Fund. Also during this period, the FDIC and the U.S. Congress have
instituted two programs to further insure customer deposits at FDIC-member banks: deposit accounts are now insured
up to $250,000 per customer (up from $100,000) and non-interest-bearing transactional accounts are fully insured
(unlimited coverage) until the end of 2012. These actions have placed additional stress on the Deposit Insurance Fund.
Since late 2008, the FDIC has taken various actions intended to maintain a strong funding position and restore
reserve ratios of the Deposit Insurance Fund. These actions have included increasing assessment rates for all insured
institutions, requiring riskier institutions to pay a larger share of premiums by factoring in rate adjustments based on
secured liabilities and unsecured debt levels, imposing a special assessment on all insured depository institutions for
the second quarter of 2009 and requiring insured depository institutions to prepay their quarterly risk-based
assessments for the fourth quarter of 2009 and full years 2010 through 2012. On February 7, 2011, the FDIC approved
a final rule that changed the deposit insurance assessment base and assessment rate schedule, adopted a new large-
bank pricing assessment scheme, and set a target size for the Deposit Insurance Fund. The rule, as mandated by the
Dodd-Frank Act, finalized a target size for the Deposit Insurance Fund at 2 percent of insured deposits. The final rule
went into effect beginning with the second quarter of 2011. Management does not expected these changes to have a
material adverse effect on Peoples' future results of operations given the current structure of Peoples Bank's balance
sheet.
Peoples Bank has limited ability to control the amount of premiums it is required to pay for FDIC insurance. If
there are additional financial institution failures, the FDIC may be required to increase assessment rates or take actions
similar to those taken during 2009. As a result, insured depository institutions, including Peoples Bank, may be
required to pay even higher FDIC premiums in future periods. Increases in FDIC insurance premiums may have a
material adverse effect on Peoples' results of operations and ability to continue to pay dividends on its common shares
at the current rate or at all.
17
• Changes in interest rates may adversely affect Peoples' profitability.
Peoples' earnings are dependent to a significant degree on net interest income, which is the amount by which
interest income exceeds interest expense. Interest rates are highly sensitive to many factors that are beyond Peoples'
control, including general economic conditions and policies of various governmental and regulatory agencies and, in
particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, could influence
not only the interest Peoples receives on loans and securities and the amount of interest it pays on deposits and
borrowings, but such changes could also affect (i) Peoples' ability to originate loans and obtain deposits, (ii) the fair
value of Peoples' financial assets and liabilities, and (iii) the average duration of Peoples' mortgage-backed securities
portfolio. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates
received on loans and other investments, Peoples' net interest income and, therefore, earnings could be adversely
affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall
more quickly than the interest rates paid on deposits and other borrowings.
Management uses various measures to monitor interest rate risk and believes it has implemented effective asset
and liability management strategies to reduce the potential effects of changes in interest rates on Peoples' results of
operations. Management also periodically adjusts the mix of assets and liabilities to manage interest rate risk.
However, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect
on Peoples' financial condition and results of operations. See the sections captioned “Interest Income and Expense”
and “Interest Rate Sensitivity and Liquidity” in Item 7 of this Form 10-K for further discussion related to Peoples'
interest rate risk.
• Peoples' exposure to credit risk could adversely affect Peoples' earnings and financial condition.
There are certain risks inherent in making loans. These risks include interest rate changes over the time period in
which loans may be repaid, risks resulting from changes in the economy, risks inherent in dealing with borrowers and,
in the case of loans secured by collateral, risks resulting from uncertainties about the future value of the collateral.
Commercial and commercial real estate loans comprise a significant portion of Peoples' loan portfolio.
Commercial loans generally are viewed as having a higher credit risk than residential real estate or consumer loans
because they usually involve larger loan balances to a single borrower and are more susceptible to a risk of default
during an economic downturn. Since Peoples' loan portfolio contains a significant number of commercial and
commercial real estate loans, the deterioration of one or a few of these loans could cause a significant increase in
nonperforming loans, and ultimately could have a material adverse effect on Peoples' earnings and financial condition.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, Peoples
may rely on information provided to us by customers and counterparties, including financial statements and other
financial information. Peoples may also rely on representations of customers and counterparties as to the accuracy and
completeness of that information and, with respect to financial statements, on reports of independent auditors. For
example, in deciding whether to extend credit to a business, Peoples may assume that the customer's audited financial
statements conform with accounting principles generally accepted in the United States (“US GAAP”) and present
fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Peoples
may also rely on the audit report covering those financial statements. Peoples' financial condition, results of
operations and cash flows could be negatively impacted to the extent that Peoples relies on financial statements that do
not comply with US GAAP or on financial statements and other financial information that are materially misleading.
• Peoples' allowance for loan losses may be insufficient.
Peoples maintains an allowance for loan losses to provide for probable loan losses based on management's
quarterly analysis of the loan portfolio. The determination of the allowance for loan losses requires management to
make various assumptions and judgments about the collectibility of Peoples' loan portfolio, including the
creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the
repayment of loans. Additional information regarding Peoples' allowance for loan losses methodology and the
sensitivity of the estimates can be found in the discussion of Peoples' “Critical Accounting Policies” included in Item 7
of this Form 10-K.
Peoples' estimation of future loan losses is susceptible to changes in economic, operating and other conditions,
including changes in interest rates, which may be beyond Peoples' control, and these losses may exceed current
estimates. Peoples cannot be assured of the amount or timing of losses nor whether the loan loss allowance will be
adequate in the future.
If Peoples' assumptions prove to be incorrect, Peoples' allowance for loan losses may not be sufficient to cover
losses inherent in its loan portfolio, resulting in additions which could have a material adverse impact on Peoples'
18
financial condition and results of operations. In addition, federal and state regulators periodically review Peoples'
allowance for loan losses as part of their examination process and may require management to increase the allowance
or recognize further loan charge-offs based on judgments different than those of management. Any increase in the
provision for loan losses would decrease Peoples' pretax and net income.
• Changes in accounting standards, policies, estimates or procedures may impact Peoples' reported financial
condition or results of operations.
The accounting standard setters, including the Financial Accounting Standards Board, the SEC and other
regulatory bodies, periodically change the financial accounting and reporting standards that govern the preparation of
Peoples' Consolidated Financial Statements. These changes can be difficult to predict and can materially impact how
Peoples records and reports its financial condition and results of operations. In some cases, Peoples could be required
to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to
make significant estimates that affect the financial statements. Due to the inherent nature of these estimates, actual
results may vary materially from management's estimates. Additional information regarding Peoples' critical
accounting policies and the sensitivity of estimates can be found in the section captioned “Critical Accounting
Policies” in Item 7 of this Form 10-K.
• Peoples and Peoples Bank may elect or be compelled to seek additional capital in the future, but that capital
may not be available when it is needed.
Peoples and Peoples Bank are required by federal and state regulatory authorities to maintain adequate levels of
capital to support their operations. If capital requirements are raised or if Peoples Bank experiences loan losses,
additional capital may be needed. In addition, Peoples and Peoples Bank may elect to raise additional capital to
support their businesses or to finance acquisitions, if any, or for other as yet unanticipated reasons. Their ability to
raise additional capital, if needed, will depend on financial performance, conditions in the capital markets, economic
conditions and a number of other factors, many of which are outside their control. Therefore, there can be no assurance
additional capital can be raised when needed or that capital can be raised on acceptable terms. The inability to raise
capital may have a material adverse effect on Peoples' financial condition, results of operations and prospects.
• The financial services industry is very competitive.
Peoples experiences significant competition in originating loans, principally from other commercial banks,
savings associations and credit unions. Several of Peoples' competitors have greater resources, larger branch systems
and a wider array of banking services. This competition could reduce Peoples' net income by decreasing the number
and size of loans that Peoples originates and the interest rates it may charge on these loans. Moreover, technology and
other changes are allowing businesses and individuals to utilize alternative methods to complete financial transactions
that historically have involved banks. For example, consumers can now maintain funds in brokerage accounts or
mutual funds that in the past had been held as bank deposits. Consumers can also complete transactions such as
paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating the use of
banks to complete financial transactions could result in the loss of fee income, as well as the loss of customer deposits
and the related income generated from those deposits. The loss of these revenue streams and lower cost deposits as a
source of funds could have a material adverse effect on Peoples' financial condition and results of operations. For a
more complete discussion of Peoples' competitive environment, see “Competition” in Item 1 of this Form 10-K. If
Peoples is unable to compete effectively, Peoples would lose market share, which could reduce income generated from
deposits, loans and other products.
• Peoples' ability to pay dividends is limited.
Peoples is a separate and distinct legal entity from Peoples' subsidiaries. Peoples receives nearly all of its revenue
from dividends from Peoples Bank, which are limited by federal banking laws and regulations. These dividends also
serve as the primary source of funds to pay dividends on Peoples' common shares. The inability of Peoples Bank to
pay sufficient dividends to Peoples could have a material, adverse effect on its business. Further discussion of Peoples'
ability to pay dividends can be found under the caption “Supervision and Regulation - Dividend Restrictions” in Item
1 of this Form 10-K and Note 17 of the Notes to the Consolidated Financial Statements.
• Peoples' business could be adversely affected by material breaches in security of its systems.
Peoples collects, processes and stores sensitive consumer data by utilizing computer systems and
telecommunications networks operated by both Peoples and third party service providers. Peoples has security and
backup and recovery systems in place, as well as a business continuity plan, to ensure the computer systems will not
be inoperable, to the extent possible. Peoples also has implemented security controls to prevent unauthorized access to
19
the computer systems and requires Peoples' third party service providers to maintain similar controls. However,
management cannot be certain these measures will be successful. A security breach of the computer systems and
release of confidential information, such as customer account numbers and related information, could negatively affect
customers' confidence in Peoples, which may cause a loss of business, and could result in Peoples' incurring financial
losses for any fraudulent transactions completed by third parties due to the security breach.
• Anti-takeover provisions may delay or prevent an acquisition or change in control by a third party.
Provisions in the Ohio General Corporation Law and Peoples' Amended Articles of Incorporation and Code of
Regulations, including a staggered board and a supermajority vote requirement for significant corporate changes,
could discourage potential takeover attempts and make attempts by shareholders to remove Peoples' Board of
Directors and management more difficult. These provisions may also have the effect of delaying or preventing a
transaction or change in control that might be in the best interests of Peoples' shareholders.
• Peoples and its subsidiaries are subject to examinations and challenges by tax authorities.
In the normal course of business, Peoples and its subsidiaries are routinely subject to examinations and challenges
from federal and state tax authorities regarding positions taken regarding their respective tax returns. State tax
authorities have become increasingly aggressive in challenging tax positions taken by financial institutions, especially
those positions relating to tax compliance and calculation of taxes subject to apportionment. Any challenge or
examination by a tax authority may result in adjustments to the timing or amount of taxable net worth or taxable
income or deductions or the allocation of income among tax jurisdictions.
Management believes it has taken appropriate positions on all tax returns filed, to be filed or not filed and does not
anticipate any examination would have a material impact on Peoples' Consolidated Financial Statements. However,
the outcome of such examinations and ultimate resolution of any resulting assessments are inherently difficult to
predict. Thus, no assurance can be given that Peoples' tax liability for any tax year open to examination will not be
different than what is reflected in Peoples' current and historical Consolidated Financial Statements. Further
information can be found in the “Critical Accounting Policies - Income Taxes” section of “Management's Discussion
and Analysis of Financial Condition and Results of Operations” included in this Form 10-K.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Peoples' sole banking subsidiary, Peoples Bank, generally owns its offices, related facilities and unimproved real
property. In Ohio, Peoples Bank operates offices in Marietta (4 offices), Belpre (2 offices), Lowell, Reno, New
Philadelphia, Nelsonville, Athens (3 offices), The Plains, Middleport, Pomeroy (2 offices), Gallipolis, Cambridge (2
offices), Byesville, Caldwell, McConnelsville, Baltimore, Carroll, Lancaster (2 offices), Westerville and Zanesville. In
West Virginia, Peoples Bank operates offices in Charleston, Huntington (2 offices), New Martinsville (2 offices),
Parkersburg (3 offices), Point Pleasant (2 offices), Steelton and Vienna. In Kentucky, Peoples Bank's office locations
include Greenup, Summit, Ashland and Russell. Of these 45 offices, 16 are leased and the rest are owned by Peoples Bank.
In the first quarter of 2012, Peoples will consolidate its offices in Steelton, Middleport and Carroll into nearby offices.
Each of these offices were owned by Peoples and current plans are to sell these properties in the future.
Peoples Insurance Agency rents office space in various Peoples Bank offices. In addition, Peoples Insurance Agency
leases office buildings in Marietta, Ohio, and Ashland, Kentucky.
Rent expense on the leased properties totaled $916,000 in 2011, which excludes intercompany rent expense. The
following are the only properties that have a lease term expiring on or before June 2013:
Location
Athens Union Street
Address
152 W Union Street
Athens, Ohio
20
Lease Expiration Date (a)
January 2012
Location
Marietta Kroger
New Philadelphia
Athens Mall
Charleston
Putnam Agency
The Plains
Westerville
Address
40 Acme Street
Marietta, Ohio
136 1/2 2nd Street NE
New Philadelphia, Ohio
801 East State Street
Athens, Ohio
10 Hale Street, Suite 410
Charleston, West Virginia
1557 Winchester Avenue
Ashland, Kentucky
70 N. Plains Road
The Plains, Ohio
515 Executive Campus Drive
Westerville, Ohio
Lease Expiration Date (a)
March 2012
April 2012
June 2012
July 2012
September 2012
December 2012
March 2013
(a) Information represents the ending date of the current lease period. Peoples may have the option to renew the lease
beyond this date under the terms of the lease agreement and intends to renew all expiring leases unless otherwise disclosed
in this Item 2.
Additional information concerning the property and equipment owned or leased by Peoples and its subsidiaries is
incorporated herein by reference from Note 5 of the Notes to the Consolidated Financial Statements.
ITEM 3. 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 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 4. MINE SAFETY DISCLOSURES
Not applicable.
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Peoples' common shares are traded on The NASDAQ Global Select Market® under the symbol PEBO. At
December 31, 2011, Peoples had 1,115 shareholders of record. The table presented below provides the high and low sales
prices for Peoples' common shares as reported on The NASDAQ Global Select Market® and the cash dividends per share
declared for the indicated periods.
2011
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Sales
Low
Sales
Dividends
Declared
$
15.33
$
10.00
$
13.00
13.94
16.07
9.51
10.43
11.78
$
16.98
$
11.54
$
17.60
19.02
17.72
11.13
12.82
9.25
0.10
0.10
—
0.10
0.10
0.10
0.10
0.10
Peoples plans to continue to pay quarterly cash dividends, subject to certain regulatory restrictions described in Note
17 of the Notes to the Consolidated Financial Statements, as well as in the section captioned “Supervision and Regulation –
Dividend Restrictions” of Item 1 of this Form 10-K. On April 28, 2011, Peoples' Board of Directors adopted a new
schedule for declaring dividends with respect to Peoples' common shares. Effective with the quarterly period ending June
30, 2011, Peoples' Board of Directors will determine whether financial conditions warrant the declaration of dividends in
respect of common shares at the meeting of Peoples' Board of Directors held during the first month of the following
calendar quarter. Such dividends, if declared, would then be paid to shareholders in the following month. Previously, the
Board of Directors of Peoples had declared a cash dividend in respect of Peoples' common shares, when appropriate, in the
third month of each calendar quarter. This change resulted in no dividends being declared during the second quarter of
2011 as the dividend with respect to second quarter earnings was declared in July versus June under the previous schedule.
Issuer Purchases of Equity Securities
The following table details repurchases by Peoples and purchases by “affiliated purchasers” as defined in Rule 10b-18
(a)(3) of the Securities Exchange Act of 1934, as amended, of Peoples’ common shares during the three months ended
December 31, 2011:
(a)
Total
Number of
Common
Shares
Purchased
(b)
Average Price
Paid per Share
(2)
(2)
(2)
431
1,234
366
2,031
$
$
$
$
(2)
(2)
(2)
12.74
12.15
15.00
12.79
(c)
Total Number of
Common Shares
Purchased as Part of
Publicly Announced
Plans or Programs (1)
—
—
—
—
(d)
Maximum
Number of Common
Shares that May Yet
Be Purchased Under
the Plans or
Programs (1)
—
—
—
—
Period
October 1 – 31, 2011
November 1 – 30, 2011
December 1 – 31, 2011
Total
(1) Peoples’ Board of Directors did not authorized any stock repurchase plans or programs for 2011, due in part to the
restrictions on stock repurchases imposed by the terms of the TARP Capital Purchase Program.
22
(2) Information reflects solely common shares purchased in open market transactions by Peoples Bank under the Rabbi
Trust Agreement establishing a rabbi trust holding assets to provide funds for the payment of the benefits under the
Peoples Bancorp Inc. Second Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp
Inc. and Subsidiaries.
Performance Graph
The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed”
with the Securities and Exchange Commission, nor shall such information be deemed to be incorporated by reference into
any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the
extent that Peoples specifically incorporates the Performance Graph by reference into such filing.
The following line graph compares the five-year cumulative total shareholder return of Peoples' common shares, based
on an initial investment of $100 on December 31, 2006, and assuming reinvestment of dividends, against that of an index
comprised of all domestic common shares traded on The NASDAQ Stock Market (“NASDAQ Stocks (U.S. Companies)”),
and an index comprised of all depository institutions (SIC Code #602) and depository institution holding companies (SIC
Code #671) that are traded on The NASDAQ Stock Market (“NASDAQ Bank Stocks”).
COMPARISON OF FIVE-YEAR TOTAL RETURN AMONG
PEOPLES BANCORP INC., NASDAQ STOCKS (U.S. COMPANIES),
AND NASDAQ BANK STOCKS
Peoples Bancorp Inc.
NASDAQ Stocks (U.S. Companies)
NASDAQ Bank Stocks
2006
100.00
100.00
100.00
$
$
$
$
$
$
2007
86.75
108.47
79.26
$
$
$
At December 31,
2009
2008
2010
2011
69.72
66.35
57.79
$
$
$
37.27
95.38
48.42
$
$
$
62.08
113.19
57.29
$
$
$
60.57
113.81
51.19
23
ITEM 6. SELECTED FINANCIAL DATA
The information below has been derived from Peoples' Consolidated Financial Statements.
Operating Data
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net impairment loss on investment securities
Net (loss) gain on securities and asset transactions
Total non-interest income
FDIC insurance expense
Other non-interest expense
Preferred dividends (e)
Net income available to common shareholders
Balance Sheet Data
Total assets
Investment securities
Gross loans
Allowance for loan losses
Total intangible assets
Non-interest-bearing deposits
Retail interest-bearing deposits
Brokered deposits
Short-term borrowings
Long-term borrowings
Junior subordinated notes held by subsidiary trusts
Preferred stockholders' equity (e)
Common stockholders' equity
Tangible assets (d)
Tangible equity (d)
Tangible common equity (d)
Per Common Share Data
Earnings (loss) per share – Basic
Earnings (loss) per share – Diluted
Cash dividends declared per share
Book value per share (c)
Tangible book value per share (c) (d)
2011
At or For the Year Ended December 31,
2009
2010
2008
2007
$
75,133
$
89,335
$
102,105
$
106,227
$
113,419
21,154
53,979
7,998
—
(443)
32,944
1,867
59,464
1,343
11,212
29,433
59,902
26,916
(1,786)
(39)
31,634
2,470
54,572
2,052
3,529
40,262
61,843
25,721
(7,707)
1,343
32,050
3,442
55,240
1,876
2,314
47,748
58,479
27,640
(4,260)
2,424
32,097
361
53,124
—
7,455
59,498
53,921
3,959
(6,170)
184
31,350
146
51,306
—
18,314
1,794,161
1,837,985
2,001,827
2,002,338
1,885,553
669,228
938,506
23,717
64,475
239,837
641,307
960,718
26,766
64,870
215,069
751,866
708,753
565,463
1,052,058
1,104,032
1,120,941
27,257
65,599
198,000
22,931
66,406
180,040
1,047,189
1,059,066
1,095,466
1,034,418
64,054
51,643
142,312
22,600
—
206,657
87,465
51,509
157,703
22,565
38,645
192,036
102,420
76,921
246,113
22,530
38,543
205,425
151,910
98,852
308,297
22,495
—
186,626
202,836
1,729,686
1,773,115
1,936,228
1,935,932
1,817,524
142,182
142,182
165,811
127,166
178,369
139,826
120,220
120,220
134,807
134,807
$
$
1.07
$
0.34
$
0.22
$
0.72
$
1.07
0.30
19.67
0.34
0.40
18.36
0.22
0.66
19.80
0.72
0.91
18.06
13.53
$
12.16
$
13.48
$
11.63
$
1.75
1.74
0.88
19.70
13.09
15,718
68,029
175,057
951,731
59,589
222,541
231,979
22,460
—
Weighted-average shares outstanding – Basic
10,482,318
10,424,474
10,363,975
10,315,263
10,462,933
Weighted-average shares outstanding – Diluted
10,482,318
10,431,990
10,374,792
10,348,579
10,529,634
Common shares outstanding at end of period
10,507,124
10,457,327
10,374,637
10,333,884
10,296,748
24
SIGNIFICANT RATIOS
Return on average stockholders' equity
Return on average common stockholders' equity
Return on average assets
Net interest margin
Efficiency ratio (a)
Average stockholders' equity to average assets
Average loans to average deposits
Dividend payout ratio
ASSET QUALITY RATIOS
Nonperforming loans as a percent of total loans (b)(c)
Nonperforming assets as a percent of total assets (b)(c)
Allowance for loan losses to loans net of unearned interest (c)
Allowance for loan losses to nonperforming loans (b)(c)
Provision for loan losses to average loans (annualized)
Net charge-offs as a percentage of average loans
CAPITAL INFORMATION (c)
Tier 1 common capital ratio
Tier 1 capital ratio
Total risk-based capital ratio
Leverage ratio
Tangible equity to tangible assets (d)
Tangible common equity to tangible assets (d)
At or For the Year Ended December 31,
2011
2010
2009
2008
2007
5.72%
5.61
0.69
3.43
68.98
12.12
69.86
28.35%
3.19%
1.80
2.53
79.00
0.84
1.16%
12.82%
14.86%
16.20%
9.45%
8.22%
8.22%
2.33%
1.76
0.28
3.51
60.30
12.20
73.01
119.33%
4.19%
2.45
2.79
66.10
2.61
2.66%
11.59%
16.91%
18.24%
10.63%
9.35%
7.17%
1.80%
1.17
0.21
3.48
60.14
11.50
77.97
298.23%
3.27%
2.03
2.59
79.30
2.35
1.96%
10.58%
15.49%
16.80%
10.06%
9.21%
7.22%
3.67%
3.67
0.39
3.51
56.30
10.62
88.10
127.03%
3.74%
2.09
2.08
55.50
2.48
1.83%
10.17%
11.88%
13.19%
8.18%
6.21%
6.21%
9.21%
9.21
0.98
3.32
57.07
10.62
93.52
50.38%
0.83%
0.51
1.40
168.00
0.35
0.25%
10.18%
11.91%
13.23%
8.48%
7.42%
7.42%
(a) Non-interest expense (less intangible asset amortization) as a percentage of fully tax-equivalent net interest income plus non-interest income (excluding
gains or losses on investment securities and asset disposals).
(b) 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.
(c) Data presented as of the end of the period indicated.
(d) These amounts represent non-GAAP financial measures since they exclude the balance sheet impact of intangible assets acquired through acquisitions on
both total stockholders’ equity and total assets. Additional information regarding the calculation of these measures can be found later in this discussion
under the caption “Capital/Stockholders’ Equity”.
(e) Amounts relate to preferred shares issued and sold by Peoples in connection with its participation in the TARP Capital Purchase Program. Additional
information regarding the preferred shares can be found in Note 11 of the Notes to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking Statements
Certain statements in this Form 10-K which are not historical fact are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995. Words such as “anticipate”, “estimates”, “may”,
“feels”, “expects”, “believes”, “plans”, “will”, “would”, “should”, “could” and similar expressions are intended to identify
these forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking
statements are subject to risks and uncertain-ties that may cause actual results to differ materially. Factors that might cause
such a difference include, but are not limited to:
(1)
deterioration in the credit quality of Peoples' loan portfolio could occur due to a number of factors, such
as adverse changes in economic conditions that impair the ability of borrowers to repay their loans, the
underlying value of the collateral could prove less valuable than otherwise assumed and assumed cash
flows may be worse than expected, which may adversely impact the provision for loan losses;
25
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
competitive pressures among financial institutions or from non-financial institutions may increase
significantly, including product and pricing pressures and Peoples' ability to attract, develop and retain
qualified professionals;
changes in the interest rate environment, which may adversely impact interest margins and/or values of
financial instruments;
changes in prepayment speeds, loan originations, sale volumes and charge-offs, which may be less
favorable than expected and adversely impact the amount of interest income generated;
economic conditions, either nationally or in areas where Peoples and its subsidiaries do business, may be
less favorable than expected, which could decrease the demand for loans, deposits and other financial
services and increase loan delinquencies and defaults;
political developments, wars or other hostilities, which may disrupt or increase volatility in securities
markets or other economic conditions;
legislative or regulatory developments affecting the respective businesses of Peoples and its subsidiaries,
including changes in laws and regulations relating to taxes, accounting, banking, securities and other
aspects of the financial services industry, specifically the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 as well as future regulations which will be adopted by the relevant regulatory
agencies, which may subject Peoples and its subsidiaries to a variety of new and more stringent legal and
regulatory requirements;
the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting
Standards Board, the SEC, the Public Company Accounting Oversight Board and other regulatory
agencies, and the accuracy of our assumptions and estimates used to prepare Peoples' consolidated
financial statements;
adverse changes in the conditions and trends in the financial markets, which may adversely affect the fair
value of securities within Peoples' investment portfolio and interest rate sensitivity of Peoples'
consolidated balance sheet;
(10)
Peoples' ability to receive dividends from its subsidiaries;
(11)
Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;
(12)
(13)
(14)
(15)
(16)
the impact of larger or similar financial institutions encountering problems, which may adversely affect
the banking industry and/or Peoples;
the costs and effects of regulatory and legal developments, including the outcome of potential regulatory
or other governmental inquiries and legal proceedings and results of regulatory examinations;
the impact of reputational risk created by these developments on such matters as business generation and
retention, funding and liquidity;
Peoples' ability to secure confidential information through the use of computer systems and
telecommunications network may prove inadequate, which could adversely affect customer confidence in
Peoples and/or result in Peoples incurring a financial loss and
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 (“SEC”), including those risk factors
included in the disclosure under Item 1A – Risk Factors of this Form 10-K.
All forward-looking statements speak only as of the execution date of this Form 10-K 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 date of this Form 10-K
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
Bancorp Inc.’s website – www.peoplesbancorp.com under the “Investor Relations” section.
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The following discussion and analysis of Peoples' Consolidated Financial Statements is presented to provide insight into
management's assessment of the financial results and condition for the periods presented. This discussion and analysis should
be read in conjunction with the audited Consolidated Financial Statements and Notes thereto, as well as the ratios and statistics,
contained elsewhere in this Form 10-K.
Summary of Significant Transactions and Events
The following is a summary of transactions or events that have impacted or are expected by management to impact
Peoples’ results of operations or financial condition:
As described in Note 13 of the Notes to the Consolidated Financial Statements, Peoples incurred settlement
charges of $815,000 during 2011 due to lump-sum distributions to participants exceeding the threshold for
recognizing such charges during the third quarter. No such charges were recognized in prior years.
As described in Note 11 of the Notes to the Consolidated Financial Statements, the Board of Directors adopted a
new schedule for declaring dividends with respect to Peoples' common shares during 2011. As a result, no
common dividends were declared on common shares in the second quarter of 2011, which had a positive impact
on Peoples' common equity and corresponding capital ratios. On January 26, 2012, the Board of Directors
declared cash dividend of $0.11 per common share with respect to earnings for the fourth quarter of 2011. This
cash dividend represents a 10% increase over the dividends declared and paid in recent quarters.
As described in Note 11 of the Notes to the Consolidated Financial Statements, on January 30, 2009, Peoples
received $39.0 million of new equity capital under the U.S. Treasury’s TARP Capital Purchase Program. The
investment was in the form of newly-issued non-voting cumulative perpetual preferred shares and a related 10-
year warrant to purchase common shares sold by Peoples to the U.S. Treasury (the “TARP Capital Investment”).
On February 2, 2011, Peoples repurchased $21.0 million of the preferred shares held by the U.S. Treasury and the
remaining $18.0 million on December 28, 2011 (collectively, the "TARP Capital Redemption"). In connection
with these transactions, Peoples recognized the portion of the unamortized discount associated with the preferred
shares repurchased, which was reduced net income available to common shareholders by $186,000 in the first
quarter and $112,000 in the fourth quarter. On February 15, 2012, Peoples completed the repurchase of the
Warrant for an aggregate price of $1.2 million. This transaction will be recognized as a reduction in the common
stock component of Peoples' stockholders' equity. Thus, there will be no impact on Peoples's first quarter 2012
earnings.
Since 2008, Peoples periodically has taken actions to reduce interest rate exposures within the investment
portfolio and the entire balance sheet, which have included the sale of low yielding investment securities and
repayment of high-cost borrowings. These actions included the sale of $86.6 million of investment securities,
primarily low yielding U.S. agency mortgage-backed securities and U.S. government-backed student loan pools,
during the third quarter of 2010. The proceeds from these investment sales were used to prepay $60.0 million of
wholesale repurchase agreements thereby deleveraging the balance sheet. The repurchase agreements had a
weighted-average cost of 4.53% and originally were scheduled to mature in or before 2012.
In the first quarter of 2010, Peoples recognized a non-cash pre-tax other-than-temporary impairment (“OTTI”)
loss of $1.0 million on its then remaining investment in collateralized debt obligation (“CDO”) securities. These
securities were equity tranche CDO securities comprised mostly of bank-issued trust preferred securities. The
OTTI loss reflected management’s estimation of credit losses incurred during the first quarter of 2010 based upon
actual defaults, its evaluation of the credit quality of the issuers and corresponding analysis of cash flows to be
received from the securities. After recognition of the first quarter 2010 OTTI loss, Peoples no longer had any
exposure to CDO securities within its investment portfolio.
Since early 2008, Peoples’ loan quality has been impacted negatively by adverse conditions within the commercial
real estate market and economy as a whole, which has caused declines in commercial real estate values and
deterioration in the financial condition of various commercial borrowers. These conditions led Peoples to
downgrade the loan quality ratings of various commercial real estate loans through its normal loan review process.
In addition, several impaired loans became under-collateralized due to reductions in the estimated net realizable
fair value of the underlying collateral. As a result, Peoples’ provision for loan losses, net charge-offs and
nonperforming loans in prior quarters were significantly higher than long-term historical levels. Peoples has also
recognized losses on other real estate owned (“OREO”) due to declining commercial real estate values.
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Beginning in the second quarter of 2011, Peoples has experienced generally improving trends in several asset
quality metrics. Additionally, the amount of criticized loans has decreased due in part to Peoples upgrading the
loan quality ratings of various commercial loans. These conditions have resulted in lower provisions for loan
losses. However, unfavorable economic conditions within Peoples' market area, coupled with sustained weakness
in commercial real estate values, continues to place stress on certain industries and segments of Peoples' loan
portfolio, such as the hospitality sector.
In 2009, the Board of Directors of the Federal Deposit Insurance Corporation (“FDIC”) took steps to restore the
Deposit Insurance Fund, which affected all FDIC-insured depository institutions. These actions included
increasing base assessment rates, imposing a one-time special assessment and requiring the prepayment of
assessments for fourth quarter 2009 and full years 2010 through 2012. As a result, Peoples incurred higher FDIC
insurance costs in 2009 and 2010 compared to historical amounts. On April 1, 2011, new regulations required by
the Dodd-Frank Act became effective changing the deposit insurance assessment base from total domestic
deposits to average total assets minus average tangible equity, as well as changing the assessment system for large
institutions and the assessment rate schedule. The new assessment base reduced Peoples' FDIC insurance costs
beginning with the amount recorded for the second quarter of 2011.
Peoples' net interest income and margin are impacted by changes in market interest rates based upon actions taken
by the Federal Reserve either directly or through its Open Market Committee. These actions include changing its
target Federal Funds Rate (the interest rate at which banks lend money to each other), Discount Rate (the interest
rate charged to banks for money borrowed from the Federal Reserve) and longer-term market interest rates
(primarily U.S. Treasury securities). Longer-term market interest rates also are affected by the demand for U.S.
Treasury securities. The resulting changes in the yield curve slope have a direct impact on reinvestment rates for
Peoples' earning assets.
Since December 2008, the Federal Reserve has maintained its target Federal Funds Rate at a historically low level
of 0% to 0.25%. Additionally, between December 2008 and February 2010, the Federal Reserve maintained the
Discount Rate at 0.50%. These actions produced correspondingly low short-term market interest rates. In
February 2010, the Federal Reserve increased the Discount Rate by 25 basis points to 0.75% while leaving its
target Federal Funds Rate range unchanged, thereby widening the spread between the Discount Rate and the high
end of the target Federal Funds Rate. Both the Federal Funds Rate and Discount Rate have remained unchanged
since February 2010.
Since late 2008, the Federal Reserve has taken various actions to lower longer-term market interest rates as a
means of stimulating the economy – a policy commonly referred to as “quantitative easing”. These actions have
included the buying and selling of mortgage-backed and other debt securities through its open market operations.
As a result, the slope of the U.S. Treasury yield curve has fluctuated significantly. Substantial flattening occurred
in late 2008, in mid-2010 and during the third quarter of 2011, while moderate steepening occurred in the second
half of 2009 and late 2010.
The impact of these transactions, where material, is discussed in the applicable sections of this Management’s
Discussion and Analysis.
Critical Accounting Policies
The accounting and reporting policies of Peoples conform to generally accepted accounting principles in the United
States of America (“US GAAP”) and to general practices within the financial services industry. A summary of significant
accounting policies is contained in Note 1 of the Notes to the Consolidated Financial Statements. While all of these
policies are important to understanding the Consolidated Financial Statements, certain accounting policies require
management to exercise judgment and make estimates or assumptions that affect the amounts reported in the Consolidated
Financial Statements and accompanying notes. These estimates and assumptions are based on information available as of
the date of the Consolidated Financial Statements; accordingly, as this information changes, the Consolidated Financial
Statements could reflect different estimates or assumptions.
Management has identified the accounting policies described below as those that, due to the judgments, estimates and
assumptions inherent in the policies, are critical to an understanding of Peoples' Consolidated Financial Statements and
management's discussion and analysis of financial condition and results of operations.
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Income Recognition
Interest income on loans and investment securities is recognized by methods that result in level rates of return on
principal amounts outstanding, including yield adjustments resulting from the amortization of loan costs and premiums
on investment securities and accretion of loan fees and discounts on investment securities. Since mortgage-backed
securities comprise a sizable portion of Peoples' investment portfolio, a significant increase in principal payments on
those securities could impact interest income due to the corresponding acceleration of premium amortization or
discount accretion.
Peoples discontinues the accrual of interest on a loan when conditions cause management to believe collection of
all or any portion of the loan's contractual interest is doubtful. Such conditions may include the borrower being 90
days or more past due on any contractual payments or current information regarding the borrower's financial condition
and repayment ability. All unpaid accrued interest deemed uncollectible is reversed, which would reduce Peoples' net
interest income. Interest received on nonaccrual loans is included in income only if principal recovery is reasonably
assured.
Allowance for Loan Losses
In general, determining the amount of the allowance for loan losses requires significant judgment and the use of
estimates by management. Peoples maintains an allowance for loan losses based on a quarterly analysis of the loan
portfolio and estimation of the losses that are probable of occurrence within the loan portfolio. This formal analysis
determines an appropriate level and allocation of the allowance for loan losses among loan types and resulting
provision for loan losses by considering factors affecting losses, including specific losses, levels and trends in impaired
and nonperforming loans, historical loan loss experience, current national and local economic conditions, volume,
growth and composition of the portfolio, regulatory guidance and other relevant factors. Management continually
monitors the loan portfolio through Peoples Bank's Loan Review Department and Loan Loss Committee to evaluate
the adequacy of the allowance. The provision could increase or decrease each quarter based upon the results of
management's formal analysis.
The amount of the allowance for loan losses for the various loan types represents management's estimate of
probable losses from existing loans. Management evaluates lending relationships deemed to be impaired on an
individual basis and makes specific allocations of the allowance for loan losses for each relationship based on
discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain
collateral dependent loans. For all other loans, management evaluates pools of homogeneous loans (such as residential
mortgage loans and consumer loans) and makes general allocations for each loan pool based upon historical loss
experience. While allocations are made to specific loans and pools of loans, the allowance is available for all loan
losses.
This evaluation of individual impaired loans requires management to make estimates of the amounts and timing of
future cash flows on impaired loans, which consist primarily of loans placed on nonaccrual status, restructured or
internally classified as substandard or doubtful. These reviews are based upon specific quantitative and qualitative
criteria, including the size of the loan, the loan cash flow characteristics, loan quality ratings, value of collateral,
repayment ability of borrowers, and historical experience factors. Allowances for homogeneous loans are evaluated
based upon historical loss experience, adjusted for qualitative risk factors, such as trends in losses and delinquencies,
growth of loans in particular markets, and known changes in economic conditions in each lending market. As part of
the process of identifying the pools of homogenous loans, management takes into account any concentrations of risk
within any portfolio segment, including any significant industrial concentrations. Consistent with the evaluation of
allowances for homogenous loans, the allowance relating to the Overdraft Privilege program is based upon
management's monthly analysis of accounts in the program. This analysis considers factors that could affect losses on
existing accounts, including historical loss experience and length of overdraft.
There can be no assurance the allowance for loan losses will be adequate to cover all losses, but management
believes the allowance for loan losses at December 31, 2011, was adequate to provide for probable losses from
existing loans based on information currently available. While management uses available information to estimate
losses, the ultimate collectibility of a substantial portion of the loan portfolio, and the need for future additions to the
allowance, will be based on changes in economic conditions and other relevant factors. As such, adverse changes in
economic activity could reduce currently estimated cash flows for both commercial and individual borrowers, which
would likely cause Peoples to experience increases in problem assets, delinquencies and losses on loans in the future.
29
Investment Securities
Peoples' investment portfolio accounted for 37% of total assets at December 31, 2011, of which approximately
94% of the securities were classified as available-for-sale. Correspondingly, Peoples carries these securities at fair
value on its Consolidated Balance Sheets, with any unrealized gain or loss recorded in stockholders' equity as a
component of accumulated other comprehensive income. As a result, both the investment and equity sections of
Peoples' Consolidated Balance Sheet are sensitive to changes in the overall market value of the investment portfolio,
due to changes in market interest rates, investor confidence and other factors affecting market values.
While temporary changes in the fair value of available-for-sale securities are not recognized in earnings, Peoples
is required to evaluate all investment securities with an unrealized loss on a quarterly basis to identify potential other-
than-temporary impairment (“OTTI”) losses. This analysis requires management to consider various factors that
involve judgment and estimation, including duration and magnitude of the decline in value, the financial condition of
the issuer or pool of issuers and structure of the security.
Under current US GAAP, an OTTI loss is recognized in earnings only when (1) Peoples intends to sell the debt
security; (2) it is more likely than not that Peoples will be required to sell the security before recovery of its amortized
cost basis or (3) Peoples does not expect to recover the entire amortized cost basis of the security. In situations where
Peoples intends to sell or when it is more likely than not that Peoples will be required to sell the security, the entire
OTTI loss must be recognized in earnings. In all other situations, only the portion of the OTTI losses representing the
credit loss must be recognized in earnings, with the remaining portion being recognized in stockholders' equity as a
component of accumulated other comprehensive income, net of deferred taxes. Prior to the second quarter of 2009, if
Peoples determined a loss to be “other-than-temporary”, then an impairment loss was recognized in earnings equal to
the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date.
Additional information regarding impairment losses recognized can be found later in this discussion under the
caption “Net Impairment Losses”.
Goodwill and Other Intangible Assets
In prior years, Peoples recorded goodwill and other intangible assets as a result of acquisitions accounted for
under the purchase method of accounting. Under the purchase method, Peoples is required to allocate the cost of an
acquired company to the assets acquired, including identified intangible assets, and liabilities assumed based on their
estimated fair values at the date of acquisition. Goodwill represents the excess cost over the fair value of net assets
acquired and is not amortized but is tested for impairment when indicators of impairment exist, or at least annually.
Peoples' other intangible assets consist of customer relationship intangible assets, primarily core deposit intangibles,
representing the present value of future net income to be earned from acquired customer relationships with definite
useful lives, which are required to be amortized over their estimated useful lives.
The value of recorded goodwill is supported ultimately by revenue that is driven by the volume of business
transacted and Peoples' ability to provide quality, cost-effective services in a competitive market place. A decline in
earnings as a result of a lack of growth or the inability to deliver cost-effective services over sustained periods can lead
to impairment of goodwill that could adversely impact earnings in future periods. Potential goodwill impairment
exists when the fair value of the reporting unit (as defined by US GAAP) is less than its carrying value. An
impairment loss is recognized in earnings only when the carrying amount of goodwill is less than its implied fair
value.
Peoples performs its required annual impairment test as of June 30 each year. The significant assumptions made
by management in estimating the reporting unit's fair value were (1) level of future cash flows over the next five years,
(2) long-term growth rate of cash flows after year five and (3) the discount rate. Based on this analysis, management
estimated the fair value of Peoples' single reporting unit exceeded its carrying value. However, the excess fair value
was not significant enough to provide management with a reasonable basis on which to conclude no goodwill
impairment existed without further evaluation. Consequently, management performed additional analyses to estimate
the fair value of goodwill and concluded the estimated fair value of goodwill exceeded the carrying value of goodwill
and, therefore, no impairment was recorded.
Management’s analysis of goodwill at June 30, 2011, indicated that a decline in the fair value of Peoples’ single
reporting unit of 29% or more would result in goodwill impairment. The analysis also indicated any of the following
situations would cause a decline in the fair value of Peoples’ reporting unit resulting in goodwill impairment: (1) a
30% sustained decline in future cash flows or (2) a 350 basis point increase in the discount rate.
30
Peoples is required to perform interim tests for goodwill impairment in subsequent quarters if events occur or
circumstances change that indicate potential goodwill impairment exists, such as adverse changes to Peoples' business
or a significant decline in Peoples' market capitalization. Since June 30, 2011, Peoples' market capitalization has
continued to be less than its book value, which management considers to be an indicator of possible goodwill
impairment. Since June 30, 2011 there has been improvement in loan related credit losses over prior periods which
management expects will continue to have a positive impact on Peoples' future cash flows. Additionally, the market
value of Peoples' common shares improved 32% between June 30 and December 31, 2011. Management considered
these improvements to be further evidence that goodwill is not impaired as of December 31, 2011.
Peoples records mortgage servicing rights (“MSRs”) in connection with its mortgage banking activities, which are
intangible assets representing the right to service loans sold to third party investors. These intangible assets are
recorded initially at fair value and subsequently amortized over the estimated life of the loans sold. MSRs are
stratified based on their predominant risk characteristics and assessed for impairment at the strata level at each
reporting date based on their fair value. At December 31, 2011, management concluded no portion of the recorded
MSRs was impaired since the fair value exceeded the carrying value. However, future events, such as a significant
increase in prepayment speeds, could result in a fair value that is less than the carrying amount, which would require
the recognition of an impairment loss in earnings.
Income Taxes
Income taxes are recorded based on the liability method of accounting, which includes the recognition of deferred
tax assets and liabilities for the temporary differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. In general, Peoples records deferred tax assets when the event giving rise to the tax
benefit has been recognized in the Consolidated Financial Statements.
A valuation allowance is recognized to reduce any deferred tax asset that, based upon available information, it is
more-likely-than-not all, or any portion, of the deferred tax asset will not be realized. Assessing the need for, and
amount of, a valuation allowance for deferred tax assets requires significant judgment and analysis of evidence
regarding realization of the deferred tax assets. In most cases, the realization of deferred tax assets is dependent upon
Peoples generating a sufficient level of taxable income in future periods, which can be difficult to predict. Peoples'
largest deferred tax assets involve differences related to Peoples' allowance for loan losses and realization of income
tax credits received from Peoples' investments in low-income housing projects and funds. Given the nature of Peoples'
deferred tax assets, management determined no valuation allowances were needed at either December 31, 2011 or
2010.
The calculation of tax liabilities is complex and requires the use of estimates and judgment since it involves the
application of complex tax laws that are subject to different interpretations by Peoples and the various tax authorities.
These interpretations are subject to challenge by the tax authorities upon audit or to reinterpretation based on
management's ongoing assessment of facts and evolving case law.
From time-to-time and in the ordinary course of business, Peoples is involved in inquiries and reviews by tax
authorities that normally require management to provide supplemental information to support certain tax positions
taken by Peoples in its tax returns. Uncertain tax positions are initially recognized in the Consolidated Financial
Statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such
tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50%
likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all
relevant facts. The amount of unrecognized tax benefits were immaterial at both December 31, 2011 and 2010.
Management believes it has taken appropriate positions on its tax returns, although the ultimate outcome of any
tax review cannot be predicted with certainty. Consequently, no assurance can be given that the final outcome of these
matters will not be different than what is reflected in the current and historical financial statements.
Fair Value Measurements
As a financial services company, the carrying value of certain financial assets and liabilities is impacted by the
application of fair value measurements, either directly or indirectly. In certain cases, an asset or liability is measured and
reported at fair value on a recurring basis, such as available-for-sale investment securities. In other cases, management
must rely on estimates or judgments to determine if an asset or liability not measured at fair value warrants an impairment
write-down or whether a valuation reserve should be established. Given the inherent volatility, the use of fair value
measurements may have a significant impact on the carrying value of assets or liabilities, or result in material changes to
the consolidated financial statements, from period to period.
31
Detailed information regarding fair value measurements can be found in Note 2 of the Notes to the Consolidated
Financial Statements. The following is a summary of those assets and liabilities that may be affected by fair value
measurements, as well as a brief description of the current accounting practices and valuation methodologies employed by
Peoples:
Available-for-Sale Investment Securities
Investment securities classified as available-for-sale are measured and reported at fair value on a recurring basis.
For most securities, the fair value is based upon quoted market prices (Level 1) or determined by pricing models that
consider observable market data (Level 2). For structured investment securities, the fair value often must be based
upon unobservable market data, such as non-binding broker quotes and discounted cash flow analysis or similar
models, due to the absence of an active market for these securities (Level 3). As a result, management's determination
of fair value for these securities is highly dependent on subjective or complex judgments, estimates and assumptions,
which could change materially between periods. Management occasionally uses information from independent third-
party consultants in its determination of the fair value of more complex structured investment securities. At
December 31, 2011, all of Peoples' available-for-sale investment securities were measured using observable market
data.
At December 31, 2011, the majority of the investment securities with Level 2 fair values were determined using
information provided by third-party pricing services. Management reviews the fair values provided by these third
parties on a monthly basis and challenges prices when it believes a discrepancy in pricing exists. Management also
reviews the valuation methodology and quality controls utilized by the pricing services in their overall assessment of
the reasonableness of the fair values provided. To the extent available, management utilizes an independent third party
pricing source to assist in its assessment of the values provided by its primary pricing services. Management
challenges third party valuations for any security where it believes a material difference in pricing exists. Based on
Peoples' past experience, these challenges more-often-than-not result in the third party adjusting its valuation of the
security.
Impaired loans
For loans considered impaired, the amount of impairment loss recognized is determined based on a discounted
cash flow analysis or the fair value of the underlying collateral if repayment is expected solely from the sale of the
collateral. Management typically relies on the fair value of the underlying collateral due to the significant uncertainty
surrounding the borrower's ability to make future payments. The vast majority of the collateral securing impaired
loans is real estate, although it may also include accounts receivable and equipment, inventory or similar personal
property. The fair value of the collateral used by management represents the estimated proceeds to be received from
the sale of the collateral, less costs incurred during the sale, based upon observable market data and market value data
provided by independent, licensed or certified appraisers.
Goodwill
The process of evaluating goodwill for impairment involves highly subjective or complex judgments, estimates
and assumptions regarding the fair value of Peoples' reporting unit and, in some cases, goodwill itself. As a result,
changes to these judgments, estimates and assumptions in future periods could result in materially different results.
Peoples currently possesses a single reporting unit for goodwill impairment testing. While quoted market prices
exist for Peoples' common shares since they are publicly traded, these market prices do not necessarily reflect the
value associated with gaining control of an entity. Thus, management takes into account all appropriate fair value
measurements in determining the estimated fair value of the reporting unit. These measurements include transaction
prices of recently acquired institutions based upon multiples of book value or earnings and discounted cash flow
analysis.
For Peoples' June 30, 2011 goodwill impairment test, management estimated the fair value of Peoples' reporting
unit using both an income approach and a market approach. The income approach consisted of a discounted cash flow
analysis of projected future earnings. The market approach was based upon multiples of book value of recently
acquired financial institutions, including distressed institutions. The discount rate used represented the estimated cost
of Peoples' common equity based upon observable market data. The fair values derived under both approaches were
weighted to arrive at an overall estimated fair value. Management placed greater weight on the income approach due
to the limited number of acquisitions occurring in 2011 involving healthy or non-distressed entities compared to prior
years. Consequently, the estimated fair value of Peoples' reporting unit could be materially different in future periods
due to changes in either projected future earnings or the cost of common equity.
32
The measurement of any actual impairment loss requires management to calculate the implied fair value of
goodwill by deducting the fair value of all tangible and separately identifiable intangible net assets (including
unrecognized intangible assets) from the fair value of the reporting unit. The fair value of net tangible assets is
calculated using the methodologies described in Note 2 of the Notes to the Consolidated Financial Statements.
Customer relationship intangibles are the only separately identifiable intangible assets included in the calculation of
the implied fair value of goodwill. The amount of these intangibles represents the present value of the future earnings
stream attributable to the deposit relationships.
Mortgage Servicing Rights
MSRs are carried at the lower of cost or market value, and, therefore, can be subject to fair value measurements
on a nonrecurring basis. MSRs do not trade in an active market with readily observable prices. Thus, management
determines fair value based upon a valuation model that calculates the present value of estimated future net servicing
income provided by an independent third party consultant. This valuation model is affected by various input factors,
such as servicing costs, expected prepayment speeds and discount rates, which are subject to change between reporting
periods. As a result, significant changes to these factors could result in a material change to the calculated fair value of
MSRs.
EXECUTIVE SUMMARY
In 2011, net income available to common shareholders was $11.2 million, versus $3.5 million in 2010 and $2.3 million
in 2009, representing diluted earnings per common share of $1.07, $0.34 and $0.22, respectively. The improvement in
earnings was a result of significant reductions in loan-related losses, specifically the provision for loan losses. Earnings
available to common shareholders were reduced by preferred dividends of $1.3 million in 2011, $2.1 million in 2010 and
$1.9 million in 2009 related to the TARP Capital Investment. Despite these challenges, Peoples generated positive results
in several key areas, including expansion of retail deposits, expense control and continued diversification of revenues.
Provision for loan losses totaled $8.0 million in 2011, compared to $26.9 million in 2010 and $25.7 million in 2009.
The recorded provision reflects the amount needed to maintain the adequacy of the allowance for loan losses based on
management's formal quarterly analysis.
In 2011, net interest income decreased 10% to $54.0 million, as the impact of the sustained low interest rate
environment and lower average loan balances caused a decline in interest income that exceeded the reduction in funding
costs. Net interest margin remained relatively stable throughout 2011. In 2010, net interest income decreased 3%
compared to 2009, due primarily to decreased earning assets as a result of commercial loan payoffs and charge-offs,
coupled with lower reinvestment rates corresponding with market interest rates.
Total non-interest income, which excludes the impact of gains and losses, increased 4% in 2011 over the prior year.
This increase was driven by stronger generation in virtually every major revenue category. The largest growth occurred in
electronic banking income, which increased 10% year-over-year. In 2010, total non-interest income was down slightly in
compared to 2009. Electronic banking income increased 19% in 2010, while trust and investment income grew 13%. Both
of these increases were more than offset by lower deposit account service charges and insurance income.
Total non-interest expense increased 8% in 2011, to $61.3 million, due to higher salary and employee benefit cost.
Other operating expenses were generally controlled as reduced FDIC insurance costs and foreclosed real estate and other
loan costs offset the additional marketing expense and higher professional fees, primarily external legal and consulting
services. In 2010, non-interest expense decreased 3% versus 2009 largely attributable to cost saving initiatives
implemented during the year. The impact of these initiatives was tempered by costs associated with an elevated level of
foreclosed real estate and problem loans.
At December 31, 2011, total assets were $1.79 billion, 2% lower than the prior year-end. Cash and cash equivalents
decreased $35.7 million during the year due to a reduction in short-term assets. Total investment securities were $27.9
million higher than year-end 2010, reflecting the redeployment of short-term assets, plus a $14.6 million improvement in
market value. Total portfolio loan balances decreased $22.2 million in 2011. Paydowns and charge-offs during the first
half of the year were the key drivers of the decrease during the 2011.
Total liabilities decreased $19.8 million during the year, to $1.59 billion at December 31, 2011. Retail deposit
balances increased $12.9 million in 2011 as a 12% growth in low-cost core deposit balances was partially offset by
reductions in certificates of deposit and money market balances. The lower interest-bearing deposit balances were a result
33
of management maintaining its focus on reducing higher-cost, non-core deposits. At December 31, 2011, total borrowed
funds were $216.6 million, down $15.2 million since December 31, 2010, as Peoples repaid maturing wholesale
borrowings.
Total stockholders' equity was $206.7 million at December 31, 2011, down $24.0 million from the prior year-end.
This reduction was due to the TARP Capital Redemption. Peoples' common equity was positively impacted by earnings
exceeding dividends by $8.0 million, plus a $5.9 million change in accumulated other comprehensive income, due mostly
to improved market value of Peoples' available-for-sale investment portfolio. Regulatory capital ratios remained
significantly higher than "well capitalized" minimums. Peoples' Tier 1 Common Capital ratio increased to 12.82% at
December 31, 2011, while the Total Capital ratio was 16.20% versus 18.24% at December 31, 2010, with the decrease the
result of the TARP Capital Redemption.
RESULTS OF OPERATIONS
Interest Income and Expense
Peoples earns interest income on loans and investments and incurs interest expense on interest-bearing deposits and
borrowed funds. 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 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.
Peoples monitors net interest income performance and manages its balance sheet composition through regular Asset-
Liability Management Committee (“ALCO”) meetings. The asset/liability management process employed by the ALCO is
intended to mitigate the impact of future interest rate changes on Peoples' net interest income and earnings. However, the
frequency and/or magnitude of changes in market interest rates are difficult to predict, and may have a greater impact on
net interest income than adjustments management is able to make.
As part of the analysis of net interest income, management converts tax-exempt income earned on obligations of states
and political subdivisions to the pre-tax equivalent of taxable income using an effective tax rate of 35%. Management
believes the resulting fully tax-equivalent (“FTE”) net interest income allows for a more meaningful comparison of tax-
exempt income and yields to their taxable equivalents. 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 earning assets and interest-bearing liabilities.
The following table details the calculation of FTE net interest income for the years ended December 31:
(Dollars in thousands)
Net interest income, as reported
Taxable equivalent adjustments
Fully tax-equivalent net interest income
2011
2010
2009
$
$
53,979
1,133
55,112
$
$
59,902
1,542
61,444
$
$
61,843
1,605
63,448
The following table details Peoples’ average balance sheets for the periods presented:
34
(Dollars in thousands)
Short-term investments
Investment Securities (1):
Taxable
Nontaxable (2)
Total investment securities
Loans (3):
Commercial
Real estate (4)
Consumer
Total loans
Less: Allowance for loan losses
Net loans
Total earning assets
Intangible assets
Other assets
Total assets
Deposits:
Savings accounts
Interest-bearing demand accounts
Money market accounts
Brokered deposits
Retail certificates of deposit
Total interest-bearing deposits
Borrowed Funds:
Short-term FHLB advances
Other short-term borrowings
Total short-term borrowings
Long-term FHLB advances
Wholesale repurchase agreements
Other long-term borrowings
Total long-term borrowings
Total borrowed funds
Total interest-bearing liabilities
Non-interest-bearing deposits
Other liabilities
Total liabilities
Preferred equity
Common equity
Total stockholders’ equity
Total liabilities and
stockholders’ equity
Interest rate spread
Net interest margin
2011
2010
2009
Average
Balance
11,522
$
Income/
Expense
24
$
Yield/
Cost
0.21 %
Average
Balance
36,508
$
Income/
Expense
91
$
Yield/
Cost
0.25 %
Average
Balance
28,496
$
Income/
Expense
71
$
Yield/
Cost
0.25 %
631,112
38,653
669,765
24,332
2,385
26,717
3.86 %
6.17 %
3.99 %
656,719
57,781
714,500
29,728
3,621
33,349
4.53 %
6.27 %
4.67 %
660,828
67,471
728,299
34,521
4,325
38,846
5.22 %
6.41 %
5.33 %
30,375
13,111
6,039
49,525
4.92 %
5.31 %
6.93 %
5.21 %
49,525
76,266
5.36 %
4.75 %
184
1,645
789
2,308
9,004
13,930
5
98
103
2,895
2,247
1,979
7,121
7,224
21,154
0.14 %
0.68 %
0.30 %
3.28 %
2.15 %
1.23 %
0.08 %
0.23 %
0.22 %
3.44 %
3.41 %
8.64 %
4.11 %
3.27 %
1.56 %
616,970
246,878
87,103
950,951
(27,259)
923,692
1,604,979
64,621
141,479
$1,811,079
$
$ 134,752
242,496
266,273
70,417
419,226
1,133,164
5,525
41,589
47,114
84,193
65,000
22,583
171,776
218,890
1,352,054
228,093
11,435
1,591,582
19,492
200,005
219,497
36,169
14,650
6,618
57,437
5.30 %
5.61 %
7.68 %
5.58 %
57,437
90,877
5.74 %
5.19 %
193
2,614
2,171
2,994
11,150
19,122
10
252
262
3,624
4,439
1,986
10,049
10,311
29,433
0.16 %
1.11 %
0.74 %
2.93 %
2.47 %
1.59 %
0.11 %
0.49 %
0.44 %
3.53 %
3.87 %
8.69 %
4.18 %
3.44 %
1.96 %
682,736
260,964
86,203
1,029,903
(29,597)
1,000,306
1,751,314
65,153
145,260
$1,961,727
$
$ 120,301
234,503
291,632
102,153
451,746
1,200,335
8,712
50,185
58,897
102,685
113,219
22,548
238,452
297,349
1,497,684
210,310
14,336
1,722,330
38,594
200,803
239,397
40,299
17,163
7,331
64,793
5.56 %
6.27 %
7.76 %
5.93 %
64,793
103,710
6.07 %
5.68 %
645
3,127
2,735
4,500
15,116
26,123
15
467
482
5,354
6,323
1,980
13,657
14,139
40,262
0.51 %
1.51 %
1.16 %
3.43 %
2.99 %
2.17 %
0.19 %
0.87 %
0.81 %
3.93 %
4.05 %
8.67 %
4.37 %
3.76 %
2.55 %
725,021
273,625
94,411
1,093,057
(25,081)
1,067,976
1,824,771
66,010
133,530
$2,024,311
$
$ 126,226
207,117
235,690
131,071
506,132
1,206,236
6,867
53,056
59,923
136,272
153,795
22,513
312,580
372,503
1,578,739
195,688
17,036
1,791,463
35,438
197,410
232,848
$1,811,079
$1,961,727
$2,024,311
$ 55,112
3.19 %
3.43%
$ 61,444
3.23 %
3.51%
$ 63,448
3.13 %
3.48%
(1) Average balances are based on carrying value.
(2) Interest income and yields are presented on a fully tax-equivalent basis using a 35% federal statutory tax rate.
(3) Nonaccrual and impaired loans are included in the average loan balances. Related interest income earned on nonaccrual loans prior to the loans
being placed on nonaccrual is included in loan interest income. Loan fees included in interest income were immaterial for all periods presented.
(4) 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.
35
The following table provides an analysis of the changes in FTE net interest income:
(Dollars in thousands)
Increase (decrease) in:
INTEREST INCOME:
Short-term investments
Investment Securities: (2)
Taxable
Nontaxable
Total investment income
Loans:
Commercial
Real estate
Consumer
Total loan income
Total interest income
INTEREST EXPENSE:
Deposits:
Savings accounts
Interest-bearing demand accounts
Money market accounts
Brokered certificates of deposit
Retail certificates of deposit
Total deposit cost
Borrowed funds:
Short-term borrowings
Long-term borrowings
Total borrowed funds cost
Total interest expense
Changes from 2010 to 2011
Rate
Volume
Total (1)
Changes from 2009 to 2010
Volume
Rate
Total (1)
$
(13)
$
(54)
$
(67)
$
—
$
20
$
20
(4,270)
(57)
(4,327)
(1,126)
(1,179)
(2,305)
(5,396)
(1,236)
(6,632)
(4,579)
(93)
(4,672)
(1,832)
(1,747)
(80)
(3,659)
(8,331)
(423)
(894)
(1,125)
(601)
(2,450)
(5,493)
(214)
(611)
(825)
(4,793)
(704)
(5,497)
(2,298)
(766)
(633)
(3,697)
(4,502)
(29)
381
561
(905)
(1,516)
(1,508)
(4,130)
(2,513)
(713)
(7,356)
(12,833)
(452)
(513)
(564)
(1,506)
(3,966)
(7,001)
(199)
(779)
(978)
(6,471)
(1,860)
$
(21)
(2,829)
(2,850)
(4,358)
(144)
$
(220)
(3,608)
(3,828)
(10,829)
(2,004)
$
(5,794)
(1,539)
(579)
(7,912)
(14,611)
(9)
(969)
(1,382)
(686)
(2,146)
(5,192)
(159)
(2,928)
(3,087)
(8,279)
(6,332)
(2,472)
(3,322)
(766)
(648)
(3,886)
(8,226)
(28)
(1,054)
(1,206)
325
(1,377)
(3,340)
(118)
(578)
(696)
(4,036)
(773)
69
(4,026)
(6,385)
19
85
(176)
(1,011)
(769)
(1,852)
(41)
(2,350)
(2,391)
(4,243)
Net interest income
$
(4,190)
$
(2,142)
$
(1) 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 change in each.
(2) Presented on a fully tax-equivalent basis.
In 2011, net interest income was adversely affected by the sustained low interest rate environment, coupled with a decline
in average loan balances experienced as a result of significant payoffs and charge-offs during the year. Peoples' deposit pricing
strategy over the past several quarters has caused a moderate decrease in money market balances and high-cost retail certificates
of deposit ("CDs"). The yield curve flattening experienced during 2011 put downward pressure on Peoples' asset yields, due
to the corresponding decline in reinvestment rates. However, management has intensified its disciplined approach to loan
and deposit pricing, which lowered funding costs and mitigated much of the impact of lower market interest rates on net
interest income and margin. Peoples' deposit costs in 2011 benefited from nearly $60 million in high-cost CDs maturing
during the year and being replaced with lower-cost funds. Most of these CDs were part of a special product offering in 2008
and had an average cost of 3.73%. An additional $22.0 million of these high-cost CDs with an average rate of 4.22% will
mature during the first quarter of 2012.
In comparison, net interest income in 2010 was adversely affected by declining asset yields as excess funds were
reinvested at lower market interest rates, especially during the second half of the year when the yield curve flattened. A
contributing factor for the lower net interest income in 2010 was the decrease in loan balances experienced during the year.
Given these conditions, management took steps throughout 2010 to reduce funding costs, where possible, as a means of
offsetting the lower asset yields. These efforts included adjusting Peoples' funding mix away from high-cost deposits and
36
wholesale borrowings and into lower-cost, core deposits. However, the ability to reduce funding costs was limited by the
lack of significant high-cost liabilities maturing in 2010.
Peoples' net interest margin, although pressured by the changes in interest rates and corresponding slope of the yield
curve, remained relatively consistent in both 2010 and 2009, due to Peoples' active management of its balance sheet and
interest rate risk profile. Net interest margin also was negatively impacted by Peoples maintaining excess cash reserves at
the Federal Reserve Bank of Cleveland. These cash balances were maintained due to a lack of investment opportunities
that satisfied management's risk-reward criteria, coupled with Peoples' desire to repay maturing high-cost wholesale
funding.
Average loan balances decreased in both 2010 and 2011, reflecting significant commercial loan payoffs and elevated
charge-off levels over the last three years. Average loan balances also were impacted by residential real estate loans being
refinanced and sold to the secondary market due to customer demand for long-term, fixed-rate loans. Average investment
securities have decreased in each of the past two years. These declines were due largely to planned deleveraging of
Peoples' balance sheet by using investment cash flows to repay wholesale funding. During 2011, Peoples held the size of
its investment portfolio relatively stable due to the absence of planned loan growth. This action somewhat mitigated the
negative impact of lower average loan balances in 2011 versus 2010.
Opportunities to reduce funding costs will remain limited by the amount of high-cost funding scheduled to mature. In
addition, the Federal Reserve's current strategy of maintaining a flatter interest rate environment will put downward
pressure on net interest income and margin. As a result, Peoples' balance sheet strategies will continue to emphasize
growing loans profitably, remaining disciplined with loan and deposit pricing and maintaining good liquidity. Management
also may take other actions in future quarters to enhance Peoples' net interest income and margin through changes in
Peoples' balance sheet mix if opportunities exist based upon market conditions.
Detailed information regarding changes in Peoples' 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 “Interest Rate Sensitivity and Liquidity”.
Provision for Loan Losses
The following table details Peoples’ provision for loan losses:
(Dollars in thousands)
Provision for checking account overdrafts
Provision for other loan losses
Total provision for loan losses
As a percentage of average gross loans
2011
2010
2009
$
$
418
7,580
7,998
0.84%
$
551
26,365
$ 26,916
$
799
24,922
$ 25,721
2.61%
2.35%
The provision for loan losses is based on management's formal quarterly evaluation of the loan portfolio and analysis
of the adequacy of the allowance for loan losses described in the “Critical Accounting Policies” section of this discussion.
This analysis considers various factors that affect losses, such as changes in Peoples' loan quality, historical loss experience
and current economic conditions.
Additional information regarding changes in the allowance for loan losses and loan credit quality can be found later in
this discussion under the caption “Allowance for Loan Losses”.
Net Impairment Losses
The following table details the net impairment losses recognized on available-for-sale securities:
(Dollars in thousands)
Collateralized debt obligations
Mortgage-backed securities
Individual bank-issued trust preferred securities
Total net impairment losses
$
$
2011
2010
2009
—
—
—
—
$
$
986
800
—
1,786
$
$
3,707
—
4,000
7,707
37
The impairment losses shown in the table above were the result of management determining certain securities were
other-than-temporarily impaired. These determinations were made in connection with management's quarterly analysis of
the investment portfolio described in the “Critical Accounting Policies” section of this discussion, which included
evaluating the credit quality of underlying issuers and estimating cash flows to be received from the securities.
The losses associated to collateralized debt obligations ("CDO") securities were the result of reduced cash flow within
these structured investments since 2007. In 2009, management's analysis concluded two mezzanine tranche CDO
securities held in Peoples' investment portfolio were total losses since it was probable Peoples would not recover the
amortized cost of the securities. Similarly, two equity tranche CDO securities were deemed total losses in the first quarter
of 2010 based on management's analysis of estimated cash flows to be received. As a result of these write-downs, Peoples
has had no recorded investment in any CDO securities since the first quarter of 2010.
The losses attributable to individual bank-issued trust preferred securities involved two unrelated issuers who had
deferred interest payments. Management deemed the securities a total loss since its analysis indicated it was probable
Peoples would not recover the entire principal amounts. Subsequent to management's determinations, federal banking
regulators closed the banking subsidiaries of both issuers, with the FDIC being appointed as receiver of the failed
institutions.
Management performed its quarterly analysis of the remaining investment securities with an unrealized loss at
December 31, 2011, and concluded no other individual securities were other-than-temporarily impaired.
Other Gains (Losses)
The following table details the other gains and losses recognized in each of the last three years ended December 31:
(Dollars in thousands)
Net loss on OREO
Gain (loss) on loans held-for-sale
Loss on debt extinguishment
Net gain (loss) on bank premises and equipment
Net other gains (losses)
2011
2010
2009
$
$
(1,395)
469
—
10
(916)
$
$
(1,854)
(1,319)
(3,630)
(88)
(6,891)
$
$
(118)
—
—
15
(103)
Nearly all of the net OREO losses in 2010 and 2011 were the result of write-downs on two unrelated commercial
properties held as OREO since late 2009. In comparison, the net OREO loss in 2009 was attributable to sales of OREO.
The loss recognized on early debt extinguishment in 2010 was the result of the prepayments completed in the third quarter.
Non-Interest Income
Peoples generates non-interest income, which excludes gains and losses on investments and other assets, from six
primary sources: deposit account service charges, trust and investment activities, insurance sales revenues, electronic
banking (“e-banking”), mortgage banking and bank owned life insurance (“BOLI”).
In 2011, Peoples experienced revenue growth from nearly every non-interest income source. This success reflects
Peoples' continued emphasis on maintaining a diversified revenue stream through greater reliance on fee-based revenues.
As a result, total non-interest income accounted for 37.9% of Peoples' total revenues in 2011, compared to 34.6% in 2010
and 34.1% in 2009.
Service charges and other fees on deposit accounts, which are based on the recovery of costs associated with services
provided, comprised the largest portion of Peoples' non-interest income. Management periodically evaluates its cost
recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by
competitors.
The following table details Peoples' deposit account service charges:
(Dollars in thousands)
Overdraft and non-sufficient funds fees
Account maintenance fees
Other fees and charges
$
Total deposit account service charges
$
2011
2010
2009
8,153
1,315
297
9,765
$
$
8,357
866
358
9,581
$
$
9,336
769
285
10,390
38
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. As a result, the amount ultimately recognized by Peoples can
fluctuate from period to period. Peoples typically experiences a lower volume of overdraft and non-sufficient funds fees
annually in the first quarter attributable to customers receiving income tax refunds, while volumes generally increase in the
fourth quarter in connection with the holiday shopping season.
New regulations governing overdraft fees limiting the ability of banks to impose overdraft fees on certain transactions
became effective during the third quarter of 2010. These regulations have had a minimal impact on Peoples as reflected in
the lack of significant changes in overdraft and non-sufficient funds fees versus the prior year. Account maintenance fees
during the 2011 reflect the impact of Peoples' new consumer checking account product offering and pricing structure
implemented during the first quarter of 2011.
Peoples' insurance income, which consists predominantly of commission revenue from the sale of property and
casualty insurance to commercial customers, continued to comprise a significant portion of Peoples' non-interest income in
2011. The following table details Peoples’ insurance income:
(Dollars in thousands)
Property and casualty insurance commissions
Performance-based commissions
Life and health insurance commissions
Credit life and A&H insurance commissions
Other fees and charges
Total insurance income
$
2011
2010
2009
$
7,419
$
7,385
$
944
624
158
120
9,265
$
585
580
123
173
8,846
$
7,633
828
661
119
149
9,390
Peoples has been successful at maintaining a high retention rate for existing insurance customers. However, property
and casualty insurance commissions over the past three years have been pressured by the effects of a contracting economy
on commercial insurance needs, plus lower pricing margins due to competition within the insurance industry. The bulk of
the performance-based commission income is typically recorded annually by Peoples during the first quarter and is based
on a combination of factors, such as loss experience of insurance policies sold, production volumes, and overall financial
performance of the individual insurance carriers. As a result, the amount of performance based commission income
recognized by Peoples is difficult to predict and could fluctuate from year to year. Future growth in property and casualty
insurance commission levels may be limited by the effects of a weak economy on commercial insurance needs.
Peoples' trust and investment income is comprised of revenue generated from its fiduciary activities and the sale of
investment services. The following table details Peoples' trust and investment income for the years ended December 31
and market value of managed assets at year-end:
(Dollars in thousands)
Fiduciary
Brokerage
Total trust and investment income
Trust assets under management
Brokerage assets under management
Total managed assets
Average during the year
2011
2010
2009
$
$
4,293
1,255
5,548
$
$
4,396
952
5,348
$
821,659
262,196
$ 1,083,855
$ 1,092,781
$
836,587
256,579
$ 1,093,166
977,577
$
$
$
$
$
$
3,760
962
4,722
750,993
216,479
967,472
873,930
Peoples' fiduciary and brokerage revenues are primarily driven by the value of assets under management. Over the last
several quarters, Peoples has continued to attract new managed funds, due in part to the addition of experienced financial
advisors in previously underserved market areas. These efforts have helped to lessen the impact of the general decline
experienced in the financial markets as whole.
Peoples' e-banking services include ATM and debit cards, direct deposit services and internet banking, and serve as
alternative delivery channels to traditional sales offices for providing services to clients. In 2011, Peoples' customers used
their debit cards to complete $372 million of transactions, versus $338 million in 2010 and $290 million in 2009,
representing increases of 10% and 17%, respectively.
39
Peoples' mortgage banking income is comprised mostly of net gains from the origination and sale of long-term, fixed-
rate real estate loans to the secondary market. 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 by the secondary
market. The increased production in 2011 has been a result of refinancing activity in response to historically low mortgage
interest rates available in the secondary market and continued customer preference for long-term, fixed rate loans. During
2011, Peoples sold $73 million of residential real estate loans to the secondary market, versus $64 million in 2010 and $95
million in 2009.
Income generated by Peoples' BOLI investment serves to enhance operating efficiency by partially offsetting rising
employee benefit costs. Changes in the interest rate environment can have an impact on the associated investment funds
and thus the amount of BOLI income recognized by Peoples. Management monitors the performance of Peoples' BOLI
and may make adjustments to improve the income streams and overall performance. The current low interest rate
environment has resulted in decreased BOLI income over the last three years. Management continues to explore
opportunities either to enhance the return generated by Peoples' BOLI or to redeploy these funds into investments with
greater long-term potential to fund future employee benefit costs, and offset the related expense.
Non-Interest Expense
Salaries and employee benefit costs represent Peoples' largest non-interest expense, accounting for over 50% of total
non-interest expense, which is inherent in a service-based industry such as financial services. The following table details
Peoples' salaries and employee benefit costs:
(Dollars in thousands)
Base salaries and wages
Sales-based and incentive compensation
Employee benefits
Stock-based compensation
Deferred personnel costs
Payroll taxes and other employment costs
$
Total salaries and employee benefit costs
$
2011
2010
2009
21,320
4,646
5,927
310
(1,370)
2,793
33,626
$
$
20,269
3,365
4,802
92
(1,260)
1,954
29,222
$
$
20,455
3,130
5,037
149
(1,477)
2,100
29,394
Full-time equivalent employees:
Actual at end of period
Average during the period
513
535
534
531
537
543
Base salaries and wages for the year ended December 31, 2011, were higher than 2010, due largely to Peoples filling
open senior management position, plus modest annual base salary adjustments. Peoples also incurred severance costs of
approximately $160,000 related to staffing reductions in targeted areas. The reductions also account for the lower number
of full-time equivalent employees at year-end 2011. Sales-based and incentive compensation was impacted by
significantly higher expense accruals associated with corporate incentive plans tied in in part to Peoples' performance.
Employee benefit costs were higher in 2011 due mostly to higher employee medical benefit plan expenses.
In 2011, Peoples incurred pension settlement charges totaling $815,000, which more than offset the impact of Peoples
freezing the accrual of pension benefits effective March 1, 2011. The pension benefit freeze significantly lowered the
threshold for recognizing pension settlement charges. Under US GAAP, Peoples is required to recognize a settlement gain
or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and
interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata
amount of the unrealized gain or loss existing immediately prior to the settlement. During the third quarter of 2011, the
total lump-sum distributions made to participants, when added to the lump-sum distributions made in the first two quarters
of 2011, caused the total settlements through nine months of 2011 to exceed the recognition threshold for settlement gains
or losses. In the fourth quarter of 2011, Peoples incurred pension settlement charges relating to the purchase of annuity
contracts for retired participants who had elected to receive their pension benefits in the form of annuity. Management
anticipates Peoples incurring pension settlement charges in 2012 as the threshold will be lower corresponding with the
decrease in discount rate used in the measurement of Peoples' pension liability. Additionally, these settlement charges may
be recognized earlier in the year compared to 2011 given the lower threshold.
Stock-based compensation is generally recognized over the vesting period, typically ranging from 6 months to 3 years,
although for service based awards Peoples must immediately recognize the entire expense for awards to employees who
are eligible for retirement at the grant date. For all awards, expense is only recognized for the portion of awards that is
40
expected to vest. The majority of Peoples' stock-based compensation expense is attributable to annual equity-based
incentive awards to employees, which are awarded in the first quarter and based upon Peoples achieving certain
performance goals during the prior year. In the first quarter of 2011, Peoples granted restricted shares to officers and key
employees with both time-based and performance-based vesting periods. Peoples did not grant any equity-based incentive
awards to employees or non-employee directors in either 2009 or 2010, due to lower corporate performance results,
resulting in decreased stock-based compensation expense being recognized for both years compared to prior
years. Additional information regarding Peoples' stock-based compensation plans and awards can be found in Note 18 of
the Notes to the Consolidated Financial Statements.
Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be
direct loan origination costs. These costs are capitalized and recognized over the life of the loan as a yield adjustment to
interest income . As a result, the amount of deferred personal costs for each year corresponds directly with the level of new
loan originations. Additional information regarding Peoples' loan activity can be found later in this discussion under the
caption “Loans”.
During 2011, Peoples has incurred higher costs associated with the recruitment and retention of various senior
management positions. A nearly equal increase occurred as a result of Peoples increasing employer-matching contributions
related to its 401(k) savings plan. These costs were the key drivers of the increase in payroll taxes and other employment
costs from the prior year.
Peoples’ net occupancy and equipment expense was comprised of the following:
(Dollars in thousands)
Depreciation
Repairs and maintenance costs
Net rent expense
Property taxes, utilities and other costs
$
Total net occupancy and equipment expense
$
2011
2010
2009
1,967
1,614
891
1,413
5,885
$
$
1,943
1,596
894
1,348
5,781
$
$
1,998
1,549
837
1,372
5,756
Depreciation expense was held relatively flat during 2011 due in large part to management limiting capital
expenditures during 2010 in connection with various cost saving initiatives. Management continues to monitor capital
expenditures and explore opportunities to enhance Peoples' operating efficiency.
Professional fees expense represents the cost of accounting, legal and other third-party professional services utilized
by Peoples. In 2011, professional fees increased as a result of the costs related to Peoples' new Power checking product,
which was introduced at the start of the year. Another significant driver of the higher professional fees in 2011 was
increased consulting services related to various management projects and initiatives to improve overall operating
efficiency. During 2009 and 2010, professional fees were impacted by an increased utilization of external legal services
corresponding with the elevated levels of under performing loans and associated workout efforts.
Peoples' e-banking expense, which is comprised of bankcard and internet-based banking costs, increased in both 2010
and 2011 as a result of customers completing a larger percentage of their transactions using their debit cards and Peoples'
internet banking service. These factors have also produced a greater increase in the corresponding e-banking revenues over
the same periods. Overall, management believes e-banking expense levels are reasonable considering Peoples' e-banking
services have generated higher net revenues and have helped to improve overall relationship profitability, due to the lower
transaction costs incurred by Peoples.
While actions taken by the FDIC resulted in higher FDIC insurance costs for 2009 and 2010, new regulation required
by the Dodd-Frank Act became effective during 2011 that reduced Peoples' FDIC insurance costs beginning with the
amount recorded during the second quarter of 2011. Additional information regarding Peoples' FDIC insurance
assessments may be found in Item 1 of this Form 10-K in the section captioned "Supervision and Regulations".
Marketing expense, which includes advertising, donation and other public relations costs, increased compared to the
prior years. In 2011, Peoples' marketing expense was impacted by contributions totaling $300,000 to Peoples Bancorp
Foundation Inc.. Peoples formed this private foundation in 2004 to make charitable contributions to organizations within
Peoples' primary market area. In prior years, Peoples limited such contributions as part of its efforts to control operating
costs. Future contributions to Peoples Bancorp Foundation Inc. will be evaluated on a quarterly basis, with the
determination of the amount of any contribution based largely on the level of need within the communities Peoples serves.
Marketing expense in 2011 also was impacted by Peoples increasing its advertising activity compared to prior years.
41
Foreclosed real estate and other loan expenses represent costs associated with maintaining foreclosed assets, including
real estate taxes and utilities, as well as various administrative costs incurred in connection with servicing and collecting
outstanding loans. In 2011, foreclosed real estate and other loan expenses were lower compared to the prior year, due
mostly to costs associated with commercial properties acquired through foreclosure in the fourth quarter of 2009. In both
2009 and 2010, Peoples incurred additional expense due to the higher level of impaired and nonperforming assets.
Peoples is subject to state franchise taxes, which are based largely on Peoples Bank's equity at year-end, in the states
where it has a physical presence. Overall, state franchise taxes have remained consistent over the last three years, due to
relatively stable equity levels at Peoples Bank. Peoples regularly evaluates the capital position of its direct and indirect
subsidiaries from both a cost and leverage perspective. Ultimately, management seeks to optimize Peoples' consolidated
capital position through allocation of capital, which is intended to enhance profitability and shareholder value.
Peoples' intangible asset amortization expense has decreased in each of the prior three years from the use of an
accelerated method of amortization for its customer-related intangibles. As a result, amortization expense will continue to
be lower in subsequent years based on the intangible assets included on Peoples' Consolidated Balance Sheets at
December 31, 2011.
Income Tax Expense
A key driver of the amount of income tax expense or benefit recognized by Peoples each year is the amount of pre-tax
income derived from tax-exempt sources. Additionally, Peoples receives tax benefits from its investments in tax credit
funds, which reduce Peoples' effective tax rate. A reconciliation of Peoples' recorded income tax expense/benefit and
effective tax rate to the statutory tax rate can be found in Note 14 of the Notes to the Consolidated Financial Statements.
FINANCIAL CONDITION
Cash and Cash Equivalents
Peoples considers cash and cash equivalents to consist of Federal Funds sold, cash and balances due from banks,
interest-bearing balances in other institutions and other short-term investments that are readily liquid. The amount of cash
and cash equivalents fluctuates on a daily basis due to customer activity and Peoples' liquidity needs. Beginning in 2010,
Peoples has maintained excess cash reserves at the Federal Reserve Bank of Cleveland, which are included in "interest-
bearing deposits in other banks" on the Consolidated Balance Sheets, rather than Federal Funds sold due to more favorable
interest rates. At December 31, 2011, excess cash reserves at the Federal Reserve Bank were $4.4 million, compared to
$44.6 million at December 31, 2010. This decline occurred largely as a result of Peoples using these funds in the Partial
TARP Capital Redemption.
In 2011, Peoples' total cash and cash equivalents decreased $35.7 million, due mostly to cash used in financing and
investing activities exceeded the $43.4 million of cash generated by operating activities. The majority of the $70.2 million
of cash used in Peoples' financing activity related to the TARP Capital Redemption. Peoples also used $15.4 million of
cash to reduce its long-term borrowings.
In comparison, total cash and cash equivalents increased $32.9 million in 2010, driven by net cash provided by
Peoples' investing and operating activities of $141.5 million and $45.1 million, respectively, of which $153.7 million was
used in financing activities. The net cash provided by investing activities was primarily the result of management not
reinvesting $84.1 million of the cash flow generated from the investment portfolio, coupled with loan payments and
payoffs exceeding new originations by $61.1 million. The net cash used in Peoples' financing activities was attributed to
intentional reductions in borrowed funds and interest-bearing deposit balances.
Further information regarding the management of Peoples' liquidity position can be found later in this discussion under
“Interest Rate Sensitivity and Liquidity.”
42
Investment Securities
The following table details Peoples’ available-for-sale investment portfolio at December 31:
(Dollars in thousands)
Obligations of:
U.S. Treasury and government agencies
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity securities
U.S. government-backed student loan pools
Collateralized debt obligations
Preferred stocks
Total fair value
Total amortized cost
Net unrealized gain (loss)
2011
2010
2009
2008
2007
$
32
13,037
35,745
527,003
37,289
12,211
3,254
—
—
—
$ 628,571
$ 617,128
11,443
$
$
39
12,262
47,379
507,534
30,700
12,984
3,088
—
—
—
$ 613,986
$ 617,122
(3,136)
$
$
82
4,473
62,953
558,825
24,188
13,826
2,593
59,442
165
—
$ 726,547
$ 706,444
20,103
$
$
176
8,442
68,930
511,201
25,951
17,888
2,761
44,985
4,423
—
$ 684,757
$ 696,855
$ (12,098)
$
197
74,470
69,247
356,605
—
19,185
4,566
—
5,896
12,065
$ 542,231
$ 535,979
6,252
$
In 2011, Peoples maintained the size of its investment portfolio due to the lack of planned loan growth. During the
first quarter of 2011 and fourth quarter of 2010, Peoples sold selected municipal securities, which accounts for the
decreased investment in obligations of states and political subdivisions compared to prior periods. The size and
composition of Peoples' investment portfolio changed significantly between year-end 2010 and 2009, primarily reflecting
the deleveraging undertaken in the third quarter of 2010. While the majority of the proceeds from the third quarter 2010
investment sales were used to prepay long-term borrowings, a portion was reinvested into bonds issued by U.S.
government sponsored agencies, which accounted for the increase in this segment since December 31, 2009.
Peoples' investment in residential and commercial mortgage-backed securities largely consists of securities either
guaranteed by the U.S. government or issued by U.S. government-sponsored agencies, such as Fannie Mae and Freddie
Mac. The remaining portion of Peoples' mortgage-backed securities consists of securities issued by other entities, including
other financial institutions, which are not guaranteed by the U.S. government. The amount of these “non-agency” securities
included in the residential and commercial mortgage-backed securities totals above were as follows:
(Dollars in thousands)
Residential
Commercial
Total fair value
Total amortized cost
Net unrealized gain
2011
58,660
1,288
59,948
59,148
800
2010
$ 113,559
26,090
$ 139,649
$ 136,997
2,652
$
2009
$ 153,621
24,188
$ 177,809
$ 177,370
439
$
2008
$ 192,133
25,951
$ 218,084
$ 231,153
$ (13,069)
$
$
$
$
$
$
$
$
2007
46,990
—
46,990
47,757
(767)
In the third quarter of 2011, Peoples sold residential mortgage-backed securities which were showing signs of
increased stress, causing the decline in this portion of the portfolio. In 2010 and 2011, management reinvested the
principal runoff from the non-agency securities into U.S. agency investments, which further contributed to the decline
experienced over this period. At December 31, 2011, Peoples' non-agency portfolio consisted entirely of first lien
residential and commercial mortgages, with nearly all of the underlying loans in these securities originated in 2003 or
earlier and possessing fixed interest rates. Management continues to monitor the non-agency portfolio closely for leading
indicators of increasing stress and will continue to be proactive in taking actions to mitigate such risk when necessary.
At December 31, 2011, Peoples' investment in bank-issued trust preferred securities consisted of holdings of seven
unrelated issuers. All of these securities remain current on contractual interest payment. In addition, an aggregate of $10
million of these securities relate to issuers involved in the comprehensive capital assessment conducted by federal bank
supervisors in the first half of 2009 - known as the Supervisory Capital Assessment Program or “government stress test”.
In late 2008 and early 2009, Peoples purchased seven different floating-rate U.S. government-backed student loan
pools, with an aggregate par amount of $58 million, at moderate discounts due to the market conditions that existed at that
time. These securities were purchased as part of Peoples' overall interest risk positioning in anticipation of rising interest
43
rates. In 2010, the sustained low interest rate environment negatively affected the yields on these securities. As a result,
Peoples sold its entire holdings of U.S. government-backed student loan pools, which produced a net gain of $5.7 million.
All but $12 million of these securities were sold as part of the third quarter 2010 deleveraging.
Since late 2010, Peoples has purchased investment securities which have been designated as “held-to-maturity” at the
time of their purchase. For each security, management has made the determination Peoples would hold these securities
until maturity and concluded Peoples had the ability to do so. Two of these securities were qualified school construction
bonds, which were created under the American Recovery and Reinvestment Act of 2009 and provide the bond holders with
federal income tax credits in lieu of interest. The federal income tax credit rate for these bonds is fixed for the life of the
bonds. At the time Peoples purchased these bonds, significant uncertainty existed regarding the ownership rights of the
associated tax credits should the bonds be sold or transferred. Additional securities may be designated as "held-to-
maturity" in future years as deemed appropriate by management.
Additional information regarding Peoples' investment portfolio can be found in Note 3 of the Notes to the
Consolidated Financial Statements.
Loans
The following table provides information regarding outstanding loan balances at December 31:
(Dollars in thousands)
Gross portfolio loans:
Commercial real estate
Commercial and industrial
Real estate construction
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total portfolio loans
Average total loans
Average allowance for loan losses
Average loans, net of allowance
Percent of loans to total loans:
Commercial real estate
Commercial and industrial
Real estate construction
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total percentage
Loans being serviced for others:
Residential real estate
2011
2010
2009
2008
2007
$ 410,352
140,857
30,577
219,619
47,790
87,531
1,780
$ 938,506
950,951
(27,259)
$ 923,692
$ 425,528
153,713
27,595
219,833
48,525
83,323
2,201
$ 960,718
1,029,903
(29,597)
$ 1,000,306
$ 466,148
160,678
41,906
240,949
49,593
91,164
1,620
$ 1,052,058
1,093,057
(25,081)
$ 1,067,976
$ 438,163
176,187
92,032
259,196
48,057
88,729
1,668
$ 1,104,032
1,113,247
(17,428)
$ 1,095,819
$ 464,527
168,909
87,023
276,459
43,216
78,335
2,472
$ 1,120,941
1,122,808
(14,775)
$ 1,108,033
43.7 %
15.0 %
3.3 %
23.4 %
5.1 %
9.3 %
0.2 %
100.0%
44.2 %
16.0 %
2.9 %
22.9 %
5.1 %
8.7 %
0.2 %
100.0%
44.2 %
15.3 %
4.0 %
22.9 %
4.7 %
8.7 %
0.2 %
100.0%
39.6 %
16.0 %
8.3 %
23.5 %
4.4 %
8.0 %
0.2 %
100.0%
41.3 %
15.1 %
7.8 %
24.7 %
3.9 %
7.0 %
0.2 %
100.0%
$ 275,715
$ 250,691
$ 227,855
$ 181,506
$ 176,809
In 2011, Peoples added several new commercial bankers, which caused an increase in new loan production. As a
result, loan balances stabilized somewhat in the second half of the year. However, total commercial loan balances were
negatively impacted by elevated charge-offs in the first half of 2011 and the prior three years, coupled with sizable
paydowns such as the payoff of a single $10 million commercial and industrial loan in the first quarter of 2011.
44
The following table details the maturities of Peoples' commercial and construction loans at December 31, 2011:
(Dollars in thousands)
Loan Type
Commercial real estate:
Fixed
Variable
Total
Commercial and industrial:
Fixed
Variable
Total
Real estate construction:
Fixed
Variable
Total
Due in
One Year
or Less
Due in
One to
Five Years
Due
After Five
Years
Total
$
$
$
$
$
$
15,791
217,313
233,104
5,979
86,045
92,024
—
16,729
16,729
$
$
$
$
$
$
50,190
108,468
158,658
36,814
658
37,472
9,858
3,801
13,659
$
$
$
$
$
$
11,144
7,446
18,590
11,361
—
11,361
80
109
189
$
$
$
$
$
$
77,125
333,227
410,352
54,154
86,703
140,857
9,938
20,639
30,577
Peoples' real estate loan balances have declined steadily over the last several years due to customer demand for long-
term, fixed-rate mortgages, which Peoples generally sells to the secondary market. In parts of 2010 and 2011, Peoples
experienced significant refinancing activity in response to historically low long-term fixed rates available in the secondary
market. This activity included existing residential real estate loans held in Peoples' loan portfolio being refinanced with the
new loan being sold to the secondary market. Peoples predominately has retained servicing rights on sold loans. As a
result, Peoples' serviced loan portfolio was $275.7 million and $250.6 million at December 31, 2011 and 2010,
respectively.
In prior years, Peoples experienced steady growth in consumer loan balances, due mainly to the efforts in indirect
lending. Peoples' indirect lending activity involves the origination of consumer loans primarily through automobile dealers
and comprises a significant portion of its total consumer loans. In 2011, consumer loan balances were higher than a year
ago due to growth during the second quarter mostly attributable to targeted promotions.
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, continue to comprise
approximately half of Peoples' loan portfolio. The following table provides information regarding the largest concentrations
of commercial real estate loans within the loan portfolio at December 31, 2011:
(Dollars in thousands)
Real Estate Construction Loans:
Health care facilities
Assisted living facilities and nursing homes
Apartment complexes
Mixed commercial use facilities - non-owner occupied
Restaurants
Other
Total real estate construction
Outstanding
Balance
Loan
Commitments
Total
Exposure
% of
Total
6,448
9,858
3,288
3,037
2,431
5,515
30,577
$
$
6,091
—
2,273
466
1,000
176
10,006
$
$
12,539
9,858
5,561
3,503
3,431
5,691
40,583
30.9 %
24.3 %
13.7 %
8.6 %
8.5 %
14.0 %
100.0%
$
$
45
(Dollars in thousands)
Commercial Real Estate Loans:
Lodging and lodging related
Apartment complexes
Office buildings and complexes:
Owner occupied
Non-owner occupied
Total office buildings and complexes
Retail facilities:
Owner occupied
Non-owner occupied
Total retail facilities
Assisted living facilities and nursing homes
Light industrial facilities:
Owner occupied
Non-owner occupied
Total light industrial facilities
Mixed commercial use facilities:
Owner occupied
Non-owner occupied
Total mixed commercial use facilities
Day care facilities:
Owner occupied
Non-owner occupied
Total day care facilities
Restaurant facilities:
Owner occupied
Non-owner occupied
Total restaurant facilities
Other
Outstanding
Balance
Loan
Commitments
Total
Exposure
% of Total
$
$
65,808
54,651
$
170
332
6,328
35,287
41,615
10,971
22,104
33,075
31,876
19,172
9,814
28,986
10,422
14,474
24,896
5,469
14,599
20,068
160
1,294
1,454
—
717
717
—
22
—
22
230
11
241
65
—
65
65,978
54,983
6,488
36,581
43,069
10,971
22,821
33,792
31,876
19,194
9,814
29,008
10,652
14,485
25,137
5,534
14,599
20,133
15.8 %
13.2 %
1.6 %
8.8 %
10.4 %
2.6 %
5.5 %
8.1 %
7.6 %
4.6 %
2.3 %
6.9 %
2.5 %
3.5 %
6.0 %
1.3 %
3.5 %
4.8 %
10,956
3,214
14,170
95,207
410,352
$
659
—
659
3,795
7,455
$
11,615
3,214
14,829
99,002
417,807
2.8 %
0.8 %
3.6 %
23.6 %
100.0%
Total commercial real estate
$
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 balance in each state
was less than $4.0 million at both December 31, 2011 and 2010.
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 the formal quarterly analysis of the loan portfolio described in the “Critical
Accounting Policies” section of this discussion. The following details the allocation of the allowance for loan losses:
(Dollars in thousands)
Commercial real estate
Commercial and industrial
Total commercial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total allowance for loan losses
2011
2010
2009
2008
2007
$ 18,947
2,434
21,381
1,119
541
449
227
$ 23,717
$ 21,806
2,160
23,966
1,400
431
721
248
$ 26,766
$ 22,125
1,586
23,711
1,619
528
1,074
325
$ 27,257
19,757
1,414
526
789
445
$ 22,931
14,147
419
433
435
284
$ 15,718
As a percentage of total loans
2.53%
2.79%
2.59%
2.08%
1.40%
46
Given the rate of loss being experienced on commercial real estate loans, in the fourth quarter of 2009, management
refined its methodology for estimating inherent losses on Peoples' commercial loans by performing separate evaluations of,
and allocations for, commercial real estate loans and other commercial loans. This refinement, which did not have a
significant impact on the overall allowance for loan losses, included a separate analysis of lodging and lodging related
loans - Peoples' largest industrial concentration.
The significant allocations 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. At December 31, 2011, the allowance for loan
losses was lower than the prior year, reflecting the upgrade of several criticized loans to a pass rating during 2011.
Criticized loans are those classified as watch, substandard or doubtful. In contrast to the overall improving trend in the
credit quality, certain segments of Peoples' loan portfolio, such as the hospitality sector, remain stressed due to the
continuation of unfavorable economic conditions and weakness in commercial real estate values. As a result, management
has increased the qualitative factors for its lodging and lodging related loans in 2011, which has offset the benefit of lower
historical loss rates in other segments of the commercial 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 following table details the changes in the allowance for loan losses for the years ended December 31:
(Dollars in thousands)
Allowance for loan losses, January 1
Gross charge-offs:
2011
2010
2009
2008
2007
$
26,766
$
27,257
$
22,931
$
15,718
$
14,509
Commercial real estate
Commercial and industrial
Residential real estate
Real estate construction
Home equity lines of credit
Consumer
Deposit account overdrafts
Total gross charge-offs
Recoveries:
Commercial real estate
Commercial and industrial
Residential real estate
Real estate construction
Home equity lines of credit
Consumer
Deposit account overdrafts
Total recoveries
Net charge-offs (recoveries):
Commercial real estate
Commercial and industrial
Residential real estate
Real estate construction
Home equity lines of credit
Consumer
Deposit account overdrafts
Total net charge-offs
Provision for loan losses, December 31
Allowance for loan losses, December 31
25,568
1,281
1,129
68
131
1,074
929
30,180
1,322
220
225
—
34
671
301
2,773
24,246
1,061
904
68
97
403
628
27,407
26,916
26,766
$
18,802
817
1,544
—
82
1,381
1,294
23,920
1,162
91
257
—
55
584
376
2,525
17,640
726
1,287
—
27
797
918
21,395
25,721
27,257
16,138
1,923
1,524
—
145
941
1,298
21,969
278
239
121
156
27
388
333
1,542
892
1,056
864
53
400
587
849
4,701
245
662
214
54
144
352
280
1,951
15,860
1,684
1,403
(156)
118
553
965
20,427
27,640
22,931
$
647
394
650
(1)
256
235
569
2,750
3,959
15,718
$
11,249
1,033
1,593
—
366
939
664
15,844
2,469
729
636
—
51
687
225
4,797
8,780
304
957
—
315
252
439
11,047
7,998
23,717
47
$
$
(Dollars in thousands)
Net charge-offs to average loans:
Commercial real estate
Commercial and industrial
Residential real estate
Real estate construction
Home equity lines of credit
Consumer
Deposit account overdrafts
Total net charge-offs to average loans
2011
2010
2009
2008
2007
0.92 %
0.03 %
0.10 %
— %
0.03 %
0.03 %
0.05 %
1.16%
2.35 %
0.10 %
0.09 %
0.01 %
0.01 %
0.04 %
0.06 %
2.66%
1.61 %
0.07 %
0.12 %
— %
— %
0.07 %
0.09 %
1.96%
1.42 %
0.15 %
0.13 %
(0.01)%
0.01 %
0.04 %
0.09 %
1.83 %
0.06 %
0.04 %
0.06 %
— %
0.02 %
0.02 %
0.05 %
0.25%
The following table details Peoples’ nonperforming assets at December 31:
(Dollars in thousands)
Loans 90+ days past due and accruing:
2011
2010
2009
2008
2007
Commercial real estate
Commercial and industrial
Residential real estate
Consumer
Total
Nonaccrual loans:
Commercial real estate
Commercial and industrial
Residential real estate
Real estate construction
Home equity
Consumer
Total
Troubled debt restructurings:
Commercial real estate
Residential real estate
Total
Total nonperforming loans (NPLs)
Other real estate owned (OREO)
Commercial
Residential
Total
Total nonperforming assets (NPAs)
$
NPLs as a percent of total loans
NPAs as a percent of total assets
NPAs as a percent of gross loans and OREO
Allowance for loan losses as a percent of NPLs
$
$
—
—
—
—
$
—
—
27
27
$
164
—
238
9
411
$
—
—
—
—
—
20,587
2,262
3,440
—
349
—
26,638
2,959
425
3,384
30,022
2,194
—
2,194
32,216
34,392
1,714
3,197
—
554
—
39,857
—
593
593
40,477
4,280
215
4,495
44,972
25,852
2,884
4,687
—
546
3
33,972
—
—
—
34,383
6,087
226
6,313
40,696
$
36,768
1,734
2,271
—
543
4
41,320
—
—
—
41,320
378
147
525
41,845
$
$
3.19%
1.80%
3.41%
79.00%
4.19%
2.45%
4.64%
66.10%
3.27%
2.03%
3.85%
79.30%
3.74%
2.09%
3.79%
55.50%
—
378
—
—
378
4,832
656
2,906
—
583
3
8,980
—
—
—
9,358
$
—
343
343
9,701
0.83%
0.51%
0.87%
168.00%
From time-to-time, Peoples offers various forms of concessions to borrowers in connection with a loan modification.
Such concessions may include short-term forbearance periods involving interest-only payments and/or term extensions,
converting revolving credit lines to term loans or reducing the contractual monthly payment. As discussed in Note 1 of the
Notes to the Consolidated Financial Statements, Peoples adopted new accounting guidance regarding trouble debt
restructurings ("TDRs") during the third quarter of 2011 as required. This new guidance clarified when a loan modification
should be considered a TDR. In general, a loan modification is considered to be a TDR when a borrower is experiencing
financial difficulty and the modification constitutes a concession. As a result of adopting the new accounting guidance,
loans with an aggregate recorded value of $3.0 million were deemed to be TDRs. These loans are collateral-dependent and
were previously considered impaired, thus, the determination of these loans being TDRs had no impact on the recorded
values of these loans or the related valuation allowance.
48
Peoples' nonaccrual commercial real estate loans primarily consist of non-owner occupied commercial properties and
real estate development projects. In general, management believes repayment of these loans is dependent on the sale of the
underlying collateral. As such, the carrying values of these loans are ultimately supported by management's estimate of the
net proceeds Peoples would receive upon the sale of the collateral. These estimates are based in part on market values
provided by independent, licensed or certified appraisers periodically, but no less frequently than annually. Given the
sustained weakness in commercial real estate values, management continues to monitor changes in real estate values from
quarter-to-quarter and updates its estimates as needed based on observable changes in market prices and/or updated
appraisals for similar properties.
At December 31, 2010, Peoples' nonaccrual commercial real estate loans included three loans to a single commercial
borrower that were reclassified as held-for-sale in mid-2010. The value of these loans declined in subsequent quarters
resulting in these loans being written down to their estimated fair value. At December 31, 2010, the loans had a total
carrying value of $1.0 million. These loans were sold during the second quarter of 2011.
While the level of nonperforming loans has remained elevated over the last three years, the majority of nonperforming
loans were carried at the estimated net realizable fair value of their underlying collateral as a result of charge-offs. As a
result, Peoples has experienced a lower allowance for loan losses to nonperforming loans ratio compared to Peoples'
historical levels.
Interest income on loans classified as nonaccrual and renegotiated at each year-end that would have been recorded
under the original terms of the loans was $1.0 million for 2011 and $2.6 million for 2010 and $1.9 million for 2009. No
portion of the amounts for either 2011 or 2010 was recorded while $41,000 of the 2009 amount was actually recorded
consistent with the income recognition policy described in the “Critical Accounting Policies” section of this discussion.
Overall, management believes the allowance for loan losses was adequate at December 31, 2011, based on all
significant information currently available. Still, there can be no assurance the allowance for loan losses will be adequate
to cover future losses or that the amount of nonperforming loans will remain at current levels, especially considering the
current economic uncertainty that exists and the concentration of commercial loans in Peoples’ loan portfolio.
Deposits
Peoples' deposit balances were comprised of the following at December 31:
(Dollars in thousands)
Interest-bearing deposits:
Retail certificates of deposit
Money market deposit accounts
Governmental/public funds
Savings accounts
Interest-bearing demand accounts
Total retail interest-bearing deposits
Brokered certificates of deposits
Total interest-bearing deposits
Non-interest-bearing deposits
Total deposits
2011
2010
2009
2008
2007
$
411,247
268,410
122,916
138,383
106,233
1,047,189
64,054
1,111,243
239,837
$ 1,351,080
$
430,886
289,657
122,444
119,572
96,507
1,059,066
87,465
1,146,531
215,069
$ 1,361,600
$
480,512
263,257
112,074
147,745
91,878
1,095,466
102,420
1,197,886
198,000
$ 1,395,886
$
518,401
213,498
105,714
105,932
90,873
1,034,418
151,910
1,186,328
180,040
$ 1,366,368
$
499,684
153,299
101,039
91,558
106,151
951,731
59,589
1,011,320
175,057
$ 1,186,377
Over the last several years, Peoples' deposit strategy has been to grow low-cost core deposits, such as checking and
savings accounts, and reduce its reliance on higher-cost, non-core deposits, such as certificates of deposit (“CDs”) and
brokered deposits. This strategy has included more selective pricing of long-term CDs, governmental/public fund deposits
and similar non-core deposits, as well as not renewing maturing brokered deposits. These actions accounted for much of
the changes in deposit balances during 2011. Although further reductions in brokered deposits could occur in future
periods, these deposits remain a viable alternative funding source to other wholesale funding for satisfying potential
liquidity needs.
Peoples' governmental/public funds represent savings and interest-bearing transaction accounts from state and local
governmental entities. These funds are subject to periodic fluctuations based on the timing of tax collections and
subsequent expenditures or disbursements. Peoples normally experiences an increase in balances annually during the first
quarter corresponding with tax collections, with declines normally in the second half of each year corresponding with
49
expenditures by the governmental entities. While these balances have increased since 2008, Peoples continues to
emphasize growth of low-cost deposits that do not require Peoples to pledge assets as collateral, which is required in the
case of government/public funds.
The maturities of CDs with total balances of $100,000 or more at December 31 were as follows:
(Dollars in thousands)
3 months or less
Over 3 to 6 months
Over 6 to 12 months
Over 12 months
Total
2011
2010
2009
2008
2007
$
$
71,193
9,554
16,362
97,600
194,709
$
$
36,719
18,767
54,833
91,682
202,001
$
$
60,882
25,637
35,412
93,002
214,933
$
$
66,757
50,545
54,610
63,345
235,257
$
$
42,809
33,411
24,718
43,386
144,324
Borrowed Funds
The following table details Peoples’ short-term and long-term borrowings at December 31:
(Dollars in thousands)
Short-term borrowings:
FHLB advances
Retail repurchase agreements
Other short-term borrowings
Total short-term borrowings
Long-term borrowings:
FHLB advances
National market repurchase agreements
Total long-term borrowings
Subordinated notes held by subsidiary trust
Total borrowed funds
2011
2010
2009
2008
2007
$
$
$
8,500
43,143
—
51,643
$
—
51,509
—
51,509
$
25,000
51,921
—
76,921
$
30,000
54,452
14,400
98,852
77,312
65,000
142,312
22,600
216,555
$
92,703
65,000
157,703
22,565
231,777
$
101,113
145,000
246,113
22,530
345,564
$
148,297
160,000
308,297
22,495
429,644
$
187,500
35,041
—
222,541
83,229
148,750
231,979
22,460
476,980
The steady reduction in borrowed funds has occurred due to Peoples using funds generated from other sources, such as
retail deposit growth, to repay maturing long-term borrowings and minimizing the need for overnight borrowings. Total
borrowed funds also was impacted by management's planned deleveraging of the balance sheet, which included the early
repayment of long-term wholesale repurchase agreements in the third quarter of 2010. The level and composition of
borrowed funds may change in future quarters, as management will continue to use a combination of short-term and long-
term borrowings to manage the interest rate risk of the balance sheet.
Additional information regarding Peoples' borrowed funds can be found in Notes 8 and 9 of the Notes to the
Consolidated Financial Statements.
Capital/Stockholders’ Equity
During 2011, Peoples' total stockholders' equity and regulatory capital measures were impacted by the TARP Capital
Redemption. This impact overshadowed the increase in common equity from Peoples' earnings exceeding dividends
declared with respect to common shares. Additionally, total stockholders' equity benefited from the $5.9 million increased
in accumulated other comprehensive income, as a $9.5 million improvement in market value of Peoples' available-for-sale
investment portfolio was partially offset by an additional $3.6 million unrealized loss associated with Peoples' defined
benefit pension plan.
At December 31, 2011, capital levels for both Peoples and Peoples Bank remained substantially higher than the
minimum amounts needed to be considered well capitalized institutions under banking regulations. These higher capital
levels reflect Peoples' desire to maintain strong capital positions throughout the current credit cycle and economic
downturn to provide greater flexibility to work through asset quality issues that have arisen. Further information regarding
Peoples and Peoples Bank's risk-based capital ratios can be found in Note 17 of the Notes to the Consolidated Financial
Statements.
50
The following table details Peoples' actual risk-based capital levels and corresponding ratios at December 31:
(Dollars in thousands)
Capital Amounts:
Tier 1 common
Tier 1
Total (Tier 1 and Tier 2)
Net risk-weighted assets
Capital Ratios:
Tier 1 common
Tier 1
Total (Tier 1 and Tier 2)
Leverage ratio
2011
2010
2009
2008
2007
$ 142,521
165,121
180,053
$1,111,443
$ 133,197
194,407
209,738
$1,149,587
$ 131,747
192,822
209,144
$1,244,707
$ 133,760
156,254
173,470
$1,315,657
$ 132,473
154,933
172,117
$1,301,056
12.82%
14.86%
16.20%
9.45%
11.59%
16.91%
18.24%
10.63%
10.58%
15.49%
16.80%
10.06%
10.17%
11.88%
13.19%
8.18%
10.18%
11.91%
13.23%
8.48%
In 2011, Peoples declared cash dividends of $0.30 per common share versus $0.40 per common share in 2010. This
decrease reflected the new schedule for considering the declaration of dividends payable to common shareholders that was
adopted by Peoples' Board of Directors in the second quarter of 2011. Peoples historically has paid between 30% and 50%
of quarterly earnings as dividends to shareholders. However, future dividend payments will continue to be determined
each quarter based upon Peoples' performance and capital needs. In addition, other restrictions and limitations may
prohibit Peoples from paying dividends even when sufficient cash is available. Further discussion regarding restrictions on
Peoples' ability to pay future dividends can be found in Note 17 of the Notes to the Consolidated Financial Statements, as
well as the “Supervision and Regulation - Dividend Restrictions” sections under Item 1 of this Form 10-K.
In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy
of Peoples' stockholders' equity. Such ratios represent non-GAAP financial information since their calculation removes the
impact of intangible assets acquired through acquisitions on the 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. The following table
reconciles the calculation of these non-GAAP financial measures to amounts reported in Peoples' Consolidated Financial
Statements:
(Dollars in thousands)
Tangible Equity:
Total stockholders' equity, as reported
Less: goodwill and other intangible assets
Tangible equity
Tangible Common Equity:
Tangible equity
Less: preferred stockholders' equity
Tangible common equity
Tangible Assets:
Total assets, as reported
Less: goodwill and other intangible assets
Tangible assets
2011
2010
2009
2008
2007
$
$
$
$
206,657
64,475
142,182
142,182
—
142,182
$
$
$
$
230,681
64,870
165,811
165,811
38,645
127,166
$
$
$
$
243,968
65,599
178,369
178,369
38,543
139,826
$
$
$
$
186,626
66,406
120,220
120,220
—
120,220
$
$
$
$
202,836
68,029
134,807
134,807
—
134,807
$ 1,794,161
64,475
$ 1,729,686
$ 1,837,985
64,870
$ 1,773,115
$ 2,001,827
65,599
$ 1,936,228
$ 2,002,338
66,406
$ 1,935,932
$ 1,885,553
68,029
$ 1,817,524
51
(Dollars in thousands)
Tangible Book Value per Share:
Tangible common equity
Common shares outstanding
2011
2010
2009
2008
2007
$
142,182
10,507,124
$
127,166
10,457,327
$
139,826
10,374,637
$
120,220
10,333,884
$
134,807
10,296,748
Tangible book value per share
$
13.53
$
12.16
$
13.48
$
11.63
$
13.09
Tangible Equity to Tangible Assets Ratio:
Tangible equity
Tangible assets
$
142,182
$ 1,729,686
$
165,811
$ 1,773,115
$
178,369
$ 1,936,228
$
120,220
$ 1,935,932
$
134,807
$ 1,817,524
Tangible equity to tangible assets
8.22%
9.35%
9.21%
6.21%
7.42%
Tangible Common Equity to Tangible Assets Ratio:
Tangible common equity
Tangible assets
$
142,182
$ 1,729,686
$
127,166
$ 1,773,115
$
139,826
$ 1,936,228
$
120,220
$ 1,935,932
$
134,807
$ 1,817,524
Tangible common equity to tangible assets
8.22%
7.17%
7.22%
6.21%
7.42%
Future Outlook
In 2011, Peoples' associates worked to overcome many challenges and executed strategies that produced success in
key areas, including stronger bottom-line earnings. Despite these accomplishments, management is not satisfied with
Peoples' 2011 results. Instead, management is focused on building upon recent trends in order to improve Peoples'
performance in every area.
During the last five years, there has been a nationwide reduction of more than one thousand banks with less than $2
billion in assets. The operating environment for banks continues to be increasingly challenging. Peoples' strategic goals
include a return to a steady, dependable performer. As such, management is committed to generating results in the top
quartile of industry performance and providing returns for Peoples' shareholders superior to those of its peers regardless of
operating conditions. These goals will require Peoples to maintain a continual focus on four key areas: revenue growth,
expense management, asset quality and capital strength.
In 2011, Peoples maintained a strong, diversified revenue stream, although total revenue decreased from the prior year.
Peoples' fee-based services currently generate nearly 40% of Peoples' total revenue. As a result, Peoples is less dependent
on net interest income for revenue growth compared to most banks comparable in size to Peoples. For 2012, management
believes modest revenue growth will occur driven by double-digit growth from Peoples' wealth management and insurance
businesses. Management believes sufficient growth opportunities in these businesses exist within Peoples' primary market
area. Total revenue also will benefit from a full year's impact of Peoples' deposit products introduced in the first quarter of
2011.
Peoples' greatest challenge to revenue growth in 2012 will be in the area of net interest income. The Federal Reserve
has extended its commitment to keep interest rates at very low levels well into 2014. To the extent it does, Peoples' asset
yields would face continued downward pressure. With limited opportunities to lower Peoples' funding costs, loan growth
will be the key driver of Peoples' net interest income and margin in 2012. Management also will remain disciplined with
its pricing of loans and deposits. These efforts should produce a relatively stable net interest margin, although some slight
compression could occur in the second half of 2012 due to the downward pressure on asset yields.
Peoples' Consolidated Balance Sheet is positioned for a rising interest rate environment, and management would
expect net interest income and margin to benefit should interest rates increase during 2012. Given the uncertainty
surrounding the timing and magnitude of future interest rate changes, as well as the impact of competition for loans and
deposits, Peoples' net interest margin and income remain inherently difficult to predict and manage.
Quality loan growth through increased lending activity remains one of Peoples' strategic priorities. However, loan
growth could be challenging in 2012. Consumers and businesses remain reluctant to borrow money as the appeal of
historically low interest rates is being tempered by concerns regarding the direction of the economy. Further, businesses
are being cautious with expansion plans while consumer spending is being restrained by the depressed national housing
52
market and high unemployment. During 2012, Peoples intends to grow loans and create more diversity in its portfolio by
capitalizing on the lending needs within its primary markets.
Given the current level of concentration in commercial real estate loans, the primary emphasis of future lending
activity will be on other commercial lending opportunities, including small business lending and new niches, such as health
care and oil and gas lending. Peoples also is focused on adjusting its loan mix by making consumer loans a larger portion
of the portfolio. As such, management will be working to expand Peoples' consumer lending activities by making
investments in this area over the next several quarters. Management intends to balance loan growth with prudent risk
management and sound underwriting standards.
Peoples' investment securities portfolio could remain a significant portion of the earning asset base in 2012. To the
extent planned loan growth occurs, management may reduce the size of the investment portfolio. Most of the reduction
would occur as a result of normal monthly cash flows generated by the portfolio, given the significant investment in
mortgage-backed securities, which would be used to fund new loan production. Management also could adjust the size or
composition of the portfolio due to other factors, such as changes in liquidity needs and interest rate conditions.
Growing retail deposit balances and reducing Peoples' reliance on higher cost wholesale funding sources will remain a
point of emphasis in 2012. Competition for deposits could make it difficult for Peoples to build on its recent success. Still,
Peoples' sales associates are focused on developing long-term relationships and uncovering other financial needs of these
new customers, while at the same time expanding relationships with existing customers.
Peoples also continues to explore market expansion opportunities in or near its current market areas. Management's
primary focus will be on increasing market share in existing markets, while taking advantage of potential growth
opportunities within its insurance and wealth management areas. These growth efforts may include the consolidation of
existing offices or opening new offices in areas with growth potential. Management also believes mergers and acquisitions
remain a viable means of expanding Peoples' core financial service businesses of banking, insurance and wealth
management. Consequently, management could explore the acquisition of companies engaged in these activities,
emphasizing opportunities to complement Peoples' core competencies and strategic intent, with a lesser emphasis being
placed on geographic location, size or nature of business. Further, such transactions must be accretive in their second year
in order to satisfy Peoples' goal of improving shareholder return.
In 2011, Peoples made various strategic investments to enhance revenue generation and position for long-term growth.
These investments included adding sales associates in several markets and resulted in higher operating expenses. During
the fourth quarter of 2011, management placed greater emphasis on reducing costs through more disciplined expense
management. The goal of Peoples' expense management plan is to grow revenue faster than expenses in future years.
Along these lines, management expects Peoples' total non-interest expense will be lower in 2012 compared to 2011
excluding the impact of any acquisitions that might be undertaken.
A major component of Peoples' expense management involves a reduction in staffing levels. This process was started
in the fourth quarter of 2011 and involved a re-evaluation of key processes, which led to the outsourcing of some support
functions. In the first quarter of 2012, additional staffing reductions will occur primarily within Peoples' branch network.
During the quarter, Peoples will consolidate three underperforming banking offices in low growth areas into nearby offices.
Management does not expect further branch rationalization after the first quarter.
Overall, management believes approximately $2.5 million in annual costs will be eliminated in 2012 without an
adverse impact on customer service. Some of these costs will be reinvested in other areas with greater growth potential.
However, in the event planned revenue growth does not occur in 2012, management intends to realize proportional expense
reductions by delaying some of the planned investments.
Another area of major focus for management in 2012 will be sustaining the recent improving asset quality trends.
Peoples will remain proactive and diligent in its efforts to workout problem loans. Management also will seek to capitalize
on opportunities to reduce nonperforming assets. However, certain segments of our portfolio remain under stress, most
notably Peoples' non-owner occupied commercial real estate and hospitality segments. Consequently, management intends
to take a prudent approach with Peoples' allowance for loan losses. This includes being conservative with any additional
releases in future quarters.
During the past three volatile years, Peoples has benefited from maintaining a strong capital level. The TARP Capital
Investment provided extra strength during this challenging period. Today, Peoples' capital levels after the TARP Capital
Redemption are stronger than before the TARP Capital Investment. Management believes this stronger capital position
provides Peoples with capacity to grow. Additionally, the TARP Capital Redemption removed several restrictions on
Peoples' including the ability to increase dividends or repurchase common shares. Management considers both of these
53
capital management tools to be effective ways to enhance the return to Peoples' shareholders. Management continues to
maintain a target range of 30% to 50% for Peoples' dividend payout ratio. Thus, as Peoples' earnings continue to build,
management anticipates Peoples would seek to increase its common dividend.
While some indicators point toward economic recovery, the financial services industry will continue to face challenges
in 2012. Management is committed to overcoming these challenges and building upon the earnings momentum of the
second half of 2011. Success will be achieved through disciplined execution of strategies and partnership with Peoples'
clients and communities.
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 (“ALM”) function is to measure and manage these risks in
order to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective
requires Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets
and liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the ALM
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 both the earnings stream as well as market values of financial assets and liabilities. Peoples' exposure to IRR is
due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition,
other factors, such as prepayments of loans and investment securities or early withdrawal of deposits, can expose
Peoples to IRR and increase interest costs or reduce revenue streams.
Peoples has assigned overall management of IRR to the ALCO, which has established an IRR management policy
that sets minimum requirements and guidelines for monitoring and managing the level and amount of IRR. The
objective of Peoples' IRR policy is to assist the ALCO in its evaluation of the impact of changing interest rate
conditions on earnings and economic value of equity, as well as assist with the implementation of strategies intended
to reduce Peoples' IRR. The management of IRR involves either maintaining or changing the level of risk exposure by
changing the repricing and maturity characteristics of the cash flows for specific assets or liabilities. Additional
oversight of Peoples' IRR is provided by the Asset Liability Management and Investment Committee of Peoples
Bank's Board of Directors. This committee also reviews and approves Peoples' IRR management policy at least
annually.
The ALCO uses various methods to assess and monitor the current level of Peoples' IRR and the impact of
potential strategies or other changes. However, the ALCO predominantly relies on simulation modeling in its overall
management of IRR since it is a dynamic measure. Simulation modeling also estimates the impact of potential
changes in interest rates and balance sheet structures on future earnings and projected fair value of equity.
The modeling process starts with a base case simulation using the current balance sheet and current interest rates
held constant for the next twelve months. Alternate scenarios are prepared which simulate the impact of increasing
and decreasing market interest rates, assuming parallel yield curve shifts. Comparisons produced from the simulation
data, showing the changes in net interest income from the base interest rate scenario, illustrate the risks associated with
the current balance sheet structure. Additional simulations, when deemed appropriate or necessary, are prepared using
different interest rate scenarios from those used with the base case simulation and/or possible changes in balance sheet
composition. The additional simulations include non-parallel shifts in interest rates whereby the direction and/or
magnitude of change of short-term interest rates is different than the changes applied to longer-term interest rates.
Comparisons showing the earnings and equity value variance from the base case are provided to the ALCO for review
and discussion.
The ALCO has established limits on changes in the twelve-month net interest income forecast and the economic
value of equity from the base case. The ALCO may establish risk tolerances for other parallel and non-parallel rate
movements, as deemed necessary.
54
The following table details the current policy limits used to manage the level of Peoples' IRR:
Immediate and
Sustained Shift in
Interest Rates
+ / - 100 basis points
+ / - 200 basis points
+ / - 300 basis points
Net Interest
Income
-5%
-10%
-15%
Economic
Value of
Equity
-10%
-15%
-20%
The following table shows the estimated changes in net interest income and the economic value of equity based
upon a standard, parallel shock analysis (dollars in thousands):
Increase in
Interest Rate
(in Basis Points)
300
200
100
Estimated Increase in
Net Interest Income
Estimated (Decrease) Increase in
Economic Value of Equity
December 31, 2011
$
December 31, 2010
17.2%
$
13.2%
7.8%
8,973
6,860
4,048
December 31, 2011
$
(8,855)
2,036
7,728
(4.1)%
0.9 %
3.6 %
December 31, 2010
(3.9)%
$
(1.4)%
0.7 %
(9,005)
(3,297)
1,599
13.9%
12.3%
9.0%
7,061
6,250
4,548
This table uses a standard, parallel shock analysis for assessing the IRR to net interest income and the economic
value of equity. A parallel shock means all points on the yield curve (one year, two year, three year, etc.) are
directionally shocked the same amount of basis points - 100 basis points is equal to 1%. While management regularly
assesses the impact of both increasing and decreasing interest rates, the table above only reflects the impact of upward
shocks due to the fact a downward parallel shock of 100 basis points or more is not possible given that some short-
term rates are currently less than 1%.
Although a parallel shock table can give insight into the current direction and magnitude of IRR inherent in the
balance sheet, interest rates do not always move in a complete parallel manner during interest rate cycles. These
nonparallel movements in interest rates, commonly called yield curve steepening or flattening movements, tend to
occur during the beginning and end of an interest rate cycle, with differences in the timing, direction and magnitude of
changes in short-term and long-term interest rates. Thus, any benefit that could occur as a result of the Federal Reserve
increasing short-term interest rates in future quarters could be offset by an inverse movement in long-term interest
rates. As a result, management conducts more advanced interest rate shock scenarios to gain a better understanding of
Peoples' exposure to nonparallel rate shifts.
At December 31, 2011, Peoples' Consolidated Balance Sheet remained positioned for a rising interest rate
environment, as illustrated by the potential increase in net interest income shown in the above table. Given the
inherent uncertainty surrounding the timing and magnitude of future interest rate changes, management's near-term
balance sheet strategies will continue to emphasize maintaining good asset liquidity and lowering overall funding costs
through a combination of less aggressive pricing of non-core funding and growing low cost retail deposits.
Liquidity
In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity.
The ALCO defines liquidity as the ability to meet anticipated and unanticipated operating cash needs, loan demand
and deposit withdrawals, without incurring a sustained negative impact on profitability.
The main source of liquidity for Peoples is deposit growth. Liquidity is also provided by cash generated from
earning assets such as maturities, calls, principal and interest payments from loans and investment securities. Peoples
also uses various wholesale funding sources to supplement funding from customer deposits. These external sources
provide Peoples with the ability to obtain large quantities of funds in a relatively short time period in the event of
sudden unanticipated cash needs. However, an over-utilization of external funding sources can expose Peoples to
greater liquidity risk as these external sources may not be accessible during times of market stress. Additionally,
Peoples may be exposed to the risk associated with providing excess collateral to external funding providers,
commonly referred to as counterparty risk. As a result, the ALCO's liquidity management policy sets limits on the net
liquidity position and the concentration of non-core funding sources, both wholesale funding and brokered deposits.
In addition to external sources of funding, Peoples considers certain types of deposits to be less stable or "volatile
funding". These deposits include special money market products, large CDs and public funds. Peoples has established
volatility factors for these various deposit products, and the liquidity management policy establishes a limit on the total
55
level of volatile funding. Additionally, Peoples measures the maturities of external sources of funding for periods of 1
month, 3 months, 6 months and 12 months and has established policy limits for the amounts maturing in each of these
periods. The purpose of these limits is to minimize exposure to what is commonly termed as rollover risk.
An additional strategy used by Peoples in the management of liquidity risk is maintaining a targeted level of liquid
assets. These are assets that can be converted into cash in a relatively short period of time. Management defines
liquid assets as cash, including cash on deposit at the Federal Reserve Bank and the market value of U.S. government
and agency securities that are not pledged. Excluded from this definition are pledged securities, non-government and
agency securities, municipal securities and loans. Management has established a minimum level of liquid assets in the
liquidity management policy, which is expressed as a percentage of loans and unfunded loan commitments. Peoples
also has established a policy limit around the level of liquefiable assets, also expressed as a percentage of loans and
unfunded loan commitments. Liquefiable assets are defined as liquid assets plus the market value of unpledged
securities not included in the liquid asset measurement.
An essential element in the management of liquidity risk is a forecast of the sources and uses of anticipated cash
flows. On a monthly basis, Peoples forecasts sources and uses of cash for the next twelve months. To assist in the
management of liquidity, management has established a liquidity coverage ratio, which is defined as the total sources
of cash divided by the total uses of cash. A ratio of greater than 1.0 times indicates that forecasted sources of cash are
adequate to fund forecasted uses of cash. The liquidity management policy establishes a minimum limit of 1.0 times.
Peoples also forecasts secondary or contingent sources of cash, and this includes external sources of funding and liquid
assets. These sources of cash would be required if and when the forecasted liquidity coverage ratio dropped below the
policy limit of 1.0 times. An additional liquidity measurement used by management includes the total forecasted
sources of cash and the contingent sources of cash divided by the forecasted uses of cash. Management has
established a minimum ratio of 5.0 times for this liquidity management policy limit.
Disruptions in the sources and uses of cash can occur which can drastically alter the actual cash flows and
negatively impact Peoples' ability to access internal and external sources of cash. Such disruptions might occur due to
increased withdraws of deposits, increased funding required for funding loan commitments, a decrease in the ability to
access external funding sources and other forces that would increase the need for funding and limit Peoples' ability to
access needed funds. As a result, Peoples maintains a liquidity contingency funding plan ("LCFP") that considers
various degrees of disruptions and develops action plans around these scenarios.
Peoples' LCFP identifies scenarios where funding disruptions might occur and creates scenarios of varying
degrees of severity. The disruptions considered include an increase in funding of unfunded loan commitments,
unanticipated withdraws of deposits, decreases in the renewal of maturing certificates of deposit and reductions in cash
earnings. Additionally, the LCFP creates stress scenarios where access to external funding sources, or contingency
funding, is suddenly limited which includes a significant increase in the margin requirements where securities or loans
are pledged, limited access to funding from other banks and limited access to funding from the FHLB and the Federal
Reserve Bank. Peoples' LCFP scenarios include a mild stress scenario, a moderate stress scenario and a severe stress
scenario. Each of these is defined as to the severity and action plans are developed around each.
Liquidity management also requires the monitoring of risk indicators that may alert the ALCO to a developing
liquidity situation or crisis. Early detection of stress scenarios allow Peoples to take actions to help mitigate the
impact to the bank's business operations. The LCFP contains various indicators, termed key risk indicators (or
"KRI's") that are monitored on monthly basis, at a minimum. The KRI's include both internal and external indicators
and include loan delinquency levels, classified and watch list loan levels, non-performing loans to loans and to total
assets, the loan to deposit ratio, the level of net non-core funding dependence, the level of contingency funding
sources, the liquidity coverage ratio, changes in regulatory capital levels, forecasted operating loss and negative media
concerning Peoples, irrational competitor pricing that persists and an increase in rates for external funding sources.
The LCFP establishes levels that define each of these KRI's under normal, mild, moderate and severe scenarios.
The LCFP is reviewed and updated on at least an annual basis by the ALCO and the Asset Liability Management
and Investment Committee of Peoples Bank's Board of Directors. Additionally, testing of the LCFP is required on an
annual basis. Various stress scenarios and the related actions are simulated according to the LCFP. The results are
reviewed and discussed and changes or revisions are made to the LCFP accordingly. Additionally, every two years, the
LCFP is subjected to a third-party review for effectiveness and regulatory compliance.
Overall, 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.
56
Off-Balance Sheet Activities and Contractual Obligations
Peoples 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' 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.
The following is a summary of Peoples’ significant off-balance sheet activities and contractual obligations. Detailed
information regarding these activities and obligations can be found in the Notes to the Consolidated Financial Statements
as follows:
Activity or Obligation
Off-balance sheet credit-related financial instruments
Operating lease obligations
Long-term debt obligations
Junior subordinated notes held by subsidiary trusts
Note
16
5
9
10
Traditional off-balance sheet credit-related financial instruments are primarily commitments to extend credit and
standby letters of credit. These activities are necessary to meet the financing needs of customers and could require Peoples
to make cash payments to third parties in the event certain specified future events occur. The contractual amounts
represent the extent of Peoples’ exposure in these off-balance sheet activities. However, since certain off-balance sheet
commitments, particularly standby letters of credit, are expected to expire or only partially be used, the total amount of
commitments does not necessarily represent future cash requirements.
Peoples continues to lease certain facilities and equipment under noncancellable operating leases with terms providing
for fixed monthly payments over periods generally ranging from two to ten years. Several of Peoples’ leased facilities are
inside retail shopping centers or office buildings and, as a result, are not available for purchase. Management believes
these leased facilities increase Peoples’ visibility within its markets and afford sales associates additional access to current
and potential clients.
The following table details the aggregate amount of future payments Peoples is required to make under certain
contractual obligations as of December 31, 2011:
Payments due by period
(Dollars in thousands)
Long-term debt (1)
Junior subordinated notes held by
subsidiary trust (1)
Operating leases
Time deposits
Total
Total
142,312
$
Less than 1
year
$
7,408
$
1-3 years
3,946
3-5 years
2,722
$
More than
5 years
$
128,236
22,600
4,919
475,301
645,132
$
—
915
230,841
239,164
$
—
1,499
148,861
154,306
$
$
—
910
82,396
86,028
$
22,600
1,595
13,203
165,634
(1) Amounts reflect solely the minimum required principal payments.
Management does not anticipate Peoples’ current off-balance sheet activities and contractual obligations will have a
material impact on future results of operations and financial condition based on past experience.
Effects of Inflation on Financial Statements
Substantially all of Peoples’ assets relate to banking and are monetary in nature. As a result, inflation does not impact
Peoples to the same degree as companies in capital-intensive industries in a replacement cost environment. During a
period of rising prices, a net monetary asset position results in a loss in purchasing power and conversely a net monetary
liability position results in an increase in purchasing power. The opposite would be true during a period of decreasing
prices. In the banking industry, monetary assets typically exceed monetary liabilities. The current monetary policy
targeting low levels of inflation has resulted in relatively stable price levels. Therefore, inflation has had little impact on
Peoples’ net assets.
57
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Please refer to the section captioned “Interest Rate Sensitivity and Liquidity” under Item 7 of this Form 10-K, which
section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and accompanying notes, and the report of independent registered public
accounting firm, are set forth immediately following Item 9B of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
No response required.
ITEM 9A. 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 December 31, 2011. Based upon that evaluation, Peoples’ President and Chief Executive Officer and Peoples’ Executive
Vice President, Chief Financial Officer and Treasurer have concluded that:
(a)
(b)
(c)
information required to be disclosed by Peoples in this Form 10-K 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;
information required to be disclosed by Peoples in this Form 10-K 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
Peoples’ disclosure controls and procedures were effective as of the end of the period covered by this
Form 10-K.
Management's Annual Report on Internal Control Over Financial Reporting
The “Report of Management's Assessment of Internal Control Over Financial Reporting” required by Item 308(a) of
SEC Regulation S-K is included on page 59 of this Form 10-K.
Attestation Report of Independent Registered Public Accounting Firm
The “Report of Independent Registered Public Accounting Firm on Effectiveness of Internal Control Over Financial
Reporting” required by Item 308(b) of SEC Regulation S-K is included on page 60 of this Form 10-K.
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 December 31, 2011, that have materially affected, or are
reasonably likely to materially affect, Peoples’ internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
58
Report of Management's Assessment of Internal Control Over Financial Reporting
Peoples' management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.
Peoples' internal control over financial reporting has been designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation, integrity, and fair presentation of Peoples' Consolidated
Financial Statements for external purposes in accordance with United States generally accepted accounting
principles.
With the supervision and participation of its President and Chief Executive Officer and its Executive Vice President,
Chief Financial Officer and Treasurer, management evaluated the effectiveness of Peoples' internal control over
financial reporting as of December 31, 2011, using the framework set forth by the Committee of Sponsoring
Organizations of the Treadway Commission.
No matter how well designed, internal control over financial reporting may not prevent or detect all misstatements.
Projection of the evaluation of effectiveness to future periods is subject to risks, including but not limited to (a)
controls may become inadequate due to changes in conditions; (b) a deterioration in the degree of compliance with
policies or procedures; and (c) the possibility of control circumvention or override, any of which may lead to
misstatements due to undetected error or fraud. Effective internal control over financial reporting can provide only a
reasonable assurance with respect to financial statement preparation and reporting.
Management assessed the effectiveness of Peoples' internal control over financial reporting as of December 31, 2011,
and, based on this assessment, has concluded Peoples' internal control over financial reporting is effective as of that
date.
Peoples' independent registered public accounting firm, Ernst & Young LLP has audited the Consolidated Financial
Statements included in this Annual Report and has issued an attestation report on Peoples' internal control over
financial reporting.
By: /s/
CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
By: /s/
EDWARD G. SLOANE
Edward G. Sloane
Executive Vice President,
Chief Financial Officer and Treasurer
59
Report of Independent Registered Public Accounting Firm on Effectiveness of Internal Control Over Financial
Reporting
The Audit Committee of the Board of Directors and Shareholders
Peoples Bancorp, Inc.
We have audited Peoples Bancorp Inc. and subsidiaries internal control over financial reporting as of December 31,
2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Peoples Bancorp Inc. and subsidiaries' management
is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Report of Management's
Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Peoples Bancorp Inc. and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets as of December 31, 2011 and 2010, and the related consolidated statements of
income, statements of stockholders' equity, and cash flows for each of the three years in the period ended
December 31, 2011, of Peoples Bancorp Inc. and subsidiaries and our report dated February 28, 2012 expressed an
unqualified opinion thereon.
Charleston, West Virginia
February 28, 2012
60
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
The Audit Committee of the Board of Directors and the Shareholders
Peoples Bancorp Inc.
We have audited the accompanying consolidated balance sheets of Peoples Bancorp Inc. and subsidiaries as of
December 31, 2011 and 2010, and the related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of
the Peoples Bancorp Inc.'s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Peoples Bancorp Inc. and subsidiaries at December 31, 2011 and 2010, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Peoples Bancorp Inc. and subsidiaries' internal control over financial reporting as of December 31, 2011, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 28, 2012 expressed an unqualified opinion thereon.
Charleston, West Virginia
February 28, 2012
61
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Assets
Cash and cash equivalents:
Cash and due from banks
Interest-bearing deposits in other banks
Total cash and cash equivalents
December 31,
2011
2010
$
$
32,346
6,604
38,950
28,324
46,320
74,644
Available-for-sale investment securities, at fair value (amortized cost of
$617,128 at December 31, 2011 and $617,122 at December 31, 2010)
Held-to-maturity investment securities, at amortized cost (fair value of $16,705
at December 31, 2011 and $2,954 at December 31, 2010)
628,571
613,986
16,301
2,965
Other investment securities, at cost
Total investment securities
Loans, net of deferred fees and costs
Allowance for loan losses
Net loans
Loans held for sale
Bank premises and equipment, net
Bank owned life insurance
Goodwill
Other intangible assets
Other assets
Total assets
Liabilities
Deposits:
Non-interest-bearing
Interest-bearing
Total deposits
Short-term borrowings
Long-term borrowings
Junior subordinated notes held by subsidiary trust
Accrued expenses and other liabilities
Total liabilities
Stockholders’ Equity
Preferred stock, no par value, 50,000 shares authorized, no shares issued at
December 31, 2011, and 39,000 issued at December 31, 2010
Common stock, no par value, 24,000,000 shares authorized, 11,122,247 shares
issued at December 31, 2011 and 11,070,022 shares issued at December 31,
2010, including shares in treasury
Retained earnings
Accumulated other comprehensive income (loss), net of deferred income taxes
Treasury stock, at cost, 615,123 shares at December 31, 2011 and 612,695
shares at December 31, 2010
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to the Consolidated Financial Statements
62
24,356
669,228
938,506
(23,717)
914,789
3,271
23,905
49,384
62,520
1,955
30,159
1,794,161
239,837
1,111,243
1,351,080
51,643
142,312
22,600
19,869
1,587,504
24,356
641,307
960,718
(26,766)
933,952
4,755
24,934
53,532
62,520
2,350
39,991
1,837,985
215,069
1,146,531
1,361,600
51,509
157,703
22,565
13,927
1,607,304
$
$
$
$
—
38,645
166,969
166,298
53,580
1,412
(15,304)
45,547
(4,453)
(15,356)
206,657
1,794,161
$
230,681
1,837,985
$
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
$
(Dollars in thousands, except per share data)
Interest Income:
Interest and fees on loans
Interest and dividends on taxable investment securities
Interest on tax-exempt investment securities
Other interest income
Total interest income
Interest Expense:
Interest on deposits
Interest on short-term borrowings
Interest on long-term borrowings
Interest on junior subordinated notes held by subsidiary trust
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Gross impairment losses on investment securities
Less: Non-credit losses included in other comprehensive income
Net impairment losses on investment securities
Other Income:
Deposit account service charges
Insurance income
Trust and investment income
Electronic banking income
Mortgage banking income
Bank owned life insurance
Net gain on investment securities
Net loss on asset disposals and other transactions
Other non-interest income
Total other income
Other Expenses:
Salaries and employee benefit costs
Net occupancy and equipment
Professional fees
FDIC insurance
Electronic banking expense
Data processing and software
Foreclosed real estate and other loan expenses
Franchise tax
Amortization of other intangible assets
Communication expense
Other non-interest expense
Total other expenses
Income before income taxes
Income tax expense (benefit)
Net income
Preferred dividends
Net income available to common shareholders
Earnings per common share - basic
Earnings per common share - diluted
Weighted-average number of common shares outstanding - basic
Weighted-average number of common shares outstanding - diluted
See Notes to the Consolidated Financial Statements
63
2011
2010
2009
$
49,410
24,149
1,550
24
75,133
13,930
103
5,142
1,979
21,154
53,979
7,998
45,981
—
—
—
9,765
9,265
5,548
5,142
1,687
351
473
(916)
1,186
32,501
57,332
29,558
2,354
91
89,335
19,122
262
8,063
1,986
29,433
59,902
26,916
32,986
(1,620)
166
(1,786)
9,581
8,846
5,348
4,686
1,566
608
6,852
(6,891)
999
31,595
$
64,701
34,522
2,811
71
102,105
26,123
482
11,677
1,980
40,262
61,843
25,721
36,122
(7,406)
301
(7,707)
10,390
9,390
4,722
3,954
1,719
1,051
1,446
(103)
824
33,393
33,626
5,885
3,531
1,867
2,692
1,893
1,213
1,505
586
1,223
7,310
61,331
17,151
4,596
12,555
1,343
$
11,212
$
1.07
1.07
$
10,482,318
10,482,318
$
29,222
5,781
3,108
2,470
2,453
2,032
1,675
1,576
918
1,188
6,619
57,042
5,753
172
5,581
2,052
$
3,529
$
0.34
0.34
$
10,424,474
10,431,990
$
29,394
5,756
3,042
3,442
2,401
2,417
1,067
1,601
1,252
1,270
7,040
58,682
3,126
(1,064)
4,190
1,876
$
2,314
$
0.22
0.22
$
10,363,975
10,374,792
$
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Balance, December 31, 2008
Net income
Other comprehensive income, net of tax
Issuance of preferred shares and common stock
warrant
Accrued dividends on preferred shares
Amortization of discount on preferred stock
Common stock cash dividends declared
Tax benefit from exercise of stock options
Purchase of treasury stock
Common shares issued under dividend
reinvestment plan
Stock-based compensation expense
Reissuance of treasury stock for deferred
compensation plan
Cumulative effect adjustment for non-credit
portion of previously recorded OTTI losses
Balance, December 31, 2009
Net income
Other comprehensive income, net of tax
Reissuance of treasury stock for common stock
option exercises
Accrued dividends on preferred shares
Amortization of discount on preferred stock
Common stock cash dividends declared
Tax benefit from exercise of stock options
Purchase of treasury stock
Common shares issued under dividend
reinvestment plan
Stock-based compensation expense
Reissuance of treasury stock for deferred
compensation plan
Balance, December 31, 2010
Net income
Other comprehensive income, net of tax
Accrued dividends on preferred shares
Amortization of discount on preferred stock
Common stock cash dividends declared
Tax benefit from exercise of stock options
Reissuance of treasury stock for deferred
compensation plan
Purchase of treasury stock
Common shares issued under dividend
reinvestment plan
Issuance of common shares under Board of
Directors' compensation plan
Stock-based compensation expense
Repurchase of preferred stock
Balance, December 31, 2011
Preferred
Stock
Common
Stock
Retained
Earnings
50,512
4,190
(1,787)
(89)
(6,901)
$
—
$
164,716
$
38,454
546
89
(14)
830
149
$
38,543
$
166,227
$
102
(428)
4
403
92
$
38,645
$
166,298
$
355
304
46,229
5,581
$
(1,950)
(102)
(4,211)
$
45,547
12,555
(988)
(355)
(3,179)
1
318
42
310
See Notes to the Consolidated Financial Statements
64
Accumulated
Other
Comprehensive
Income (Loss)
$
(12,288)
22,079
Treasury
Stock
Total
Stockholders'
Equity
$
(16,314)
$
186,626
4,190
22,079
39,000
(1,787)
—
(6,901)
(14)
(249)
830
149
45
—
243,968
5,581
(13,940)
427
(1,950)
—
(4,211)
4
(181)
403
92
488
230,681
12,555
5,865
(988)
—
(3,179)
1
176
(187)
318
105
310
(39,000)
206,657
(304)
9,487
$
(13,940)
(249)
45
(16,518)
$
855
(181)
488
(15,356)
$
(4,453)
$
5,865
176
(187)
63
(39,000)
—
$
$
166,969
$
53,580
$
1,412
$
(15,304)
$
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2011
2010
2009
$
12,555
$
5,581
$
4,190
Depreciation, amortization, and accretion, net
Provision for loan losses
Bank owned life insurance income
Net (gain) loss on investment securities
Loans originated for sale
Proceeds from sales of loans
Net gains on sales of loans
Deferred income tax expense (benefit)
Increase (decrease) in accrued expenses
Decrease (increase) in interest receivable
Other, net
Net cash provided by operating activities
Investing activities:
Available-for-sale securities:
Purchases
Proceeds from sales
Proceeds from maturities, calls and prepayments
Purchase of held-to-maturity securities
Net decrease in loans
Net expenditures for premises and equipment
Proceeds from sales of other real estate owned
Proceeds from bank owned life insurance
Investment in limited partnership and tax credit funds
Net cash (used in) provided by investing activities
Financing activities:
Net increase in non-interest-bearing deposits
Net (decrease) increase in interest-bearing deposits
Net increase (decrease) in short-term borrowings
Proceeds from long-term borrowings
Payments on long-term borrowings
Issuance of preferred shares and common stock warrant
Repurchase of preferred shares
Preferred stock dividends
Cash dividends paid on common shares
Purchase of treasury stock
Proceeds from issuance of common shares
Excess tax expense for stock-based compensation
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest paid
Income taxes paid
See Notes to the Consolidated Financial Statements
65
17,194
7,998
(351)
(473)
(72,132)
73,507
(1,432)
462
1,472
290
4,294
43,384
$
15,797
26,916
(608)
(5,066)
(66,408)
65,212
(1,357)
(1,814)
(155)
1,193
5,826
45,117
$
(198,556)
59,868
126,587
(13,341)
11,430
(1,290)
2,158
4,499
(234)
(8,879)
24,768
(35,379)
134
—
(15,391)
—
(39,000)
(1,232)
(3,922)
(187)
10
—
(70,199)
(35,694)
74,644
38,950
21,386
1,574
$
$
$
(269,396)
150,844
202,671
(2,000)
61,069
(1,979)
499
—
(249)
141,459
17,069
(51,450)
(25,412)
5,000
(93,410)
—
—
(1,950)
(3,822)
(181)
447
4
(153,705)
32,871
41,773
74,644
30,109
385
$
$
$
4,088
25,721
(1,051)
6,261
(96,731)
96,399
(1,602)
(5,212)
155
(41)
(8,921)
23,256
(279,018)
90,239
174,808
(963)
24,670
(2,154)
512
—
(248)
7,846
17,960
11,455
(21,931)
5,000
(67,184)
39,000
—
(1,543)
(7,426)
(249)
5
(14)
(24,927)
6,175
35,598
41,773
41,015
1,262
$
$
$
$
PEOPLES BANCORP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Peoples Bancorp Inc. is a financial holding company that offers a full range of financial services and products, including
commercial and retail banking, insurance, brokerage and trust services, through its principal operating subsidiary, Peoples
Bank, National Association (“Peoples Bank”). Services are provided through 47 financial service locations and 42 automated
teller machines in Ohio, West Virginia and Kentucky, as well as internet-based banking.
Note 1. Summary of Significant Accounting Policies
The accounting and reporting policies of Peoples Bancorp Inc. and 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.) conform to generally accepted accounting principles in the United States of America (“US GAAP”) and to
general practices within the banking 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 differ from those estimates. Certain items in prior financial statements have
been reclassified to conform to the current presentation, which had no impact on net income, comprehensive income or
loss, net cash provided by operating activities or stockholders' equity.
The following is a summary of significant accounting policies followed in the preparation of the financial statements:
Consolidation: Peoples' Consolidated Financial Statements include subsidiaries in which Peoples has a controlling
financial interest, principally defined as owning a voting interest greater than 50%. In addition, entities not controlled
by voting interests or in which the equity investors do not bear the residual economic risks, but for which Peoples is
the primary beneficiary are also consolidated.
The Consolidated Financial Statements include the accounts of Peoples and its consolidated subsidiaries, Peoples
Bank and Peoples Investment Company, along with their wholly-owned subsidiaries. Peoples previously formed a
statutory business trust described in Note 10 that is a variable interest entity for which Peoples is not the primary
beneficiary. As a result, the accounts of this trust are not included in Peoples' Consolidated Financial Statements. All
significant intercompany accounts and transactions have been eliminated.
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. Included in interest-bearing deposits in other banks was $2.0 million and $1.5 million in funds at
December 31, 2011 and 2010, respectively, which were being used as collateral and not available for withdrawal.
Investment Securities: Investment securities are recorded initially at cost, which includes premiums and discounts if
purchased at other than par or face value. Peoples amortizes premiums and accretes discounts as an adjustment to
interest income on a level yield basis. The cost of investment securities sold, and any resulting gain or loss, is based
on the specific identification method and recognized as of the trade date.
Management determines the appropriate classification of investment securities at the time of purchase. Held-to-
maturity securities are those securities that Peoples has the positive intent and ability to hold to maturity and are
recorded at amortized cost. Available-for-sale securities are those securities that would be available to be sold in the
future in response to Peoples' liquidity needs, changes in market interest rates, and asset-liability management
strategies, among other considerations. Available-for-sale securities are reported at fair value, with unrealized holding
gains and losses reported in stockholders' equity as a separate component of other comprehensive income or loss, net
of applicable deferred income taxes.
Certain restricted equity securities that do not have readily determinable fair values and for which Peoples does
not exercise significant influence, are carried at cost. These cost method securities are reported as other investment
securities on the Consolidated Balance Sheets and consist solely of shares of the Federal Home Loan Bank of
Cincinnati (the “FHLB”) and the Federal Reserve Bank of Cleveland (the "FRB").
Management systematically evaluates investment securities for other-than-temporary declines in fair value on a
quarterly basis. This analysis requires management to consider various factors, which include (1) duration and
magnitude of the decline in value, (2) the financial condition of the issuer or issuers and (3) structure of the security.
66
An impairment loss is recognized in earnings only when (1) Peoples intends to sell the debt security; (2) it is more
likely than not that Peoples will be required to sell the security before recovery of its amortized cost basis or (3)
Peoples does not expect to recover the entire amortized cost basis of the security. In situations where Peoples intends
to sell or when it is more likely than not that Peoples will be required to sell the security, the entire impairment loss
must be recognized in earnings. In all other situations, only the portion of the impairment loss representing the credit
loss must be recognized in earnings, with the remaining portion being recognized in stockholders' equity as a
component of accumulated comprehensive income, net of deferred taxes.
Securities Sold Under Agreements to Repurchase: Peoples enters into sales of securities under agreements to
repurchase (“Repurchase Agreements”) with customers and other financial service companies, which are considered
financings. As such, these obligations are recorded as a liability on the Consolidated Balance Sheets and disclosed in
Notes 8 and 9. Securities pledged as collateral under Repurchase Agreements are included in investment securities on
the Consolidated Balance Sheets and are disclosed in Note 3. The fair value of the collateral pledged to a third party is
continually monitored and additional collateral is pledged or returned, as deemed appropriate.
Loans: Loans originated that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity
or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for
loan losses. The foreseeable future is based upon current market conditions and business strategies, as well as balance
sheet management and liquidity. As the conditions change, so may management's view of the foreseeable future. Net
deferred loan costs were $1.1 million and $1.0 million at December 31, 2011 and 2010, respectively.
A loan is considered impaired when information and events indicate it is probable that collection of all contractual
principal and interest payments is doubtful. Impairment is evaluated in total for smaller-balance loans of a similar
nature, primarily consumer and residential real estate loans, and on an individual loan basis for all loans to borrowers
with an aggregate unpaid principal balances in excess of $500,000. Peoples places any loan deemed to be impaired on
nonaccrual status and allocates a specific portion of the allowance for loan losses, if necessary, to reduce the net
reported value of the loan to its estimated net realizable value. Impaired loans, or portions thereof, are charged off
when deemed uncollectible. Consumer and residential real estate loans typically are not placed on nonaccrual, and
instead are charged down to the net realizable value.
Loans acquired in a business combination that have evidence of deterioration of credit quality since origination
and for which it is probable, at acquisition, that Peoples will be unable to collect all contractually required payments
receivable are initially recorded at fair value (the present value of the amounts expected to be collected) with no
valuation allowance. The difference between the undiscounted cash flows expected at acquisition and the investment
in the loan is recognized as interest income on a level-yield method over the life of the loan. Contractually required
payments for interest and principal that exceed the undiscounted cash flows expected at acquisition are not recognized.
Over the life of these acquired loans, management continues to monitor each acquired loan portfolio for changes
in credit quality. Increases in expected cash flows subsequent to acquisition are recognized prospectively over their
remaining life as a yield adjustment on the loans. Subsequent decreases in expected cash flows are recognized as
impairment, with the amount of the expected loss included in management's evaluation of the adequacy of the
allowance for loan losses.
Loans Held-for-Sale: Loans originated and intended to be sold in the secondary market, generally one-to-four family
residential loans, are carried at the lower of cost or estimated fair value determined on an aggregate basis. Gains and
losses on sales of loans held for sale are included in mortgage banking income.
Loans originated with the intent to be held in our portfolio are subsequently transferred to held-for-sale when a
decision is made to sell these loans. At the time of a loan's transfer to the held-for-sale classification, the loan is
recorded at the lower of cost or its fair value. Any reduction in the loan's value is reflected as a write-down of the
recorded investment resulting in a new cost basis, with a corresponding charge against the allowance for loan losses.
If the fair value of a loan classified as held-for-sale in subsequent periods is less than its cost basis, the carrying value
of the loan is adjusted accordingly, with the corresponding loss recognized in earnings.
Peoples enters into interest rate lock commitments with borrowers and best efforts commitments with investors on
loans originated for sale into the secondary markets to manage the inherent interest rate and pricing risk associated
with selling loans. The interest rate lock commitments generally terminate once the loan is funded, the lock period
expires or the borrower decides not to contract for the loan. The best efforts commitments generally terminate once
the loan is sold, the commitment period expires or the borrower decides not to contract for the loan. These
commitments are considered derivatives which are generally accounted for by recognizing their estimated fair value on
67
the Consolidated Balance Sheets as either a freestanding asset or liability. The valuation of such commitments does
not consider expected cash flows related to the servicing of the future loan. Management has determined these
derivatives do not have a material effect on Peoples' financial position, results of operations or cash flows.
Allowance for Loan Losses: The allowance for loan losses is a valuation reserve allowance established through
provisions for loan losses charged against income. The allowance for loan losses is maintained at a level that
management deems sufficient to absorb probable losses inherent in the loan portfolio. Loans deemed to be
uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are
credited to the allowance for loan losses.
The allowance for loan losses is comprised of specific valuation allowances for loans evaluated individually for
impairment and general allocations for pools of homogeneous loans with similar risk characteristics and trends.
Peoples' homogenous loan pools include similarly risk-graded commercial and industrial loans, similarly risk-graded
commercial real estate loans, real estate construction loans (both commercial and residential), residential real estate
loans, consumer home equity loans and other consumers. Management's evaluation of the adequacy of the allowance
for loan losses and the appropriate provision for loan losses is based upon a quarterly analysis of the portfolio. While
portions of the allowance for loan losses may be allocated to specific loans; the entire allowance for loan losses is
available for any loan management should be charged off.
The allowance for loan losses related to specific loans is based on management's estimate of potential losses on
impaired loans as determined by (1) the present value of expected future cash flows; (2) the fair value of collateral if
the loan is determined to be collateral dependent or (3) the loan's observable market price. The general allocations to
specific loan pools are based on the historical loss rates for specific loan types and the internal risk grade, if applicable,
adjusted for both internal and external qualitative risk factors. The calculation of historical loss ratios for pools of
similar loans with similar characteristics is based upon the proportion of actual charge-offs experienced to the total
population of loans in the pool. The historical loss ratios are periodically updated based on actual charge-off
experience. The qualitative factors considered by management include, among other factors, (1) changes in local and
national economic conditions; (2) changes in asset quality; (3) changes in loan portfolio volume; (4) the composition
and concentrations of credit; (5) the impact of competition on loan structuring and pricing; (6) the impact of interest
rate changes on portfolio risk and (7) effectiveness of Peoples' loan policies, procedures and internal controls. The
total allowance established for each homogenous loan pool represents the product of the historical loss ratio and the
total dollar amount of the loans in the pool.
Peoples categorizes loans involving commercial borrowers into risk categories based upon an established grading
matrix. This system is used to manage the risk within its lending activities, evaluate changes in the overall credit
quality of the loan portfolio and evaluate of the adequacy of the allowance for loan losses. Loan grades are assigned at
the time a new loan or lending commitment is extended by Peoples and may be changed at any time when
circumstances warrant. All loan relationships with aggregate outstanding debt to Peoples of $500,000 or more are
reviewed at least annually, with adversely classified loans generally reviewed on a quarterly basis.
The primary factors considered when assigning a risk grade to a loan include (1) reliability and sustainability of
the primary source of repayment; (2) past, present and projected financial condition of the borrower and (3) current
economic and industry conditions. Other factors that could influence the risk grade assigned include the type and
quality of collateral, ownership of borrower and strength of guarantors. The primary source of repayment for
commercial real estate loans and commercial and industrial loans is normally the business's operating cash flow
available to repay debt. Management's analysis of operating cash flow for commercial real estate loans secured by
non-owner occupied properties takes into account factors such as rent rolls and vacancy statistics. Management's
analysis of operating cash flow for commercial real estate loans secured by owner occupied properties and all
commercial and industrial loans considers the profitability, liquidity and leverage of the business. The evaluation of
construction loans is based largely on the borrower's ability to complete construction within the established budget.
The primary factors considered when classifying consumer loans include the loan's past due status and declaration
of bankruptcy by the borrower(s). The classification of residential real estate and home equity lines of credit also takes
into account the current value of the underlying collateral.
Bank Premises and Equipment: Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful lives of the related assets owned.
Major improvements to leased facilities are capitalized and included in bank premises at cost less accumulated
depreciation, which is calculated on the straight-line method over the lesser of the remaining term of the leased facility
or the estimated economic life of the improvement.
68
Bank Owned Life Insurance: Bank owned life insurance (“BOLI”) represents life insurance on the lives of certain
employees who have provided positive consent allowing Peoples Bank to be the beneficiary of such policies. These
policies are recorded at their cash surrender value, or the amount that can be realized upon surrender of the policy.
Income from these policies and changes in the cash surrender value are recorded in other income.
Investments in Affordable Housing Limited Partnerships: Investments in affordable housing consist of investments
in limited partnerships that operate qualified affordable housing projects or that invest in other limited partnerships
formed to operate affordable housing projects. These investments are considered variable interest entities for which
Peoples is not the primary beneficiary. Peoples generally utilizes the effective yield method to account for these
investments with the tax credits, net of the amortization of the investment, reflected in the Consolidated Statements of
Income as a reduction of income tax expense. The unamortized amount of the investments is recorded in other assets
and totaled $1.4 million and $2.4 million at December 31, 2011 and 2010, respectively.
Other Real Estate Owned: 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 Bank in
satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value
based on appraised value at the date actually or constructively received, less estimated costs to sell the property.
Peoples had OREO totaling $2.2 million at December 31, 2011, and $4.5 million at December 31, 2010.
Goodwill and Other Intangible Assets: Goodwill represents the excess of the cost of an acquisition over the fair value
of the net assets acquired in the business combination. Goodwill is not amortized but is tested for impairment at least
annually and updated quarterly if necessary. Based upon the most recently completed goodwill impairment test,
Peoples concluded the recorded value of goodwill was not impaired as of December 31, 2011, based upon the
estimated fair value of Peoples' single reporting unit.
Peoples' other intangible assets consist of customer relationship intangible assets, primarily core deposit
intangibles, representing the present value of future net income to be earned from acquired customer relationships with
definite useful lives. These intangible assets are amortized on an accelerated basis over their estimated lives ranging
from 7 to 10 years.
Mortgage Servicing Rights: Mortgage servicing rights (“MSRs”) represent the right to service loans sold to third party
investors. MSRs are recognized separately as a servicing asset or liability whenever Peoples undertakes an obligation
to service financial assets. MSRs are reported in other intangible assets on the Consolidated Balance Sheets. Serviced
loans are not included in the Consolidated Balance Sheets. Loan servicing income included in mortgage banking
income includes servicing fees received from the third party investors and certain charges collected from the
borrowers.
Peoples initially records MSRs at fair value at the time of the sale of the loans to the third party investor. Peoples
follows the amortization method for the subsequent measurement of each class of separately recognized servicing
assets and liabilities. Under the amortization method, Peoples amortizes the value of servicing assets or liabilities in
proportion to and over the period of estimated net servicing income or net servicing loss and assesses servicing assets
or liabilities for impairment or increased obligation based on fair value at each reporting date. The fair value of the
mortgage 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.
Preferred Stock and Common Stock Warrant: As more fully described in Note 11, Peoples issued preferred stock and
a common stock warrant, which are classified in stockholders' equity on the Consolidated Balance Sheets. The
preferred stock had similar characteristics of an “Increasing Rate Security” as described by Securities and Exchange
Commission (“SEC”) Staff Accounting Bulletin Topic 5Q, Increasing Rate Preferred Stock. The proceeds received in
conjunction with the issuance of the preferred stock and common stock warrant were allocated to the preferred stock
and common stock warrant based on their relative fair values. Discounts on the increasing rate preferred stock are
amortized over the expected life of the preferred stock (5 years), by charging imputed dividend cost against retained
earnings and increasing the carrying amount of the preferred stock by a corresponding amount. The discount at the
time of issuance is computed as the present value of the difference between dividends that will be payable in future
periods and the dividend amount for a corresponding number of periods, discounted at a market rate for dividend yield
on comparable securities. The amortization in each period is the amount which, together with the stated dividend in
the period, results in a constant rate of effective cost with regard to the carrying amount of the preferred stock.
69
Common stock warrants are evaluated for liability or equity treatment. The common stock warrant outstanding is
carried in stockholders' equity until exercised or expired based on the view of both the SEC and Financial Accounting
Standards Board (the “FASB”) that they would not object to classification of such warrants as permanent equity. This
view is consistent with the objective of the Capital Purchase Program that equity in these securities should be
considered part of equity for regulatory reporting purposes. The fair value of the common stock warrant used in
allocating total proceeds received was determined based on a binomial model.
Trust Assets Under Management: Peoples Bank manages certain assets held in a fiduciary or agency capacity for
customers. These assets under management, other than cash on deposit at Peoples Bank, are not included in the
Consolidated Balance Sheets since they are not assets of Peoples Bank.
Interest Income Recognition: Interest income on loans and investment securities is recognized by methods that result
in level rates of return on principal amounts outstanding. Amortization of premiums has been deducted from, and
accretion of discounts has been added to, the related interest income. Nonrefundable loan fees and direct loan costs
are deferred and recognized over the life of the loan as an adjustment of the yield.
Peoples discontinues the accrual of interest on all loans, whether or not such loans are considered past due, when
management believes it is probable the borrower will be unable to meet its payment obligations as they become due, as
well as when required by regulatory provisions. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured.
A nonaccrual loan is restored to accrual status when it is brought current, has performed in accordance with contractual
terms for a reasonable period of time, and the collectibility of the total contractual principal and interest is no longer in
doubt.
Other Income Recognition: Service charges on deposits include cost recovery fees associated with services provided,
such as overdraft and non-sufficient funds. Trust and investment income consists of revenue from fiduciary activities,
which include fees for services such as asset management, recordkeeping, retirement services and estate management,
and investment commissions and fees related to the sale of investments. Income from these activities is recognized at
the time the related services are performed.
Insurance income consists of commissions and fees from the sales of insurance policies and related insurance
services. Insurance commission income is recognized as of the effective date of the insurance policy, net of
adjustments, including policy cancellations. Such adjustments are recorded when the amount can be reasonably
estimated, which is generally in the period in which they occur. Contingent performance-based commissions from
insurance companies are recognized when received and no contingencies remain.
Income Taxes: Peoples and its subsidiaries file a consolidated federal income tax return. Deferred income tax assets
and liabilities are provided for temporary differences between the tax basis of an asset or liability and its reported
amount in the Consolidated Financial Statements at the statutory Federal tax rate. A valuation allowance, if needed,
reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is
dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years.
The components of other comprehensive income or loss included in the Consolidated Statements of Stockholders'
Equity have been computed based upon a 35% Federal tax rate.
A tax position is initially recognized in the financial statements when it is more likely than not the position will be
sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the
largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax
authority assuming full knowledge of the position and all relevant facts. Penalties and interest incurred under the
applicable tax law are classified as income tax expense. The amount of Peoples' uncertain income tax positions,
unrecognized benefits and accrued interest were immaterial at both December 31, 2011 and 2010.
Advertising Costs: Advertising costs are generally expensed as incurred.
Earnings per Share: Basic and diluted earnings per common share (“EPS”) are calculated using the two-class method
since Peoples has issued share-based payment awards considered participating securities because they entitle holders
to non-forfeitable rights to dividends during the vesting term. The two class method is an earnings allocation formula
that determines net income per share for each class of common stock and participating security according to dividends
declared and particpation rights in undistributed earnings. Basic earnings per common share is computed by dividing
net earnings allocated to common shareholders by the weighted-average number of common shares
outstanding. Diluted earnings per common share is computed by dividing net earnings allocated to common
shareholders by the weighted-average number of common shares outstanding adjusted to include the effect of
70
potentially dilutive common shares. Potentially dilutive common shares include incremental common shares issuable
upon exercise of outstanding stock options, SARs and non-vested restricted common shares using the treasury stock
method.
Operating Segments: Peoples' business activities are currently confined to one reporting unit and reportable segment,
which is community banking. As a community banking entity, Peoples offers its customers a full range of products
through various delivery channels.
Stock-Based Compensation: Compensation costs for stock options, restricted stock awards and stock appreciation
rights are measured at the fair value of these awards on their grant date. Compensation expense is recognized over the
required service period, generally the vesting period for stock options and stock appreciation rights and the restriction
period for restricted stock awards. For all awards, only the expense for the portion of the awards expected to vest is
recognized. For service based awards, compensation expense for awards granted to employees who are eligible for
retirement is recognized to the date the employee is first eligible to retire.
New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by FASB or other
standard setting bodies that are adopted by Peoples as of the required effective dates. Unless otherwise discussed,
management believes the impact of any recently issued standards, including those issued but not yet effective, will not
have a material impact on Peoples financial statements taken as a whole.
In April 2011, the FASB issued an accounting update that clarifies when creditors should classify loan
modifications as troubled debt restructurings. The guidance is effective for interim and annual periods beginning on or
after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the year. The
guidance on measuring the impairment of a receivable restructured in a troubled debt restructuring is effective on a
prospective basis. The update supersedes the FASB's previous deferral of additional disclosures about troubled debt
restructurings. For a loan restructuring to constitute a troubled debt restructuring ("TDR"), a creditor must conclude
that the restructuring constitutes a concession and the debtor is experiencing financial difficulties. Peoples adopted
this new guidance on July 1, 2011, as required. As a result of this adoption, commercial real estate loans with an
aggregate recorded value of $3.0 million were deemed to be TDRs. These loans previously were considered impaired.
As described above in the Loans section, impaired loans are placed on nonaccrual status and are allocated a
specific portion of the allowance for loan losses, if necessary, to reduce the net reported value of the loan to its
estimated net realizable value. The net realizable value of the restructured loan is based upon a discounted cash flow
analysis or the estimated value of the collateral that is securing the loan, if repayment of the loan is dependent upon the
sale of the collateral. If a restructuring of a loan occurs subsequent to the loan being considered impaired, the
restructuring will not have an impact on Peoples' financial statements as the loan will already be recorded at its net
realizable value. If a loan is restructured prior to the loan being classified as impaired, the loan will be valued in the
same manner as an impaired loan. Therefore, there will be an adjustment to the allowance for loan losses based upon
the net realizable value of the restructured loan. All of the loans classified as TDRs under the new accounting were
considered impaired prior to being restructured. Thus, the determination of these loans being TDRs had no impact on
the recorded values of these loans or the related valuation allowance.
Note 2. Fair Value of Financial Instruments
The measurement of fair value under US GAAP uses a hierarchy intended to maximize the use of observable inputs
and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets
and liabilities as follows:
Level 1: Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S.
Treasury and other U.S. government and agency securities actively traded in over-the-counter markets.
Level 2: Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted
prices in less active markets, or other observable inputs that can be corroborated by observable market data; also
includes derivative contracts whose value is determined using a pricing model with observable market inputs or
can be derived principally from or corroborated by observable market data. This category generally includes
certain U.S. government and agency securities, corporate debt securities, derivative instruments and residential
mortgage loans held for sale.
71
Level 3: Unobservable inputs supported by little or no market activity for financial instruments whose value is
determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as
instruments for which the determination of fair value requires significant management judgment or estimation;
also includes observable inputs for single dealer nonbinding quotes not corroborated by observable market data.
This category generally includes certain private equity investments, retained interests from securitizations, and
certain collateralized debt obligations.
Assets measured at fair value on a recurring basis comprised the following at December 31, 2011:
(Dollars in thousands)
December 31, 2011
Obligations of:
U.S. Treasury and government agencies
U.S. government sponsored agencies
States and political subdivisions
$
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity securities
Total available-for-sale securities
December 31, 2010
Obligations of:
U.S. Treasury and government agencies
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity securities
Total available-for-sale securities
$
$
$
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
32
13,037
35,745
527,003
37,289
12,211
3,254
628,571
39
12,262
47,379
507,534
30,700
12,984
3,088
613,986
$
$
$
$
—
—
—
—
—
—
3,126
3,126
—
—
—
18,179
3,545
—
2,960
24,684
$
$
$
$
32
13,037
35,745
527,003
37,289
12,211
128
625,445
39
12,262
47,379
489,355
27,155
12,984
128
589,302
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The fair values used by Peoples are obtained from an independent pricing service and represent either quoted market
prices for the identical securities (Level 1 inputs) or fair values determined by pricing models using a market approach that
considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from
market makers and live trading systems (Level 2). The fair values of the residential and commercial mortgage-backed
securities measured at fair value using Level 1 inputs at December 31, 2010 represented the purchase price of the securities
since they were acquired near year-end 2010. At December 31, 2011, these securities were classified as Level 2 as a
pricing model was used to value the securities, which was consistent with the rest of the classification for the sector.
For those investment securities where fair value is based upon information provided by third-party pricing services,
management has reviewed the pricing methodology and quality controls utilized by the pricing services to assess whether
the valuations being provided comply with US GAAP. On a monthly basis, management also compares the valuations
provided by its primary pricing services to those of another third-party pricing source to the extent available. Management
recognizes that there is more subjectivity involved in the valuation of certain asset classes where credit spreads and/or
liquidity can significantly increase the bid/ask spread of the securities. As a result, significant variations between third-
party valuations sometimes occur. Due to this volatility, management has segmented Peoples' investment portfolio into two
categories: (1) securities where a low level of volatility would be expected between third-party fair values and (2) securities
where a higher level of volatility would be expected.
Management has established ranges, both in percentages and absolute dollars, for both categories which are utilized to
assist management in the overall evaluation of reasonableness. To the extent either an individual security or class of
72
securities exceed these established ranges, the security or class of securities are evaluated on utilizing one or more of the
following methodologies: (1) spread to U.S. Treasury securities based upon the securities expected weighted average life;
(2) discount margin approach or (3) option adjusted spread methodology. Management challenges the third-party valuation
of any security where it believes a material difference in pricing exists. Based on Peoples' past experience, these
challenges more-often-than not result in the third party adjusting its valuation of the security.
The following is a reconciliation of activity for assets measured at fair value based on significant unobservable (non-
market) information:
(Dollars in thousands)
Balance, December 31, 2009
Other-than-temporary impairment loss included in earnings
Calls
Unrealized gain included in comprehensive income
Balance, December 31, 2010
Bank-Issued
Trust Preferred
Securities
Collateralized
Debt
Obligations
$
$
1,000
$
—
(1,000)
—
—
$
165
(986)
—
821
—
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the
instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on a non-
recurring basis included the following:
Impaired Loans: Impaired loans are measured and reported at fair value when management believes collection of
contractual interest and principal payments is doubtful. 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 and market value provided by independent, licensed or certified appraisers
(Level 2 inputs). At December 31, 2011, impaired loans with an aggregate outstanding principal balance of $11.7
million were measured and reported at a fair value of $10.5 million. During, 2011, Peoples recognized losses on
impaired loans of $0.4 million through the allowance for loan losses.
Other Real Estate Owned: OREO is measured and reported at fair value when the current book value exceeds the
estimated fair value of the property. 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 property based on observable
market prices and market value provided by independent, licensed or certified appraisers (Level 2 Inputs). At
December 31, 2011, Peoples had $3.5 million of OREO which was measured and reported at a fair value of $1.3
million. As a result, Peoples recorded losses totaling $2.2 million through earnings in 2011.
The following table presents the fair values of financial assets and liabilities carried on Peoples’ consolidated balance
sheets, including those financial assets and financial liabilities that are not measured and reported at fair value on a
recurring basis or non-recurring basis:
(Dollars in thousands)
Financial assets:
Cash and cash equivalents
Investment securities
Loans
Financial liabilities:
Deposits
Short-term borrowings
Long-term borrowings
Junior subordinated notes held by subsidiary trust
2011
2010
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
$
38,950
669,228
918,060
$
38,950
669,632
828,477
$
74,644
641,307
938,707
74,644
641,296
825,547
$ 1,351,080
51,643
142,312
22,600
$ 1,363,742
51,643
157,553
23,760
$ 1,361,600
51,509
157,703
22,565
$ 1,380,336
51,509
164,075
23,861
The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a
recurring or non-recurring basis are discussed above. For certain financial assets and liabilities, carrying value
73
approximates fair value due to the nature of the financial instrument. These instruments include cash and cash equivalents,
demand and other non-maturity deposits and overnight borrowings.
Peoples used the following methods and assumptions in estimating the fair value of the following financial
instruments:
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. In the current whole loan market, financial
investors are generally requiring a much higher rate of return than the return inherent in loans if held to maturity
given the lack of market liquidity. This divergence accounts for the majority of the difference in carrying amount
over fair value.
Deposits: The fair value of fixed maturity certificates of deposit is estimated using a discounted cash flow
calculation based on current rates offered for deposits of similar remaining maturities.
Long-term Borrowings: The fair value of long-term borrowings is estimated using discounted cash flow analysis
based on rates currently available to Peoples for borrowings with similar terms.
Junior Subordinated Notes Held by Subsidiary Trust: The fair value of the junior subordinated notes held by
subsidiary trust is estimated using discounted cash flow analysis based on current market rates of securities with
similar risk and remaining maturity.
Bank premises and equipment, customer relationships, deposit base, banking center networks, and other information
required to compute Peoples’ aggregate fair value are not included in the above information. Accordingly, the above fair
values are not intended to represent the aggregate fair value of Peoples.
Note 3. Investment Securities
Available-for-sale
The following table summarizes Peoples’ available-for-sale investment securities:
(Dollars in thousands)
December 31, 2011
Obligations of:
U.S. Treasury and government agencies
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity securities
Total available-for-sale securities
December 31, 2010
Obligations of:
U.S. Treasury and government agencies
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity securities
Total available-for-sale securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
$
$
$
32
12,291
32,763
521,231
35,712
13,886
1,213
617,128
38
12,753
46,717
512,399
30,124
13,877
1,214
617,122
$
$
$
$
—
746
2,982
15,607
1,577
12
2,134
23,058
1
55
1,063
14,154
648
79
1,970
17,970
$
$
$
$
—
—
—
(9,835)
—
(1,687)
(93)
(11,615)
—
(546)
(401)
(19,019)
(72)
(972)
(96)
(21,106)
$
$
$
$
32
13,037
35,745
527,003
37,289
12,211
3,254
628,571
39
12,262
47,379
507,534
30,700
12,984
3,088
613,986
Peoples’ investment in equity securities was comprised entirely of common stocks issued by various unrelated bank
holding companies at both December 31, 2011 and December 31, 2010.
74
At December 31, 2011, there were no securities of a single issuer, other than U.S. Treasury and government agencies
and U.S. government sponsored agencies that exceeded 10% of stockholders' equity. Peoples had pledged investment
securities with a carrying value of $362.1 million and $394.7 million at December 31, 2011 and December 31, 2010,
respectively, to secure public and trust department deposits and repurchase agreements in accordance with federal and state
requirements. Peoples also pledged investment securities with carrying values of $65.2 million and $28.1 million at
December 31, 2011 and December 31, 2010, respectively, to secure additional borrowing capacity at the Federal Home
Loan Bank of Cincinnati (“FHLB”) and the Federal Reserve Bank of Cleveland (“FRB”).
The gross gains and gross losses realized by Peoples from sales of available-for-sale securities for the year ended
December 31 were as follows:
(Dollars in thousands)
Gross gains realized
Gross losses realized
Net gain realized
2011
2010
2009
$
$
1,110
637
473
$
$
8,306
1,454
6,852
$
$
1,460
14
1,446
The cost of investment securities sold, and any resulting gain or loss, was based on the specific identification method
and recognized as of the trade date.
The following table presents a summary of available-for-sale investment securities that had an unrealized loss:
(Dollars in thousands)
December 31, 2011
Obligations of:
Less than 12 Months
Unrealized
Loss
No. of
Securities
Fair
Value
12 Months or More
Unrealized
Loss
No. of
Securities
Fair
Value
Total
Fair
Value
Unrealized
Loss
U.S. Treasury and government
agencies
$
—
$
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed
securities
Bank-issued trust preferred securities
Equity securities
Total
—
—
60,148
—
6,872
—
$ 67,020
$
December 31, 2010
Obligations of:
U.S. Treasury and government
agencies
$
—
$
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed
securities
Bank-issued trust preferred securities
Equity securities
Total
11,202
13,055
152,075
21,388
4,290
—
—
—
756
—
625
—
1,381
—
546
401
13,080
72
47
—
$
3
$
—
—
13
—
4
—
17
—
—
91,400
—
4,329
83
$ 95,815
$
—
$
—
$
1
19
23
4
3
—
—
39,540
—
5,144
—
—
—
9,079
—
1,062
93
10,234
—
—
—
5,939
—
925
96
6,960
—
—
—
9,835
—
1,687
93
11,615
—
546
401
19,019
72
972
1
$
3
$
—
—
15
—
5
1
22
—
—
151,548
—
11,201
83
$ 162,835
$
—
$
—
$
11,202
13,055
191,615
21,388
9,434
—
—
9
—
5
1
15
—
$ 202,010
$
—
14,146
—
50
80
$ 44,764
$
80
$ 246,774
$
96
21,106
Management systematically evaluates investment securities for other-than-temporary declines in fair value on a
quarterly basis. At December 31, 2011, 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 December 31, 2011
and December 31, 2010, were largely attributable to changes in market interest rates and spreads since the securities were
purchased.
75
At December 31, 2011, all of the mortgage-baked securities that have been at an unrealized loss position for twelve
months or more have experienced improvement during the last twelve months. Further, the majority of these securities
were issued by U.S government sponsored agencies, with 95% of the securities within 90% of their book value. Three of
the four bank-issued trust preferred securities at an unrealized loss position for twelve months or more are floating rate
securities with the unrealized losses mostly attributable to the current interest rate environment and spreads within that
sector. Management has 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 number of loans remaining in these
securities.
The table below presents the amortized cost, fair value and weighted-average yield of securities by contractual
maturity at December 31, 2011. The average yields are based on the amortized cost. In some cases, the issuers may have
the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. Rates are
calculated on a fully tax-equivalent basis using a 35% federal income tax rate.
(Dollars in thousands)
Amortized cost
Obligations of:
U.S. Treasury and government agencies
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity securities
Total available-for-sale securities
Fair value
Obligations of:
U.S. Treasury and government agencies
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity securities
$
$
$
Total available-for-sale securities
$
Total average yield
Within 1
Year
1 to 5
Years
5 to 10
Years
Over 10
Years
Total
—
—
1,973
207
—
—
—
2,180
—
—
1,990
211
—
—
—
2,201
5.71%
$
11
719
4,263
5,405
—
—
—
$ 10,398
$
11
775
4,422
6,005
—
—
—
$ 11,213
$
21
11,572
9,577
56,439
34,514
—
—
$ 112,123
$
21
12,262
10,731
58,631
36,002
—
—
$ 117,647
$
—
—
16,950
459,180
1,198
13,886
1,213
$ 492,427
$
—
—
18,602
462,156
1,287
12,211
3,254
$ 497,510
$
32
12,291
32,763
521,231
35,712
13,886
1,213
$ 617,128
$
32
13,037
35,745
527,003
37,289
12,211
3,254
$ 628,571
5.61%
4.09%
3.75%
3.85%
Held-to-Maturity
The following table summarizes Peoples’ held-to-maturity investment securities:
(Dollars in thousands)
December 31, 2011
Obligations of:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
States and political subdivisions
Residential mortgage-backed securities
Total held-to-maturity securities
$
$
3,525
12,776
16,301
$
$
262
230
492
$
$
—
(88)
(88)
$
$
3,787
12,918
16,705
76
(Dollars in thousands)
December 31, 2010
Obligations of:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
States and political subdivisions
Residential mortgage-backed securities
Total held-to-maturity securities
$
$
2,965
—
2,965
$
$
—
—
—
$
$
(11)
—
(11)
$
$
2,954
—
2,954
There were no gross gains and gross losses realized by Peoples from sales of held-to-maturity securities for the
year ended December 31, 2011.
The following table presents a summary of held-to-maturity investment securities that had an unrealized loss:
Less than 12 Months
Unrealized
Loss
No. of
Securities
Fair
Value
(Dollars in thousands)
December 31, 2011
Obligations of:
12 Months or More
Unrealized
Loss
No. of
Securities
Fair
Value
Total
Fair
Value
Unrealized
Loss
States and political subdivisions
$
—
$
Residential mortgage-backed
securities
Total
December 31, 2010
Obligations of:
6,416
$
6,416
$
States and political subdivisions
$
2,954
$
Residential mortgage-backed
securities
Total
—
$
2,954
$
—
88
88
11
—
11
—
$
—
$
1
1
—
$
—
$
2
$
—
$
—
—
2
$
—
$
—
—
—
—
—
—
—
—
—
—
—
—
$
—
$
6,416
$
6,416
$
$
2,954
$
—
$
2,954
$
—
88
88
11
—
11
The table below presents the amortized cost, fair value and weighted-average yield of securities by contractual
maturity at December 31, 2011. The average yields are based on the amortized cost. In some cases, the issuers may have
the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. Rates are
calculated on a fully tax-equivalent basis using a 35% federal income tax rate.
(Dollars in thousands)
Amortized cost
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Total held-to-maturity securities
Fair value
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Total held-to-maturity securities
Total average yield
Within 1
Year
1 to 5
Years
5 to 10
Years
Over 10
Years
Total
—
—
—
—
—
—
—%
$
$
—
—
—
—
—
—
—%
$
$
$
$
—
—
—
3,525
12,776
$ 16,301
3,525
12,776
$ 16,301
—
—
—
—%
3,787
12,918
$ 16,705
3,787
12,918
$ 16,705
3.04%
3.04%
Other Securities
Peoples’ other investment securities on the Consolidated Balance Sheets consisted solely of restricted equity
securities of the FHLB and the FRB. These securities are carried at cost since they do not have readily determinable fair
values due to their restricted nature and Peoples does not exercise significant influence over the entities.
77
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 central and southeastern Ohio, west central West Virginia, and northeastern
Kentucky markets. The major classifications of loan balances, excluding loans held for sale, were as follows:
(Dollars in thousands)
Commercial real estate
Commercial and industrial
Real estate construction
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total loans
2011
2010
410,352
140,857
30,577
219,619
47,790
87,531
1,780
938,506
$
$
425,528
153,713
27,595
219,833
48,525
83,323
2,201
960,718
$
$
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)
Commercial real estate
Commercial and industrial
Residential real estate
Consumer
Total outstanding balance
Net carrying amount
2011
2010
3,754
109
14,497
101
18,461
17,954
$
$
$
3,616
200
17,893
123
21,832
21,229
$
$
$
Peoples has pledged 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 $184.8 million and
$181.8 million at December 31, 2011 and December 31, 2010, respectively. Peoples also had pledged commercial loans to
secure borrowings with the FRB. The outstanding balances of these loans totaled $124.0 million and $195.6 million at
December 31, 2011 and December 31, 2010, respectively.
Related Party Loans
In the normal course of its business, Peoples Bank has granted loans to executive officers and directors of Peoples.
Related party loans were made on substantially the same terms, including interest rates charged and collateral required, as
those prevailing at the time for comparable loans with unrelated persons and did not involve more than normal risk of
collectibility. At December 31, 2011, no related party loan was past due 90 or more days, renegotiated or on nonaccrual
status. Activity in related party loans is presented in the table below. Other changes primarily consist of changes in related
party status during the year.
(Dollars in thousands)
Balance, December 31, 2010
New loans and disbursements
Repayments
Other changes
Balance, December 31, 2011
$
$
6,301
5,468
(4,040)
(207)
7,522
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
78
regardless of whether or not such loan is considered past due. The recorded investments in loans on nonaccrual status and
accruing loans delinquent for 90 days or more were as follows:
(Dollars in thousands)
Commercial real estate
Commercial and industrial
Real estate construction
Residential real estate
Home equity lines of credit
Consumer
Total
Nonaccrual Loans
2011
2010
$
$
23,546
2,262
—
3,865
349
—
30,022
$
$
34,392
1,714
—
3,790
554
—
40,450
$
$
Accruing Loans
90+ Days Past Due
2011
2010
—
—
—
—
—
—
—
$
$
—
—
—
27
—
—
27
At December 31, 2010, nonaccrual commercial real estate loans with an aggregate carrying amount of $951,000 were
classified as held-for-sale and thus excluded for the table above. During the second quarter of 2011, one of these loans
with a carrying value of $379,000 was sold for a gain of $371,000, while the remaining loans were transferred to OREO.
The following table presents the aging of the recorded investment in past due loans and leases:
Loans Past Due
30 - 59 days
60 - 89 days
90 + Days
Total
Current
Loans
Total
Loans
$
$
$
$
2,700
230
—
5,750
206
874
66
9,826
2,952
563
100
4,481
186
725
—
9,007
$
$
$
$
2,286
360
—
1,187
—
86
—
3,919
5,171
12
—
2,229
58
119
—
7,589
$
$
$
$
11,363
37
—
3,082
349
—
—
14,831
13,816
247
872
2,739
458
—
—
18,132
$
$
$
$
16,349
627
—
10,019
555
960
66
28,576
21,939
822
972
9,449
702
844
—
34,728
$
$
$
$
394,003
140,230
30,577
209,600
47,235
86,571
1,714
909,930
403,589
152,891
26,623
210,384
47,823
82,479
2,201
925,990
$
$
$
$
410,352
140,857
30,577
219,619
47,790
87,531
1,780
938,506
425,528
153,713
27,595
219,833
48,525
83,323
2,201
960,718
(Dollars in thousands)
December 31, 2011
Commercial real estate
Commercial and industrial
Real estate construction
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total
December 31, 2010
Commercial real estate
Commercial and industrial
Real estate construction
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total
Credit Quality Indicators
As discussed in Note 1 of Peoples' 2010 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
debt 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
79
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 asset 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 debt. 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 estimate 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 describe 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:
(Dollars in thousands)
December 31, 2011
Commercial real estate
Commercial and industrial
Real estate construction
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total
December 31, 2010
Commercial real estate
Commercial and industrial
Real estate construction
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total
Pass Rated
(Grades 1 - 4)
Watch
(Grade 5)
Substandard
(Grade 6)
Doubtful
(Grade 7)
Not
Rated
Total
Loans
40,165
15,104
2,932
5,885
42
—
—
64,128
71,765
9,446
4,010
10,035
2,108
—
—
97,364
$
$
$
$
—
—
—
20
—
—
—
20
—
247
—
—
—
—
—
247
$
$
$
$
3,049
14,609
1,873
178,082
44,863
87,427
1,780
331,683
2,563
14,068
2,756
186,328
45,793
83,234
2,201
336,943
$
$
$
$
410,352
140,857
30,577
219,619
47,790
87,531
1,780
938,506
425,528
153,713
27,595
219,833
48,525
83,323
2,201
960,718
$
$
$
$
310,996
100,987
23,710
28,507
1,491
72
—
465,763
303,997
123,612
17,284
19,326
284
89
—
464,592
$
$
$
$
56,142
10,157
2,062
7,125
1,394
32
—
76,912
47,203
6,340
3,545
4,144
340
—
—
61,572
$
$
$
$
80
Impaired Loans
The following tables summarize loans classified as impaired:
(Dollars in thousands)
December 31, 2011
Commercial real estate
Commercial and industrial
Real estate construction
Residential real estate
Home equity lines of credit
Total
December 31, 2010
Commercial real estate
Commercial and industrial
Real estate construction
Residential real estate
Home equity lines of credit
Total
$
$
$
$
Unpaid
Principal
Balance
Recorded Investment
Without
Allowance
With
Allowance
Total
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
49,402
2,290
—
3,901
420
56,013
59,272
2,333
—
1,831
522
63,958
$
$
$
$
6,882
1,801
—
323
—
9,006
6,403
1,086
—
961
520
8,970
$
$
$
$
16,501
420
—
2,226
269
19,416
28,035
729
—
506
—
29,270
$
$
$
$
23,383
2,221
—
2,549
269
28,422
34,438
1,815
—
1,467
520
38,240
$
$
$
$
1,026
407
—
49
—
1,482
1,789
572
—
342
254
2,957
$
$
$
$
23,058
1,098
—
2,081
332
26,569
21,736
1,713
—
1,405
535
25,389
$
$
$
$
—
—
—
—
—
—
10
5
—
9
—
24
Peoples' average recorded investment in impaired loans was $38.1 million in 2009, with interest income recognized on
impaired loans of $19,000.
At December 31, 2011, Peoples' impaired loans shown in the table above included loans that were classified as TDRs.
The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the
creditor has granted a concession.
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
debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without
the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and (iv) the debtor's projected
cash flow is sufficient 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 debtor's ability to access funds at a market rate for
debt with similar risk characteristics, the significance of the modification relative to 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
debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an
interest rate lower than the current market rate for new debt 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 remaining term of the loan.
The following table summarizes the loans that were modified as a TDR during the year ended December 31, 2011:
Number of Contracts
Pre-Modification
Recorded Investment (1)
Post-Modification
At December 31, 2011
Commercial Real Estate
(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.
3,169
3,169
$
$
5
$
2,959
All of these loans were identified as being impaired prior to January 1, 2011 and no portion of the debt was forgiven,
thus, the determination of these loans being categorized as TDRs had no impact on the recorded values of these loans or the
related allowance during the year ended December 31, 2011. Therefore, the Pre-Modification and Post-Modification
recorded investment is the same amount. The concessions granted to the borrowers included either acceptance of interest
81
only payments, a reduction to the monthly payments as part of a short-term forbearance period, or a modified interest rate
from a floating rate to a fixed rate with principle and interest payments required instead of interest only payments.
The following table presents those loans modified in a TDR over the last twelve months that subsequently defaulted
(i.e., 90 days or more past due following a modification) during the year ended December 31, 2011:
Number of Contracts
Recorded Investment (1)
Impact on the Allowance
for Loan Losses
Commercial Real Estate
Residential Real Estate
Total
2
1
3
675
315
990
—
—
—
(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' has no additional commitments to lend additional funds to any of the related debtors whose terms have been
modified in a TDR.
Allowance for Loan Losses
Changes in the allowance for loan losses in the periods ended December 31, were as follows:
(Dollars in thousands)
Commercial
Real Estate
Commercial
and
Industrial
Residential
Real Estate
Real Estate
Construction
Balance, January 1, 2011
$
21,806
$
2,160
$
1,400
$
(11,249)
(1,033)
(1,593)
2,469
(8,780)
5,921
18,947
$
729
(304)
578
2,434
$
636
(957)
676
1,119
$
Home
Equity
Lines of
Credit
Deposit
Account
Overdrafts
Total
Consumer
$
431
$
721
$
248
$ 26,766
(366)
51
(315)
425
541
$
$
(939)
687
(252)
(20)
449
$
(664)
(15,844)
225
(439)
4,797
(11,047)
418
227
7,998
$ 23,717
—
—
—
—
—
—
1,026
$
407
$
49
$
—
$
—
$
—
$
—
$ 1,482
17,921
2,027
1,070
18,947
22,125
$
$
2,434
1,586
$
$
1,119
1,619
$
$
(25,569)
(1,281)
(1,129)
1,323
(24,246)
23,927
220
(1,061)
1,635
225
(904)
685
—
—
—
(68)
—
(68)
68
—
541
449
227
22,235
$
$
541
528
$
$
449
1,074
$
$
227
$ 23,717
325
$ 27,257
(131)
(1,074)
(929)
(30,181)
34
(97)
—
671
(403)
50
301
2,774
(628)
(27,407)
551
26,916
$
431
$
721
$
248
$ 26,766
Balance, December 31, 2010
$
21,806
$
2,160
$
1,400
$
Period-end amount allocated to:
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
Ending balance
$
$
1,789
$
572
$
342
$
—
$
254
$
—
$
—
$ 2,957
20,017
1,588
1,058
21,806
$
2,160
$
1,400
$
—
—
177
721
248
23,809
$
431
$
721
$
248
$ 26,766
82
Charge-offs
Recoveries
Net (charge-offs)
Provision for loan losses
Balance, December 31, 2011
$
Period-end amount allocated to:
$
$
$
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
Ending balance
Balance, January 1, 2010
Charge-offs
Recoveries
Net (charge-offs)
Provision for loan losses
Note 5. Bank Premises and Equipment
The major categories of bank premises and equipment and accumulated depreciation at December 31 are summarized
as follows:
(Dollars in thousands)
Land
Building and premises
Furniture, fixtures and equipment
Total bank premises and equipment
Accumulated depreciation
Net book value
2011
2010
$
5,662
$
32,046
18,483
56,191
(32,286)
23,905
$
$
5,690
32,060
18,190
55,940
(31,006)
24,934
Peoples depreciates its building and premises and furniture, fixtures and equipment over estimated useful lives
generally ranging from 5 to 40 years and 2 to 10 years, respectively. Depreciation expense was $1,967,000, $1,943,000
and $1,998,000, in 2011, 2010 and 2009, respectively.
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 ten years. Certain leases contain renewal options and
rent escalation clauses calling for rent increases over the term of the lease. All leases which contain a rent escalation clause
are accounted for on a straight-line basis. Rent expense was $921,000, $916,000, $901,000 in 2011, 2010 and 2009,
respectively.
Peoples leases certain properties from related parties. Payments related to these leases totaled $141,000, $166,000 and
$160,000 in 2011, 2010 and 2009, respectively. The terms of these leases are substantially the same as those offered for
comparable transactions with non-related parties at the time the lease transactions were consummated.
The future minimum payments under noncancellable operating leases with initial or remaining terms of one year or
more consisted of the following at December 31, 2011: $915,000 in 2012, $881,000 in 2013, $618,000 in 2014, $456,000
in 2015, $454,000 in 2016 and $1,595,000 thereafter.
Note 6. Goodwill and Other Intangible Assets
Goodwill
There were no changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010. Peoples
performed the required goodwill impairment tests and concluded the recorded value of goodwill was not impaired as of
December 31, 2011, based upon the estimated fair value of the single reporting unit.
Other intangible assets
Other intangible assets were comprised of the following at December 31:
(Dollars in thousands)
2011
Core deposits
Customer relationships
Total acquired intangibles
Mortgage servicing rights
Total other intangible assets
Gross Intangible
Asset
Accumulated
Amortization
Net Intangible
Asset
$
$
10,564
6,182
16,746
$
$
(10,460)
(5,875)
(16,335)
$
$
$
104
307
411
1,544
1,955
83
(Dollars in thousands)
2010
Core deposits
Customer relationships
Total acquired intangibles
Mortgage servicing rights
Total other intangible assets
Gross Intangible
Asset
Accumulated
Amortization
Net Intangible
Asset
$
$
10,564
6,182
16,746
$
$
$
(10,190)
(5,559)
(15,749)
$
$
374
623
997
1,353
2,350
The estimated aggregate future amortization expense of core deposit and customer relationship intangible assets at
December 31, 2011, is as follows:
(Dollars in thousands)
2012
2013
Total
Core
Deposits
Customer
Relationships
Total
$
$
104
—
104
$
$
202
105
307
$
$
306
105
411
The following is an analysis of activity of MSRs for the years ended December 31:
(Dollars in thousands)
Balance, beginning of year
Amortization
Servicing rights originated
Balance, end of year
2011
2010
2009
$
$
1,353
(397)
588
1,544
$
$
1,164
(385)
574
1,353
$
$
719
(406)
851
1,164
No valuation allowances were required at December 31, 2011, 2010 and 2009 for Peoples’ MSRs since the fair value
exceeded the book value.
Note 7. Deposits
Peoples’ deposit balances were comprised of the following at December 31:
(Dollars in thousands)
Retail certificates of deposit:
$100,000 or more
Less than $100,000
Total retail certificates of deposit
Interest-bearing transaction accounts
Money market deposit accounts
Savings accounts
2011
2010
$
194,709
$
202,001
216,538
411,247
228,136
268,410
139,396
228,885
430,886
215,350
289,657
123,173
Total retail interest-bearing deposits
1,047,189
1,059,066
Brokered certificates of deposits
Total interest-bearing deposits
Non-interest-bearing deposits
Total deposit balances
64,054
87,465
1,111,243
1,146,531
239,837
$ 1,351,080
215,069
$ 1,361,600
84
The contractual maturities of certificates of deposits for each of the next five years and thereafter are as follows:
(Dollars in thousands)
2012
Retail
Brokered
Total
$
219,377
$
11,464
$
230,841
2013
2014
2015
2016
Thereafter
Total maturities
$
97,786
35,138
24,369
34,146
431
411,247
$
3,737
12,200
5,850
18,031
12,772
64,054
101,523
47,338
30,219
52,177
13,203
475,301
$
Deposits from related parties approximated $5.3 million and $10.5 million at December 31, 2011 and 2010,
respectively.
Note 8. Short-Term Borrowings
Peoples utilizes various short-term borrowings as sources of funds, which are summarized as follows:
(Dollars in thousands)
2011
Ending balance
Average balance
Highest month end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
2010
Ending balance
Average balance
Highest month end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
2009
Ending balance
Average balance
Highest month end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
Retail
Repurchase
Agreements
FHLB
Advances
Other
Short-Term
Borrowings
$
$
$
$
$
$
43,143
41,542
49,162
98
0.16%
0.24%
51,509
50,115
51,762
252
0.41%
0.50%
51,921
52,905
53,931
468
$
$
$
8,500
5,525
21,900
5
0.14%
0.08%
—
8,712
57,400
10
—%
0.11%
25,000
6,867
25,000
13
—
47
—
—
—%
0.74%
—
69
—
—
—%
—%
—
150
10,000
1
0.54%
0.88%
0.09%
0.19%
—%
0.67%
Peoples’ retail repurchase agreements consist of overnight agreements with Peoples’ commercial customers and serve
as a cash management tool.
85
The FHLB advances consist of overnight borrowings and other advances with an original maturity of one year or
less. These advances, along with the long-term advances disclosed in Note 9, are collateralized by residential mortgage
loans and investment securities. Peoples’ borrowing capacity with the FHLB is based on the amount of collateral pledged
and the amount of FHLB common stock owned.
Other short-term borrowings consist of Federal Funds purchased and advances from the Federal Reserve Discount
Window. Federal Funds purchased are short-term borrowings from correspondent banks that typically mature within one
to ninety days. Peoples has available Federal Funds of $25 million from certain of its correspondent banks. Interest on
Federal funds purchased is set daily by the correspondent bank based on prevailing market rates. The Federal Reserve
Discount Window provides credit facilities to financial institutions, which are designed to ensure adequate liquidity by
providing a source of short-term funds. Discount Window advances are typically overnight and must be secured by
collateral acceptable to the lending Federal Reserve Bank.
Note 9. Long-Term Borrowings
Long-term borrowings consisted of the following at December 31:
(Dollars in thousands)
Callable national market repurchase agreements
FHLB convertible rate advances
FHLB putable non-amortizing, fixed rate advances
FHLB amortizing, fixed rate advances
FHLB non-amortizing, fixed rate advances
Total long-term borrowings
2011
2010
Balance
65,000
—
60,000
17,312
—
142,312
$
$
Weighted-
Average
Rate
3.43 %
— %
3.28 %
3.59 %
— %
3.38%
$
$
Weighted-
Average
Rate
3.43 %
4.81 %
3.28 %
3.58 %
3.13 %
3.45%
Balance
65,000
7,500
60,000
20,203
5,000
157,703
Peoples' national market repurchase agreements consist of agreements with unrelated financial service companies and
have original maturities ranging from 3 to 10 years. In general, these agreements may not be terminated by Peoples prior
to the maturity without incurring additional costs. The callable agreements contain call option features, in which the buyer
has the right, at its discretion, to terminate the repurchase agreement after an initial period ranging from 3 months to 5
years. After the initial call period, the buyer has the right to terminate the agreement on a quarterly basis thereafter until
maturity. If the buyer exercises its option, Peoples would be required to repay the agreement in whole at the quarterly date.
The FHLB advances consist of various borrowings with original maturities ranging from 3 to 20 years that generally
may not be repaid prior to maturity without Peoples incurring a penalty. The rate on the convertible rate advances are fixed
from initial periods ranging from one to four years, depending on the specific advance. After the initial fixed rate period,
the FHLB has the option to convert each advance to a LIBOR based, variable rate advance. If the FHLB exercises its
option, Peoples may repay the advance in whole or in part on the conversion date or any subsequent repricing date without
a prepayment fee. At all other times, early repayment of any convertible rate advance would result in Peoples incurring a
prepayment penalty. For the putable advances, the FHLB has the option, at its sole discretion following an initial period of
three months, to terminate the debt and require Peoples to repay the advance prior to the final stated maturity. After the
initial period, the FHLB has the option to terminate the debt on a quarterly basis. 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 underwriting criteria. As discussed in Note 8, long-term FHLB advances are
collateralized by assets owned by Peoples.
86
The aggregate minimum annual retirements of long-term borrowings in future periods are as follows:
(Dollars in thousands)
Balance
Weighted-
Average Rate
$
2012
2013
2014
2015
2016
Thereafter
Total long-term borrowings
$
7,408
2,225
1,721
1,466
1,256
128,236
142,312
3.58 %
3.67 %
3.55 %
3.55 %
3.56 %
3.36 %
3.38%
Note 10. Junior Subordinated Notes Held By Subsidiary Trust
Peoples previously formed a statutory business trust (the “Trust”) for the purpose of issuing corporation-obligated
mandatorily redeemable capital securities (the “Capital Securities” or “Trust Preferred Securities”), with 100% of the
common equity in the Trust owned by Peoples. The proceeds from the Capital Securities and common equity were
invested in junior subordinated debt securities of Peoples (the “Debentures”).
The Debentures held by the Trust are the sole assets of the Trust. Distributions on the Capital Securities are payable
semiannually at a rate per annum equal to the interest rate being earned by the Trust on the Debentures and are recorded as
interest expense by Peoples. Since the Trust is a variable interest entity and Peoples is not deemed to be the primary
beneficiary, the Trust is not included in Peoples' Consolidated Financial Statements. As a result, Peoples includes the
Debentures as a separate category of long-term debt on the Consolidated Balance Sheets entitled “Junior Subordinated
Notes Held by Subsidiary Trust” and the related expense as interest expense on the Consolidated Statements of Income.
Under the provisions of the Debentures, Peoples has the right to defer payment of interest on the Debentures at any
time, or from time to time, for periods not exceeding five years. If interest payments on the Debentures are deferred, the
dividends on the Capital Securities are also deferred and Peoples will be prohibited from paying dividends on its common
shares. Interest on the Debentures is cumulative. Peoples has entered into agreements which, taken collectively, fully and
unconditionally guarantee the Capital Securities subject to the terms of each of the guarantees.
The Capital Securities are mandatorily redeemable upon maturity of the Debentures on May 1, 2029, and Peoples has
the right to redeem the Debentures, in whole or in part, after May 1, 2009. If redeemed prior to maturity, the redemption
price of the Debentures will be the principal amount, plus any unpaid accrued interest, and a premium if redeemed before
2019.
Under the risk-based capital standards for bank holding companies adopted by the Board of Governors of the Federal
Reserve System, the Trust Preferred Securities qualify as Tier 1 capital for regulatory capital purposes, subject to certain
quantitative limits and qualitative standards. Specifically, the aggregate amount of trust preferred securities and certain
other capital elements that qualify as Tier 1 capital is limited to 25% of core capital elements, net of goodwill, with the
excess amount not qualifying for Tier 1 capital being included in Tier 2 capital. Additionally, trust preferred securities no
longer qualify for Tier 1 capital within five years of their maturity. At December 31, 2011 and 2010, the entire amount of
the outstanding Trust Preferred Securities qualified as Tier 1 capital.
87
Note 11. Stockholders’ Equity
The following table details the progression in shares of Peoples’ preferred, common and treasury stock during the
period presented:
Common
Stock
10,975,364
Treasury
Stock
641,480
Shares at December 31, 2008
Issuance of preferred shares
Changes related to stock-based compensation awards:
Release of restricted common shares
Changes related to deferred compensation plan:
Purchase of treasury stock
Reissuance of treasury stock
Preferred
Stock
—
39,000
—
—
—
—
3,415
—
—
Common shares issued under dividend reinvestment plan
Shares at December 31, 2009
—
39,000
53,113
11,031,892
Changes related to stock-based compensation awards:
Release of restricted common shares
Exercise of common stock options
Changes related to deferred compensation plan:
Purchase of treasury stock
Reissuance of treasury stock
Common shares issued under dividend reinvestment plan
Shares at December 31, 2010
Changes related to stock-based compensation awards:
Release of restricted common shares
Changes related to deferred compensation plan:
Purchase of treasury stock
Reissuance of treasury stock
Repurchase of preferred shares
Common shares issued under dividend reinvestment plan
Common shares issued under Board of Directors'
compensation plan
Shares at December 30, 2011
—
—
—
—
7,202
—
—
—
—
39,000
30,928
11,070,022
21,510
5,443
8,623
(9,209)
(39,000)
24,770
5,945
11,122,247
—
(2,429)
615,123
—
—
17,984
(2,209)
—
657,255
—
(31,008)
11,855
(25,407)
—
612,695
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 the Board of Directors. In 2009, Peoples’ Board of Directors created a series of preferred shares designated
as Peoples’ Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation
preference of $1,000 per share, and fixed 39,000 shares as the authorized number of such shares (the “Series A Preferred
Shares”). These Series A Preferred Shares subsequently were sold to the United States Department of the Treasury (the
“U.S. Treasury”), along with a ten-year warrant (the “Warrant”) to purchase 313,505 Peoples common shares at an exercise
price of $18.66 per share (subject to certain anti-dilution and other adjustments), for an aggregate purchase price of $39
million in cash in connection with Peoples’ participation in the U.S. Treasury’s TARP Capital Purchase Program.
On February 2, 2011, Peoples completed the repurchase of 21,000 of the Series A Preferred Shares held by the U.S.
Treasury, for an aggregate purchase price of $21,224,583, which included a pro rata accrued dividend of approximately
$224,583. In connection with this repurchase, Peoples recognized the pro rata unamortized discount originally recorded at
the time of issuance, which totaled $186,000.
88
On December 28, 2011, Peoples completed the repurchase of 18,000 of the Series A Preferred Shares held by the U.S.
Treasury, for an aggregate purchase price of $18,107,500, which included a pro rata accrued dividend of approximately
$107,500. In connection with this repurchase, Peoples recognized the pro rata unamortized discount originally recorded at
the time of issuance, which totaled $112,000.
On February 15, 2012, Peoples completed the repurchase of the Warrant for an aggregate price of $1,200,724.
In the second quarter of 2011, Peoples' Board of Directors adopted a new schedule for considering the declaration of
dividends payable to common shareholders. Beginning with the second quarter 2011 dividend, Peoples' Board of Directors
will determine whether to declare future dividends payable to common shareholders, if financial conditions warrant, during
the first month of the following calendar quarter. As a result, no common dividends were declared in the second quarter of
2011 which had a positive impact on Peoples' stockholders' equity. On January 26, 2012, the Board of Directors declared a
cash dividend of $0.11 per common share with respect to fourth quarter 2011 results at a regularly scheduled Board
meeting. This dividend will be paid on February 21, 2012, to shareholders of record on February 6, 2012.
Note 12. Comprehensive Income (Loss)
The components of other comprehensive income (loss) were as follows:
(Dollars in thousands)
Net income
Other comprehensive income (loss):
Available-for-sale investment securities:
Gross unrealized holding gain (loss) arising in the period
Related tax (expense) benefit
Non-credit losses arising on securities during the period
Related tax benefit
Less: reclassification adjustment for net gain (loss) included in net income
Related tax (expense) benefit
Net effect on other comprehensive income (loss)
Defined benefit plans:
Net (loss) gain arising during the period
Related tax benefit (expense)
Amortization of unrecognized loss and service cost on pension plan
Related tax expense
Net effect on other comprehensive (loss) income
Total other comprehensive income (loss), net of tax
Total comprehensive income (loss)
2011
$ 12,555
2010
2009
$
5,581
$
4,190
15,053
(5,269)
—
—
473
(166)
9,477
(18,174)
6,361
—
—
5,066
(1,773)
(15,106)
26,573
(9,301)
(166)
58
(6,261)
2,190
21,235
(6,448)
2,257
891
(312)
(3,612)
5,865
$ 18,420
$
1,640
(574)
155
(55)
1,166
(13,940)
(8,359)
1,151
(403)
148
(52)
844
22,079
$ 26,269
89
The following details the change in the components of Peoples’ accumulated other comprehensive income (loss) for
the twelve months ended December 31, 2011:
(Dollars in thousands)
Balance, December 31, 2008
Current period change, net of tax
Cumulative effect adjustment for non-credit
portion of previously recorded OTTI losses
Balance, December 31, 2009
Current period change, net of tax
Balance, December 31, 2010
Current period change, net of tax
Balance, December 31, 2011
$
$
$
$
Unrealized
(Loss) Gain on
Securities
Unrecognized
Net Pension and
Postretirement
Costs
Accumulated
Comprehensive
(Loss) Income
$
(7,863)
21,235
(304)
13,068
(15,106)
(2,038)
9,477
7,439
$
$
$
$
(4,425)
844
—
(3,581)
1,166
(2,415)
(3,612)
(6,027)
$
$
$
(12,288)
22,079
(304)
9,487
(13,940)
(4,453)
5,865
1,412
Note 13. 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 pay 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 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.
Peoples also provides post-retirement health and life insurance benefits to former employees and directors. Only those
individuals who retired before January 27, 2012 were eligible for life insurance benefits while all retirees are eligible for
health benefits. Peoples’ policy is to fund the cost of the benefits as they are incurred.
The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets
over the two-year period ending December 31, 2011, and a statement of the funded status as of December 31, 2011 and
2010:
(Dollars in thousands)
Change in benefit obligation:
Obligation at January 1
Service cost
Interest cost
Plan participants’ contributions
Actuarial loss (gain)
Benefit payments
Increase due to plan changes
Curtailment
Settlements
Obligation at December 31
Accumulated benefit obligation at December 31
90
Pension Benefits
Postretirement Benefits
2011
2010
2011
2010
$
12,501
$
13,075
$
231
$
—
724
—
5,175
(205)
—
—
(1,690)
16,505
16,505
$
$
$
$
750
785
—
472
(849)
—
(1,732)
—
—
12
73
11
(103)
—
—
—
12,501
12,501
$
$
224
—
$
$
243
—
13
135
(14)
(167)
21
—
—
231
—
(Dollars in thousands)
Change in plan assets:
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefit payments
Settlements
Fair value of plan assets at December 31
Funded status at December 31
Amounts recognized in Consolidated Balance Sheets:
Prepaid benefit costs
Accrued benefit liability
Net amount recognized
Unrecognized prior service cost
Unrecognized net loss
Total
Weighted-average assumptions at year-end:
Discount rate
Rate of compensation increase
Amounts recognized in Accumulated Comprehensive Income (Loss):
Pension Benefits
Postretirement Benefits
2011
2010
2011
2010
$ 12,543
(239)
—
—
(205)
(1,690)
$ 10,409
(6,096)
$
$
$
—
(6,096)
(6,096)
$
$
—
6,032
6,032
$ 11,886
$
1,506
—
—
(849)
—
$ 12,543
$
$
$
$
$
42
42
—
42
—
2,420
2,420
$
$
$
$
$
$
—
—
30
73
(103)
—
—
(224)
—
(224)
(224)
3
42
45
$
$
$
$
$
$
$
—
—
32
135
(167)
—
—
(231)
—
(231)
(231)
3
55
58
4.00%
n/a
5.70%
2.50%
4.00%
n/a
5.70%
n/a
The estimated costs relating to Peoples’ pension benefits that will be amortized from accumulated comprehensive
income (loss) into net periodic cost over the next fiscal year are $154,000 of net loss.
Net Periodic Benefit Cost
The following tables detail the components of the net periodic benefit cost for the plans:
(Dollars in thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
Curtailment
Settlement of benefit obligation
Net periodic benefit cost
Weighted-average assumptions:
Discount rate
Expected return on plan assets
Rate of compensation increase
$
$
Pension Benefits
2010
750
785
(1,149)
4
151
23
—
564
$
$
2011
$ —
724
(1,033)
—
75
—
815
581
$
2009
799
785
(1,194)
4
145
—
—
539
Postretirement Benefits
2009
$ —
16
—
(3)
(3)
—
—
10
2010
$ —
13
—
(3)
(9)
—
—
1
2011
$ —
12
—
—
(9)
—
—
3
$
$
$
5.40%
8.00%
n/a
6.40%
8.50%
2.50%
6.30%
8.50%
2.50%
5.70%
n/a
n/a
6.40%
n/a
n/a
6.30%
n/a
n/a
For measurement purposes, a 10% annual rate of increase in the per capita cost of covered benefits (i.e., health care
cost trend rate) was assumed for 2011, grading down 1% per year to an ultimate rate of 5% in 2016. The health care trend
rate assumption does not have a significant effect on the contributory defined benefit postretirement plan; therefore, a one
percentage point increase or decrease in the trend rate is not material in the determination of the accumulated
postretirement benefit obligation or the ongoing expense.
91
Under US GAAP, Peoples is required to recognize a settlement gain or loss when the aggregate amount of lump-sum
distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic
pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the unrealized gain or loss
existing immediately prior to the settlement. In general, both the projected benefit obligation and fair value of plan assets
are required to be remeasured in order to determine the settlement gain or loss.
In the third quarter of 2011, the total lump-sum distributions made to participants, when added to the lump-sum
distributions made in the first two quarters of 2011, caused the total settlements through nine months of 2011 to exceed the
recognition threshold for settlement gains or losses. As a result, Peoples remeasured its pension obligation and plan assets
as of July 1, 2011 as part of the calculation of the settlement loss recognized. For the remeasurement, Peoples reduced the
discount rate to 5.10% , which corresponded with the decrease in market interest rates experienced since year-end 2010.
Determination of Expected Long-term Rate of Return
The expected long-term rate of return on the plans' total assets is based on the expected return of each category of the
plan's assets. Peoples' investment strategy for the plan's assets continues to allocate 60% to 75% to equity securities. The
returns generated by equity securities over the last 10 years have been significantly lower than their long-term historical
annual returns due in part to unfavorable economic conditions. Thus, Peoples lowered its expected return on equity
securities from their long-term historical rate, which had a corresponding impact on overall expected return on plan assets
in 2011.
Plan Assets
Peoples' investment strategy, as established by Peoples' Retirement Plan Committee, is to invest assets based upon
established target allocations, which include a target range of 60-75% allocation in equity securities, 24-39% in debt
securities and approximately 1% of other investments. The assets are reallocated periodically to meet the target
allocations. The investment policy is reviewed periodically, under the advisement of a certified investment advisor, to
determine if the policy should be changed.
The following table provides the fair values of investments held in Peoples' pension plan at December 31, by major
asset category:
(Dollars in thousands)
2011
Equity securities:
Common stock
Mutual funds - equity
Debt securities:
Mortgage-baked securities
Municipal obligations
Corporate bonds
Mutual funds - taxable income
Total fair value of pension assets
$
$
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Fair Value
300
$
7,562
300
$
7,562
38
828
471
700
—
—
471
700
9,899
$
9,033
$
—
—
38
828
—
—
866
92
(Dollars in thousands)
2010
Equity securities:
Common stock
Mutual funds - equity
Debt securities:
Mortgage-baked securities
Municipal obligations
Corporate bonds
Mutual funds - taxable income
Total fair value of pension assets
$
$
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Fair Value
338
$
10,149
338
$
10,149
53
581
598
473
—
—
598
473
12,192
$
11,558
$
—
—
53
581
—
—
634
Pension plan assets also included cash and cash equivalents of $497,000 and accrued income of $13,000 at
December 31, 2011. Cash and cash equivalents were $351,000 at December 31, 2010. For further information regarding
levels of input used to measure fair value, please refer to Note 2.
Equity securities of Peoples' pension plan did not include any securities of Peoples or related parties in 2011 or 2010.
Cash Flows
Peoples has not determined if any contributions will be made to its pension plan in 2012; however, actual contributions
are made at the discretion of the Retirement Plan Committee and Peoples' Board of Directors. Estimated future benefit
payments, which reflect benefits attributable to estimated future service, for the years ending December 31 are as follows:
(Dollars in thousands)
Pension Benefits
Post-retirement
Benefits
2012
2013
2014
2015
2016
2017 to 2021
Total
$
$
$
2,140
1,216
1,267
980
1,136
4,708
11,447
$
29
28
26
25
19
96
223
Retirement Savings Plan
Peoples also maintains a retirement savings plan, or 401(k) plan, which covers substantially all employees. The plan
provides participants the opportunity to save for retirement on a tax-deferred basis. During 2009 and in prior years,
Peoples made matching contributions equal to 100% of participants' contributions that did not exceed 3% of the
participants' compensation, plus 50% of participants' contributions between 3% and 5% of the participants' compensation.
Effective January 1, 2010, Peoples began making matching contributions equal to 100% of participants' contributions that
do not exceed 2% of the participants' compensation. Beginning January 1, 2011, matching contributions equaled 100% of
participants' contributions that did not exceed 3% of the participants' compensation, plus 50% of participants' contributions
between 3% and 5% of the participants' compensation. Matching contributions made by Peoples totaled $763,000,
$425,000 and $775,000 in 2011, 2010 and 2009, respectively.
93
Note 14. Income Taxes
The reported income tax expense and effective tax rate in the Consolidated Statements of Income differs from the
amounts computed by applying the statutory corporate tax rate as follows for the years ended December 31:
(Dollars in thousands)
Amount
Rate
Amount
Rate
Amount
Rate
Income tax computed at statutory federal tax rate
$
5,890
34.3 %
$
1,956
34.0 %
$
1,063
34.0 %
2011
2010
2009
Differences in rate resulting from:
Tax-exempt interest income
Investments in tax credit funds
Bank owned life insurance
Other, net
Total income tax expense (benefit)
(574)
(497)
(3.4)%
(2.9)%
(44)
(0.3)%
(179)
4,596
(0.9)%
26.8 %
$
$
(808)
(715)
(207)
(54)
172
(14.1)%
(12.4)%
(3.6)%
(0.9)%
3.0 %
$
(921)
(625)
(357)
(224)
(1,064)
(29.5 )%
(20.0 )%
(11.4 )%
(7.2 )%
(34.1)%
Peoples' reported income tax expense consisted of the following for the years ended December 31:
(Dollars in thousands)
Current income tax
Deferred income tax
Total income tax expense (benefit)
2011
2010
2009
$
$
4,134
462
4,596
$
$
1,986
(1,814)
172
$
$
4,148
(5,212)
(1,064)
The significant components of Peoples' deferred tax assets and liabilities consisted of the following at December 31:
(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses
Accrued employee benefits
Available-for-sale securities
Investments
Tax credit carryforward
Other
Total deferred tax assets
Deferred tax liabilities:
Bank premises and equipment
Deferred income
Deferred net loan costs
Available-for-sale securities
Other
Total deferred tax liabilities
Net deferred tax asset
2011
2010
8,833
3,026
—
2,601
6,412
277
21,149
1,478
1,026
372
4,005
4,364
11,245
9,904
$
$
$
$
9,960
946
1,098
2,607
6,096
311
21,018
1,386
1,110
338
—
4,660
7,494
13,524
$
$
$
$
The tax credit carryforward at December 31, 2011 and 2010 may be carried over for a period of 20 years and will
expire over the period of 2028 and 2031. No valuation allowance for deferred tax assets was required at December 31,
2011, as it is more likely than not that all of the deferred tax assets will be realized in future periods. The related federal
income tax expense on securities transactions approximated $166,000 in 2011, $2,398,000 in 2010 and $506,000 in 2009.
Peoples' income tax returns are subject to review and examination by federal and state taxing authorities. Peoples is
currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended
December 31, 2008 through 2010. The years open to examination by state taxing authorities vary by jurisdiction.
94
Note 15. Earnings Per Common Share
The calculations of basic and diluted earnings per common share for years ended December 31 were as follows:
(Dollars in thousands, except per common share data)
2011
2010
2009
Distributed earnings allocated to common stock
Undistributed earnings allocated to common stock
Net earnings allocated to common shareholders
$
$
3,167
$
8,019
11,186
$
4,209
(683)
3,526
$
$
6,892
(4,580)
2,312
Weighted-average common shares outstanding
10,482,318
10,424,474
10,363,975
Effect of potentially dilutive common shares
—
7,516
10,817
Total weighted-average diluted common shares outstanding
10,482,318
10,431,990
10,374,792
Earnings per common share:
Basic
Diluted
$
$
1.07
1.07
$
$
0.34
0.34
$
$
0.22
0.22
As disclosed in Note 11, Peoples had a Warrant to purchase 313,505 common shares outstanding at December 31,
2011. This Warrant was excluded from the calculation of diluted earnings (loss) per common share since it was anti-
dilutive. In addition, stock options and SARs covering 210,370, 243,560 and 285,678 common shares were excluded from
the calculations for the years ended December 31, 2011, 2010 and 2009, respectively, since they were anti-dilutive.
Note 16. Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, Peoples is party to financial instruments with off-balance sheet risk necessary to
meet the financing needs of 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 nonperformance of an obligation or service. Historically, most loan commitments and
standby letters of credit expire unused. Peoples' 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 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.
The total amounts of loan commitments and standby letters of credit at December 31 are summarized as follows:
(Dollars in thousands)
Home equity lines of credit
Unadvanced construction loans
Other loan commitments
Loan commitments
Standby letters of credit
2011
2010
$
44,850
10,023
135,110
189,983
40,021
6,107
108,995
155,123
40,821
$
42,097
$
$
95
Interest Rate Swaps
Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010
Under this program, Peoples provides its customer with a fixed-rate loan while creating a variable-rate asset for Peoples by
the customer entering into an interest rate swap with Peoples on terms that match the loan. Peoples offsets its risk exposure
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. At December 31, 2011, Peoples had
interest rate swaps associated with commercial loans with a notional value of $12.0 million and fair value of $0.9 million.
These interest swaps did not have material impact on Peoples' results of operation or financial condition.
Note 17. Regulatory Matters
The following is a summary of certain regulatory matters affecting Peoples and its subsidiaries:
Federal Reserve Requirements
Peoples Bank is required to maintain a minimum level of reserves, consisting of cash on hand and non-interest-bearing
balances with the Federal Reserve Bank of Cleveland, based on the amount of deposit liabilities. Average required reserve
balances were approximately $6.1 million and $6.2 million in 2011 and 2010, respectively.
Limits on Dividends
The primary source of funds for the dividends paid by Peoples is dividends received from Peoples Bank. The payment
of dividends by Peoples Bank is subject to various banking regulations. The most restrictive provision requires regulatory
approval if dividends declared in any calendar year exceed the total net profits of that year plus the retained net profits of
the preceding two years. In 2011, Peoples Bank declared dividends in excess of its net profits for the year to provide
funding for the repurchase of Series A Preferred Shares that occurred on December 28, 2011, as discussed in further detail
in Note 11. As a result, Peoples Bank had no capacity to pay dividends without regulatory approval at December 31, 2011,
since the aggregate dividends declared for the preceding three years exceeded the cumulative net profits for those years.
The excess dividend amount will reduce the amount of Peoples Bank's dividend capacity during 2012.
Capital Requirements
Peoples and Peoples Bank are subject to various regulatory capital guidelines administered by the banking regulatory
agencies. Under capital adequacy requirements and the regulatory framework for prompt corrective action, Peoples and its
banking subsidiary must meet specific capital guidelines that involve quantitative measures of each entity's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Peoples' and Peoples
Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors. Failure to meet future minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by the regulators that, if undertaken, could have a material effect on Peoples'
financial results.
Quantitative measures established by regulation to ensure capital adequacy require Peoples and Peoples Bank to
maintain minimum amounts and ratios of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined). Peoples and Peoples Bank met all capital
adequacy requirements at December 31, 2011.
As of December 31, 2011, the most recent notifications from the banking regulatory agencies categorized Peoples and
Peoples Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well
capitalized, Peoples and Peoples Bank must maintain minimum Total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table below. There are no conditions or events since these notifications that management believes have
changed Peoples or Peoples Bank's category.
96
Peoples and Peoples Bank's actual capital amounts and ratios as of December 31 are also presented in the following
table:
(Dollars in thousands)
PEOPLES
Total Capital (1)
Actual
For capital adequacy
To be well capitalized
Tier 1 (2)
Actual
For capital adequacy
To be well capitalized
Tier 1 Leverage (3)
Actual
For capital adequacy
To be well capitalized
Net Risk-Weighted Assets
PEOPLES BANK
Total Capital (1)
Actual
For capital adequacy
To be well capitalized
Tier 1 (2)
Actual
For capital adequacy
To be well capitalized
Tier 1 Leverage (3)
Actual
For capital adequacy
To be well capitalized
Net Risk-Weighted Assets
December 31, 2011
Ratio
Amount
December 31, 2010
Ratio
Amount
$
$
$
$
$
180,053
88,915
111,144
165,121
44,458
66,687
165,121
69,913
87,392
1,111,443
166,622
88,546
110,682
152,665
44,273
66,409
$
152,665
69,277
86,596
$ 1,106,824
16.2%
8.0%
10.0%
14.9%
4.0%
6.0%
9.5%
4.0%
5.0%
15.1%
8.0%
10.0%
13.8%
4.0%
6.0%
8.8%
4.0%
5.0%
$
$
$
$
$
209,738
91,967
114,959
194,407
45,983
68,975
194,407
73,177
91,471
1,149,587
177,793
91,412
114,265
163,356
45,706
68,559
$
163,356
72,391
90,488
$ 1,142,652
18.2%
8.0%
10.0%
16.9%
4.0%
6.0%
10.6%
4.0%
5.0%
15.6%
8.0%
10.0%
14.3%
4.0%
6.0%
9.0%
4.0%
5.0%
(1) Ratio represents total capital to net risk-weighted assets
(2) Ratio represents Tier 1 capital to net risk-weighted assets
(3) Ratio represents Tier 1 capital to average assets
As more fully disclosed in Note 11, Peoples repurchased $21.0 million on February 2, 2011 and $18.0 million on
December 28, 2011 of its Series A Preferred Shares held by the U.S. Treasury, resulting in a corresponding reduction in
Peoples' Tier 1 and Total capital for regulatory purposes.
Note 18. Stock-Based Compensation
Under the Peoples Bancorp Inc. Amended and Restated 2006 Equity Plan (the “2006 Equity Plan”), Peoples may
grant, among other awards, nonqualified stock options, incentive stock options, restricted stock awards, stock appreciation
rights or any combination thereof covering up to 500,000 common shares to employees and non-employee directors. 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 2007, Peoples also has granted a
combination of restricted common shares and stock appreciation rights (“SARs”) to be settled in common shares to
employees and restricted common shares to non-employee directors subject to the terms and conditions prescribed by the
97
2006 Equity Plan. In general, common shares issued in connection with stock-based awards are issued from treasury
shares to the extent available. If no treasury shares are available, common shares are issued from authorized but unissued
common shares.
Stock Options
Under the provisions of the 2006 Equity Plan and predecessor stock option plans, the exercise price per share of any
stock option granted may not be less than the grant date fair market value of the underlying common shares. All stock
options granted to both employees and non-employee directors expire ten years from the date of grant. The most recent
stock option grants to employees and non-employee directors occurred in 2006. The stock options granted to employees
vested three years after the grant date, while the stock options granted to non-employee directors vested six months after
the grant date. The following summarizes the changes to Peoples' stock options for the year ended December 31, 2011:
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Number of
Shares
Outstanding at January 1
Expired
Outstanding at December 31
Exercisable at December 31
201,118
50,516
150,602
150,602
$
$
$
25.48
25.27
25.55
25.55
1.9 years
1.9 years
$
$
—
—
The following summarizes information concerning Peoples' stock options outstanding at December 31, 2011:
Weighted-
Average
Exercise
Price
Options Outstanding & Exercisable
Weighted-
Average
Remaining
Contractual
Life
0.8 years
1.1 years
0.6 years
2.4 years
4.0 years
2.8 years
1.9 years
Common
Shares
Subject to
Options
Outstanding
6,353
35,815
29,018
32,569
18,573
28,274
150,602
$
$
19.79
22.32
23.95
27.11
28.25
29.03
25.55
Range of Exercise Prices
$21.71
to
$15.55
$23.58
to
$21.72
$25.94
to
$23.59
$27.74
to
$26.01
$28.26
to
$28.25
$30.00
to
$28.57
Total
Stock Appreciation Rights
SARs granted to employees have an exercise price equal to the fair market value of Peoples’ common shares on the
date of grant and will be settled using common shares of Peoples. Additionally, the SARs granted vested three years after
the grant date and expire ten years from the date of grant. The following summarizes the changes to Peoples' SARs for the
year ended December 31, 2011:
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Number
of Shares
Outstanding at January 1
Forfeited
Outstanding at December 31
Exercisable at December 31
42,442
13,367
29,075
29,075
$
$
$
25.97
26.23
25.85
25.85
4.5
4.5
$
$
—
—
The weighted-average estimated fair value of the SARs granted in 2011, 2010 and 2009 was $0. The following
summarizes information concerning Peoples' SARs outstanding at December 31, 2011:
98
Number of Common
Shares Subject to
SARs Outstanding &
Exercisable
Weighted-
Average Remaining
Contractual
Life
2,000
15,853
11,222
29,075
5.6 years
4.5 years
4.3 years
4.5 years
Exercise
Price
$23.26
$23.77
$29.25
Total
Restricted Shares
Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-
employee directors. In general, the restrictions on common shares awarded to non-employee directors expire after six
months, while the restrictions on common shares awarded to employees expire after periods ranging from one to three
years. In the first quarter of 2011, Peoples granted restricted shares to officers and key employees with both a two-year
time-based vesting period and a two-year performance-based vesting period. For the restricted shares subject to
performance-based vesting, the restrictions on these restricted shares will lapse after two years upon the achievement of
cumulative diluted earnings per common share of $3.10 for the three-year period ending December 31, 2012. The
following summarizes the changes to Peoples’ restricted common shares for the year ended December 31, 2011:
Time Vesting
Performance Vesting
Weighted-
Average
Grant Date
Fair Value
19.88
$
13.01
15.50
13.14
12.89
$
Number of
Shares
7,337
41,423
21,510
706
26,544
Number of
Shares
—
3,531
—
168
3,363
Weighted-
Average
Grant Date
Fair Value
—
$
13.14
—
13.14
13.14
$
Outstanding at January 1
Awarded
Released
Forfeited
Outstanding at December 31
The total intrinsic value of restricted common shares released was $307,000, $94,000 and $37,000 in 2011, 2010 and
2009, respectively.
Stock-Based Compensation
Peoples recognized stock-based compensation expense, which is included as a component of Peoples’ salaries and
employee benefits costs, based on the estimated fair value of the awards on the grant date. The following summarizes the
amount of stock-based compensation expense and related tax benefit recognized:
(Dollars in thousands)
Total stock-based compensation
Recognized tax benefit
Net expense recognized
2011
2010
2009
$
$
310
(109)
201
$
$
92
(32)
60
$
$
149
(52)
97
Restricted common shares were the only stock-based compensation awards granted by Peoples in 2009, 2010 and
2011. The fair value of restricted stock awards on the grant date is the market price of Peoples' common shares. Total
unrecognized stock-based compensation expense related to unvested awards was $164,000 at December 31, 2011, which
will be recognized over a weighted-average period of 1.6 years.
99
Note 19. Parent Company Only Financial Information
Condensed Balance Sheets
(Dollars in thousands)
Assets:
Cash and due from other banks
Interest-bearing deposits in subsidiary bank
Receivable from subsidiary bank
Available-for-sale investment securities, at estimated fair value (amortized cost of $1,213 and
$1,238 at December 31, 2011 and 2010, respectively)
Investments in subsidiaries:
Bank
Non-bank
Other assets
Total assets
Liabilities:
Accrued expenses and other liabilities
Dividends payable
Junior subordinated debentures held by subsidiary trust
Total liabilities
Preferred stockholders' equity
Common stockholders' equity
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2011
2010
$
50
$
4,032
4,032
3,254
195,338
29,161
1,223
237,090
$
7,458
$
—
22,975
30,433
—
206,657
206,657
237,090
$
$
$
$
50
26,116
572
3,113
200,839
28,488
1,225
260,403
5,449
1,298
22,975
29,722
38,645
192,036
230,681
260,403
Condensed Statements of Income
(Dollars in thousands)
Income:
Dividends from subsidiary bank
Dividends from non-bank subsidiary
Interest and other income
Total income
Expenses:
Interest expense on junior subordinated notes held by subsidiary trusts
Intercompany management fees
Other expense
Total expenses
Year Ended December 31,
2011
2010
2009
$
25,500
$
8,600
$
—
175
25,675
2,014
921
1,335
4,270
950
366
9,916
2,021
950
994
3,965
3,000
5,250
495
8,745
2,015
909
1,067
3,991
Income (loss) before federal income taxes and (excess dividends from) equity
in undistributed earnings of subsidiaries
Applicable income tax benefit
(Excess dividends from) equity in undistributed earnings of subsidiaries
Net income
21,405
(1,734)
(10,584)
12,555
$
$
5,951
(1,354)
(1,724)
5,581
$
4,754
(1,522)
(2,086)
4,190
100
Statements of Cash Flows
(Dollars in thousands)
Operating activities
Net income
Adjustment to reconcile net income to cash provided by operations:
Excess dividends from undistributed earnings of subsidiaries
Other, net
Net cash provided by operating activities
Investing activities
Net proceeds from sales and maturities (purchases of) investment securities
Investment in subsidiaries
Change in receivable from subsidiary
Net cash (used in) provided by investing activities
Financing activities
Issuance of preferred shares and common stock warrant
Repurchase of preferred shares
Preferred stock dividends
Purchase of treasury stock
Proceeds from issuance of common stock
Cash dividends paid
Excess tax (expense) benefit for share based payments
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
Supplemental cash flow information:
Interest paid
Year Ended December 31,
2011
2010
2009
$
12,555
$
5,581
$
4,190
10,584
2,534
25,673
25
—
(3,451)
(3,426)
—
(39,000)
(1,232)
(187)
10
(3,922)
—
(44,331)
(22,084)
26,166
4,082
1,724
431
7,736
171
—
(15)
156
—
—
(1,950)
(181)
447
(3,822)
4
(5,502)
2,390
23,776
26,166
$
$
2,086
(142)
6,134
38
(18,000)
(153)
(18,115)
39,000
—
(1,543)
(249)
4
(7,426)
(14)
29,772
17,791
5,985
23,776
1,981
$
1,980
$
1,980
$
$
101
Note 20. Summarized Quarterly Information (Unaudited)
(Dollars in thousands, except per share data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2011
$
19,317
$
18,941
$
18,400
$
Net income available to common shareholders
Earnings per common share - Basic
Earnings per common share - Diluted
$
$
$
Weighted-average common shares outstanding - Basic
10,471,819
10,478,362
10,484,609
10,494,210
Weighted-average common shares outstanding - Diluted
10,477,360
10,507,895
10,519,673
10,514,960
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net impairment losses
Net gain on investment securities
Other income
Intangible asset amortization
FDIC insurance
Other expenses
Income tax expense
Net income
Preferred dividends
(Dollars in thousands, except per share data)
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net impairment losses
Net gain (loss) on investment securities
Other income
Intangible asset amortization
FDIC insurance
Other expenses
Income tax expense (benefit)
Net income
Preferred dividends
Net income (loss) available to common shareholders
Earnings per common share - Basic
Earnings per common share - Diluted
5,822
13,495
5,311
—
360
8,434
162
662
13,794
491
1,869
523
1,346
0.13
0.13
$
$
$
5,510
13,431
2,295
—
56
7,335
152
450
14,117
887
2,921
238
2,683
0.26
0.26
$
$
$
5,136
13,264
865
—
57
8,780
141
440
14,849
1,885
3,921
237
3,684
0.35
0.35
$
$
$
18,475
4,686
13,789
(473)
—
—
7,479
131
315
16,118
1,333
3,844
345
3,499
0.33
0.33
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2010
$
23,457
$
22,963
$
22,572
$
8,016
15,441
6,501
(986)
16
8,031
245
617
13,713
111
1,315
513
802
0.08
0.08
$
$
$
$
$
$
7,790
15,173
5,458
(800)
3,018
6,424
235
612
13,462
763
3,285
512
2,773
0.27
0.27
7,308
15,264
8,005
—
3,818
3,073
224
617
13,117
(221)
413
$
$
$
514
(101)
(0.01)
(0.01)
10,437,770
$
$
$
20,343
6,319
14,024
6,952
—
—
7,215
214
624
13,362
(481)
568
513
55
0.01
0.01
10,445,718
Weighted-average common shares outstanding - Basic
10,391,542
10,422,126
Weighted-average common shares outstanding - Diluted
10,400,243
10,429,369
10,437,770
10,452,001
102
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning (a) directors of Peoples Bancorp Inc. (“Peoples”), (b) the procedures by which
shareholders of Peoples may recommend nominees to Peoples' Board of Directors, (c) the Audit Committee of Peoples'
Board of Directors and (d) the Board of Directors' determination that Peoples has an “audit committee financial expert”
serving on its Audit Committee required by Items 401, 407(c)(3), 407(d)(4) and 407(d)(5) of SEC Regulation S-K will be
included in the sections captioned “PROPOSAL NUMBER 1: ELECTION OF DIRECTORS”, “THE BOARD OF
DIRECTORS AND COMMITTEES OF THE BOARD” and “NOMINATING PROCEDURES” of the definitive Proxy
Statement of Peoples Bancorp Inc. relating to the Annual Meeting of Shareholders to be held April 26, 2012 (“Peoples'
Definitive Proxy Statement”), which sections are incorporated herein by reference. The procedures by which shareholders
of Peoples may recommend nominees to Peoples' Board of Directors have not changed materially from those described in
Peoples' definitive Proxy Statement for the 2011 Annual Meeting of Shareholders held on April 28, 2011.
The information regarding Peoples' executive officers required by Item 401 of SEC Regulation S-K will be included in
the section captioned “EXECUTIVE OFFICERS” of Peoples' Definitive Proxy Statement, which section is incorporated
herein by reference.
The information required by Item 405 of SEC Regulation S-K will be included under the caption “SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” of Peoples' Definitive Proxy Statement, which section is
incorporated herein by reference.
The Board of Directors of Peoples has adopted charters for each of the Audit Committee, the Compensation
Committee and the Governance and Nominating Committee.
In accordance with the requirements of Rule 5610 of The NASDAQ Stock Market LLC Corporate Governance
Requirements, the Board of Directors of Peoples has adopted a Code of Ethics covering the directors, officers and
employees of Peoples and its subsidiaries, including, without limitation, the principal executive officer, the principal
financial officer and the principal accounting officer of Peoples. Peoples intends to disclose the following events, if they
occur, in a Current Report on Form 8-K and on the “Corporate Governance & Ethics” page of Peoples' Internet website at
www.peoplesbancorp.com within four business days following their occurrence:
(A) the date and nature of any amendment to a provision of Peoples' Code of Ethics that
(i) applies to the principal executive officer, principal financial officer, principal accounting officer or
controller of Peoples, or persons performing similar functions,
(ii)
relates to any element of the code of ethics definition set forth in Item 406(b) of SEC
and
(iii)
is not a technical, administrative or other non-substantive amendment; and
(B) a description (including the nature of the waiver, the name of the person to whom the waiver was granted and the
date of the waiver) of any waiver, including an implicit waiver, from a provision of the Code of Ethics granted to
the principal executive officer, principal financial officer, principal accounting officer or controller of Peoples, or
persons performing similar functions, that relates to one or more of the elements of the code of ethics definition
set forth in Item 406(b) of SEC Regulation S-K.
In addition, Peoples will disclose any waivers from the provisions of the Code of Ethics granted to a director or
executive officer of Peoples in a Current Report on Form 8-K within four business days following their occurrence.
Each of the Code of Ethics, the Audit Committee Charter, the Governance and Nominating Committee Charter and the
Compensation Committee Charter is posted on the “Corporate Governance & Ethics” page of Peoples' Internet website.
Interested persons may also obtain copies of the Code of Ethics without charge by writing to Peoples Bancorp Inc.,
Attention: Corporate Secretary, 138 Putnam Street, P.O. Box 738, Marietta, Ohio 45750-0738.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be included in the sections captioned “COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION”, “EXECUTIVE COMPENSATION:
103
Additional information regarding Peoples' stock-based compensation plans can be found in Note 18 of the Notes to the
Consolidated Financial Statements.
Since 1991, Peoples has maintained the Deferred Compensation Plan, which provides a non-employee director of
Peoples the ability to defer all or part of the compensation, and related federal income tax, received for services provided as
a director of Peoples or one of its subsidiaries. Since 1998, directors participating in the Deferred Compensation Plan have
been permitted to allocate their deferrals between a cash account and a stock account. The cash account earns interest
equal to Peoples Bank's three-year certificate of deposit interest rate. The stock account receives allocations to a
bookkeeping account of Peoples' common shares on the first business day of each calendar quarter based upon amounts
deferred during the previous calendar quarter and fair market value of Peoples' common shares and is credited with
subsequent cash dividends on the common shares previously allocated to the account (which will be similarly credited to
the bookkeeping account as Peoples' common shares). The only right a participant in the Deferred Compensation Plan for
Directors has with respect to his or her cash account and/or stock account is to receive distributions upon termination of
service as a director. Distribution of the deferred amounts is made in a lump sum or annual installments. The stock
account is distributed in common shares of Peoples or in cash as elected by each participant and the cash account is
distributed only in cash.
In addition, Peoples maintains the Peoples Bancorp Inc. Retirement Savings Plan, which is intended to meet the
qualification requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item 13 will be included in the sections captioned “TRANSACTIONS WITH
RELATED PERSONS”, “PROPOSAL NUMBER 1: ELECTION OF DIRECTORS”, “THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD” and “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION” of Peoples' Definitive Proxy Statement, which sections are incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 will be included in the section captioned “INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM” of Peoples' Definitive Proxy Statement, which section is incorporated herein by
reference.
105
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
PART IV
The following consolidated financial statements of Peoples Bancorp Inc. and subsidiaries are included in Item 8:
Report of Management's Assessment of Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm (Ernst & Young LLP) on Effectiveness of
Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm (Ernst & Young LLP) on Consolidated
Financial Statements
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Income for each of the three years ended December 31, 2011
Consolidated Statements of Stockholders’ Equity for each of the three years ended December 31, 2011
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2011
Notes to the Consolidated Financial Statements
Peoples Bancorp Inc. (Parent Company Only Financial Information is included in Note 19 of the
Notes to the Consolidated Financial Statements)
Page
59
60
61
62
63
64
65
66
100
(a)(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(a)(3) Exhibits
Exhibits filed with this Annual Report on Form 10-K are included herewith or incorporated herein by
reference. For a list of such exhibits, see “Exhibit Index” beginning at page 108. The Exhibit Index specifically
identifies each management contract or compensatory plan or arrangement required to be filed as an exhibit to this
Form 10-K.
(b) Exhibits
Exhibits filed with this Annual Report on Form 10-K are included herewith or incorporated herein by
reference. For a list of such exhibits, see “Exhibit Index” beginning at page 108.
(c) Financial Statement Schedules
None.
106
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date:
February 28, 2012
PEOPLES BANCORP INC.
By: /s/
CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Title
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
/s/ EDWARD G. SLOANE
Edward G. Sloane
/s/ CARL L. BAKER, JR.*
Carl L. Baker, Jr.
/s/ GEORGE W. BROUGHTON*
George W. Broughton
/s/ RICHARD FERGUSON*
Richard Ferguson
President, Chief Executive Officer and Director
Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial and Accounting Officer)
Director
Director
Chairman of the Board and Director
/s/ JAMES S. HUGGINS*
Director
James S. Huggins
/s/ BRENDA F. JONES, M.D.*
Brenda F. Jones, M.D.
/s/ DAVID L. MEAD*
David L. Mead
/s/ SUSAN D. RECTOR*
Susan D. Rector
Theodore P. Sauber
/s/ PAUL T. THEISEN*
Paul T. Theisen
/s/ THOMAS J. WOLF*
Thomas J. Wolf
Director
Director
Director
Director
Vice Chairman of the Board and Director
Director
Date
2/28/2012
2/28/2012
2/28/2012
2/28/2012
2/28/2012
2/28/2012
2/28/2012
2/28/2012
2/28/2012
2/28/2012
2/28/2012
2/28/2012
*
The above-named directors of the Registrant sign this Annual Report on Form 10-K by Chuck W. Sulerzyski, their
attorney-in-fact, pursuant to Powers of Attorney signed by the above-named directors, which Powers of Attorney
are filed with this Annual Report on Form 10-K as exhibits, in the capacities indicated and on the 28 day of
February, 2012.
By:
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
107
EXHIBIT INDEX
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
Exhibit
Number
3.1(a)
3.1(b)
3.1(c)
3.1(d)
3.1(e)
3.1(f)
Description
Exhibit Location
Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed
with the Ohio Secretary of State on May 3, 1993)
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(a) to
the Registration Statement on Form 8-B of
Peoples Bancorp Inc. (“Peoples”) filed July 20,
1993 (File No. 0-16772)
Incorporated herein by reference to Exhibit 3(a)(2)
to Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (File No.
0-16772) (“Peoples’ 1997 Form 10-K”)
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(a)(3)
to Peoples’ 1997 Form 10-K
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”)
Certificate of Amendment by Shareholders or Members 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)
Certificate of Amendment by Directors or Incorporators 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)
(“Peoples’ February 2, 2009 Form 8-K”)
3.1(g)
Amended Articles of Incorporation of Peoples Bancorp Inc. (reflecting
amendments through January 28, 2009) [For SEC reporting compliance
purposes only – not filed with Ohio Secretary of State]
3.2(a)
Code of Regulations of Peoples Bancorp Inc.
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 3.1(g)
to Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 2008 (File No.
0-16772)
Incorporated herein by reference to Exhibit 3(b) to
Peoples’ Registration Statement on Form 8-B filed
July 20, 1993 (File No. 0-16772)
Incorporated herein by reference to Exhibit 3(c) to
Peoples’ March 31, 2003 Form 10-Q
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)
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)
Certificate regarding adoption of an amendment to Section 2.01 of
Peoples Bancorp Inc.'s Code of Regulations by 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). ("Peoples' June
30, 2010 Form 10-Q/A")
108
3.2(b)
3.2(c)
3.2(d)
3.2(e)
Exhibit
Number
3.2(f)
Description
Exhibit Location
Code of Regulations of Peoples Bancorp Inc. (reflecting
amendments through April 22, 2010) [For SEC reporting
compliance purposes only]
Incorporated herein by reference to Exhibit 3.2(f)
to Peoples' June 30, 2010 Form 10-Q/A
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Agreement to furnish instruments and agreements defining rights of
holders of long-term debt
Filed herewith
Indenture, dated as of April 20, 1999, between Peoples Bancorp Inc.
and Wilmington Trust Company, as Debenture Trustee, relating to
Junior Subordinated Deferrable Interest Debentures
Incorporated herein by reference to Exhibit 4.1 to
the Registration Statement on Form S-4
(Registration No. 333-81251) filed on June 22,
1999 by Peoples Bancorp Inc. and PEBO Capital
Trust I (“Peoples’ 1999 Form S-4”)
Amended and Restated Declaration of Trust of PEBO Capital
Trust I, dated and effective as of April 20, 1999
Incorporated herein by reference to Exhibit 4.5 to
Peoples’ 1999 Form S-4
Series B Capital Securities Guarantee Agreement, dated as of
September 23, 1999, between Peoples Bancorp Inc. and Wilmington
Trust Company, as Guarantee Trustee, relating to Series B 8.62%
Capital Securities
Incorporated herein by reference to Exhibit 4 (i) to
Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 1999. (File No.
0-16772)
Warrant to purchase 313,505 Shares of Common Stock (common
shares) of Peoples Bancorp Inc., issued to the United States
Department of the Treasury on January 30, 2009
Incorporated herein by reference to Exhibit 4.1 to
Peoples’ February 2, 2009 Form 8-K
Letter Agreement, dated January 30, 2009, including Securities
Purchase Agreement – Standard Terms attached thereto as
Exhibit A, between Peoples Bancorp Inc. and the United States
Department of the Treasury [NOTE: Exhibit A to the Securities
Purchase Agreement is not included therewith; filed as Exhibit 3.1
to Peoples’ February 2, 2009 Form 8-K and incorporated by
reference at Exhibit 3.1(f) to this Annual Report on Form 10-K]
Letter Agreement, dated February 2, 2011, between Peoples
Bancorp Inc. and the United States Department of the Treasury
related to the repurchase of 21,000 of the Fixed Rate Cumulative
Perpetual Preferred Stock, Series A issued by Peoples Bancorp Inc.
to the United States Department of the Treasury
Letter Agreement, dated December 28, 2011, between Peoples
Bancorp Inc. and the United States Department of the Treasury
related to the repurchase of 18,000 of the Fixed Rate Cumulative
Perpetual Preferred Stock, Series A issued by Peoples Bancorp Inc.
to the United States Department of the Treasury
Letter Agreement, dated February 15, 2012, between Peoples
Bancorp Inc. and the United States Department of the Treasury
related to the repurchase of Warrant to purchase 313,505 shares of
common stock of Peoples Bancorp Inc. issued to the United States
Department of the Treasury
Incorporated herein by reference to Exhibit 10.1 to
Peoples’ February 2, 2009 Form 8-K
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Current Report on Form 8-K dated and
filed February 4, 2011 (File No. 0-16772)
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Current Report on Form 8-K dated and
filed December 29, 2011 (File No. 0-16772)
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Current Report on Form 8-K dated and
filed February 16, 2012 (File No. 0-16772)
10.1(a)
10.1(b)
Peoples Bancorp Inc. Second Amended and Restated Deferred
Compensation Plan for Directors of Peoples Bancorp Inc. and
Subsidiaries (Amended and Restated Effective December 11, 2008)
*
Rabbi Trust Agreement, made January 6, 1998, between Peoples
Bancorp Inc. and The Peoples Banking and Trust Company
(predecessor to Peoples Bank, National Association) as Trustee*
Incorporated herein by reference to Exhibit 10.1(a)
to Peoples’ 2008 Form 10-K
Incorporated herein by reference to Exhibit 10.1(c)
of Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 (File No.
0-16772) (“Peoples’ 2007 Form 10-K”)
10.2(a)
Peoples Bancorp Inc. Amended and Restated Incentive Award Plan
(Amended and Restated Effective December 11, 2008) [Effective
for the fiscal year ended December 31, 2009]*
Incorporated herein by reference to Exhibit 10.2 of
Peoples’ 2008 Form 10-K
*Management Compensation Plan or Agreement
109
Exhibit
Number
10.2(b)
10.2(c)
10.2(d)
Description
Exhibit Location
Summary of Incentive Plan for Executive Officers and other
employees of Peoples Bancorp Inc. [Effective for the fiscal year
ended December 31, 2010]*
Incorporated herein by reference to Exhibit 10.2
(b) to Peoples' Annual Report of Form 10-K for
the fiscal year ended December 31, 2009 (File No.
0-16772) ("Peoples' 2009 Form 10-K")
Summary of Incentive Plan for Executive Officers and other
employees of Peoples Bancorp Inc. [Effective for the fiscal year
beginning January 1, 2012]*
Filed herewith
Summary of Long Term Incentive Plan for Executive Officers and
other employees of Peoples Bancorp Inc. [Effective for the fiscal
year beginning January 1, 2012]*
Filed herewith
10.3
Peoples Bancorp Inc. 1995 Stock Option Plan.*
Incorporated herein by reference to Exhibit 4 to
Peoples’ Registration Statement on Form S-8 filed
May 24, 1995 (Registration Statement No.
33-59569)
Incorporated herein by reference to Exhibit 10(k)
to Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (File No.
0-16772) (“Peoples’ 1995 Form 10-K”)
Form of Stock Option Agreement used in connection with grant of
non-qualified stock options to non-employee directors of Peoples
under Peoples Bancorp Inc. 1995 Stock Option Plan.*
10.4
10.5
10.6
10.12
10.13
Form of Stock Option Agreement used in connection with grant of
non-qualified stock options to non-employee directors of Peoples’
subsidiaries under Peoples Bancorp Inc. 1995 Stock Option Plan.*
Incorporated herein by reference to Exhibit 10(l)
to Peoples’ 1995 Form 10-K
Form of Stock Option Agreement used in connection with grant of
incentive stock options under Peoples Bancorp Inc. 1995 Stock
Option Plan.*
10.7
Peoples Bancorp Inc. 1998 Stock Option Plan.*
Incorporated herein by reference to Exhibit 10(m)
to Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 (File No.
0-16772) (“Peoples’ 1998 Form 10-K”)
Incorporated herein by reference to Exhibit 10 to
Peoples’ Registration Statement on Form S-8 filed
September 4, 1998 (Registration Statement No.
333-62935)
10.8
10.9
10.10
Form of Stock Option Agreement used in connection with grant of
non-qualified stock options to non-employee directors of Peoples
under Peoples Bancorp Inc. 1998 Stock Option Plan.*
Incorporated herein by reference to Exhibit 10(o)
to Peoples’ 1998 Form 10-K
Form of Stock Option Agreement used in connection with grant of
non-qualified stock options to consultants/advisors of Peoples under
Peoples Bancorp Inc. 1998 Stock Option Plan.*
Incorporated herein by reference to Exhibit 10(p)
to Peoples’ 1998 Form 10-K
Form of Stock Option Agreement used in connection with grant of
incentive stock options under Peoples Bancorp Inc. 1998 Stock
Option Plan.*
Incorporated herein by reference to Exhibit 10(o)
to Peoples’ 1999 Form 10-K
10.11
Peoples Bancorp Inc. 2002 Stock Option Plan.*
Incorporated herein by reference to Exhibit 10 to
Peoples’ Registration Statement on Form S-8 filed
April 15, 2002 (Registration Statement No.
333-86246)
Incorporated herein by reference to Exhibit 10(r)
to Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 2002 (File No.
0-16772) (“Peoples’ 2002 Form 10-K”)
Form of Stock Option Agreement used in connection with grant of
non-qualified stock options to non-employee directors of Peoples
under Peoples Bancorp Inc. 2002 Stock Option Plan.*
Form of Stock Option Agreement used in connection with grant of
non-qualified stock options to directors of Peoples’ subsidiaries
under Peoples Bancorp Inc. 2002 Stock Option Plan.*
Incorporated herein by reference to Exhibit 10(s)
to Peoples’ 2002 Form 10-K
*Management Compensation Plan or Agreement
110
Exhibit
Number
10.14
10.15
10.16
10.17
10.18
Description
Exhibit Location
Form of Stock Option Agreement used in connection with grant of
non-qualified stock options to employees of Peoples under Peoples
Bancorp Inc. 2002 Stock Option Plan.*
Incorporated herein by reference to Exhibit 10(t)
to Peoples’ 2002 Form 10-K
Form of Stock Option Agreement used in connection with grant of
incentive stock options under Peoples Bancorp Inc. 2002 Stock
Option Plan.*
Incorporated herein by reference to Exhibit 10(u)
to Peoples’ 2002 Form 10-K
Amended and Restated Change in Control Agreement, between
Peoples Bancorp Inc. and Carol A. Schneeberger (amended and
restated effective December 11, 2008)*
Incorporated herein by reference to Exhibit 10.21
to Peoples’ 2008 Form 10-K
Summary of Perquisites for Executive Officers of Peoples Bancorp
Inc.*
Incorporated herein by reference to Exhibit 10.20
to Peoples' 2009 Form 10-K
Summary of Base Salaries for Executive Officers of Peoples
Bancorp Inc.*
Filed herewith
10.19
Summary of Compensation for Directors of Peoples Bancorp Inc.
Filed herewith
10.20
Peoples Bancorp Inc. Amended and Restated 2006 Equity Plan*
Incorporated herein by reference to Exhibit 10.28
to Peoples’ 2008 Form 10-K
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Form of Peoples Bancorp Inc. 2006 Equity Plan Nonqualified Stock
Option Agreement used and to be used to evidence grant of
nonqualified stock option to non-employee directors of Peoples
Bancorp Inc.*
Incorporated herein by reference to Exhibit 10(c)
of Peoples’ Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2006 (File No.
0-16772)
Form of Peoples Bancorp Inc. 2006 Equity Plan Restricted Stock
Agreement for employees used and to be used to evidence awards
of restricted stock granted to employees of Peoples Bancorp Inc.*
Incorporated herein by reference to Exhibit 10.29
of Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 2006 (File No.
0-16722) (“Peoples’ 2006 Form 10-K”)
Form of Peoples Bancorp Inc. 2006 Equity Plan Restricted Stock
Agreement for non-employee directors used and to be used to
evidence awards of restricted stock granted to directors of Peoples
Bancorp Inc.*
Incorporated herein by reference to Exhibit 10.30
of Peoples’ 2006 Form 10-K
Form of Peoples Bancorp Inc. 2006 Equity Plan SAR Agreement
for employees used and to be used to evidence awards of stock
appreciation rights granted to employees of Peoples Bancorp Inc.
Incorporated herein by reference to Exhibit 10.31
of Peoples’ 2006 Form 10-K
Letter Agreement, dated July 22, 2009, between Peoples Bancorp
Inc. and Edward G. Sloane [NOTE: Expired by its terms on
December 28, 2011].*
Incorporated herein by reference to Exhibit 10.2 to
Peoples’ June 30, 2009 Form 10-Q
Letter Agreement, dated July 22, 2009, between Peoples Bancorp
Inc. and Carol A. Schneeberger [NOTE: Expired by its terms on
December 28, 2011].*
Incorporated herein by reference to Exhibit 10.4 to
Peoples’ June 30, 2009 Form 10-Q
Amended and Restated Change in Control Agreement between
Peoples Bancorp Inc. and Edward G. Sloane (amended and restated
effective December 11, 2008)*
Incorporated herein by reference to Exhibit 10.34
to Peoples’ 2008 Form 10-K
10.28
Change in Control Agreement between Peoples Bancorp Inc. and
Daniel K. McGill (adopted September 14, 2009)*
Incorporated herein by reference to Exhibit 10.1 to
Peoples’ Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2009 (File
No. 0-16722)
10.29
Change in Control Agreement between Peoples Bancorp Inc. and
Richard W. Stafford (adopted February 8, 2010)*
Incorporated herein by reference to Exhibit 10.32
to Peoples' 2009 Form 10-K
*Management Compensation Plan or Agreement
111
Exhibit
Number
10.30
10.31
10.32
Description
Exhibit Location
Letter Agreement, dated January 18, 2011, between Peoples
Bancorp Inc. and Daniel K. McGill [NOTE: Expired by its terms on
December 28, 2011].*
Incorporated herein by reference to Exhibit 10.30
to Peoples' Annual Report of Form 10-K for the
fiscal year ended December 31, 2010 (File No.
0-16722) ("Peoples' 2010 Form 10-K).
Letter Agreement, dated January 18, 2011, between Peoples
Bancorp Inc. and Richard W. Stafford [NOTE: Expired by its terms
on December 28, 2011].*
Incorporated herein by reference to Exhibit 10.31
to Peoples' 2010 Form 10-K
Letter Agreement, dated January 18, 2011, between Peoples
Bancorp Inc. and David L. Mead [NOTE: Expired by its terms on
December 28, 2011].*
Incorporated herein by reference to Exhibit 10.32
to Peoples' 2010 Form 10-K
10.33
Change in Control Agreement between Peoples Bancorp Inc. and
Michael W. Hager (adopted January 27, 2011).*
Incorporated herein by reference to Exhibit 10.33
to Peoples' 2010 Form 10-K
10.34
Peoples Bancorp Inc. 2011 Management Transition Bonus Plan.*
10.35
Form of Award Agreement to evidence participation in the Peoples
Bancorp Inc. 2011 Management Transition Bonus Plan by each of
Michael W. Hager, Daniel K. McGill, Carol A. Schneeberger,
Richard W. Stafford and Edward G. Sloane.*
10.36
Change in Control Agreement between Peoples Bancorp Inc. and
Timothy H. Kirtley (adopted August 29, 2011).*
10.37
Letter Agreement, dated February 23, 2011, between Peoples
Bancorp Inc. and Michael W. Hager.*
10.38
Form of Peoples Bancorp Inc. 2006 Equity Plan Performance-Based
Restricted Stock Agreement for employees used and to be used to
evidence awards of performance-based restricted stock granted to
employees of Peoples Bancorp Inc. *
10.39
Change in Control Agreement between Peoples Bancorp Inc. and
Charles W. Sulerzyski (adopted April 4, 2011).*
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Current Report on Form 8-K dated and
filed February 2, 2011 (File No. 0-16722)
("Peoples' February 2, 2011 Form 8-K")
Incorporated herein by reference to Exhibit 10.2 to
Peoples' February 2, 2011 Form 8-K
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2011 (File
No. 0-16772)
Incorporated herein by reference to Exhibit 10.5 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2011 (File No.
0-16772) ("Peoples' March 31, 2011 Form 10-Q")
Incorporated herein by reference to Exhibit 10.8 to
Peoples' March 31, 2011 Form 10-Q
Incorporated herein by reference to Exhibit 10.2 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2011 (File No.
0-16772) ("Peoples' June 30, 2011 Form 10-Q")
Incorporated herein by reference to Exhibit 10.3 to
Peoples' June 30, 2011 Form 10-Q
10.40
10.41
10.42
10.43
Letter Agreement, dated April 4, 2011, between Peoples Bancorp
Inc. and Charles W. Sulerzyski [NOTE: Expired by its terms on
December 28, 2011].*
Form of Peoples Bancorp Inc. 2006 Equity Plan Performance-Based
Restricted Stock Agreement for executives used and to be used to
evidence awards of performance-based restricted stock granted to
executives of Peoples Bancorp Inc. *
Filed herewith
Form of Peoples Bancorp Inc. 2006 Equity Plan Performance-Based
Restricted Stock Agreement for employees used and to be used to
evidence awards of performance-based restricted stock granted to
employees of Peoples Bancorp Inc. *
Filed herewith
Form of Peoples Bancorp Inc. 2006 Equity Plan Time-Based
Restricted Stock Agreement for executives used and to be used to
evidence awards of performance-based restricted stock granted to
executives of Peoples Bancorp Inc. *
Filed herewith
*Management Compensation Plan or Agreement
112
Exhibit
Number
10.44
12
21
23
24
31.1
31.2
32
99.1
99.2
Description
Exhibit Location
Form of Peoples Bancorp Inc. 2006 Equity Plan Time-Based
Restricted Stock Agreement for employees used and to be used to
evidence awards of performance-based restricted stock granted to
employees of Peoples Bancorp Inc. *
Statements regarding Computation of Consolidated Ratios of
Earnings to Combined Fixed Charges and Preferred Stock
Dividends Appearing in this Annual Report on Form 10-K
Subsidiaries of Peoples Bancorp Inc.
Consent of Independent Registered Public Accounting Firm - Ernst
& Young LLP.
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Powers of Attorney of Directors and Executive Officers of Peoples
Bancorp Inc.
Filed herewith
Rule 13a-14(a)/15d-14(a) Certifications [President and Chief
Executive Officer]
Filed herewith
Rule 13a-14(a)/15d-14(a) Certifications [Executive Vice President,
Chief Financial Officer and Treasurer]
Filed herewith
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of
the United States Code [President and Chief Executive Officer; and
Executive Vice President, Chief Financial Officer and Treasurer].
Furnished herewith
Certification Pursuant to Section 111(B)(4)
of the Emergency Economic Stabilization
Act of 2008 and 31 CFR § 30.15[President and Chief Executive
Officer]
Certification Pursuant to Section 111(B)(4)
of the Emergency Economic Stabilization
Act of 2008 and 31 CFR § 30.15 [Executive Vice President, Chief
Financial Officer and Treasurer]
Filed herewith
Filed 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 #
*Management Compensation Plan or Agreement
# Attached as Exhibit 101 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2011 of Peoples Bancorp Inc. are
the following documents formatted in XBRL (eXtensive Business Reporting Language): (i) Consolidated Balance Sheets (unaudited) at
December 31, 2011 and December 31, 2010; (ii) Consolidated Statements of Income (unaudited) for the years ended December 31,
2011, 2010 and 2009; (iii) Consolidated Statement of Stockholders' Equity (unaudited) for the years ended December 31, 2011, 2010
and 2009; (ix) Consolidated Statements of Cash Flows (unaudited) for the years ended December 31, 2011, 2010 and 2009; and (v)
Notes to the Consolidated Financial Statements.
In accordance with Rule 406T of SEC Regulation S-T, the XBRL related documents in Exhibit 101 to this Annual Report on Form 10-
K for the fiscal year ended December 31, 2011 are deemed not filed or part of a registration statement or prospectus for purposes of
Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, and otherwise are not subject to liability under these Sections.
113
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