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ANNUAL
REPORT
Building Something Different
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800.374.6123
peoplesbancorp.com
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138 Putnam Street | PO Box 738 | Marietta, OH 45750
our Brand Promise
We will work side by side to overcome challenges and seize
opportunities. We listen and work with you. Together
we will build and execute thoughtful plans and actions,
blending our experience and expertise, to move you
toward your goals. Our core difference is providing you
peace of mind, confidence, and clarity in your financial life.
our new logo
As we worked throughout 2012 to build something different at Peoples
Bank, we introduced a new logo designed to visually convey our new
brand promise.
Our name, Peoples Bank, offers a reflective connection to our rich history
and our core strength, our people.
The icon is referred to as “Peoples In Motion” and represents teamwork,
strength, energy and a connection to a modern, responsive organization.
The tagline — “Working Together. Building Success.” — represents
standing side by side with our customers to meet their individual needs
and applying our strengths in problem solving and financial expertise to
help them succeed.
Working Together.
Building Success.
our Mission
our core values
Our mission is to be the primary financial resource
Peoples’ Core Values represent how we do business and
for our target clients. We grow these relationships by
our never-ending pursuit of creating value for our clients.
delivering trusted advice, extraordinary personal service
Our strategies to serve clients and enhance shareholder
and a seamless, integrated suite of services that meets
value often change, but our Core Values remain constant.
• Clients as a Focus
• Business With Integrity
• Trust Among Clients, Communities and Associates
• Commitment to Communities
• Continuous Will to Win
• Development of Associate Skills
all their needs. Our target clients are businesses and
consumers who value us as true financial partners.
Our success depends on empowering our skilled and
dedicated personnel to meet and exceed our clients’
needs. We win by serving clients, supporting those
who serve clients and delivering a competitive return
to our shareholders.
We are a team and we are good teammates. We take
care of our customers and we take care of each other.
our vision
Our vision is to be the leading financial services provider
to the clients and markets we serve.
Building Something Different
The Peoples Bank Difference
Celebrating 110 years | 1902-2012
Building Something Different
At Peoples, we’re steadfast in delivering on our promise
We work to build something different with every
of working with our customers to help build success. We
customer and with each transaction. We know the first
believe we can do that because we work every day to build
product or service every client seeks is the first building
a financial services organization that’s different. How are
block of a longer, stronger and deeper relationship. We’re
we building something different? We started with a solid
large enough to offer the financial products and services
foundation: our 110-year history of success.
that the large banks offer and knowledgeable enough to
We’re delivering an
extraordinary client
experience, developing a
superior workforce, and
maintaining responsible
risk management, all
resulting in profitable
revenue growth.
Each Building Block is Important
In this economy, and this region, a local financial
services institution can make a difference.
structure solid financial solutions. Yet, we still work to
know each customer’s definition of success. That’s the
Peoples difference.
Building for the Future
Any way you look at it, Peoples is building something
different. We’re providing state-of-the-art technology to
make access easier for all customers. Acquisitions in 2012
have increased our presence to additional communities
and additional customers. Through 2014, we will be
refreshing our offices, and we have already begun making
additions to our professional staff to complement our
abilities — all to enhance the customer experience.
By building thoughtfully on our foundation, ever mindful
of our customer-centric focus, Peoples worked to build
something different throughout 2012 — and we’ll continue
to do just that today, tomorrow, and well into the future.
The Peoples Bank Difference
1
Working Together.
Building Success.
Financial Highlights
Peoples Bancorp Inc. is a $1.9 billion financial holding
dedicated Peoples Bank associates deliver consumer
company headquartered in Marietta, Ohio. Peoples
and commercial banking, mortgage lending, personal
Bank, the company’s principal operating subsidiary,
lending, investment management, trust and brokerage
provides a comprehensive suite of financial services
services, together with a full range of life, health and
through 47 offices in Ohio, West Virginia and Kentucky,
property and casualty insurance products. Peoples
as well as through telephone and Internet banking
Bancorp’s common shares are traded on the NASDAQ
channels, plus a network of 44 ATMs. Over 500
Global Select Market under the symbol PEBO.
Dollars in Thousands, except Per Share Data
2012
2011
2010
2012
2011
Year-Over-Year Change
Earnings and Dividends
Total revenues(1)
Total operating expenses
Net income available to common shareholders
Dividends declared on common shares(2)
Per Share Data
Earnings per common share – Basic
Earnings per common share – Diluted
Cash dividends paid on common shares(2)
Book value at end of period
Tangible book value at end of period(3)
Closing stock price
At Year End
Total assets
Total investment securities
Gross loans
Total deposits
Common stockholders’ equity
Trust and brokerage assets under management
Financial Ratios
Return on average assets
Return on average common stockholders’ equity
Net interest margin
Efficiency ratio(4)
Total risk-based capital ratio
Tangible common equity to tangible assets(3)
Nonperforming assets to total assets
$
$
$
$
$
$
$
$
$
$
89,446
63,474
20,385
4,931
1.92
1.92
0.46
21.02
14.52
20.43
$ 86,923
$ 61,331
$ 11,212
4,349
$
$
$
$
$
$
$
1.07
1.07
0.41
19.67
13.53
14.81
$
$
$
$
$
$
$
$
$
$
91,536
57,042
3,529
4,211
0.34
0.34
0.40
18.36
12.16
15.65
$ 1,918,050
$ 709,085
$ 985,172
$ 1,492,303
$ 221,728
$ 1,292,454
$ 1,794,161
$ 669,228
$ 938,506
$ 1,351,080
$ 206,657
$ 1,083,855
$ 1,837,985
$ 641,307
$ 960,718
$ 1,361,600
$ 192,036
$ 1,093,166
1.11%
9.52%
3.39%
69.55%
15.43%
8.28%
0.76%
0.69%
5.61%
3.43%
68.98%
16.20%
8.22%
1.80%
0.28%
1.76%
3.51%
60.30%
18.24%
7.17%
2.45%
2.9%
3.5%
81.8%
13.4%
79.4%
79.4%
12.2%
6.9%
7.3%
37.9%
6.9%
6.0%
5.0%
10.5%
7.3%
19.2%
-5.0%
7.5%
217.7%
3.3%
214.7%
214.7%
2.5%
7.1%
11.3%
-5.4%
-2.4%
4.4%
-2.3%
-0.8%
7.6%
-0.9%
(1) Net interest income and non-interest income excluding gains/losses.
(2) Reflects amounts declared with respect to the earnings for the period indicated. Since Q2 2011, quarterly dividends are
considered and declared during the first month following quarter-end.
(3) Excludes balance sheet impact of intangible assets acquired through acquisitions on both stockholders’ equity and total assets.
(4) Non-interest expense (less intangible amortization) as a percentage of fully tax-equivalent net interest income plus non-interest income.
2
Year-Over-Year Change
A Message from
the President and CEO
Fellow Shareholders,
We are truly building something different at Peoples Bancorp!
The year 2012 will be remembered for our major progress made
toward transitioning from being a good bank to a high-performing
bank. Key successes included stronger earnings, continued
restoration of asset quality and increased shareholder value.
The improved operating performance in 2012 was a significant
accomplishment. However, we’re even more excited to report to
you the strategic investments we’re making for future growth.
In the pages to come, you’ll discover how we’re positively
positioning this company and working to build something
different. From expanding our company to refreshing Peoples
Bank’s image with a new brand, we’re committed to generating
long-term benefits for our customers, our shareholders and the
communities we serve.
2012 Results
In 2012, earnings per common share grew 79% to $1.92, compared
to $1.07 earned in 2011. The higher earnings drove an increase in
return on common equity to 9.52%, from 5.61% a year ago. We
made considerable progress toward restoring asset quality in 2012.
Nonperforming assets decreased 54% in 2012. Net charge-offs
were 0.12% of average loans, which is much lower than our long-
term historical level. We also improved our balance sheet through
active management and changes to our loan mix.
2012
2011
2010
2012
2011
2010
$1.92
$1.07
$0.34
EARNINGS PER COMMON SHARE
$20.43
$14.81
$15.65
CLOSING STOCK PRICE
Additionally in 2012, the Board of Directors increased the cash
dividends to common shareholders by 12% to $0.46 per common
share. The higher dividend and stronger earnings led to a 41%
improvement in the value of our shareholders’ investment. In
contrast, the aggregate return for all NASDAQ-listed banks was
19%, while the S&P 500 index increased 16%. We are pleased to
have outperformed both our peers and the market.
Chuck Sulerzyski, President and CEO
Marketplace Challenges and Opportunities
In 2012, the banking industry continued to face several challenges.
Interest rates remained at historically low levels. Economic
conditions were dominated by high unemployment, sluggish growth
and a depressed housing market. The pace of regulatory change
remained rapid as regulators continued to implement various
aspects of the Dodd-Frank Act of 2010. Despite these challenges,
we’re proud to say Peoples Bancorp had a very good year.
On a local level, oil and natural gas exploration within the
Marcellus and Utica shale formations will continue to cause
increased economic activity within our markets. Many rural
customers are gaining considerable wealth from the mineral rights
on their land. Hotels, restaurants and other local businesses
also are benefiting from the influx of workers. While positive,
these conditions create unique challenges and opportunities for
both individuals and businesses. Along these lines, we’ve hosted
several educational seminars within our markets designed to
help customers and potential customers maximize their financial
opportunities. We also added energy industry expertise within
our commercial lending and insurance businesses. Our goal is to
partner with clients and help them achieve their financial goals.
Internal Focus on Quality
Our success in 2012 was driven in part by a company-wide focus
on the levers of success we introduced to you last year: revenue
growth, expense management, asset quality and capital strength.
We made considerable positive progress in each of these areas.
This achievement was the result of the hard work and dedication
of each employee. Our culture is built around disciplined
execution, responsible risk management, extraordinary client
experience, and a superior workforce.
Success within the banking industry also requires an enterprise-
wide commitment to sound risk management. We’re proud to
have strong processes ingrained into our daily decision-making.
From routine transactions to the execution of major initiatives,
we are committed to sound business practices. Taking risks is
unavoidable for any business. However, we seek to ensure that
the rewards are appropriate for the risks we choose to accept.
3
Improving Performance
A major goal for us in 2012 was to generate positive operating
leverage; simply put, we work to grow revenue faster than expenses.
We accomplished this goal, ending a three-year negative trend.
Top-line revenue increased 3%, driven mostly by our strong
fee-based businesses. Operating expenses also were generally
contained as we placed greater emphasis on reducing costs.
2012
2011
2010
1.11%
0.69%
0.28%
RETURN ON ASSETS
In 2012, our fee-based revenues grew 6% and comprised nearly
40% of our total revenue. Our mortgage banking business had a
very busy year due to the very low interest rates. As a result, the
number of new loan originations nearly doubled as customers
sought to refinance their home mortgages. We also achieved
double-digit increases in our wealth management and electronic
banking revenues. In addition, our insurance business associates
grew revenue 6% by providing superior service and being
successful with new client acquisitions.
Total operating expenses for 2012 were slightly higher than the
prior year. Half of the increase was the result of costs associated
with the transition to our new brand and acquisition activity.
We also incurred additional sales and incentive compensation
expenses due to our stronger operating performance. Outside
these costs, overall operating efficiency improved in 2012 due to
disciplined expense management.
Also in 2012, we made considerable progress toward restoring asset
quality. As noted earlier, we reduced the level of problem loans. In
addition, we aggressively pursued recoveries of losses from the last
five years. Both of these factors led to a sizable reduction in our
allowance for loan losses, benefiting our 2012 earnings.
Growing the Company
Our 2012 growth strategy centered on us being more aggressive
with prudent acquisitions. We also worked to maintain our
existing revenue diversity by seeking opportunities in each of
our three business lines: banking, wealth management and
insurance. We are pleased to report success in each area.
On the banking side, we completed our first acquisition since
2006 by acquiring Sistersville Bancorp in September. This
transaction added $50 million to our total assets and should
improve future annual earnings by 7 to 9 cents. Within our
wealth management business, we acquired two service providers
and their accounts in the middle of 2012, which allowed us to fill
in service gaps within our footprint. Lastly, we expanded our
insurance business at the end of the year with the purchase of an
office and related commercial accounts in Pikeville, Kentucky. This
addition complements our existing offices in eastern Kentucky.
We also expanded our physical presence with the opening of a
new banking office in Vienna, West Virginia, in mid-December.
This office will help us better serve the customers in the region
with its vast capabilities.
Another key success was modest loan growth in 2012 – the first
annual increase since 2006. At the same time, we created more
diversity within the loan portfolio. Our focus on increasing
consumer lending led to modest growth in non-mortgage loans,
with balances topping $100 million during 2012. Within our
commercial loans, we grew non-mortgage balances 28% while
reducing our exposure to commercial mortgages by 8%.
Our Culture
We consider Peoples Bancorp to be a unique community bank.
Our revenue is more diversified than most banks our size and
our product breadth, capability and expertise is comparable to
large, national banks. Still, we maintain the customer-centric
focus traditionally found in a community bank. Our sales team is
focused on providing exceptional service and advice to our clients.
We strive to make a positive difference in our local communities.
Another key aspect of our culture is providing a quality work place
for our colleagues. This requires a commitment to coaching and
professional development. Accountability is paramount to being
a successful company. Our core philosophy is to establish clearly
defined goals and performance metrics, supply necessary training,
offer frequent coaching and reward success.
Along these lines, we instituted a practice of providing frequent
feedback to every employee, including written quarterly coaching
reviews. We also believe learning is an ongoing process rather
than a one-time event. Thus, we continue to build upon prior
initiatives, such as the sales development program deployed
in 2011. Our goal is to instill within our organization a sense of
continuous improvement and a constant desire to be better.
Our Brand
One of our key strengths continues to be our local market teams
— teams that include professionals from each business line.
These teams allow us to compete head to head with the national
banks operating in our market areas. These teams also make
significant contributions to the local communities through their
service to various organizations and community activities.
As previewed in the 2011 report, we rolled out a new brand
and refreshed look during 2012. This transformation has
re-energized our customers and employees. In addition, our
2011 promise of “Working Together. Building Success.” for our
clients, communities and shareholders has become embedded
within our company. This unified presence is helping us to gain a
greater share of our customers’ business.
A cornerstone of our new brand is the approach we take with
each customer relationship. All of us share many similar
life events. Whether welcoming a newborn, changing jobs,
or planning for the future, we know each situation is unique
4
A major focus for 2013 will be to build upon the successes of 2012.
Recent acquisitions should provide us with additional revenue
opportunities. While ongoing investments will cause our expenses
to be higher in 2013, we will remain disciplined to ensure revenue
grows faster than expenses each year. We anticipate meaningful
loan growth in 2013, due in part to our expanding consumer
lending capabilities. Our goal of returning all credit metrics to
their pre-2008 levels could be achieved in 2013.
Peoples Bancorp is positioned for meaningful growth with strong
capital levels and nearly restored asset quality. Our robust and
expansive infrastructure has the capacity to handle much larger
transaction volumes than we handle today. The entire company
is poised to execute our strategies with precision. I am confident
we will be successful.
Final Thoughts
I close this letter with two personal notes.
First, on behalf of the entire Board of Directors, it’s my privilege
to thank and congratulate Paul Theisen on his retirement from
the Board of Directors of both Peoples Bancorp and Peoples
Bank in late July 2012. Paul provided more than 34 years
of service and leadership to our company. Most recently, he
served as Vice Chairman of the Board for Peoples Bancorp and
Chairman of the Board of Peoples Bank. We are thankful for his
dedication and wish him all the best in his retirement.
I also want to take the opportunity to introduce the two newest
members of the Board of Directors for both Peoples Bancorp
and Peoples Bank: Jim Huggins and Tara Abraham. Jim became
a Director in February 2012, while Tara joined us in May. Jim
brings a great deal of expertise as an experienced attorney,
along with extensive knowledge of the Marietta and Parkersburg
markets. Tara is both an accomplished entrepreneur and
a dedicated supporter of and advocate for women-owned
businesses. We are indeed fortunate to have both of these
talented individuals serving on the Board.
We look forward to continuing to serve those of you who are our
clients and rewarding those of you who are our shareholders.
All the best,
Chuck Sulerzyski, President and CEO
for each customer. During these life-changing events, our
customers need a trusted financial advisor who will work side by
side to overcome challenges and seize opportunities. Our team
of financial professionals has the knowledge, tools and desire to
help our clients achieve their goals. This commitment is our
core difference and the strength of the Peoples Bank brand
and its associates.
Strategic Investments
In 2012, we continued to make significant investments in our
electronic delivery channels. Our capabilities have grown to
include online account opening and mobile deposit capabilities
for consumers. We also revamped our website and expanded
our social media presence. Already in 2013, we’ve improved our
mobile banking services even further with the addition of bill-pay
capabilities. As a result, our electronic delivery channels are as
good as, if not better than, any bank within our markets.
In contrast, significant work is needed within our branch network
to bring each office up to our best-in-class standard. In 2013,
we’ll launch an 18-month, $5 million office makeover project.
This project will involve floor-to-ceiling renovations intended
to bring a consistent look to all of our offices and improve
the use of existing office space. The project will also create a
more engaging and attractive environment for our clients and
employees. We’re excited by this long-term investment. At
the end of this project, every aspect of our company will have
undergone a transformation to our new brand.
Another area of ongoing investment is our consumer lending
activities. In early 2012, we bolstered this area by adding an
experienced consumer lender to our management team. Since
that time, we’ve been working diligently to improve our processes
and develop the structure to support further expansion. In 2013,
we’ll be adding sales positions within the indirect consumer
lending area to generate greater lending activity.
We continue to make significant investments in our local
communities. In 2012, we contributed $400,000 to the Peoples
Bancorp Foundation that provides support to organizations
within our markets. Our employees also contributed their time
and helped direct our charitable giving. Our commitment to the
communities we serve remains an ongoing endeavor.
Outlook for 2013
As we start 2013, we expect some conditions to remain difficult.
The Federal Reserve is committed to keeping interest rates
at current low levels. Additionally, we do not anticipate any
slowdown in new regulatory requirements.
That said, we do see some encouraging signs. Economic
conditions within our market areas generally are better than in
other parts of the country. The unemployment rate in Ohio and
West Virginia continues to be lower than the national average.
We also have opportunities from the wealth and activity being
generated from the shale drilling within our footprint.
5
Our Brand Is Our Promise...
At Peoples Bank, one guiding principle has always been
Our brand is a very tangible piece of our business. The
true: we are hard-working people ready to help our customers
“feeling” of working together comes when our associates
build success. We are part of our customers’ families and a
take the time to get to know each customer and their
part of the communities we serve. We are a partner in their
financial situation. Building success is when our team of
financial success.
financial experts works to craft a personalized roadmap for
creating success along the way. It’s well beyond banking and
In each community we serve, and with every business and
more about relationships.
family we call customer, we want everyone to feel the support
of Peoples Bank working to help build success with their
personal or business finances.
This means we want each customer to feel confident in the
relationship they have with their banker and want to provide
each with the financial advice and insight that will help turn
dreams into realities.
It means confidence
in the ability to stay
where they are;
Peoples Bank is
committed to being
the trusted financial
partner for life.
As we look to the future,
our promise is to bring new
products and services that
improve each customer’s
quality of life and allow
them to grow and succeed.
This will always be backed by our commitment to focus on
our relationship with each customer so they feel heard,
understood and supported.
Working Together.
6
Building Success.
Cambridge Photo Place holder
Our Brand Is Our Promise...
Working Together.
Our Brand in Action
Building Stronger Communities
Our brand promise extends into the communities of which we are a part.
We’re committed to reaching out and playing a role in the growth of each
town and community. Whether through banking services, the volunteer
hours of our employees or working with local businesses to meet their
needs, we consider each community our home. It’s with great pride that our
associates live, work and contribute in ways that allow the entire community
to step toward the future.
Building Bigger Moments
Life is about special moments and Peoples Bank is here is help build those
moments into bigger memories. Buying the engagement ring and waiting
with anticipation for the perfect moment are what make life special. Getting
married, having your first child and buying a bigger home for your family are
all moments in which we work with you to build success.
Our Brand Brought to Life
Starting in 2013, we will launch a branch remodel process that will renew our
entire branch network. Our brand will be brought to life in each branch and
will be a physical representation of what we live every day. New customer
areas and easier navigation within our branches will be among the many
improvements. Working together will also be about bringing our complete
line of business capability to each location: consumer and business banking,
insurance, trust and investment services and more.
Building Success.
Cambridge Photo Place holder
7
It’s our commitment
to the community that
shows that “Working
Together,” we can build
success where it is
needed most.
Camp ECHO swimmers, Sarah Archer and Angie Ramsey
8
Sometimes, Working Together
Means Playing Together
At work, Steve Vincent is known as a solutions-oriented
in wheelchairs to equalize each team’s abilities. This
IT professional. Within the community, he’s known as a
powerful association between Peoples and Camp ECHO
leader, advocate and board member for the Wood County
raises funds and awareness for the camp — and for
Society — and the motivating force behind the Peoples
individuals with physical limitations.
Bank vs. CAWV Wheelchair Basketball Game.
How important is Steve’s leadership in Camp ECHO’s
Steve started with a one-year commitment for the
success? Ask Jane Stephens, executive director of the
Marietta version of March Madness. Now, more than a
decade later, he continues to lead Peoples Bank associates
in a fundraising event that has enabled Camp ECHO to
Wood County Society, the agency running Camp ECHO.
She said, “If not for Peoples Bank, the camp could not
possibly operate as it does today. Peoples Bank associates
increase the number of campers served each year.
have jumped right in, working to provide funds, fun and
leadership. Peoples Bank is a true example of people
coming together to make things happen.”
Camp ECHO provides unique opportunities for individuals
with cognitive and physical challenges to participate in
camp activities. The Wheelchair Basketball Game, held
in the Wood County Market, is an annual event pitting
the CAWV (Challenged Athletes of West Virginia), an
organization with players from the Marietta Memorial
Hospital Rehabilitation Center patient roster, against
Peoples Bank employees who have agreed to play, sitting
Camp ECHO
9
“Peoples Bank stepped
up and came to our help and,
quite honestly, our rescue.”
The Quinn Family, Peoples Bank Customers
10
Quinn Family
Defining Success
At Peoples, we understand the many definitions of
The true strength of the relationship, however, was
success. Peoples is successful when we deliver strong
demonstrated when Cathy suffered a brain aneurism
earnings to shareholders. We believe we’re able to
that severely diminished her capacity to function. The
do that because we deliver on our brand promise of
Quinns were stunned by the level of support provided by
“Working Together. Building Success.”
the Zanesville associates. Concerned for the Quinns, the
Every customer has a
personal definition of
success. We work to learn
that definition and then
work to make it a reality.
Sometimes, Building Success Means
Rebuilding Lives
As established customers, Todd and Cathy Quinn knew
Peoples Bank was a solid financial institution. They chose
to establish both personal and business accounts with
Peoples and were satisfied with the relationship.
Peoples team stepped in and helped manage all financial
paperwork. Beyond finances, the Peoples family visited,
encouraged, and eased the pain of the Quinn family in
crisis. Together, the Peoples family worked with the
Quinns to build their new definition of success — focusing
on rebuilding Cathy’s health and their lives.
According to Todd, “I was struggling just to keep up with
the care for my wife. Peoples helped get our finances
in order so that I could focus on her. Our friends are
in disbelief when I tell them what the Peoples Bank
associates did for us. I would be, too, if I hadn’t been
touched so deeply by their care, consideration, service
and unending support.”
Quinn Family
11
Peoples Knows the Energy Market
We grew up together
History Matters
In 1902, a group of oilmen needed loans for expansion.
We know the financial sector and we’ve lived the energy
markets for 110 years. We know the history, the products,
Back then, oil was risky business and loans were
the services and our region. Most importantly, we know
difficult to come by. Because they couldn’t come up
how to communicate with all facets of the energy market.
with necessary loans with established banks, this group
The relationship between the banking and energy sectors
created their own bank — The Peoples Banking and Trust
is not as complex for us as it might be for others. We’re
Company. That action was the start of a relationship
continuing a successful relationship, not starting one.
between Peoples and the energy market that’s lasted for
well over a century.
Oil, gas and coal are more important today than ever
before as America seeks energy independence. Our
region is rich in energy resources. This abundance
creates opportunities throughout our market, and
Peoples is uniquely positioned to provide the financial
solutions necessary to help our customers maximize
those opportunities by providing strategic, collaborative
and precise financial solutions.
An Ongoing Relationship
Peoples knows the energy business. Throughout our
history together, Peoples has worked to provide the
energy market with financial products and services
tailored to the unique needs of that market.
Building Beyond Energy Markets
For the first time in almost 30 years, oil and gas
production in our region is increasing. As energy-
related employment rises, the hospitality, real estate,
retail, auto and financial sectors will also grow. Since
1902, Peoples has worked with individuals and
businesses within the energy market — and those
affected by the energy market — to help structure
prudent, long-term solutions you can live with. We
work to create meaningful relationships to perpetuate
business. Why? Because we know that when our
clients are successful, Peoples will be successful.
Focus on Energy
12
Peoples Knows the Energy Market
We grew up together
Focus on Energy
Working together with Peoples Bank
client, Producers Service Corp.
Clay Lattimer – Peoples Bank, VP, Commercial Banker
Milt Haynes – Peoples Bank, VP, Energy Banking
Dan Pottmeyer – Producers Service Corp., President
Throughout our history,
Peoples has worked to
provide the energy market
with financial products and
services tailored to meet
their distinct needs.
13
Building Relationships With
the Communities We Serve
Peoples takes a unique approach to
our community commitment
With us, it’s personal. We know strong communities
provide strong opportunities — for residents and
businesses. Peoples is a company built on the promise
of helping people. We help because we are committed
to fostering excellence within our communities.
In 2012, Peoples increased charitable giving by more
than 26%. As important as the amount of giving
is how we give. Peoples empowers our market
teams — the people who actually live and work in the
communities we serve — to determine how charitable
funds will be spent in their communities.
We believe this personal
approach is different
from others and results in
a direct, positive impact.
Annually, Peoples supports hundreds of causes, from
social services to the fine arts. And, although we’re
proud to be associated with each cause, the following
three initiatives best demonstrate our approach to
building something different within the communities
we serve.
14
Building Community Relationships
Building Relationships With
the Communities We Serve
Peoples takes a unique approach to
our community commitment
Support for a Returning Veteran
When Kyle Hockenberry, the son of an employee, was severely
The program tracks the progress and score of every student;
successful students receive a “Certification in Financial
wounded by an explosion in Afghanistan, the Peoples family
Literacy.” The financial literacy initiative has proven to be
was determined to support him. Partnering with the city of
so valuable that Peoples plans to expand the program in the
Marietta, the Tunnel to Towers and Gary Sinise foundations,
coming years.
Peoples Bank served as the title sponsor of a fundraising
concert that attracted more than 3,000 area residents.
All event proceeds were donated to help build Kyle a
home to accommodate his special needs. Still undergoing
rehabilitation, Kyle will be coming home to a house funded, in
part, by his community and the Peoples family.
Building a Holiday Greeting
In 2012, Peoples partnered with United Way offices in six of
its markets to create an exciting holiday card contest for
elementary aged children. More than 240 area budding
artists drew and submitted their favorite holiday memories.
The top submissions were posted on Facebook, garnering
public votes.
Financial Literacy: Generational Initiative
Recognizing our responsibility to educate upcoming
Although six designs were ultimately selected for print,
generations on personal finance, Peoples provided financial
support to pilot an online, interactive curriculum on finance
everyone won. Participating United Way organizations
received the proceeds from selling boxed sets of the holiday
for area high school students.
cards along with direct donations from Peoples. Winning
artists received gift cards; all artists received recognition.
Through the EverFi Financial Literacy initiative, nine local
From the top six designs Peoples selected one to serve as
high schools will provide students with a virtual world where
its corporate holiday card this past year.
money-management strategies come to life via a curriculum
that includes credit scores, insurance, credit cards, student
loans, mortgages, taxes, stocks, savings and 401(k)s.
Working Together. Building Success.
Building Community Relationships
15
Peoples Bank Mortgage
Processing Team
Building Something Different
Begins in-house
At Peoples, we’re constantly evolving to build something
The resulting efficiencies allowed the Peoples mortgage
different — even in our own back-room operations.
group to efficiently handle almost double the volume of
Throughout 2012, we reviewed our business processes
mortgages and significantly reduce the turnaround time.
and refined our operations to provide enhanced services —
Average days-to-close was reduced even though volume
without a commensurate increase in expenses. Take a look…
went up, and this was all accomplished utilizing existing
staff levels.
Cost-Effective Business Process Designed With
Customers in Mind
In today’s environment when transactions take fractions
of seconds, customers expect decisions to move quickly.
That’s especially true with mortgages. In 2012, we
anticipated the ongoing low interest rates would trigger
significant volume in residential mortgage processing. Yet,
we were mindful of the need to control expenses. We got
to work and built something different.
Our solution was to take a fresh look at our business
processes and identify specific actions to be streamlined.
Ongoing Reviews Identify Opportunities
At Peoples, internal business-process reviews are a priority
so that we can continually evolve and improve. By seeking
efficiencies, eliminating duplication and investing in
technology, we’ve strengthened the Peoples infrastructure
without adding additional risk to our processes. From
mortgage processing to electronic payments, we’re
constantly testing and refining our business processes to
build something different, something better.
16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 0-16772
PEOPLES BANCORP INC.
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of incorporation or organization)
31-0987416
(I.R.S. Employer Identification No.)
138 Putnam Street, PO Box 738, Marietta, Ohio
(Address of principal executive offices)
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
45750-0738
(Zip Code)
(740) 373-3155
Title of each class
Common shares, without par value
Name of each exchange on which registered
NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated
filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
As of June 29, 2012, the aggregate market value of the registrant’s Common Shares (the only common equity of the registrant) held by
non-affiliates was $222,259,000 based upon the closing price as reported on The NASDAQ Global Select Market. For this purpose,
executive officers and directors of the registrant are considered affiliates.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date:
10,794,193 common shares, without par value, at February 27, 2013.
Table of Contents
Document Incorporated by Reference:
Portions of Registrant's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held April 25, 2013,
are incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART 1
ITEM 1.
Business
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4.
PART II
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.
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
ITEM 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11.
Executive Compensation
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
ITEM 14.
Principal Accountant Fees and Services
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
3
14
20
20
21
21
22
24
25
58
58
59
59
59
107
108
108
108
108
109
110
111
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 subsidiary was Peoples Investment Company. Peoples Bank's operating
subsidiaries included 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 and Peoples Insurance. 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, 2012, 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, insurance agencies and financial advisory books of
business. The primary objectives of Peoples' expansion efforts include: (1) provide opportunities to integrate non-traditional
products and services, such as 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
3
wealth management and (4) improve operating efficiency by redirecting resources to offices and markets with greater growth
potential.
Recent Corporate Developments
Peoples previously formed a statutory business trust subsidiary (PEBO Capital Trust I) for the sole purpose of issuing
preferred securities and investing the proceeds in junior subordinated debentures of Peoples. The trust preferred securities
qualified as Tier 1 capital for regulatory capital purposes, subject to certain quantitative limits and qualitative standards.
PEBO Capital Trust I was dissolved on December 19, 2012, since Peoples repaid the junior subordinated debentures and
related trust preferred securities. Additional information can be found in Note 10 of the Notes to the Consolidated Financial
Statements.
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. Peoples currently has a physical presence in the counties of Athens, Fairfield, Franklin, Gallia, Guernsey, Meigs,
Morgan, Muskingum, Noble, Tuscarawas and Washington in Ohio; Cabell, Kanawha, Mason, Wetzel and Wood in West
Virginia; and Boyd, Greenup and Pike 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 MSA. 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. In addition,
this market area overlaps both the Marcellus and Utica shale formations, which are being explored for oil and natural gas. As
a result, economic activity has been increasing steadily which is causing lower unemployment in Ohio and West Virginia, as
well as creating growth opportunities for Peoples. 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, 2012, 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, 2012, Peoples Bank's legal lending limit was approximately $27.8 million. During 2012,
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 56.7% of total loans at
December 31, 2012. 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.
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 Bank's 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
4
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 strives to evaluate 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. Relationships under
$500,000 are evaluated for credit deterioration once the borrower becomes delinquent.
Construction Loans
Peoples Bank originates various construction loans to provide temporary financing during the construction phase for
commercial and residential properties. At December 31, 2012, outstanding construction loans comprised 3.5% of
Peoples' loan 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.
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, 2012, portfolio residential real estate loans comprised 23.7% of
total loans. Peoples also had $6.5 million of residential real estate loans held for sale and was servicing $330.7 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, 2012, outstanding home equity lines of credit comprised 5.2% 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
5
years and converting to a variable interest rate for the remaining five years. At December 31, 2012, total outstanding
principal balances and available credit amounts of these convertible rate home equity lines of credit were $16.9 million
and $19.9 million, respectively, and the weighted-average remaining maturity was 6.3 years. The average original loan
amount for these convertible rate home equity lines of credit was approximately $30,000 at December 31, 2012.
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.
Consumer Lending
Peoples Bank's consumer lending activities primarily involve loans secured by automobiles, boats, recreational
vehicles and other personal property. At December 31, 2012, consumer loans comprised 10.3% 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 account activity, 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 37.0% 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, 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. The investments owned by Peoples' non-banking subsidiaries currently consist of tax credit funds,
corporate obligations, municipal obligations and privately issued mortgage-backed securities.
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
6
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 term 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. 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.
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
7
funds. Competition within the financial services industry continues to increase as a result of mergers between, and expansion
of, financial services 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, 2012, Peoples had 494 full-time equivalent employees.
Intellectual Property and Proprietary Rights
Peoples has registered the service marks “Peoples Bank (with logo)”, “Peoples Bancorp", “Peoples Bank”, Peoples in
motion logo consisting of three arched ribbons, "Working together. Building Success." and “peoplesbancorp.com” with the
U.S. Patent and Trademark Office. These service marks currently have expiration dates ranging from 2016 to 2021. 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 the 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
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.
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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.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), signed into law
in 2010, created the Consumer Financial Protection Bureau (the "CFPB"), which has broad powers to adopt and enforce
consumer protection regulations.
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. 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
the Deposit Insurance Fund of the FDIC and subject to deposit insurance assessments to maintain the Deposit
Insurance Fund.
In 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 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 target size for the Deposit Insurance Fund.
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.
Dodd-Frank Act
Federal regulators continue to implement many provisions of the Dodd-Frank Act. 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 are already affecting or may affect Peoples and Peoples Bank:
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the CFPB 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 had unlimited deposit insurance through December 31, 2012;
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 states;
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, requiring compensation committees to consider the independence
of compensation advisors and meeting 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.
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.
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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.
Transactions with Affiliates, Directors, Executive Officers and Shareholders
Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Board Regulation W generally:
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limit the extent to which a bank or its subsidiaries may engage in "covered transactions" with any one affiliate;
limit the extent to which a bank or its subsidiaries may engage in "covered transactions" with all affiliates; and
require that all such transactions be on terms substantially the same, or at least as favorable to the bank or
subsidiary, as those provide to a non-affiliate.
An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the
bank. The term "covered transaction" includes the making of loans to the affiliate, the purchase of assets from the
affiliate, the issuance of a guarantee on behalf of the affiliate, the purchase of securities issued by the affiliate and other
similar types of transactions.
A bank's authority to extend credit to executive officers, directors and greater than 10% shareholders, as well as
entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated under that Act by the Federal Reserve Board. These loans must be made on terms (including interest rates
charged and collateral required) substantially the same as those offered to unaffiliated individuals or be made as part of a
benefit or compensation program and on terms widely available to employees, and must not involve a greater than
normal risk of repayment. In addition, the amount of loans a bank may make to these persons is based, in part, on the
bank's capital position, and specified approval procedures must be followed in making loans which exceed specified
amounts.
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.
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:
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“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 16 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.
During the second quarter of 2012, the federal bank regulatory agencies jointly issued three notices of proposed
rulemaking ("NPRs") that would revise and replace the agencies' current capital rules. The impact of these NPRs, if
adopted, would result in higher risk-based and leverage capital requirements consistent with Basel III. Most of the
provisions contained within the NPRs would be phased-in over periods ranging from 3 to 10 years. As proposed, the
NPRs were to be implemented January 1, 2013, but, the regulators have delayed implementation. Management
continues to evaluate the potential impact of the NPRs to ensure the capital levels of both Peoples and Peoples Bank
remain higher than the amounts needed to be considered "well capitalized". However, the final regulations ultimately
applicable to Peoples and Peoples Bank may be substantially different from those contemplated in the NPRs.
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 or other financial assistance 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, 2012, the OCC's most recent performance evaluation of Peoples Bank resulted in
an overall rating of “Satisfactory”.
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 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 16 of the Notes to the Consolidated Financial Statements.
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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 Bank is
prohibited from paying dividends in an amount greater than the current earnings, as measured on a trailing 12-month
basis. 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 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
complete 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
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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.
Pursuant to rules adopted by the stock exchanges and approved by the SC in January 2013 under the Dodd-Frank
Act, public company compensation committee members will be required to meet heightened independence requirements
and to consider the independence of compensation consultants, legal counsel and other advisors to the compensation
committee. A compensation committee must have the authority to hire advisors and to have the public company fund
reasonable compensation of such advisors.
Public companies will 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 and imposes new executive compensation disclosure requirements.
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 well as Peoples' definitive proxy statement filed pursuant to Section 14 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.
• Conditions in the financial markets, the real estate markets and economic conditions generally may adversely
affect Peoples' business.
Negative developments in the capital markets in recent years 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
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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 2012 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. In fact, improvements may be reversed if the current
economic turmoil in Europe becomes global or the U.S. Congress fails to raise the federal government's debt ceiling in
time to avoid default. 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.
• Peoples' ability to complete acquisitions and integrate completed acquisitions could have an adverse affect on
Peoples' business, earnings and financial condition.
Peoples actively evaluates opportunities to acquire other businesses. However, Peoples may not have the opportunity
to make suitable acquisitions on favorable terms in the future, which could negatively impact the growth of its business.
Peoples expects that other banking and financial companies, many of which have significantly greater resources, will
compete to acquire compatible businesses. This competition could increase prices for acquisitions that Peoples would
likely pursue, and its competitors may have greater resources than it does. Also, acquisitions of regulated businesses such
as banks are subject to various regulatory approvals. Peoples has entered into a loan agreement that requires Peoples to
obtain the lender's consent to acquire another financial institution. If Peoples fails to receive the appropriate approvals, it
will not be able to consummate an acquisition that it believes is in its best interests.
During 2012, Peoples completed multiple acquisitions which required integration of the acquired business into
Peoples' business platform. Peoples may not be able to integrate any new acquisitions without encountering difficulties
including the loss of key employees and customers, the disruption of ongoing businesses or possible inconsistencies in
standards, controls, procedures and policies. Future acquisitions may also result in other unforeseen difficulties,
including integration of the combined companies. Further, benefits such as enhanced earnings anticipated from the
acquisitions may not develop and future results of the combined companies may be materially lower from those
estimated.
• 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. In
addition to laws, regulations and actions directed at the operations of banks, proposals to reform the housing finance
15
market consider winding down Fannie Mae and Freddie Mac, which could negatively affect sales of loans. 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 Dodd-Frank Act may adversely impact Peoples' results of operations, financial condition or liquidity.
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 still have not be
implemented and will require interpretation and rule making by federal regulators, including banking regulators and the
SEC. In addition, the CFPB has only recently begun to implement its authority, and there is significant uncertainty as to
how its regulations and other authority will affect Peoples' business. 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 and Peoples Bank cannot currently be determined, the law and its implementing rules and
regulations have already resulted 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.
• Peoples failure to be in compliance with any material provision or covenant of debt instruments could have a
material adverse effect on Peoples' liquidity and operations.
The loan agreement governing Peoples' unsecured term note imposes operating and financial restrictions on Peoples.
These restrictions may affect Peoples' operations and may limit the ability to take advantage of potential business
opportunities as they arise. Peoples' ability to comply with the covenants included in the loan agreement may be affected
by events beyond our control, including deteriorating economic conditions, and these events could require Peoples to
seek waivers or amendments of covenants, or alternative sources of financing. Peoples' ability to obtain such waivers,
amendments or alternative financing, may be on terms unfavorable to Peoples.
A breach of any of the covenants or restrictions contained in any of the existing or future financing agreements,
including the financial covenants, could result in an event of default under the agreements. Such a default could allow
the lenders under the financing agreements, if the agreements so provide, to discontinue lending, to accelerate the related
debt, and/or to declare all borrowings outstanding thereunder to be due and payable. In addition, the lenders could
terminate any commitments they have to provide Peoples with further funds. If any of these events occur, Peoples may
not have sufficient funds available to pay in full the total amount of obligations that become due as a result of any such
16
acceleration, or Peoples may not be able to find additional or alternative financing to refinance any such accelerated
obligations. Even if additional or alternative financing is obtained, it may be on terms that would be unfavorable to
Peoples.
• 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 instituted
two programs to further insure customer deposits at FDIC-member banks: deposit accounts were insured up to $250,000
per customer (up from $100,000) and non-interest-bearing transactional accounts were 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 final rule went into effect beginning with
the second quarter of 2011.
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.
• Expiration of unlimited FDIC insurance coverage of non-interest bearing transaction accounts may have an
adverse effect on liquidity and cost of funds.
The Dodd-Frank Act provided for unlimited FDIC insurance coverage of non-interest bearing transaction accounts
through December 31, 2012. The end of such insurance may cause Peoples Bank to lose certain large deposits or may
result in the need to pledge additional securities to secure public funds deposits, which could have a material adverse
effect on liquidity. In order to ensure adequate liquidity, Peoples Bank may need to raise the rates we pay on deposits,
resulting in a decrease in profitability.
• 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.
17
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'
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. Moreover, the Financial
Accounting Standards Board may change its requirements for establishing the allowance. 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. Federal banking agencies have proposed extensive changes to their capital
requirements, including raising required amounts and eliminating the inclusion of certain instruments from the
calculation of capital. The final form of such regulations and their impact on Peoples is unknown at this time but may
require Peoples to raise additional capital. If capital requirements are raised or if Peoples Bank experiences loan losses,
18
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 16 of the Notes to the Consolidated Financial Statements.
• Peoples' business could be adversely affected by material breaches in security of its systems or those of a third-
party service provider.
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 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.
• Changes to the healthcare laws in the United States may increase the number of employees who choose to
participate in Peoples' healthcare plans, which may significantly increase healthcare costs and negatively impact
financial results.
Peoples offers healthcare coverage to eligible employees with part of the cost subsidized by Peoples or one of its
subsidiaries. With recent changes to the healthcare laws in the United States becoming effective in 2014, more
employees may choose to participate in Peoples' health insurance plans, which could increase costs for such coverage
and material adversely impact Peoples' costs of operations.
19
• Changes in tax laws could adversely affect Peoples' performance.
Peoples is subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise,
withholding and ad valorem taxes. Changes to tax laws could have a material adverse effect on Peoples' results of
operations. On December 20, 2012, Ohio Governor John Kasich signed into law a new tax bill that replaces the existing
franchise tax on financial institutions based on net worth with a new privilege tax based on equity capital. The
provisions of the tax bill will be effective beginning January 1, 2014 and are not expected to have a material impact on
Peoples.
In addition, Peoples' customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid
by customers may adversely affect their ability to purchase homes or consumer products, which could adversely affect
their demand for loans and deposit products. In addition, such negative effects on Peoples' customers could result in
defaults on the loans made by Peoples Bank and decrease the value of mortgage-backed securities in which Peoples' has
invested.
• 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, Pomeroy (2 offices), Gallipolis, Cambridge (2 offices), Byesville, Caldwell,
McConnelsville, Baltimore, Lancaster (2 offices), Westerville and Zanesville. In West Virginia, Peoples Bank operates
offices in Charleston, Huntington (2 offices), New Martinsville (2 offices), Parkersburg (4 offices), Point Pleasant (2 offices),
Vienna (2 offices), and Sistersville. 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.
Peoples Insurance rents office space in various Peoples Bank offices, and leases an office building in Marietta, Ohio.
Effective January 2, 2013, Peoples Insurance also leases office space in Pikeville, Kentucky.
20
Rent expense on the leased properties totaled $883,000 in 2012, which excludes intercompany rent expense. The
following are the only properties that have a lease term expiring on or before June 2014:
Location
Marietta Kroger
Westerville
New Philadelphia
Charleston
Zanesville
The Plains
Athens Union Street
Nelsonville
New Martinsville Wal-Mart
Lancaster Fair Avenue
Parkersburg
Hart Street
Vienna Wal-Mart
Address
40 Acme Street
Marietta, Ohio
515 Executive Campus Drive
Columbus, Ohio
136 1/2 Second Street NE
New Philadelphia, Ohio
10 Hale Street, Suite 410
Charleston, West Virginia
905 Zane Street
Zanesville, Ohio
70 N. Plains Road
The Plains, Ohio
152 W. Union Street
Athens, Ohio
951 Canal Street
Nelsonville, Ohio
1142 S. Bridge Street
New Martinsville, West Virginia
2211 West Fair Avenue
Lancaster, Ohio
2107 Pike Street
Parkersburg, West Virginia
416 Hart Street
Marietta, Ohio
701 Grand Central Avenue
Vienna, West Virginia
Lease Expiration Date (a)
March 2013
April 2013
April 2013
July 2013
November 2013
December 2013
January 2014
January 2014
March 2014
April 2014
April 2014
May 2014
June 2014
(a) Information represents the ending date of the current lease period. For some locations, Peoples has the option to renew
the lease beyond the current expiration date under the terms of the lease agreement.
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,
2012, Peoples had 1,556 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.
2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2011
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Sales
Low
Sales
Dividends
Declared (1)
$
23.80 $
17.72 $
23.93
22.54
17.84
20.22
16.48
14.59
$
15.33 $
10.00 $
13.00
13.94
16.07
9.51
10.43
11.78
0.12
0.11
0.11
0.11
0.10
0.10
—
0.10
(1) 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 ended June 30, 2011, Peoples' Board of Directors determines
whether financial conditions warrant the declaration of dividends with respect to 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 with respect to 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.
Peoples plans to continue to pay quarterly cash dividends, subject to certain regulatory restrictions described in Note 16
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.
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) promulgated under the Securities Exchange Act of 1934, as amended, of Peoples’ common shares during the three months
ended December 31, 2012:
(a)
Total
Number of
Common
Shares
Purchased
243 (2)
644 (2)
211 (2)
1,098
(b)
Average Price
Paid per Share
21.87 (2)
$
19.39 (2)
$
21.26 (2)
20.30
$
$
(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, 2012
November 1 – 30, 2012
December 1 – 31, 2012
Total
(1) Peoples’ Board of Directors did not authorize any stock repurchase plans or programs for 2012.
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, 2007, 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
$
$
$
2007
100.00 $
100.00 $
2008
At December 31,
2010
2009
2011
2012
79.98 $
61.17 $
42.56 $
87.93 $
70.93 $
104.13 $
69.35 $
104.69 $
97.94
123.85
100.00 $
72.91 $
60.66 $
72.13 $
64.51 $
77.18
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
(Recovery of) provision for loan losses
Net impairment losses on investment securities
Net (loss) gain on securities and asset transactions
Total non-interest income
FDIC insurance expense
Other non-interest expense
Preferred dividends (a)
Net income available to common shareholders
Balance Sheet Data
Total assets
Total 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 debentures held by subsidiary trust
Preferred stockholders' equity (a)
Common stockholders' equity
Tangible assets (b)
Tangible equity (b)
Tangible common equity (b)
Per Common Share Data
Earnings per share – Basic
Earnings per share – Diluted
Cash dividends declared per share
Book value per share (c)
At or For the Year Ended December 31,
2010
2009
2011
2008
2012
$
69,470 $
75,133 $
89,335 $
102,105 $
106,227
14,995
54,475
(4,716)
—
(778)
34,971
1,002
62,472
—
21,154
53,979
7,998
—
(443)
32,944
1,867
59,464
1,343
29,433
59,902
26,916
(1,786)
(39)
31,634
2,470
54,572
2,052
40,262
61,843
25,721
(7,707)
1,343
32,050
3,442
55,240
1,876
47,748
58,479
27,640
(4,260)
2,424
32,097
361
53,124
—
$
20,385 $
11,212 $
3,529 $
2,314 $
7,455
$ 1,918,050 $ 1,794,161 $ 1,837,985 $ 2,001,827 $ 2,002,338
709,085
985,172
17,811
68,525
669,228
938,506
23,717
64,475
641,307
751,866
708,753
960,718
1,052,058
1,104,032
26,766
64,870
27,257
65,599
22,931
66,406
317,071
239,837
215,069
198,000
180,040
1,119,633
1,047,189
1,059,066
1,095,466
1,034,418
55,599
47,769
128,823
—
—
64,054
51,643
142,312
22,600
—
87,465
51,509
157,703
22,565
38,645
102,420
76,921
246,113
22,530
38,543
151,910
98,852
308,297
22,495
—
221,728
206,657
192,036
205,425
186,626
1,849,525
153,203
1,729,686
142,182
1,773,115
165,811
1,936,228
178,369
1,935,932
120,220
153,203 $
142,182 $
127,166 $
139,826 $
120,220
1.92 $
1.07 $
0.34 $
0.22 $
1.92
0.45
21.02
1.07
0.30
19.67
0.34
0.40
18.36
0.22
0.66
19.80
0.72
0.72
0.91
18.06
11.63
$
$
Tangible book value per share (b) (c)
$
14.52 $
13.53 $
12.16 $
13.48 $
Weighted-average shares outstanding – Basic
10,527,885 10,482,318 10,424,474 10,363,975
10,315,263
Weighted-average shares outstanding – Diluted
10,528,286 10,482,318 10,431,990 10,374,792
10,348,579
Common shares outstanding at end of period
10,547,960 10,507,124 10,457,327 10,374,637
10,333,884
24
At or For the Year Ended December 31,
2010
2011
2009
2008
2012
SIGNIFICANT RATIOS
Return on average stockholders' equity
Return on average common stockholders' equity
Return on average assets
Net interest margin
Efficiency ratio (d)
Pre-provision net revenue to average assets (e)
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 (c)(f)
Nonperforming assets as a percent of total assets (c)(f)
Allowance for loan losses to loans net of unearned interest (c)
Allowance for loan losses to nonperforming loans (c)(f)
(Recovery of) 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 (b)
Tangible common equity to tangible assets (b)
2.33%
9.52%
1.76
9.52
0.28
1.11
3.51
3.39
60.30
69.55
1.76
1.41
12.20
11.63
68.23
73.01
23.58% 28.35% 119.33% 298.23% 127.03%
1.80%
1.17
0.21
3.48
60.14
1.74
11.50
77.97
3.67%
3.67
0.39
3.51
56.30
1.94
10.62
88.10
5.72%
5.61
0.69
3.43
68.98
1.41
12.12
69.86
1.39%
0.76
1.81
128.86
(0.49)
0.12%
3.19%
1.80
2.53
79.00
0.84
1.16%
4.19%
2.45
2.79
66.10
2.61
2.66%
3.27%
2.03
2.59
79.30
2.35
1.96%
3.74%
2.09
2.08
55.50
2.48
1.83%
14.06% 12.82% 11.59% 10.58% 10.17%
16.91
14.06
18.24
15.43
10.63
8.83
9.35
8.28
7.17%
8.28%
15.49
16.80
10.06
9.21
7.22%
11.88
13.19
8.18
6.21
6.21%
14.86
16.20
9.45
8.22
8.22%
(a) Amounts relate to Series A Preferred Shares issued and sold by Peoples in connection with its participation in the TARP Capital Purchase
Program. Additional information regarding the Series A Preferred Shares can be found in Note 11 of the Notes to the Consolidated Financial
Statements.
(b) 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
in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this
Form 10-K under the caption “Capital/Stockholders’ Equity”.
(c) Data presented as of the end of the period indicated.
(d) 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).
(e) These amounts represent non-GAAP financial measures since they exclude the provision for loan losses and all gains and losses included in
earnings. Additional information regarding the calculation of these measures can be found in "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K under the caption “Pre-Provision Net
Revenue”.
(f) 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.
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
25
risks and uncertainties that may cause actual results to dif er materially. Factors that might cause such a difference include,
but are not limited to:
ff
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
deterioration in the credit quality of Peoples' loan portfolio, which may adversely impact the provision for
loan losses;
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 due to economic conditions and/or the fiscal policies of the U.S.
government and Federal Reserve Board, which may adversely impact interest margins;
the success, impact, and timing of Peoples' business strategies, including the integration of recently
completed acquisitions, expansion of consumer lending activity and rebranding efforts;
adverse changes in the economic conditions and/or activities, including impacts from the implementation of
the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012, as well as continuing
economic uncertainty in the U.S., the European Union, and other areas, which could decrease sales
volumes and increase loan delinquencies and defaults;
changes in prepayment speeds, loan originations and charge-offs, which may be less favorable than
expected and adversely impact the amount of interest income generated;
legislative or regulatory changes or actions, including in particular the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 and the regulations promulgated and to be promulgated thereunder,
which may subject Peoples, its subsidiaries or one or more acquired companies to a variety of new and
more stringent legal and regulatory requirements which adversely affect their respective businesses;
changes in accounting standards, policies, estimates or procedures which may adversely affect Peoples'
reported financial condition or results of operations;
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)
the impact of larger or similar financial institutions encountering problems, which may adversely affect the
banking industry and/or Peoples' business generation and retention, funding and liquidity;
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;
Peoples' ability to secure confidential information through the use of computer systems and
telecommunications networks, including those of our third-party vendors and other service providers, may
prove inadequate, which could adversely affect customer confidence in Peoples and/or result in Peoples
incurring a financial loss;
(15)
the overall adequacy of Peoples' risk management program; and
(16)
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 filing 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 filing 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.
26
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:
During the second quarter of 2012, Peoples became more active with its merger and acquisition activities. These
activities included the merger transactions with Sistersville Bancorp, Inc. ("Sistersville") and its wholly-owned
subsidiary, First Federal Savings Bank, announced on June 5, 2012 and subsequently completed on September 14,
2012, and the purchase of a small financial advisory book of business in Wood County, West Virginia. In the third
quarter of 2012, Peoples purchased another small financial advisory book of business in Gallipolis, Ohio. These
transactions are more fully described in Note 18 of the Notes to the Consolidated Financial Statements. In addition,
Peoples' management team continues to evaluate other acquisition opportunities involving banks, insurance agencies
and wealth management providers located in Ohio, West Virginia and Kentucky. On January 2, 2013, Peoples
Insurance acquired a commercial insurance agency office and related customer accounts in the Pikeville, Kentucky
area.
In 2012, Peoples incurred $641,000 of acquisition-related expenses, primarily fees for legal costs, other professional
services, deconversion costs and write-offs associated with assets acquired. Approximately a quarter of these costs
related to acquisition opportunities that management determined did not meet Peoples' criteria and thus negotiations
were terminated prior to completion.
On September 17, 2012, Peoples introduced its new brand as part of a company-wide brand revitalization. The
brand is Peoples' promise, which is a guarantee of satisfaction and quality. Costs associated with rebranding efforts
were approximately $421,000 during 2012. Peoples will continue to incur costs throughout 2013 associated with the
brand revitalization, including marketing due to advertisement, and depreciation for the revitalization of our branch
network.
During 2012, Peoples increased the quarterly dividend declared to common shareholders by 20%. The dividend
declared in first quarter of 2012 was $0.11 and the dividend declared in the fourth quarter of 2012 was $0.12,
compared to the quarterly dividend of $0.10 that was declared during 2011.
As described in Note 12 of the Notes to the Consolidated Financial Statements, Peoples incurred settlement charges
of $835,000 during 2012 due to the aggregate amount of lump-sum distributions to participants in Peoples' defined
benefit pension plan exceeding the threshold for recognizing such charges during the second quarter. Settlement
charges of $815,000 were recognized during the 2011.
As described in Note 10 of the Notes to the Consolidated Financial Statements, Peoples repaid the entire $23.0
million outstanding principal amount of its junior subordinated debentures and related trust preferred securities on
December 19, 2012 (the "Trust Preferred Redemption"). This transaction resulted in Peoples incurring a pre-tax loss
of $1.0 million for the redemption premium and unamortized issuance costs. Peoples funded the repayment with a
term note from an unaffiliated financial institution at a significantly lower interest rate. As a result, Peoples will
realize an annual interest expense savings of $1.1 million beginning in 2013.
In the first quarter of 2012, Peoples prepaid $35.0 million of wholesale borrowings using short-term funds, which
resulted in prepayment charges of $3.1 million. These borrowings had an average cost of 3.09% and consisted of
both term repurchase agreements and advances from the Federal Home Loan Bank of Cincinnati. The impact of the
prepayment charges on first quarter earnings was offset by $3.2 million in gains from the sale of $60.5 million in
investment securities. The securities sold were primarily mortgage-backed securities issued by U.S. government-
sponsored agencies. The proceeds from the sale of these investment securities were reinvested into other securities
with similar duration, credit risk and yield.
In 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 were repurchased on December 28, 2011 (collectively, the "TARP Capital
Redemption"). On February 15, 2012, Peoples completed the repurchase of the warrant for an aggregate price of
27
$1.2 million, which was recognized as a direct reduction in the common stock component of Peoples' stockholders'
equity.
Since the second quarter of 2011, Peoples has experienced generally improving trends in several asset quality
metrics, after a three-year trend of higher credit losses and nonperforming assets than Peoples' long-term historical
levels. 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.
Peoples' net interest income and margin are impacted by changes in market interest rates based upon actions taken
by the Federal Reserve Board 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 Bank) 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.
The Federal Reserve Board has maintained its target Federal Funds Rate at a historically low level of 0% to 0.25%
since December 2008 and has maintained the Discount Rate at 0.75% since December 2010. The Federal Reserve
Board continues to indicate there is the potential for these short-term rates to remain unchanged until early 2015.
Since late 2008, the Federal Reserve Board 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 since early 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.
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. Management's analysis at December 31, 2012 showed changes in prepayments could cause an approximately
10 basis point change in Peoples' net interest margin from quarter-to-quarter.
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.
28
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 the 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 Credit Administration 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, 2012 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.
Investment Securities
Peoples' investment portfolio accounted for 37% of total assets at December 31, 2012, of which approximately 90%
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 debt security before recovery of its
amortized cost basis or (3) Peoples does not expect to recover the entire amortized cost basis of the debt security. In
situations where Peoples intends to sell or when it is more likely than not that Peoples will be required to sell the debt
security, the entire OTTI loss must be recognized in earnings. In all other situations, only the portion of the OTTI losses
29
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
During 2012 and 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, including 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. At June 30, 2012, management's analysis
concluded that the estimated fair value of Peoples' single reporting unit exceeded its carrying value. The analysis also
indicated any of the following situations would cause a decline in the fair value of Peoples’ reporting unit below its book
value: (1) a 5% sustained decline in future cash flows or (2) a 100 basis point increase in the discount rate.
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. At December 31, 2012, Peoples' market capitalization was less
than its book value, which management considered to be an indicator of possible goodwill impairment. Since June 30,
2012, 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 14-day moving average of the stock
price of Peoples' common shares improved 3% between June 30 and December 31, 2012. Management considered these
improvements to be evidence that goodwill is not impaired as of December 31, 2012.
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, 2012, 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
30
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, 2012 or 2011.
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 was immaterial at both December 31, 2012 and 2011.
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.
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,
2012, all of Peoples' available-for-sale investment securities were measured using observable market data.
At December 31, 2012, 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,
31
although the collateral 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 or 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, 2012 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 2012 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.
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 amortized 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
Net income available to common shareholders for the year ended December 31, 2012 was $20.4 million, compared to
$11.2 million in 2011 and $3.5 million in 2010, representing earnings per diluted common share of $1.92, $1.07 and $0.34,
respectively. The higher earnings in both 2012 and 2011 were largely attributable to the impact of continued asset quality
improvement. Peoples also generated positive operating leverage during 2012 as growth in total revenue was larger than the
growth in total non-interest expenses.
In 2012, Peoples had a recovery of loan losses of $4.7 million as several asset quality metrics maintained favorable
trends. The favorable trends resulted in net charge-offs of $1.2 million for 2012, which were significantly less than the
amounts recorded in 2011 and 2010 due largely to higher recoveries in 2012. In comparison, Peoples recorded provision for
loan losses of $8.0 million for 2011 and $26.9 million for 2010. These provisions represented amounts needed to maintain
the adequacy of the allowance for loan losses.
32
Net interest income and margin were relatively stable in 2012 compared to 2011, due to the reduction in interest income
being offset by the reduction of interest expense. The slight net interest margin compression was a result of long-term
interest rates remaining at historically low levels. Net interest income decreased 10% to $54.0 million in 2011 compared to
2010, 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 even through 2011.
Total non-interest income, which excludes gains and losses on investment securities, asset disposals and other
transactions, was up 6% in 2012 compared to 2011, as strong revenue generation occurred in several major sources. The
most notable growth occurred in mortgage banking income, which grew $1.2 million, or 71%, over the prior year due to
increased refinancing activity. In 2011, total non-interest income increased 4% compared to 2010, as growth occurred in
virtually every major revenue category. The largest growth in 2011 was in electronic banking income, which increased
$456,000, or 10%.
Total non-interest expense was $63.5 million for the year ended December 31, 2012, an increase of 3% over the prior
year. This increase was primarily caused by additional sales and incentive compensation of $1.8 million, which was a result
of the improved financial performance of Peoples. Acquisition-related costs of $569,000 and rebranding costs of $421,000
also contributed to the increase over the prior year. In 2011, non-interest expense increased 8% compared to 2010, due to
higher salary and employee benefit costs. Other operating expenses were generally controlled in 2011 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.
At December 31, 2012, total assets were up 7% to $1.92 billion versus $1.79 billion at year-end 2011, with the increase
due mostly to higher net loan balances. Gross portfolio loan balances grew $46.7 million during 2012, most of which was
due to the loans acquired in the Sistersville acquisition. The allowance for loan losses decreased $5.9 million to $17.8
million, or 1.81% of gross loans, compared to $23.7 million and 2.53% at December 31, 2011. Total investment securities
grew to $709.1 million at December 31, 2012, compared to $669.2 million at the prior year-end.
Total liabilities were $1.70 billion at December 31, 2012, up $108.8 million since December 31, 2011. Retail deposit
balances experienced continued growth during 2012, increasing $149.7 million compared to year-end 2011. The Sistersville
acquisition added $39.4 million of interest-bearing deposits, almost equally divided among certificates of deposits, money
market and savings accounts, and $0.9 million of non-interest-bearing deposits. Non-interest-bearing deposits comprised
22.1% of total retail deposits at December 31, 2012 versus 18.6% at year-end 2011. At December 31, 2012, total borrowed
funds were $176.6 million, down $40.0 million compared to the prior year-end, as Peoples repaid $35 million in long-term
borrowings during the first quarter.
At December 31, 2012, total stockholders' equity was $221.7 million, up $15.1 million since December 31, 2011.
Earnings exceeded dividends declared by $15.6 million. Regulatory capital ratios remained significantly higher than "well
capitalized" minimums. Peoples' Tier 1 Common Capital ratio increased to 14.06% at December 31, 2012, versus 12.82% at
December 31, 2011, while the Total Risk-Based Capital ratio was 15.43% versus 16.20% at December 31, 2011. The
decrease in the Total Risk-Based Capital ratio was largely the result of Peoples repaying all of its outstanding junior
subordinated debentures and redeeming the related trust preferred securities during the fourth quarter. In addition, Peoples'
tangible common equity to tangible asset ratio was 8.28% and tangible book value per share was $14.52 at December 31,
2012, versus 8.22% and $13.53 at December 31, 2011, respectively.
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
33
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.
The following table details Peoples’ average balance sheets for the years ended December 31:
2012
2011
2010
(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
Government deposit accounts
Interest-bearing demand accounts
Money market accounts
Brokered deposits
Retail certificates of deposit
Total interest-bearing deposits
Borrowed Funds:
Short-term FHLB advances
Retail repurchase agreements
Total short-term borrowings
Long-term FHLB advances
Wholesale repurchase agreements
Other 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
Average
Balance
$
9,705 $
Income/
Expense
Yield/
Cost
20 0.21 % $
Average
Balance
11,522 $
Income/
Expense
Yield/
Cost
24 0.21 % $
Average
Balance
Income/
Expense
Yield/
Cost
36,508 $
91 0.25 %
645,249
40,190
685,439
19,961 3.09 %
2,206 5.49 %
22,167 3.23 %
631,112
38,653
669,765
24,332 3.86 %
2,385 6.17 %
26,717 3.99 %
656,719
57,781
714,500
29,728 4.53 %
3,621 6.27 %
33,349 4.67 %
618,846
252,647
95,673
967,166
(21,473)
945,693
1,640,837
65,881
134,571
$ 1,841,289
29,672 4.79 %
12,982 5.14 %
5,716 5.97 %
48,370 5.00 %
48,370 5.11 %
70,557 4.30 %
616,970
246,878
87,103
950,951
(27,259)
923,692
1,604,979
64,621
141,479
$ 1,811,079
$
162,055 $
151,877
113,022
255,345
56,451
404,872
1,143,622
90 0.06 % $
937 0.62 %
117 0.10 %
423 0.17 %
1,996 3.54 %
5,496 1.36 %
9,059 0.79 %
132,365 $
147,688
101,094
262,374
70,417
419,226
1,133,164
17 0.12 %
57 0.15 %
74 0.14 %
2,305 3.39 %
1,610 3.58 %
1,947 8.62 %
5,862 4.27 %
5,936 3.17 %
14,995 1.13 %
13,240
37,401
50,641
68,041
44,208
22,729
134,978
185,619
1,329,241
273,893
24,037
1,627,171
—
214,118
214,118
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
30,375 4.92 %
13,111 5.31 %
6,039 6.93 %
49,525 5.21 %
49,525 5.36 %
76,266 4.75 %
682,736
260,964
86,203
1,029,903
(29,597)
1,000,306
1,751,314
36,169 5.30 %
14,650 5.61 %
6,618 7.68 %
57,437 5.58 %
57,437 5.74 %
90,877 5.19 %
65,153
145,260
$ 1,961,727
166 0.13 % $
1,528 1.04 %
164 0.16 %
760 0.29 %
2,308 3.28 %
9,004 2.15 %
13,930 1.23 %
5 0.08 %
98 0.23 %
103 0.22 %
2,895 3.44 %
2,247 3.41 %
1,979 8.64 %
7,121 4.11 %
7,224 3.27 %
21,154 1.56 %
119,257 $
145,876
188 0.16 %
2,455 1.68 %
194 0.21 %
2,141 0.74 %
2,994 2.93 %
11,150 2.47 %
19,122 1.59 %
10 0.11 %
252 0.49 %
262 0.44 %
3,624 3.53 %
4,439 3.87 %
1,986 8.69 %
10,049 4.18 %
10,311 3.44 %
29,433 1.96 %
92,820
288,483
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
$ 1,841,289
$ 1,811,079
$ 1,961,727
$ 55,562 3.17 %
3.39%
$ 55,112 3.19 %
3.43%
$ 61,444 3.23 %
3.51%
34
(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) Average balances include nonaccrual and impaired loans. Interest income includes interest earned on nonaccrual loans prior to the loans
being placed on nonaccrual status. 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.
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
Government deposit 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 2011 to 2012
Volume
Rate
Total (1)
Changes from 2010 to 2011
Volume
Rate
Total (1)
$
— $
(4) $
(4) $
(13) $
(54) $
(67)
(4,905)
(271)
(5,176)
(795)
(431)
(883)
(2,109)
(7,285)
(107)
(633)
(65)
(317)
172
(3,209)
(4,159)
(28)
19
(9)
(4,168)
534
92
626
92
302
560
954
1,576
31
42
18
(20)
(484)
(299)
(712)
(1)
(1,278)
(1,279)
(1,991)
(4,371)
(179)
(4,550)
(703)
(129)
(323)
(1,155)
(5,709)
(76)
(591)
(47)
(337)
(312)
(3,508)
(4,871)
(29)
(1,259)
(1,288)
(6,159)
(4,270)
(57)
(4,327)
(2,472)
(766)
(648)
(3,886)
(8,226)
(40)
(999)
(47)
(1,202)
325
(1,377)
(3,340)
(1,126)
(1,179)
(2,305)
(3,322)
(773)
69
(4,026)
(6,385)
18
72
17
(179)
(1,011)
(769)
(1,852)
(118)
(578)
(696)
(4,036)
(4,190) $
(41)
(2,350)
(2,391)
(4,243)
(2,142) $
(5,396)
(1,236)
(6,632)
(5,794)
(1,539)
(579)
(7,912)
(14,611)
(22)
(927)
(30)
(1,381)
(686)
(2,146)
(5,192)
(159)
(2,928)
(3,087)
(8,279)
(6,332)
Net interest income
$
(3,117) $
3,567 $
450
$
(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 changes in each.
(2) Presented on a fully tax-equivalent basis.
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.
35
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
2012
2011
2010
$
$
54,475 $
53,979 $
1,087
55,562 $
1,133
55,112 $
59,902
1,542
61,444
The yield curve remained relatively flat and interest rates remained low during 2012, which placed greater downward
pressure on Peoples' net interest income and margin. The yield on investment securities declined further in 2012, as the
impact of lower reinvestment rates was magnified by higher levels of principal pre-payments within mortgage-backed
securities. During 2012, the average monthly principal cash flow received by Peoples from its investment portfolio was
approximately $11.9 million, compared to a monthly average of approximately $10.1 million in 2011. The cash flow
received from the investment portfolio in 2012 had an average yield of 3.47% and was reinvested in securities with a yield in
the range of 2.0% to 2.5%. Similar conditions within Peoples' loan portfolio resulted in total asset yields declining by 45
basis points during the year.
Peoples' funding costs benefited from the extinguishment of $35.0 million of higher-cost wholesale borrowings in the
first quarter of 2012 and the maturity of special higher-cost retail CDs. Most of the CDs were part of a special product
offering in 2008 and had an average cost of 3.87%. The majority of these high-cost CDs, nearly $60 million, matured during
the final two quarters of 2011, with $22.0 million at an average rate of 4.22% maturing during the first quarter of 2012. As a
result of the Trust Preferred Redemption, Peoples will realize an annual interest expense savings of $1.1 million beginning in
2013. Peoples remains diligent in minimizing the impact of margin compression on net interest income, with earning asset
growth to be the key driver.
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 two years 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.
Detailed information regarding changes in the 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”.
(Recovery of) Provision for Loan Losses
The following table details Peoples’ provision for loan losses recognized for the years ended December 31:
(Dollars in thousands)
Provision for checking account overdrafts
$
(Recovery of) provision for other loan losses
Net (recovery of) provision for loan losses $
As a percentage of average gross loans (a)
(a) Presented on an annualized basis
2012
2011
$
$
294
(5,010)
(4,716)
(0.49)%
$
$
418
7,580
7,998
0.84%
2010
551
26,365
26,916
2.61%
The recovery of, or provision for, loan losses represents the amount needed to maintain the adequacy of the allowance
for loan losses based on management’s formal quarterly analysis of the loan portfolio and procedural methodology that
estimates the amount of probable credit losses. This process considers various factors that affect losses, such as changes in
Peoples’ loan quality, historical loss experience and current economic conditions. The recovery of loan losses recorded
during 2012 was driven mostly by continued improving trends in various credit quality metrics, including historical loss
trends and the level of criticized loans.
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”.
36
Net Impairment Losses
During 2012 and 2011, there were no net impairment losses recognized. In 2010, net impairment losses of $1.8 million
were recognized, which was comprised of a loss of $986,000 on collateralized debt obligations and a loss of $800,000 on
mortgage-backed securities. The impairment losses 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 with collateralized debt obligations ("CDO") securities were the result of reduced cash flow within
these structured investments since 2007. In the first quarter of 2010, management's analysis concluded two equity tranche
CDO securities held in Peoples' investment portfolio were total losses 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.
Management performed its quarterly analysis of the investment securities with an unrealized loss at December 31, 2012,
and concluded no individual securities were other-than-temporarily impaired.
Net Other (Losses) Gains
The following table details the other gains and losses for the years ended December 31 recognized by Peoples:
(Dollars in thousands)
Net loss on OREO
Gain (loss) on loans held-for-sale
Loss on debt extinguishment
Net (loss) gain on bank premises and equipment
Bargain purchase gains
Net other (losses) gains
2012
2011
2010
$
$
— $
66
(4,144)
(261)
13
(4,326) $
(1,395) $
469
—
10
—
(916) $
(1,854)
(1,319)
(3,630)
(88)
—
(6,891)
The loss on debt extinguishment for 2012 included $3.1 million for the prepayment of $35 million of wholesale
borrowings during the first quarter and $1.0 million for the Trust Preferred Redemption. 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. The
loss recognized on early debt extinguishment in 2010 was the result of the prepayments of wholesale repurchase agreements
completed in the third quarter.
Non-Interest Income
Peoples generates non-interest income, which excludes gains and losses on investments and other assets, from five
primary sources: insurance sales revenues, deposit account service charges, trust and investment activities, electronic banking
(“e-banking”), and mortgage banking. In 2012, Peoples experienced revenue growth from several non-interest income
sources. 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 39.1% of Peoples' total revenues in 2012,
compared to 37.9% in 2011 and 34.6% in 2010.
Insurance income comprised the largest portion of Peoples' non-interest income. The following table details Peoples’
insurance income for the years ended December 31:
(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
$
2012
2011
2010
7,974 $
1,026
526
122
196
9,844 $
7,419 $
944
624
158
120
9,265 $
7,385
585
580
123
173
8,846
Peoples' property and casualty insurance commission income benefited from new business generated by producers, a
high retention rate for existing insurance customers and, to a lesser extent, improving pricing margins within the industry.
The bulk of performance-based commissions typically are recorded annually in the first quarter and are based on a
37
combination of factors, such as loss experience of insurance policies sold, production volumes, and overall financial
performance of the individual insurance carriers.
Service charges and other fees on deposit accounts, which are based on the recovery of costs associated with services
provided, comprised a significant 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 for the years ended December 31:
(Dollars in thousands)
Overdraft and non-sufficient funds fees
Account maintenance fees
Other fees and charges
$
Total deposit account service charges $
2012
2011
2010
7,481 $
1,246
238
8,965 $
8,153 $
1,315
297
9,765 $
8,357
866
358
9,581
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. 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. The lower overdraft and non-
sufficient funds fees were largely due to customer behavior. Account maintenance fees reflect the impact of Peoples'
consumer checking account product offering and pricing structure that was implemented during the first quarter of 2011.
Peoples' fiduciary and brokerage revenues continue to be based primarily upon the value of assets under management.
The following table details Peoples’ trust and investment income for the years ended December 31:
(Dollars in thousands)
Fiduciary
Brokerage
Total trust and investment income
2012
2011
2010
$
$
4,557 $
1,572
6,129 $
4,293 $
1,255
5,548 $
4,396
952
5,348
The following table details Peoples’ managed assets at year-end December 31:
(Dollars in thousands)
Trust assets under management
Brokerage assets under management
Total managed assets
Quarterly average
$
2011
821,659 $
262,196
2012
888,134 $
404,320
2010
836,587
256,579
$ 1,292,454 $ 1,083,855 $ 1,093,166
977,577
$ 1,277,452 $ 1,092,781 $
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. Peoples also added approximately $100 million in
brokerage assets during 2012 due to acquisitions completed during the quarters. The U.S. financial markets experienced a
general increase during 2012, which also contributed to the increase in managed assets.
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. During 2012, electronic banking
income increased $813,000, or 16% compared to 2011, due to a steady increase in the volume of debit card transactions. In
2012, Peoples' customers used their debit cards to complete $391 million of transactions, versus $372 million in 2011 and
$338 million in 2010.
Mortgage banking income is comprised mostly of net gains from the origination and sale of long-term, fixed-rate real
estate loans in 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 in the secondary market. Mortgage
banking income was up significantly, $1,190,000, or 71%, compared to the prior year. The increase was the result of higher
production volumes driven mostly by refinancing activity due to historically low mortgage interest rates. In 2012, Peoples
sold approximately $129.4 million of loans to the secondary market compared to $72.7 million in 2011 and $64.3 million in
2010.
38
Non-Interest Expense
Salaries and employee benefit costs remain Peoples’ largest non-interest expense, accounting for over half of total non-
interest expense. The following table details Peoples’ salaries and employee benefit costs for the years ended December 31:
(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
$
Full-time equivalent employees:
Actual at end of period
Average during the period
2012
2011
2010
21,076 $
6,484
4,277
942
(1,884)
2,531
33,426 $
21,320 $
4,646
5,927
310
(1,370)
2,793
33,626 $
494
499
513
535
20,269
3,365
4,802
92
(1,260)
1,954
29,222
534
531
Base salaries and wages in 2012 have benefited from the decrease in full-time equivalent employees in recent quarters as
part of Peoples' expense reduction efforts, which began in the second half of 2011. In 2011, base salaries and wages
increased compared to 2010 due largely to Peoples filling open senior management positions, plus modest annual base salary
adjustments. Sales-based and incentive compensation was higher in both 2012 and 2011 due primarily to expense accruals
associated with corporate incentive plans, which are tied largely to Peoples' financial performance. In 2012, Peoples also
incurred higher sales-based compensation corresponding with increased sales production within its mortgage banking,
insurance and wealth management activities.
In 2012, employee benefit costs benefited from lower employee medical benefit plan expenses, which are tied to claims
activity. However, in 2011, employee medical benefit plan expenses were higher than those experienced in 2010. In 2011
and 2012, Peoples incurred pension settlement charges totaling $815,000 and $835,000, respectively. For 2011, the
settlement charges 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. Management anticipates Peoples incurring pension settlement charges in 2013 as the threshold will be
lower corresponding with the decrease in discount rate used in the measurement of Peoples' pension liability.
Stock-based compensation is generally recognized over the vesting period, typically ranging from 6 months to 3 years,
although for time-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 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 2012, Peoples granted restricted shares to officers and key employees with both time-based
and performance-based vesting periods and recognized stock-based compensation expense for the entire cost of awards that
were granted to employees eligible for retirement on the grant date. Stock-based compensation expense in 2012 included
$153,000 of additional expense relating to equity-based incentive awards granted to key employees in prior years. Much of
the additional expense was the result of actual forfeitures being lower than previously estimated, while a lesser portion related
to awards granted in the first quarter of 2011 with performance-based vesting conditions. In prior quarters, Peoples did not
record any expense related to these performance-based awards since management had determined it was not probable these
awards would vest. However, the continued strong earnings performance in 2012 led management to conclude it was
probable these awards would vest. Under US GAAP, Peoples was required to recognize the entire pro rata expense relating
to these awards since the grant date. On September 13, 2012, the Board of Directors announced a grant of unrestricted
common shares to all full-time and some part-time employees that did not already participate in the equity plan. The grant
date was October 30, 2012 and resulted in $180,000 of expense. Additional information regarding Peoples' stock-based
compensation plans and awards can be found in Note 17 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 personnel costs for each year corresponds directly with the level of new
39
loan originations. Additional information regarding Peoples' loan activity can be found later in this discussion under the
caption “Loans”.
Peoples’ net occupancy and equipment expense for the years ended December 31 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 $
2012
2011
2010
2,212 $
1,467
866
1,549
6,094 $
1,967 $
1,614
891
1,413
5,885 $
1,943
1,596
894
1,348
5,781
In 2012, Peoples made capital expenditures in the company which resulted in the increase in depreciation expense. As
part of the revitalization of our branch network, depreciation expense will continue to increase throughout 2013.
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. During 2012, Peoples incurred $300,000 in professional fees as a result of acquisition-related activities. 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.
Peoples' e-banking expense, which is comprised of bankcard and internet-based banking costs, increased in both 2011
and 2012 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.
Marketing expense, which includes advertising, donation and other public relations costs, increased compared to the
prior years due mostly to the rebranding efforts. Contributions totaling $400,000 to Peoples Bancorp Foundation Inc. were
made in 2012, compared to $300,000 in 2011. 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 perceived level of need within
the communities Peoples serves. Marketing expense in 2011 was impacted by Peoples increasing its advertising activity
compared to prior years.
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.
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 2012 and 2011, foreclosed real estate and other loan expenses were lower than the prior years due
mostly to costs associated with commercial properties acquired through foreclosure in the fourth quarter of 2009.
While actions taken by the FDIC resulted in higher FDIC insurance costs for 2010, new regulations 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".
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. However, as Peoples continues to pursue
acquisitions, the intangible assets subject to amortization may increase and result in additional intangible asset amortization
expense.
40
Peoples' efficiency ratio, calculated as non-interest expense less amortization of other intangible assets divided by FTE
net interest income plus non-interest income, was 69.55% for 2012, compared to 68.98% for 2011 and 60.30% for 2010. The
increase in 2012 was due mostly to the rebranding and acquisition-related costs. The increase in 2011 was due largely to the
decrease in net interest income.
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 13 of the Notes to the Consolidated Financial Statements.
Pre-Provision Net Revenue
Pre-provision net revenue ("PPNR") has become a key financial measure used by federal bank regulatory agencies when
assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus non-interest income
minus non-interest expense and therefore excludes the provision for loan losses and all gains and losses included in earnings.
As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb
unexpected losses and preserve existing capital.
The following table provides a reconciliation of this non-GAAP financial measure to the amounts reported in Peoples'
consolidated financial statements for the periods presented:
(Dollars in thousands)
2012
2011
2010
Pre-Provision Net Revenue:
Income before income taxes
Add: provision for loan losses
Add: loss on debt extinguishment
Add: loss on loans held-for-sale and OREO
Add: loss on other assets
Less: recovery of loan losses
Less: gain on loans held-for-sale and OREO
Less: net gain on securities transactions
Less: gain on other assets
Pre-provision net revenue
Pre-provision net revenue
Total average assets
$
$
$
29,910
—
4,144
—
261
4,716
66
3,548
13
25,972
25,972
1,841,289
$
$
$
17,151
7,998
—
1,395
31
—
469
473
41
25,592
25,592
1,811,079
$
$
$
5,753
26,916
3,630
3,173
88
—
—
5,066
—
34,494
34,494
1,961,727
Pre-provision net revenue to total average assets (a)
(a) Presented on an annualized basis
1.41%
1.41%
1.76%
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, 2012, excess cash reserves at the Federal Reserve Bank were $11.6 million, compared to $4.4 million at
December 31, 2011. The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position,
which is driven primarily by changes in deposit and loan balances.
41
In 2012, Peoples' total cash and cash equivalents increased $23.6 million, as cash provided by Peoples' operating and
financing activities of $41.3 million and $51.9 million, respectively, exceeded the $69.6 million of cash used by investing
activities. Investing activities used $69.6 million of cash to fund the $16.9 million net loan growth, while purchases of
investment securities exceeded proceeds from sales and principal payments of investment securities by $46.5 million. Within
Peoples' financing activities, deposit growth generated $101.8 million of cash which was used primarily to reduce borrowed
funds by $44.1 million and to repurchase the common stock warrant held by the U.S Treasury.
In comparison, total cash and cash equivalents decreased $35.7 million in 2011, due mostly to cash used in financing and
investing activities exceeding the $43.4 million of cash generated by operating activities. The majority of the $70.2 million
of cash used in Peoples' financing activities related to the TARP Capital Redemption. Peoples also used $15.4 million of cash
to reduce its long-term borrowings.
Further information regarding the management of Peoples' liquidity position can be found later in this discussion under
“Interest Rate Sensitivity and Liquidity.”
Investment Securities
The following table provides information regarding Peoples’ investment portfolio at December 31:
2012
2011
2010
2009
2008
(Dollars in thousands)
Available-for-sale securities, at 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
U.S. government-backed student loan pools
Collateralized debt obligations
$
26 $
32 $
39 $
516
45,668
514,096
64,416
10,357
4,106
—
—
13,037
35,745
527,003
37,289
12,211
3,254
—
—
12,262
47,379
507,534
30,700
12,984
3,088
—
—
Total fair value
Total amortized cost
Net unrealized gain
$
$
$
639,185 $
628,584 $
10,601 $
628,571 $
617,128 $
11,443 $
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)
Held-to-maturity securities, at amortized cost:
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total amortized cost
Total investment portfolio:
Amortized cost
Carrying value
$
$
$
$
3,860 $
33,494
7,921
45,275 $
3,525 $
12,776
—
16,301 $
— $
—
—
— $
— $
—
—
— $
—
—
—
—
673,859 $
684,460 $
633,429 $
644,872 $
617,122 $
613,986 $
706,444 $
726,547 $
696,855
684,757
Peoples has maintained the size of its investment portfolio over the last couple years due to the lack of meaningful loan
growth. In 2012, Peoples continued to designate additional securities 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.
The decrease in obligations of U.S. government sponsored agencies during 2012 was the result of a sale of an individual
security that was recorded at $12.3 million at December 31, 2011. Since 2010, Peoples has also steadily invested in
commercial mortgage-backed securities either backed by the U.S. government or by U.S. government agencies as an
additional method of diversifying from residential mortgage-backed securities and pre-payment risk characteristics associated
with that asset class. During that same period, Peoples has sold certain state and local subdivision (municipal) securities as a
result of the potential for increased credit risk in that sector. However, during 2012, Peoples purchased additional municipal
securities as an additional means of diversifying from mortgage-backed securities. Management evaluates these purchases
42
from a credit, duration, and liquidity risk perspective. Management continues to monitor the municipal sector for signs of
increased stress and will continue to be proactive in taking actions to mitigate such risk when necessary.
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 was as follows at December 31:
(Dollars in thousands)
Residential
Commercial
Total fair value
Total amortized cost
Net unrealized gain
2012
2011
2010
2009
2008
$
$
$
$
37,267 $
—
37,267 $
36,395 $
872 $
58,660 $
1,288
59,948 $
59,148 $
800 $
113,559 $
26,090
139,649 $
136,997 $
2,652 $
153,621 $
24,188
177,809 $
177,370 $
439 $
192,133
25,951
218,084
231,153
(13,069)
In the third quarter of 2011, Peoples sold residential mortgage-backed securities which were showing signs of increased
stress, which caused the decline in this portion of the portfolio compared to 2010. Additionally, management continues to
reinvest the principal runoff from the non-agency securities into U.S agency investments, which has accounted for the decline
experienced since 2010. At December 31, 2012, Peoples' non-agency mortgage-backed portfolio consisted entirely of first
lien residential mortgages, with nearly all of the underlying loans in these securities originated prior to 2004 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.
Additional information regarding Peoples' investment portfolio can be found in Note 3 of the Notes to the Consolidated
Financial Statements.
43
Loans
The following table provides information regarding outstanding loan balances at December 31:
(Dollars in thousands)
Gross portfolio loans:
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
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 average allowance
Percent of loans to total loans:
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total percentage
2012
2011
2010
2009
2008
$
34,265
378,073
412,338
180,131
233,841
51,053
101,246
6,563
$ 985,172
967,166
(21,473)
$ 945,693
$
30,577
410,352
440,929
140,857
219,619
47,790
87,531
1,780
$ 938,506
950,951
(27,259)
$ 923,692
$
27,595
425,528
453,123
153,713
219,833
48,525
83,323
2,201
$ 960,718
1,029,903
(29,597)
$1,000,306
$
41,906
466,148
508,054
160,678
240,949
49,593
91,164
1,620
$1,052,058
1,093,057
(25,081)
$1,067,976
$
92,032
438,163
530,195
176,187
259,196
48,057
88,729
1,668
$1,104,032
1,113,247
(17,428)
$1,095,819
3.5 %
38.4 %
41.9 %
18.3 %
23.7 %
5.2 %
10.3 %
0.6 %
100.0%
3.3 %
43.7 %
47.0 %
15.0 %
23.4 %
5.1 %
9.3 %
0.2 %
100.0%
2.9 %
44.2 %
47.1 %
16.0 %
22.9 %
5.1 %
8.7 %
0.2 %
100.0%
4.0 %
44.2 %
48.2 %
15.3 %
22.9 %
4.7 %
8.7 %
0.2 %
100.0%
8.3 %
39.6 %
47.9 %
16.0 %
23.5 %
4.4 %
8.0 %
0.2 %
100.0%
Residential real estate loans being serviced for others $ 330,721
$ 275,715
$ 250,691
$ 227,855
$ 181,506
Gross portfolio loans increased $46.7 million since December 31, 2011 due largely to the Sistersville acquisition which
added $30.8 million, including $25.3 million in residential real estate loans and $4.3 million in non-mortgage consumer
loans. Commercial real estate loan balances decreased due largely to $19.0 million in pay-offs during the year, of which
$11.8 million was impaired. Commercial and industrial loan balances experienced steady growth during 2012 due to
commercial lending opportunities within Peoples' primary market area.
The following table details the maturities of Peoples' commercial and construction loans at December 31, 2012:
(Dollars in thousands)
Loan Type
Commercial real estate, construction:
Fixed
Variable
Total
Commercial real estate, other:
Fixed
Variable
Total
Commercial and industrial:
Fixed
Variable
Total
Due in One
Year or Less
Due in One
to Five Years
Due After
Five Years
Total
$
$
$
$
$
$
— $
29,886
29,886 $
— $
1,775
1,775 $
23,752 $
213,930
237,682 $
42,476 $
67,742
110,218 $
5,030 $
118,275
123,305 $
41,091 $
740
41,831 $
2,604 $
—
2,604 $
23,162 $
7,011
30,173 $
14,995 $
—
14,995 $
2,604
31,661
34,265
89,390
288,683
378,073
61,116
119,015
180,131
44
The increase in real estate loan balances due to the Sistersville acquisition was offset slightly due to refinancing activity.
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. Peoples experienced significant refinancing
activity in 2012 due 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. Peoples does not intend to sell any of
the residential real estate loans acquired as part of the Sistersville acquisition.
Consumer loan balances, which consist mostly of loans to finance automobile purchases, have increased in 2012 due
largely to Peoples placing greater emphasis on its consumer lending activity. 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.
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 the largest
portion of Peoples' loan portfolio. However, the Sistersville acquisition has created a more diversified portfolio with its large
residential real estate portfolio. The following table provides information regarding the largest concentrations of commercial
real estate loans within the loan portfolio at December 31, 2012:
(Dollars in thousands)
Commercial real estate, construction:
Assisted living facilities and nursing homes
Health care facilities
Apartment complexes
Restaurant facilities
Mixed commercial use facilities - non-owner occupied
Other
Total commercial real estate, construction
Outstanding
Balance
Loan
Commitments
Total
Exposure % of Total
$
$
2,961 $
11,966
6,557
3,928
2,953
5,900
34,265 $
3,026 $
577
4,698
—
27
1,768
10,096 $
5,987
12,543
11,255
3,928
2,980
7,668
44,361
13.5 %
28.3 %
25.4 %
8.9 %
6.7 %
17.2 %
100.0%
45
(Dollars in thousands)
Commercial real estate, other:
Lodging and lodging related
Apartment complexes
Office buildings and complexes:
Owner occupied
Non-owner occupied
Total office buildings and complexes
Light industrial facilities:
Owner occupied
Non-owner occupied
Total light industrial facilities
Retail facilities:
Owner occupied
Non-owner occupied
Total retail facilities
Assisted living facilities and nursing homes
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
Health care facilities:
Owner occupied
Non-owner occupied
Total health care facilities
Restaurant facilities:
Owner occupied
Non-owner occupied
Total restaurant facilities
Other
Outstanding
Balance
Loan
Commitments
Total
Exposure % of Total
$
62,512 $
49,271
25 $
3,079
6,612
25,311
31,923
26,224
9,195
35,419
11,213
19,636
30,849
23,716
8,961
18,687
27,648
7,987
8,749
16,736
7,505
4,748
12,253
131
264
395
1,303
—
1,303
240
332
572
425
228
19
247
—
—
—
11
—
11
62,537
52,350
6,743
25,575
32,318
27,527
9,195
36,722
11,453
19,968
31,421
24,141
9,189
18,706
27,895
7,987
8,749
16,736
7,516
4,748
12,264
16.1 %
13.4 %
1.7 %
6.6 %
8.3 %
7.0 %
2.4 %
9.4 %
3.0 %
5.1 %
8.1 %
6.2 %
2.4 %
4.8 %
7.2 %
2.1 %
2.2 %
4.3 %
1.9 %
1.2 %
3.1 %
9,962
1,669
11,631
76,115
378,073 $
41
—
41
5,232
11,330 $
10,003
1,669
11,672
81,347
389,403
2.6 %
0.4 %
3.0 %
20.9 %
100.0%
Total commercial real estate, other
$
Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary
market areas within Ohio, West Virginia and Kentucky. In all other states, the aggregate outstanding balances of commercial
loans in each state were less than $4.0 million at both December 31, 2012 and December 31, 2011.
46
Allowance for Loan Losses
The amount of the allowance for loan losses at the end of each period represents management's estimate of expected
losses from existing loans based upon its formal quarterly analysis of the loan portfolio described in the “Critical Accounting
Policies” section of this discussion. While this process involves allocations being made to specific loans and pools of loans,
the entire allowance is available for all losses incurred within the loan portfolio. The following details management's
allocation of the allowance for loan losses at December 31:
$
(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
$
2012
2011
2010
2009
2008
14,215
1,733
15,948
801
479
438
145
17,811
$
$
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
As a percentage of total loans
1.81%
2.53%
2.79%
2.59%
2.08%
The addition of $30.8 million of loans added in the Sistersville acquisition caused a 6 basis point reduction in the
allowance for loan losses as a percent of total loans ratio at December 31, 2012 due to more favorable loss rates on the
acquired loans compared to the loss rates on the remaining loans in Peoples' portfolio.
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. In 2012, the allowance for loan losses continued to be
reduced as a result of sustained improvement in several credit quality metrics. Specifically, Peoples has experienced a steady
decrease in criticized loans, which are those classified as watch, substandard or doubtful, due to principal paydowns and
improvements in borrowers' financial conditions. Total criticized loans decreased $52.3 million or 37% since year-end 2011,
reflecting $38.3 million in principal paydowns. Peoples upgraded $11.2 million in loans during 2012 based upon the
financial condition of the borrowers. Net charge-offs were below Peoples' long-term historical rate for 2012. Both of these
factors had a direct impact on the estimated loss rates used to determine the appropriate allocations for commercial loans.
However, Peoples remained cautious with the reduction in the allowance for loan losses as the loss rates experienced in 2012
may not be reflective of inherent losses in the 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.
47
The following table summarizes the changes in the allowance for loan losses for the years ended December 31:
2012
23,717
2011
26,766
$
2010
27,257
$
2009
22,931
$
2008
15,718
$
$
(Dollars in thousands)
Allowance for loan losses, January 1
Gross charge-offs:
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total gross charge-offs
Recoveries:
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total recoveries
Net charge-offs (recoveries):
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total net charge-offs
—
5,146
5,146
34
1,091
94
572
574
7,511
—
4,399
4,399
358
773
32
561
198
6,321
—
747
747
(324)
318
62
11
376
1,190
$
(Recoveries of) provision for loan losses,
December 31
(4,716)
17,811
Ratio of net charge-offs to average loans (annualized):
Allowance for loan losses, December 31 $
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total
— %
0.08 %
0.08 %
(0.03)%
0.03 %
— %
— %
0.04 %
0.12 %
—
11,249
11,249
1,033
1,593
366
939
664
15,844
—
2,469
2,469
729
636
51
687
225
4,797
—
8,780
8,780
304
957
315
252
439
11,047
7,998
23,717
$
$
68
25,568
25,636
1,281
1,129
131
1,074
929
30,180
—
1,322
1,322
220
225
34
671
301
2,773
68
24,246
24,314
1,061
904
97
403
628
27,407
26,916
26,766
$
$
—
18,802
18,802
817
1,544
82
1,381
1,294
23,920
—
1,162
1,162
91
257
55
584
376
2,525
—
17,640
17,640
726
1,287
27
797
918
21,395
25,721
27,257
$
$
—
16,138
16,138
1,923
1,524
145
941
1,298
21,969
156
278
434
239
121
27
388
333
1,542
(156)
15,860
15,704
1,684
1,403
118
553
965
20,427
27,640
22,931
— %
0.92 %
0.92 %
0.03 %
0.10 %
0.03 %
0.03 %
0.05 %
1.16%
0.01 %
2.35 %
2.36 %
0.10 %
0.09 %
0.01 %
0.04 %
0.06 %
2.66%
— %
1.61 %
1.61 %
0.07 %
0.12 %
— %
0.07 %
0.09 %
1.96%
(0.01)%
1.42 %
1.41 %
0.15 %
0.13 %
0.01 %
0.04 %
0.09 %
1.83 %
$
$
48
The following table details Peoples’ nonperforming assets at December 31:
(Dollars in thousands)
Loans 90+ days past due and accruing:
2012
2011
2010
2009
2008
Commercial real estate
Commercial and industrial
Residential real estate
Consumer
Total
Nonaccrual loans:
Commercial real estate
Commercial and industrial
Residential real estate
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
$
— $
181
—
4
185
— $
—
—
—
—
— $
—
27
—
27
$
164
—
238
9
411
7,259
627
2,786
24
20
10,716
2,572
350
2,922
13,823
815
21
836
14,659
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
1.39%
0.76%
1.48%
128.86%
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%
The decrease in nonperforming assets during 2012 was due mostly to loans being paid-off. During 2012, nonaccrual
commercial real estate loans with aggregate balances of $11.8 million at year-end 2011 were paid off, $2.0 million of which
was classified as troubled debt restructurings at year-end 2011.
The majority of Peoples' nonaccrual commercial real estate loans continues to 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, usually no less frequently than
annually. 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.
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 $0.5 million for 2012, $1.0 million for 2011 and $2.6 million for 2010. No portion of the
amounts was recorded during 2012, 2011 or 2010, 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, 2012, 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.
49
Deposits
The following table details Peoples’ deposit balances at December 31:
(Dollars in thousands)
Interest-bearing deposits:
Retail certificates of deposit
Money market deposit accounts
Governmental deposit accounts
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
$
$
2012
2011
2010
2009
2008
392,313 $
288,404
130,630
183,499
124,787
1,119,633
55,599
1,175,232
317,071
1,492,303 $
411,247 $
264,873
126,453
138,383
106,233
1,047,189
64,054
1,111,243
239,837
1,351,080 $
430,886 $
284,382
127,719
119,572
96,507
1,059,066
87,465
1,146,531
215,069
1,361,600 $
480,512 $
260,842
114,489
147,745
91,878
1,095,466
102,420
1,197,886
198,000
1,395,886 $
518,401
211,425
107,787
105,932
90,873
1,034,418
151,910
1,186,328
180,040
1,366,368
The Sistersville acquisition added $38.5 million of interest-bearing deposits, divided almost equally among certificates of
deposits (“CDs”), money market and savings accounts, and $0.9 million of non-interest-bearing deposits.
Also during 2012, Peoples maintained its recent deposit strategy of growing low-cost core deposits, such as checking and
savings accounts, and reducing its reliance on higher-cost, non-core deposits, such as 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 in 2012.
Non-interest-bearing deposits continued to grow in 2012, due largely to higher commercial deposit balances. The
increased balances reflect Peoples' increased focus on obtaining the deposit relationships of its commercial clients. Since
year-end 2011, non-interest-bearing commercial deposit balances have increased $53.1 million.
Peoples' governmental deposit accounts 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 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 governmental
deposit accounts.
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
2012
2011
2010
2009
2008
$
$
55,579 $
18,592
26,749
83,638
184,558 $
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
50
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
Other long-term borrowings
Total long-term borrowings
Subordinated debentures held by subsidiary trust
64,904
40,000
23,919
128,823
—
Total borrowed funds
$
176,592 $
2012
2011
2010
2009
2008
$
15,000 $
32,769
—
47,769
8,500 $
43,143
—
51,643
77,312
65,000
—
142,312
22,600
216,555 $
— $
51,509
—
51,509
92,703
65,000
—
157,703
22,565
231,777 $
25,000 $
51,921
—
76,921
101,113
145,000
—
246,113
22,530
345,564 $
30,000
54,452
14,400
98,852
148,297
160,000
—
308,297
22,495
429,644
The reduction in the long-term borrowings since year-end 2011 was due to Peoples prepaying a $10 million FHLB
advance and $25 million of national market repurchase agreements during the first quarter of 2012. Total borrowings in 2012
were impacted by the Trust Preferred Redemption. Peoples expects to continue using funds generated from other sources,
such as retail deposit growth, to repay maturing long-term borrowings and to minimize the need for overnight borrowings.
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 2012, Peoples' total stockholders' equity benefited from earnings exceeding dividends declared. Regulatory
capital ratios, with the exception of Tier 1 common, experienced modest reductions due to the Sistersville acquisition and the
Trust Preferred Redemption.
At December 31, 2012, 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 to provide greater flexibility to work through the remaining
asset quality issues plus provide capacity to grow the company.
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
2012
2011
2010
2009
2008
$
$
160,604
160,604
176,224
1,141,938
$
$
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
14.06%
14.06%
15.43%
8.83%
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%
51
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. Further, intangible assets
generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value
should there be deterioration in the overall franchise value. As a result, tangible common equity represents a conservative
measure of the capacity for a company to incur losses but remain solvent.
The following table reconciles the calculation of these non-GAAP financial measures to amounts reported in Peoples'
Consolidated Financial Statements at December 31:
(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
Tangible Book Value per Share:
Tangible common equity
Common shares outstanding
Tangible book value per share
$
$
$
$
$
$
$
$
2012
2011
2010
2009
2008
221,728
68,525
153,203
153,203
—
153,203
$
$
$
$
206,657
64,475
142,182
142,182
—
142,182
$
$
$
$
230,681
64,870
165,811
165,811
38,645
127,166
1,918,050
68,525
1,849,525
$ 1,794,161
64,475
$ 1,729,686
$ 1,837,985
64,870
$ 1,773,115
153,203
10,547,960
$
142,182
10,507,124
$
127,166
10,457,327
$
$
$
$
$
$
$
243,968
65,599
178,369
178,369
38,543
139,826
2,001,827
65,599
1,936,228
139,826
10,374,637
$
$
$
$
$
$
$
186,626
66,406
120,220
120,220
—
120,220
2,002,338
66,406
1,935,932
120,220
10,333,884
14.52
$
13.53
$
12.16
$
13.48
$
11.63
Tangible Equity to Tangible Assets Ratio:
Tangible equity
Tangible assets
$
$
153,203
1,849,525
$
142,182
$ 1,729,686
$
165,811
$ 1,773,115
$
$
178,369
1,936,228
$
$
120,220
1,935,932
Tangible equity to tangible assets
8.28%
8.22%
9.35%
9.21%
6.21%
Tangible Common Equity to Tangible Assets Ratio:
Tangible common equity
Tangible assets
153,203
1,849,525
$
$
142,182
$
$ 1,729,686
127,166
$
$ 1,773,115
$
$
139,826
1,936,228
$
$
120,220
1,935,932
Tangible common equity to tangible assets
8.28%
8.22%
7.17%
7.22%
6.21%
52
Future Outlook
In 2012, the banking industry continued to face a challenging environment: interest rates remained at historically low
levels; national economic conditions were relatively unfavorable and regulatory burdens increased as a result of the ongoing
implementation of the Dodd-Frank Act. Despite these challenges, Peoples achieved success in several major areas during
2012. These included stronger earnings due to a return to positive operating leverage, modest loan growth, continued
restoration of asset quality and increased shareholder value. Also in 2012, Peoples made several strategic investments for
future growth of the company. These investments included expanding Peoples' consumer lending activities, completing
acquisitions in all three lines of business, and rolling out a new brand and refreshed image.
Management expects some conditions within the banking industry to remain difficult in 2013. The Federal Reserve
appears committed to holding interest rates at their current low levels, while unemployment remains elevated and inflation
low. Additionally, the pace at which new regulatory requirements will be implemented is not likely to slow down. In terms
of the economy, national economic conditions could remain unfavorable. However, oil and natural gas exploration within the
Marcellus and Utica shale formations is causing increased economic activity within Peoples' primary market area.
Specifically, many rural customers are gaining considerable wealth from the sales/leasing of mineral rights on their land.
Hotels, restaurants and other local businesses also are benefiting from the influx of workers. These conditions are causing the
unemployment rates in Ohio and West Virginia to remain lower than the national average.
A major accomplishment for 2012 was Peoples' ability to generate positive operating leverage – growing total revenue
faster than total non-interest expenses – and ending a three-year negative trend. Management is committed to generating
positive operating leverage each year. In 2013, management is expecting total revenue growth of 4 to 6%, driven largely by
stronger non-interest income generation. At the same time, total non-interest expenses will be higher in 2013 due to the
ongoing strategic investments. As a result, Peoples' efficiency ratio is expected to be in the range of 68% to 70% during
2013, absent any new acquisition-related costs. Management remains committed to disciplined expense management and
controlling non-interest expenses.
In 2013, Peoples' non-interest income will benefit from a full-year's impact of recent acquisitions. Management also
anticipates better revenue synergies due to Peoples' rebranding initiative and the economic activity being generated from the
shale drilling within Peoples' footprint. In contrast, first quarter non-interest income is expected to be impacted by lower
annual performance-based insurance income. While difficult to predict, management believes this income could be up to
50% lower than the amount earned in 2012. The reduction could occur due to higher insurance loss experienced in 2012 as a
result of claims activity related to a major storm that hit the region in late June 2012. Mortgage banking income also could
be lower in 2013 should there be a slowdown in refinancing activity. Overall, management anticipates non-interest income
growth in 2013 similar to, if not better than, the rate of increase experienced in 2012.
Peoples' revenue stream is more diversified than most community banks comparable in size to Peoples. Still, net interest
income remains a major source of revenue for Peoples. As a result, Peoples' ability to grow revenue in 2013 will be impacted
by the amount of net interest income generated. The current outlook is for the Federal Reserve to allow interest rates to
remain at their historically low levels throughout all of 2013. Should this occur, management would expect both net interest
income and margin to face downward pressure from lower reinvestment rates within the loan and investment portfolios.
Some of this impact could be offset by the impact of the Trust Preferred Redemption. This transaction is expected to lower
Peoples' overall cost of funds by approximately 6 basis points in 2013. Management does not anticipate taking any additional
actions in 2013 to restructure the liability side of Peoples' balance sheet. Rather, Peoples expects to maintain its recent
funding strategy of adjusting its deposit mix away from higher-cost CDs to low-cost checking and savings balances.
Management would expect both net interest income and margin to benefit from any meaningful increase in market
interest rates based upon the current interest rate risk profile. However, it remains inherently difficult to predict and manage
the future trend of Peoples' net interest income and margin due to the uncertainty surrounding the timing and magnitude of
future interest rate changes, as well as the impact of competition for loans and deposits.
Given the current interest rate outlook, Peoples is committed to achieving meaningful loan growth as a means of growing
net interest income and expanding net interest margin in 2013. Management believes gross loan balances could increase by
8% to 10% in 2013, with more than half coming from growth in consumer loans. Within Peoples' commercial lending
activity, the primary emphasis continues to be on non-mortgage commercial lending opportunities, including small business
lending, and developing new niches, such as health care and oil and gas lending. As a result, commercial and industrial loan
balances are expected to increase 5% to 7% in 2013, while commercial real estate loan balances could increase by 2% to 4%.
Peoples also remains committed to making consumer loans a larger portion of the loan portfolio. In early 2012, Peoples
bolstered its consumer lending activities by adding an experienced consumer lender to the management team. Since that
time, management has been working diligently to improve Peoples' processes and develop the structure to support further
53
expansion of consumer lending. Already in 2013, Peoples has added a sales position within its indirect consumer lending
area to generate greater activity from automobile dealerships operating in Peoples' market area.
In 2012, Peoples' earnings benefited from the release of reserves due to the sustained improvement in asset quality and
significantly higher recoveries than prior years. As Peoples works to grow loans in 2013, management will maintain its focus
on improving Peoples' asset quality by balancing loan growth with prudent risk management and sound underwriting
standards. Overall, Peoples' goal is to return all of its credit metrics to their long-term historical levels, which management
believes could occur during 2013. While management will continue to pursue collection of prior charge-offs, it is unlikely
Peoples will sustain the level of recoveries experienced during 2012 in 2013 and future years. As a result, management
anticipates Peoples' net charge-off rate for 2013 to be more in line with its long-term historical range of 0.20% to 0.50% of
average loans. In light of these factors and the planned loan growth, management intends to remain prudent with the level of
Peoples' allowance for loan losses. Consequently, the amount of any recovery of, or provision for, loan losses will be based
upon management's quarterly assessment of the losses inherent in the loan portfolio.
Peoples' total non-interest expense is expected to increase slightly in 2013. Much of the additional costs will be due to a
full year's impact of the acquisitions completed in 2012. Peoples also will incur some costs associated with the $5 million
branch refresh project announced during the fourth quarter. This project will involve floor-to-ceiling renovations intended to
bring a consistent look to all of Peoples' offices and improve the use of existing office space. Additionally, the project will
create a more engaging and attractive environment for clients and employees. At the end of this project, every aspect of the
company will have undergone a transformation to Peoples' new brand. Even with these additional expenses, management
expects Peoples' total non-interest expenses to be approximately $16.6 million per quarter during 2013, without any new
acquisition-related costs.
Peoples' investment securities portfolio could remain a significant portion of the earning asset base in 2013. 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 in response to other factors, such as changes in liquidity needs and interest rate conditions.
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 within existing markets, while taking advantage of potential growth
opportunities within its insurance and wealth management lines of business. Management believes Peoples' capital position
remains strong enough to support an active mergers and acquisitions strategy and expansion of Peoples' core financial service
businesses of banking, insurance and wealth management. Consequently, management will continue to 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 or size. Additionally, Peoples remains
committed to preserving its diversified revenue stream where nearly 40% of total revenue is derived from Peoples' fee-based
businesses. Further, such transactions must be accretive in their second year in order to satisfy Peoples' goal of improving
shareholder return.
The operating environment for banks in 2013 is expected to remain challenging. Peoples' strategic objectives include a
return to being a steady, dependable performer for its shareholders and taking advantage of market expansion opportunities.
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.
Management is committed to overcoming any challenges Peoples will face in 2013 and building upon the earnings
momentum of 2012. 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.
54
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 affect Peoples'
exposure 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.
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
Estimated Increase in
Net Interest Income
Estimated (Decrease) Increase in
Economic Value of Equity
(in Basis Points) December 31, 2012
$
300
200
100
9,688
8,627
6,311
19.6% $
17.5%
12.8%
7,061
6,250
4,548
13.9% $ (20,348)
(3,888)
12.3%
7,344
9.0%
December 31, 2011
December 31, 2012
December 31, 2011
(4.1)%
0.9 %
3.6 %
(8,855)
2,036
7,728
(8.5)% $
(1.6)%
3.1 %
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
55
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, 2012, 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. During 2012,
Peoples became more sensitive to rising interest rates due to several factors. The largest factors impacting Peoples'
interest rate sensitivity were the contractual conversion of certain commercial loans from fixed-rate to variable-rate
loans, and increased sensitivity to rising interest rates in the investment portfolio. Additionally, actions taken on the
liability side of the balance sheet, which included retail deposit pricing strategies, the extinguishment of longer wholesale
borrowings and Peoples’ Trust Preferred Redemption, also impacted Peoples' interest rate sensitivity position. While
parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in Peoples' Consolidated Balance
Sheet, interest rates typically move in a non-parallel manner. Thus, any benefit that could occur as a result of the Federal
Reserve Board increasing short-term interest rates in future quarters could be offset by an inverse movement in long-
term interest rates.
Liquidity
In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity.
The 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
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 unencumbered 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
56
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. As
of December 31, 2012, Peoples had a ratio of 1.56 times, which was within policy limits. 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 3.0
times for this liquidity management policy limit. As of December 31, 2012, Peoples had a ratio of 6.31 times, which was
within policy limits.
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
withdrawals 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
withdrawals 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 base scenario, 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 allows 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 base, 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.
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.
57
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
Contingent consideration related to acquisitions
Note
15
5
9
18
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, 2012:
(Dollars in thousands)
Long-term debt (1)
Operating leases
Time deposits
Contingent consideration related to acquisitions (2)
Total
$
$
Total
128,823 $
3,419
447,912
706
580,860 $
Less than 1
year
Payments due by period
1-3 years
3-5 years
More than
5 years
6,996 $
764
232,631
365
240,756 $
12,748 $
827
126,244
256
140,075 $
11,927 $
603
76,039
85
88,654 $
97,152
1,225
12,998
—
111,375
(1) Amounts reflect solely the minimum required principal payments.
(2) Amounts assume required revenue metrics are achieved.
Management does not anticipate Peoples’ current off-balance sheet activities will have a material impact on its future
results of operations and financial condition based on historical experience and recent trends.
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.
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.
58
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, 2012. 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 60 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 61 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, 2012, that have materially affected, or are
reasonably likely to materially affect, Peoples’ internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
59
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, 2012, using the Internal Control-Integrated 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, 2012,
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 on Form 10-K 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
60
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,
2012, 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, 2012, 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, 2012 and 2011, and the related consolidated statements of
income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended
December 31, 2012, of Peoples Bancorp Inc. and subsidiaries and our report dated February 28, 2013 expressed an
unqualified opinion thereon.
Charleston, West Virginia
February 28, 2013
61
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, 2012 and 2011, and the related consolidated statements of income, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended December 31, 2012. 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, 2012 and 2011, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended December 31, 2012, 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, 2012, 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, 2013 expressed an unqualified opinion thereon.
Charleston, West Virginia
February 28, 2013
62
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
Available-for-sale investment securities, at fair value (amortized cost of
$628,584 at December 31, 2012 and $617,128 at December 31, 2011)
Held-to-maturity investment securities, at amortized cost (fair value of $47,124
at December 31, 2012 and $16,705 at December 31, 2011)
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 debentures 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, 2012 and December 31, 2011
Common stock, no par value, 24,000,000 shares authorized, 11,155,648 shares
issued at December 31, 2012 and 11,122,247 shares issued at December 31,
2011, including shares in treasury
Retained earnings
Accumulated other comprehensive income, net of deferred income taxes
Treasury stock, at cost, 607,688 shares at December 31, 2012 and 615,123
shares at December 31, 2011
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to the Consolidated Financial Statements
63
$
$
$
December 31,
2012
2011
47,256 $
15,286
62,542
32,346
6,604
38,950
639,185
628,571
45,275
16,301
24,625
709,085
985,172
(17,811)
967,361
6,546
27,013
51,229
64,881
3,644
25,749
1,918,050 $
317,071 $
1,175,232
1,492,303
47,769
128,823
—
27,427
1,696,322
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
—
—
167,039
166,969
69,158
654
53,580
1,412
(15,123)
(15,304)
221,728
1,918,050 $
206,657
1,794,161
$
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 debentures held by subsidiary trust
Total interest expense
Net interest income
(Recovery of) provision for loan losses
Net interest income after (recovery of) 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:
Insurance income
Deposit account service charges
Trust and investment income
Electronic banking income
Mortgage banking income
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
Electronic banking expense
Marketing expense
Data processing and software
Franchise tax
Communication expense
Foreclosed real estate and other loan expenses
FDIC insurance
Amortization of other intangible assets
Other non-interest expense
Total other expenses
Income before income taxes
Income tax expense
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
64
2012
2011
2010
$
48,238 $
19,778
1,434
20
69,470
49,410 $
24,149
1,550
24
75,133
9,059
74
3,949
1,913
14,995
54,475
(4,716)
59,191
—
—
—
9,844
8,965
6,129
5,955
2,877
3,548
(4,326)
1,201
34,193
33,426
6,094
4,370
3,342
2,682
1,979
1,486
1,285
1,001
1,002
509
6,298
63,474
29,910
9,525
20,385 $
—
20,385 $
1.92 $
1.92 $
13,930
103
5,142
1,979
21,154
53,979
7,998
45,981
—
—
—
9,265
9,765
5,548
5,142
1,687
473
(916)
1,537
32,501
33,626
5,885
3,531
2,692
1,765
1,893
1,505
1,223
1,213
1,867
586
5,545
61,331
17,151
4,596
12,555 $
1,343
11,212 $
1.07 $
1.07 $
10,527,885
10,528,286
10,482,318
10,482,318
$
$
$
$
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)
8,846
9,581
5,348
4,686
1,566
6,852
(6,891)
1,607
31,595
29,222
5,781
3,108
2,453
1,023
2,032
1,576
1,188
1,675
2,470
918
5,596
57,042
5,753
172
5,581
2,052
3,529
0.34
0.34
10,424,474
10,431,990
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(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
Less: reclassification adjustment for net gain included in net income
Related tax expense
Net effect on other comprehensive (loss) income
Defined benefit plans:
Net (loss) gain arising during the period
Related tax benefit (expense)
Amortization of unrecognized loss and service cost on benefit plans
Related tax expense
Recognition of loss due to settlement and curtailment
Related tax expense
Net effect on other comprehensive (loss) income
Total other comprehensive (loss) income, net of tax
Total comprehensive income (loss)
2012
2011
2010
$
20,385 $
12,555 $
5,581
2,706
(947)
3,548
(1,242)
(547)
(1,320)
462
161
(57)
835
(292)
(211)
(758)
19,627 $
15,053
(5,269)
473
(166)
9,477
(6,448)
2,257
76
(27)
815
(285)
(3,612)
5,865
18,420 $
(18,174)
6,361
5,066
(1,773)
(15,106)
1,640
(574)
132
(47)
23
(8)
1,166
(13,940)
(8,359)
$
See Notes to the Consolidated Financial Statements
65
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Preferred Common Retained
Comprehensive
Treasury
Stockholders'
Accumulated Other
Total
(Dollars in thousands)
Stock
Stock
Earnings
Income (Loss)
Balance, December 31, 2009
$
38,543 $ 166,227 $
46,229 $
9,487 $
Stock
(16,518) $
Net income
Other comprehensive loss, net of tax
Reissuance of treasury stock for common
stock option exercises
Accrued dividends on preferred shares
Amortization of discount on preferred stock
102
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
Stock-based compensation expense
5,581
(1,950)
(102)
(4,211)
(428)
4
403
92
(13,940)
855
488
(181)
Equity
243,968
5,581
(13,940)
427
(1,950)
—
(4,211)
4
488
(181)
403
92
Balance, December 31, 2010
$
38,645 $ 166,298 $
45,547 $
(4,453) $
(15,356) $
230,681
Net income
Other comprehensive income, net of tax
Accrued dividends on preferred shares
Amortization of discount on preferred stock
355
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
Common shares issued under Board of
Directors' compensation plan
Stock-based compensation expense
Repurchase of preferred stock
Balance, December 31, 2011
Net income
Other comprehensive loss, net of tax
Repurchase of common stock warrant
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
Common shares issued under Board of
Directors' compensation plan
Stock-based compensation expense
12,555
(988)
(355)
(3,179)
5,865
1
318
42
310
176
(187)
63
(39,000)
$
— $ 166,969 $
53,580 $
1,412 $
(15,304) $
20,385
(4,807)
(758)
(1,201)
16
357
(44)
942
163
(156)
174
12,555
5,865
(988)
—
(3,179)
1
176
(187)
318
105
310
(39,000)
206,657
20,385
(758)
(1,201)
(4,807)
16
163
(156)
357
130
942
221,728
Balance, December 31, 2012
$
— $ 167,039 $
69,158 $
654 $
(15,123) $
See Notes to the Consolidated Financial Statements
66
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:
Depreciation, amortization, and accretion, net
(Recovery of) provision for loan losses
Bank owned life insurance income
Net gain on investment securities
Loss on debt extinguishment
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 in interest receivable
Other, net
Net cash provided by operating activities
Investing activities:
Available-for-sale investment securities:
Purchases
Proceeds from sales
Proceeds from principal payments, calls and prepayments
Held-to-maturity investment securities:
Purchases
Proceeds from principal payments
Net (increase) decrease in loans
Net expenditures for premises and equipment
Proceeds from sales of other real estate owned
Proceeds from bank owned life insurance
Business acquisitions, net of cash received
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 increase (decrease) in interest-bearing deposits
Net (decrease) increase in short-term borrowings
Proceeds from long-term borrowings
Payments on long-term borrowings
Redemption of junior subordinated debentures
Repurchase of preferred shares and common stock warrant
Preferred stock dividends
Cash dividends paid on common shares
Purchase of treasury stock
Proceeds from issuance of common shares
Excess tax benefit from share-based payments
Net cash provided by (used in) financing activities
Net increase (decrease) 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
67
2012
2011
2010
$
20,385 $
12,555 $
5,581
18,765
(4,716)
(40)
(3,548)
4,144
(132,714)
131,040
(2,746)
4,521
2,345
462
3,356
41,254 $
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
$
(271,520)
113,756
140,470
(198,556)
59,868
126,587
(269,396)
150,844
202,671
(40,352)
11,188
(16,884)
(4,530)
1,813
—
(3,321)
(187)
(69,567)
63,437
38,319
(3,874)
24,000
(40,517)
(23,668)
(1,201)
—
(4,457)
(156)
6
16
51,905
23,592
38,950
62,542 $
(13,341)
—
11,430
(1,290)
2,158
4,499
—
(234)
(8,879)
(2,000)
—
61,069
(1,979)
499
—
—
(249)
141,459
24,768
(35,379)
134
—
(15,391)
—
(39,000)
(1,232)
(3,922)
(187)
10
—
(70,199)
(35,694)
74,644
38,950 $
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
15,570 $
5,563 $
21,386 $
1,574 $
30,109
385
$
$
$
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 44 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 was a variable interest entity for which Peoples was not the primary
beneficiary. As a result, the accounts of this trust were 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 were $3.0 million and $2.0 million in funds at
December 31, 2012 and 2011, 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”), the Federal Reserve Bank of Cleveland (the "FRB") and a capital investment in West Virginia Bankers
Insurance.
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) the duration and
magnitude of the decline in value, (2) the financial condition of the issuer or issuers and (3) the structure of the security.
68
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.
Fair Value Measurements: 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.
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.
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 $1.5 million and $1.1 million at December 31, 2012 and 2011, 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 typically 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 charged down to the net realizable value, with the
residual balance placed on nonaccrual status.
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.
69
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 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 consumer loans. 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
charged off by management.
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 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.
Peoples strives to review, at least annually, all loan relationships with aggregate outstanding debt to Peoples of $500,000
or more, 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.
70
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.
Troubled Debt Restructuring: The restructuring of a loan is considered a troubled debt restructuring ("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 insufficient to satisfy contractual payments due under the original terms of the loan without a
modification.
Peoples considers all aspects of the modification to loan terms to determine whether or not a concession has been
granted to the borrower. Key factors considered by Peoples include the debtor's ability to access funds at a market rate for
debt with similar risk characteristics, the significance of the modification relative to the unpaid principal balance or
collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual
terms of the loan. The most common concessions granted by Peoples generally include one or more modifications to the
terms of the 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 the
remaining term of the loan. All TDRs are considered impaired loans and are evaluated individually to determine if a
write-down is required and if they should be on accrual or nonaccrual status.
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.
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 policies.
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 $0.8
million and $1.4 million at December 31, 2012 and 2011, 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 $0.8 million at December 31, 2012, and $2.2 million at December 31, 2011.
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, 2012, based upon the estimated fair value
of Peoples' single reporting unit.
71
Peoples' other intangible assets consist of customer relationship intangible assets 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, redeemed in 2011 and 2012, respectively, that were 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 were 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 was computed as the present value of the difference between dividends that
would 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 was the amount which, together
with the stated dividend in the period, resulted in a constant rate of effective cost with regard to the carrying amount of the
preferred stock.
Common stock warrants were evaluated for liability or equity treatment. The common stock warrant outstanding was
carried in stockholders' equity until repurchased 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.
72
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, 2012 and 2011.
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 participation 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 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 June 2011, the FASB issued an accounting standards update with new guidance on the presentation of other
comprehensive income (“OCI”). This standard was effective for public companies for fiscal years, and interim period
within those years, beginning after December 15, 2011, and was to be applied retrospectively. The amendment now
requires an entity to either present components of net income and other comprehensive income in one continuous
statement or in two separate but consecutive statements. This standard is intended to improve the overall quality of
financial reporting by increasing the prominence of items reported in OCI, and additionally align the presentation of OCI
in financial statements prepared in accordance with U.S. GAAP with those prepared in accordance with IFRSs. Peoples
adopted this new guidance on January 1, 2012, as required. As a result of the adoption, the components of OCI are
presented in a separate statement following the Consolidated Statements of Income.
73
Note 2. Fair Value of Financial Instruments
Assets measured at fair value on a recurring basis comprised the following at December 31, 2012:
(Dollars in thousands)
December 31, 2012
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, 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
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
$
$
$
$
26 $
516
45,668
514,096
64,416
10,357
4,106
639,185 $
32 $
13,037
35,745
527,003
37,289
12,211
3,254
628,571 $
— $
—
681
—
—
—
3,971
4,652 $
— $
—
—
—
—
—
3,126
3,126 $
26 $
516
44,987
514,096
64,416
10,357
135
634,533 $
32 $
13,037
35,745
527,003
37,289
12,211
128
625,445 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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 curves, credit spreads and prices from market
makers and live trading systems (Level 2).
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 the amounts to be received are less
than the carrying value of the loans. One of the allowable methods for determining the amount of impairment is
estimating fair value using the fair value of the collateral for collateral-dependent loans. Management’s
determination of the fair value for these loans uses a market approach representing the estimated net proceeds to be
received from the sale of the collateral based on observable market prices or market value provided by independent,
licensed or certified appraisers (Level 2 inputs). At December 31, 2012, impaired loans with an aggregate
outstanding principal balance of $11.2 million were measured and reported at a fair value of $6.7 million. For the
year ended December 31, 2012, Peoples recognized losses of $4.5 million on impaired loans through the allowance
for loan losses.
74
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 debentures held by subsidiary trust
2012
2011
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
62,542 $
709,085
973,907
62,542
710,934
897,132
$
38,950 $
669,228
918,060
38,950
669,632
828,477
$ 1,492,303 $ 1,503,098
47,769
141,691
—
47,769
128,823
—
$ 1,351,080 $ 1,363,742
51,643
157,553
23,760
51,643
142,312
22,600
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 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 (Level 2 inputs). 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 (Level 2 inputs).
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 (Level 2 inputs).
Junior Subordinated Debentures Held by Subsidiary Trust: The fair value of the junior subordinated debentures
held by subsidiary trust was estimated using discounted cash flow analysis based on current market rates of securities
with similar risk and remaining maturity (Level 2 inputs).
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.
75
Note 3. Investment Securities
Available-for-sale
The following table summarizes Peoples’ available-for-sale investment securities:
(Dollars in thousands)
December 31, 2012
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, 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
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
26 $
486
42,458
511,305
62,129
10,966
1,214
628,584 $
32 $
12,291
32,763
521,231
35,712
13,886
1,213
617,128 $
$
$
$
— $
30
3,292
12,558
2,330
73
2,977
21,260 $
— $
746
2,982
15,607
1,577
12
2,134
23,058 $
— $
—
(82)
(9,767)
(43)
(682)
(85)
(10,659) $
— $
—
—
(9,835)
—
(1,687)
(93)
(11,615) $
26
516
45,668
514,096
64,416
10,357
4,106
639,185
32
13,037
35,745
527,003
37,289
12,211
3,254
628,571
Peoples’ investment in equity securities was comprised entirely of common stocks issued by various unrelated bank
holding companies at both December 31, 2012 and December 31, 2011. At December 31, 2012, 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.
The gross gains and gross losses realized by Peoples from sales of available-for-sale securities for the years ended
December 31 were as follows:
(Dollars in thousands)
Gross gains realized
Gross losses realized
Net gain realized
2012
2011
2010
$
$
4,306 $
758
3,548 $
1,110 $
637
473 $
8,306
1,454
6,852
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.
76
135,250
2,326
89,958
7,441
The following table presents a summary of available-for-sale investment securities that had an unrealized loss:
Less than 12 Months
Unrealized
Loss
No. of
Securities
Fair
Value
(Dollars in thousands)
December 31, 2012
Obligations of:
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
4,558
—
—
82
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Bank-issued trust preferred
securities
Equity securities
Total
December 31, 2011
Obligations of:
7,681
2,376
—
$ 149,865 $
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 $
43
18
—
2,469
—
—
—
756
—
625
—
1,381
—
—
—
—
664
85
8,190
—
—
—
—
5,434
91
$ 95,483 $
—
—
—
—
91,400
9,079
—
—
4,329
83
$ 95,815 $
1,062
93
10,234
—
8
28
2
2
—
40
—
—
13
—
4
—
17
—
—
82
—
—
—
—
4,558
225,208
9,767
7,681
7,810
91
$ 245,348 $
43
682
85
10,659
—
—
151,548
9,835
—
—
11,201
83
$ 162,835 $
1,687
93
11,615
—
—
20
—
5
1
26
—
—
15
—
5
1
22
— $
3 $
1
$
3 $
Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair
value on a quarterly basis. At December 31, 2012, 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, 2012 and December 31, 2011, were largely attributable to changes in market interest rates and spreads since
the securities were purchased.
At December 31, 2012, approximately 96% of the mortgage-backed securities that have been at an unrealized loss
position for twelve months or more were issued by U.S. government sponsored enterprises. The remaining 4%, or seven
positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to
2004. Three of the seven positions had a fair value less than 90% of their book value, with an aggregate book and fair value
of $2.0 million and $1.6 million, respectively. 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.
Furthermore, two of the five bank-issued trust preferred securities which were in an unrealized loss position were within
90% of book value, while the unrealized losses for the remaining three were primarily attributable to the floating nature of
those investments, the current interest rate environment and spreads within that sector. The remaining three securities had an
aggregate book value of approximately $3.0 million and fair value of $2.4 million at December 31, 2012.
77
The table below presents the amortized cost, fair value and weighted-average yield of available-for-sale securities by
contractual maturity at December 31, 2012. 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
$
$
$
Within 1
Year
1 to 5
Years
5 to 10
Years
Over 10
Years
Total
$
— $
—
556
—
—
—
23
486
1,549
680
5,343
—
$
3
—
12,566
65,363
41,564
—
— $
—
27,787
445,262
15,222
10,966
556
$
8,081
$ 119,496
$ 499,237
$
— $
—
566
—
—
—
23
516
1,679
729
5,674
—
$
3
—
13,696
66,967
43,173
—
— $
—
29,727
446,400
15,569
10,357
26
486
42,458
511,305
62,129
10,966
1,214
$ 628,584
26
516
45,668
514,096
64,416
10,357
4,106
$ 639,185
Total available-for-sale securities
$
Total average yield
$
566
6.20%
8,621
3.63%
$ 123,839
$ 502,053
3.27%
3.03%
3.09%
Held-to-Maturity
The following table summarizes Peoples’ held-to-maturity investment securities:
(Dollars in thousands)
December 31, 2012
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
December 31, 2011
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Total held-to-maturity securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
$
$
$
3,860 $
33,494
7,921
45,275 $
390 $
1,107
393
1,890 $
— $
(41)
—
(41) $
4,250
34,560
8,314
47,124
3,525 $
12,776
16,301 $
262 $
230
492 $
— $
(88)
(88) $
3,787
12,918
16,705
There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for the years
ended December 31, 2012, 2011 and 2010.
78
The following table presents a summary of held-to-maturity investment securities that had an unrealized loss:
(Dollars in thousands)
December 31, 2012
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
December 31, 2011
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
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
$
— $
2,398
$
2,398 $
$
6,416 $
—
$
6,416 $
—
41
41
88
—
88
— $
— $
2
2
—
$
— $
1
$
— $
—
—
1
$
— $
—
—
—
—
—
—
— $
— $
—
2,398
— $
2,398 $
— $
6,416 $
—
—
— $
6,416 $
—
41
41
88
—
88
The table below presents the amortized cost, fair value and weighted-average yield of held-to-maturity securities by
contractual maturity at December 31, 2012. 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
Commercial mortgage-backed securities
Total held-to-maturity securities
Fair value
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial 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
$
$
$
$
— $
—
—
— $
— $
—
—
— $
—%
— $
—
—
— $
— $
—
—
— $
—%
339
546
—
885
$
3,521
32,948
7,921
$ 44,390
$
3,860
33,494
7,921
$ 45,275
343
558
—
901
2.61%
$
3,907
34,002
8,314
$ 46,223
$
4,250
34,560
8,314
$ 47,124
2.88%
2.87%
Pledged Securities
Peoples had pledged available-for-sale investment securities with a carrying value of $260.9 million and $359.1 million
at December 31, 2012 and December 31, 2011, respectively, to secure public and trust department deposits and repurchase
agreements in accordance with federal and state requirements. Additionally, Peoples had pledged held-to-maturity
investment securities with a carrying value of $45.3 million and $3.0 million at December 31, 2012 and December 31, 2011,
respectively, to secure public and trust department deposits and repurchase agreements in accordance with federal and state
requirements. Peoples also pledged available-for-sale investment securities with carrying values of $50.4 million and $65.2
million at December 31, 2012 and December 31, 2011, respectively, to secure additional borrowing capacity at the FHLB and
the FRB.
79
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. The
major classifications of loan balances, excluding loans held for sale, were as follows:
(Dollars in thousands)
Commercial real estate, construction $
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total loans
$
2012
2011
34,265 $
378,073
412,338
180,131
233,841
51,053
101,246
6,563
985,172 $
30,577
410,352
440,929
140,857
219,619
47,790
87,531
1,780
938,506
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
2012
2011
2,145 $
74
12,873
84
15,176 $
14,700 $
3,754
109
14,497
101
18,461
17,954
$
$
$
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 $202.0 million and $184.8 million at
December 31, 2012 and December 31, 2011, respectively. Peoples also had pledged commercial loans to secure borrowings with
the FRB. The outstanding balances of these loans totaled $123.8 million and $124.0 million at December 31, 2012 and
December 31, 2011, respectively.
Related Party Loans
In the normal course of its business, Peoples Bank has granted loans to certain directors and officers of Peoples, including
their affiliates, families and entities in which they are principal owners. 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, 2012, 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, 2011
New loans and disbursements
Repayments
Other changes
Balance, December 31, 2012
$
$
7,522
3,292
(3,806)
3
7,011
80
Nonaccrual and Past Due Loans
A loan is considered past due if any required principal and interest payments have not been received as of the date such
payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless
of whether or not such loan is considered past due. The recorded investments in loans on nonaccrual status and accruing loans
delinquent for 90 days or more were as follows:
Nonaccrual Loans
Accruing Loans
90+ Days Past Due
(Dollars in thousands)
2012
2011
2012
2011
Commercial real estate, construction
$
— $
— $
— $
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total
9,831
9,831
627
3,136
24
23,546
23,546
2,262
3,865
349
20
13,638 $
—
30,022
$
$
—
—
181
—
—
4
185 $
—
—
—
—
—
—
—
—
The following table presents the aging of the recorded investment in past due loans and leases:
(Dollars in thousands)
December 31, 2012
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total
December 31, 2011
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total
Credit Quality Indicators
Loans Past Due
30 - 59 days 60 - 89 days
90 + Days
Total
Current
Loans
Total
Loans
$
$
$
$
— $
11,382
11,382
3,841
4,640
274
926
55
21,118 $
— $
2,700
2,700
230
5,750
206
874
66
9,826 $
77 $
705
782
116
1,049
25
127
—
2,099 $
— $
2,286
2,286
360
1,187
—
86
—
3,919 $
— $
5,144
5,144
294
2,019
24
10
—
7,491 $
— $
11,363
11,363
37
3,082
349
—
—
14,831 $
$
34,188 $
77
17,231
17,308
4,251
7,708
323
1,063
55
30,708
$
— $
16,349
16,349
627
10,019
555
960
66
28,576
$
360,842
395,030
175,880
226,133
50,730
100,183
6,508
954,464 $
30,577 $
394,003
424,580
140,230
209,600
47,235
86,571
1,714
909,930 $
34,265
378,073
412,338
180,131
233,841
51,053
101,246
6,563
985,172
30,577
410,352
440,929
140,857
219,619
47,790
87,531
1,780
938,506
As discussed in Note 1, 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.
81
“Watch” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially
Mentioned” classification. Loans in this category possess some credit deficiency or potential weakness, which requires
a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash
flows and /or reliance on the secondary source of repayment. If left uncorrected, these potential weaknesses may result
in noticeable deterioration of the repayment prospects for the 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 described above would be considered as being “not rated”.
The following table summarizes the risk category of Peoples' loan portfolio based upon the most recent analysis performed:
(Dollars in thousands)
December 31, 2012
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total
December 31, 2011
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total
Pass Rated
Watch
Substandard
Doubtful
(Grades 1 - 4)
(Grade 5)
(Grade 6)
(Grade 7)
Not
Rated
Total
Loans
1,095 $
29,573
30,668
7,054
7,597
1,094
47
—
46,460 $
2,062 $
56,142
58,204
6,625
10,097
1,394
32
—
76,352 $
— $
—
—
—
10
—
—
—
10 $
— $
—
—
—
20
—
—
—
20 $
3,432 $
1,125
4,557
1,331
202,074
48,908
101,133
6,563
364,566 $
1,873 $
3,049
4,922
2,205
178,082
44,863
87,427
1,780
319,279 $
34,265
378,073
412,338
180,131
233,841
51,053
101,246
6,563
985,172
30,577
410,352
440,929
140,857
219,619
47,790
87,531
1,780
938,506
$
29,738 $
328,435
358,173
150,180
22,392
1,051
66
—
$
$
531,862 $
23,710 $
310,996
334,706
113,391
28,507
1,491
72
—
$
478,167 $
— $
18,940
18,940
21,566
1,768
—
—
—
42,274 $
2,932 $
40,165
43,097
18,636
2,913
42
—
—
64,688 $
82
Impaired Loans
The following tables summarize loans classified as impaired:
(Dollars in thousands)
December 31, 2012
Commercial real estate, construction $
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total
December 31, 2011
Commercial real estate, construction $
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Total
$
$
Recorded Investment
Unpaid
Principal
Balance Allowance Allowance Investment Allowance Investment Recognized
Average
Recorded
Without Recorded
Interest
Income
Related
Total
With
— $
19,023
19,023 $
696
3,943
349
114
24,125 $
— $
49,402
49,402 $
2,290
3,901
420
56,013 $
— $
2,785
2,785 $
182
418
—
—
3,385 $
— $
6,882
6,882 $
1,801
323
—
9,006 $
— $
— $
7,053
7,053 $
437
3,063
349
114
11,016 $
9,838
9,838 $
619
3,481
349
114
14,401 $
— $
— $
16,501
16,501 $
420
2,226
269
19,416 $
23,383
23,383 $
2,221
2,549
269
28,422 $
— $
1,262
1,262 $
36
123
—
—
1,421 $
— $
1,026
1,026 $
407
49
—
1,482 $
— $
11,048
11,048 $
518
2,014
140
49
13,769 $
— $
23,058
23,058 $
1,098
2,081
332
26,569 $
—
—
—
—
149
17
14
180
—
—
—
—
—
—
—
At December 31, 2012, Peoples' impaired loans shown in the table above included loans that were classified as troubled debt
restructurings.
During 2012, in accordance with regulatory guidance regarding borrowers who were in Chapter 7 bankruptcy, Peoples
identified $3.0 million of loans that were TDRs. The regulatory guidance requires loans to be accounted for as collateral-
dependent loans when borrowers have filed Chapter 7 bankruptcy, the debt has been discharged and the borrower has not
reaffirmed the debt, regardless of the delinquency status of the loan. The filing of bankruptcy by the borrower is evidence of
financial difficulty and the discharge of the obligation by the bankruptcy court is deemed to be a concession granted to the
borrower. The $3.0 million includes $2.7 million of loans that were accruing as of December 31, 2012 since Peoples expects to
collect all principal and interest payments.
83
The following table summarizes the loans that were modified as a TDR during the years ended December 31, 2012 and 2011.
Recorded Investment (1)
Recorded Investment (1)
Number
of
Contracts
Pre-
Modification
Post-
Modification
At
December 31,
Number
of
Contracts
Pre-
Modification
Post-
Modification
At
December 31,
2011
2012
Commercial real
estate, construction
Commercial real
estate, other
Commercial real
estate
Residential real
estate
Home equity lines
of credit
Consumer
— $
— $
— $
—
— $
— $
— $
—
4 $
4 $
1,765 $
1,765 $
1,734
1,765 $
1,765 $
1,734
66 $
2,550 $
2,550 $
2,550
24 $
37 $
349 $
115 $
349 $
115 $
349
115
5 $
5 $
— $
— $
— $
3,169 $
3,169 $
2,959
3,169 $
3,169 $
2,959
— $
— $
— $
— $
— $
— $
—
—
—
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down,
charged-off or foreclosed upon by period end are not reported.
The following table presents those loans modified in a TDR during the year that subsequently defaulted (i.e., 90 days or more
past due following a modification) during the years ended December 31, 2012 and 2011:
Number
of
Contracts
2012
Recorded
Investment
(1)
—
1
1
—
26
26
Impact on the
Allowance for
Loan Losses
Number
of
Contracts
Recorded
Investment
(1)
Impact on the
Allowance for
Loan Losses
2011
—
—
—
2
1
3
675
315
990
—
—
—
Commercial Real Estate
Residential Real Estate
Total
(1) The amounts shown are inclusive of all partial paydowns and charge-offs.
Loans modified in a TDR that were fully paid down, charged-off or foreclosed
upon by period end are not reported.
Peoples had approximately $4,000 of additional commitments to lend additional funds to the related debtors whose terms
have been modified in a TDR.
84
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
Home
Equity
Lines of
Credit Consumer
Deposit
Account
Overdrafts
Total
Balance, January 1, 2012
$
18,947 $
2,434 $
1,119 $
541 $
449 $
227 $ 23,717
Charge-offs
Recoveries
Net (charge-offs) recoveries
(Recovery of) provision for
loan losses
(5,146)
4,399
(747)
(34)
358
324
(1,091)
773
(318)
(3,985)
(1,025)
—
(94)
32
(62)
—
(572)
561
(11)
(574)
(7,511)
198
6,321
(376)
(1,190)
—
294
(4,716)
Balance, December 31, 2012
$
14,215 $
1,733 $
801 $
479 $
438 $
145 $ 17,811
Period-end amount allocated to:
$
$
$
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
Ending balance
Balance, January 1, 2011
Charge-offs
Recoveries
Net (charge-offs)
Provision for (recovery of)
loan losses
1,262 $
36 $
123 $
— $
— $
— $ 1,421
12,953
1,697
678
479
438
145
16,390
14,215 $
1,733 $
801 $
479 $
438 $
145 $ 17,811
21,806 $
2,160 $
1,400 $
431 $
721 $
248 $ 26,766
(1,033)
(1,593)
(366)
636
(957)
51
(315)
(939)
687
(252)
(664)
(15,844)
225
4,797
(439)
(11,047)
(11,249)
2,469
(8,780)
5,921
729
(304)
578
676
425
(20)
418
7,998
Balance, December 31, 2011
$
18,947 $
2,434 $
1,119 $
541 $
449 $
227 $ 23,717
Period-end amount allocated to:
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
Ending balance
$
$
1,026 $
407 $
49 $
— $
— $
— $ 1,482
17,921
2,027
1,070
541
449
227
22,235
18,947 $
2,434 $
1,119 $
541 $
449 $
227 $ 23,717
85
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
2012
2011
$
7,039
$
34,943
18,789
60,771
(33,758)
27,013
$
$
5,662
32,046
18,483
56,191
(32,286)
23,905
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 $2,212,000, $1,967,000 and
$1,943,000, in 2012, 2011 and 2010, 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 $887,000, $921,000, $916,000 in 2012, 2011 and 2010, respectively.
Peoples Insurance leases certain properties from certain of its directors. Payments related to these leases totaled
$146,000, $141,000 and $166,000 in 2012, 2011 and 2010, 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, 2012: $764,000 in 2013, $497,000 in 2014, $330,000 in 2015, $323,000 in 2016,
$280,000 in 2017 and $1,225,000 thereafter.
Note 6. Goodwill and Other Intangible Assets
The following table details changes in the recorded amount of goodwill for the years ended December 31:
(Dollars in thousands)
Goodwill, beginning of year
Acquired goodwill
Goodwill, end of year
2012
2011
$
$
62,520 $
2,361
64,881 $
62,520
—
62,520
Peoples performed the required goodwill impairment tests and concluded the recorded value of goodwill was not
impaired as of December 31, 2012, based upon the estimated fair value of the single reporting unit.
86
Other intangible assets
Other intangible assets were comprised of the following at December 31:
(Dollars in thousands)
Core Deposit
Customer
Relationships
Total
2012
Gross intangibles
Acquired intangibles
Accumulated amortization
Total acquired intangibles
Mortgage servicing rights
Total other intangibles
2011
Gross intangibles
Acquired intangibles
Accumulated amortization
Total acquired intangibles
Mortgage servicing rights
Total other intangibles
$
$
$
$
8,192
$
6,182
$
661
(8,232)
621
10,564
—
(10,460)
104
$
$
$
1,008
(6,240)
950
6,182
—
(5,875)
307
$
$
$
$
$
14,374
1,669
(14,472)
1,571
2,073
3,644
16,746
—
(16,335)
411
1,544
1,955
The following table details estimated aggregate future amortization expense of core deposit and customer relationship
intangible assets at December 31, 2012:
(Dollars in thousands)
2013
2014
2015
2016
2017
Thereafter
Total
Core
Deposits
Customer
Relationships
Total
$
$
148
128
108
88
68
81
621
$
$
235
171
148
124
100
172
950
$
$
383
299
256
212
168
253
1,571
For further information regarding Peoples' acquisitions, please refer to Note 18.
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
2012
2011
2010
$
$
1,544
(616)
1,145
2,073
$
$
1,353
(397)
588
1,544
$
$
1,164
(385)
574
1,353
No valuation allowances were required at December 31, 2012, 2011 and 2010 for Peoples’ MSRs since the fair value
exceeded the book value.
87
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
Governmental deposit accounts
Savings accounts
2012
2011
$
184,558 $
194,709
207,755
392,313
124,787
288,404
130,630
183,499
216,538
411,247
106,233
264,873
126,453
138,383
Total retail interest-bearing deposits
1,119,633
1,047,189
Brokered certificates of deposits
Total interest-bearing deposits
Non-interest-bearing deposits
Total deposit balances
55,599
64,054
1,175,232
1,111,243
317,071
239,837
$ 1,492,303 $ 1,351,080
The contractual maturities of certificates of deposits for each of the next five years and thereafter are as follows:
(Dollars in thousands)
2013
Retail
Brokered
Total
$
225,979 $
6,652 $
232,631
2014
2015
2016
2017
69,355
38,810
42,481
15,488
12,213
5,866
18,070
—
81,568
44,676
60,551
15,488
Thereafter
Total maturities $
200
392,313 $
12,798
55,599 $
12,998
447,912
Deposits from related parties approximated $6.9 million and $5.3 million at December 31, 2012 and 2011, respectively.
88
Note 8. Short-Term Borrowings
Peoples utilizes various short-term borrowings as sources of funds, which are summarized as follows:
(Dollars in thousands)
2012
Ending balance
Average balance
Highest month-end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
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
Retail
Repurchase
Agreements
FHLB
Advances
Other
Short-Term
Borrowings
$
$
$
$
$
32,769
37,386
44,905
57
0.15%
0.15%
43,143
41,542
49,162
98
$
$
15,000
13,240
39,900
17
0.15%
0.12%
8,500
5,525
21,900
5
—
15
—
—
—%
0.74%
—
47
—
—
0.16%
0.24%
0.14%
0.08%
—%
0.74%
51,509
50,115
51,762
252
$
— $
8,712
57,400
10
0.41%
0.50%
—%
0.11%
—
69
—
—
—%
—%
Peoples’ retail repurchase agreements consist of overnight agreements with Peoples’ commercial customers and serve as
a cash management tool.
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 $20 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.
On December 19, 2012, Peoples obtained a $5 million revolving credit loan from an unaffiliated financial institution that
matures on December 17, 2013. This loan bears interest at a fixed per annum rate equal to 3% plus the one-month LIBOR
rate, to be reset monthly. This revolving credit loan is subject to the same convenants as detailed in Note 9 for the term loan.
At December 31, 2012, this revolving credit loan had no outstanding principal balance.
89
Note 9. Long-Term Borrowings
Long-term borrowings consisted of the following at December 31:
2012
2011
(Dollars in thousands)
Term note payable (parent company)
Callable national market repurchase agreements
FHLB putable non-amortizing, fixed rate advances
FHLB amortizing, fixed rate advances
Total long-term borrowings
Balance
23,919
40,000
50,000
14,904
128,823
$
$
Weighted-
Average
Rate
Weighted-
Average
Rate
Balance
3.80 % $
—
3.63 %
3.32 %
3.60 %
3.54% $
65,000
60,000
17,312
142,312
— %
3.43 %
3.28 %
3.59 %
3.38%
On December 18, 2012, Peoples entered into a Loan Agreement (the "Loan Agreement") to obtain a $24 million
unsecured term loan from an unaffiliated financial institution with an original maturity of 5 years. Peoples is required to
make quarterly principal and interest payments until the earlier of either full prepayment by Peoples or the stated maturity
date. This note may be prepaid at any time prior to maturity without penalties, so long as no default has occurred.
Concurrently, Peoples also entered into a Negative Pledge Agreement that precludes Peoples from selling, transferring,
assigning, mortgaging, encumbering, pledging, or entering into a negative pledge agreement with respect to or otherwise
disposing of any interest in the capital stock or other ownership interests owned by Peoples in its subsidiaries without prior
written approval. Peoples is also subject to certain covenants under the agreement, which include restrictions on ownership
interests of its subsidiaries; issuance of dividends; cash and cash equivalents; transfers of criticized, classified or
nonperforming assets; additional indebtedness; certain material transactions; and other financial covenants which include:
•
•
•
•
•
Peoples and Peoples Bank must maintain, as of the last day of each fiscal quarter, sufficient capital to
qualify as "well capitalized" under applicable regulatory guidance;
Peoples Bank must maintain a "Total Risk-Based Capital Ratio" (as defined in the Loan Agreement) equal
to or in excess of 12.50%, measured as of the last day of each fiscal quarter;
Peoples Bank must maintain a ratio of "Nonperforming Assets" to the sum of "Tangible Capital" plus the
"Allowance for Loan Losses" (as each term is defined in the Loan Agreement) of not more than 20%,
measured as of the last day of each fiscal quarter;
Peoples Bank must maintain a ratio of "Allowance for Loan Losses" to "Nonperforming Loans" (as each
term is defined in the Loan Agreement) of not less than 80% measured as of the last day of each fiscal
quarter; and
Peoples must maintain a "Fixed Charge Coverage Ratio" (as defined in the Loan Agreement) that equals or
exceeds 1.25 to 1.00, commencing with the quarter ended December 31, 2012 and for each quarter
thereafter, with the items used in the ratio determined on a training 12-month basis.
As of December 31, 2012, Peoples was in compliance with the applicable material covenants imposed by the Loan
Agreement.
Peoples' national market repurchase agreements consist of agreements with unrelated financial service companies and
have original maturities ranging from 5 to 10 years. In general, these agreements may not be terminated by Peoples prior to
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 a one-time option to terminate the agreement. If the buyer exercises its option, Peoples
would be required to repay the agreement in whole at the quarterly date. Peoples is required to make quarterly interest
payments. During the first quarter of 2012, Peoples prepaid $25.0 million of wholesale borrowings resulting in early
termination fees of $2.2 million. The borrowings had a weighted-average cost of 3.10%.
The putable, non-amortizing, fixed rate FHLB advances have original maturities ranging from 10 to 20 years that may be
repaid prior to maturity, subject to termination fees. The FHLB has the option, solely at its discretion to terminate the
advance after the initial fixed rate periods ranging from 3 months to 5 years, requiring full repayment of the advance by
Peoples, prior to the stated maturity. If the advance is terminated prior to maturity, the FHLB will offer Peoples replacement
funding at the then-prevailing rate on an advance product then-offered by the FHLB, subject to normal FHLB credit and
90
collateral requirements. These advances require monthly interest payments, with no repayment of principal until the earlier
of either an option exercise by the FHLB or the stated maturity. During the first quarter of 2012, Peoples prepaid $10.0
million of wholesale borrowings at a weighted-average cost of 3.05%, resulting in early termination fees of $0.9 million. The
amortizing, fixed rate FHLB advances are fixed rate for the term of the loan, with maturities ranging from 10 to 20 years.
These advances require monthly principal and interest payments, with some having a constant prepayment rate requiring an
additional principal payment annually. These advances are not eligible for optional prepayment prior to maturity. As
discussed in Note 8, long-term FHLB advances are collateralized by assets owned by Peoples.
At December 31, 2012, the aggregate minimum annual retirements of long-term borrowings in future periods were as
follows:
(Dollars in thousands)
Balance
Weighted-
Average Rate
2013
2014
2015
2016
2017
Thereafter
Total long-term borrowings
$
$
6,996
6,498
6,250
6,046
5,881
97,152
128,823
3.76 %
3.73 %
3.74 %
3.75 %
3.76 %
3.47 %
3.54%
Note 10. Junior Subordinated Debentures 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 debentures issued by Peoples (the “Debentures”).
The Debentures held by the Trust were the sole assets of the Trust. Distributions on the Capital Securities were payable
semiannually at a rate per annum equal to the interest rate being earned by the Trust on the Debentures and was recorded as
interest expense by Peoples. Since the Trust was a variable interest entity and Peoples was not deemed to be the primary
beneficiary, the Trust was not included in Peoples' Consolidated Financial Statements. As a result, Peoples included the
Debentures as a separate category of long-term debt on the Consolidated Balance Sheets entitled “Junior Subordinated
Debentures Held by Subsidiary Trust” and the related expense as interest expense on the Consolidated Statements of Income.
Under the provisions of the Debentures, Peoples had 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 were deferred, the
dividends on the Capital Securities were also deferred and Peoples was prohibited from paying dividends on its common
shares. Interest on the Debentures was cumulative. Peoples entered into agreements which, taken collectively, fully and
unconditionally guaranteed the Capital Securities subject to the terms of each of the guarantees.
The Capital Securities were mandatorily redeemable upon repayment of the Debentures. On December 19, 2012 Peoples
prepaid the entire $30,928,000 principal amount of the Debentures at a premium of 3.017%, plus all accrued and unpaid
interest at a then current rate of 8.62%. As a result of this repayment, PEBO Capital Trust I redeemed all of the outstanding
Capital Securities and common equity, and was dissolved in accordance with the terms of the Amended and Restated
Declaration of Trust of PEBO Capital Trust I, dated as of April 20, 1999. Peoples recorded a $1.0 million pre-tax loss on the
redemption of these securities.
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 had qualified 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. At December 31, 2012, due to the full
prepayment of the Capital Securities, Peoples had no Trust Preferred Securities that qualified as Tier 1 Capital. As a result,
Peoples' Tier 1 Risk-Based Capital Ratio, Total Risk-Based Capital Ratio and Tier 1 Leverage Ratio were reduced. At
December 31, 2011, the entire amount of the outstanding Trust Preferred Securities qualified as Tier 1 capital.
91
Note 11. Stockholders’ Equity
The following table details the progression in shares of Peoples’ preferred, common and treasury stock during the years
ended December 31:
Shares at December 31, 2009
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 31, 2011
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
Common shares issued under dividend reinvestment plan
Common shares issued under Board of Directors'
compensation plan
Shares at December 31, 2012
Preferred
Stock
39,000
Common
Stock
11,031,892
Treasury
Stock
657,255
7,202
(31,008)
11,855
(25,407)
30,928
39,000
11,070,022
612,695
21,510
5,443
8,623
(9,209)
(39,000)
24,770
5,945
— 11,122,247
(2,429)
615,123
14,552
4,270
3,918
(8,897)
18,849
—
— 11,155,648
(6,726)
607,688
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. The entire 39,000 Series A
Preferred Shares were repurchased during 2011 at an aggregate price of $39 million.
On February 15, 2012, Peoples completed the repurchase of the Warrant for a purchase price of $1,200,724.
92
Accumulated Other Comprehensive Income (Loss)
The following details the change in the components of Peoples’ accumulated other comprehensive income (loss) for the
years ended December 31:
(Dollars in thousands)
Balance, December 31, 2009
Current period change, net of tax
Balance, December 31, 2010
Current period change, net of tax
Balance, December 31, 2011
Current period change, net of tax
Balance, December 31, 2012
Unrealized Gain
(Loss) on
Securities
Unrecognized
Net Pension and
Postretirement
Costs
Accumulated
Other
Comprehensive
Income (Loss)
$
$
$
$
13,068 $
(15,106)
(2,038) $
9,477
7,439 $
(547)
6,892 $
(3,581) $
1,166
(2,415) $
(3,612)
(6,027) $
(211)
(6,238) $
9,487
(13,940)
(4,453)
5,865
1,412
(758)
654
Note 12. 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. All retirees are eligible for health benefits; however,
Peoples only pays 100% of the cost for those individuals who retired before January 1, 1993. For all others, the retiree is
responsible for most, if not all, of the cost of health benefits. Peoples’ policy is to fund the cost of the benefits as they arise.
The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets over
the two-year period ended December 31, 2012, and a statement of the funded status as of December 31, 2012 and 2011:
(Dollars in thousands)
Change in benefit obligation:
Obligation at January 1
Interest cost
Plan participants’ contributions
Actuarial loss
Benefit payments
Settlements
Obligation at December 31
Accumulated benefit obligation at December 31
Pension Benefits
Postretirement Benefits
2012
2011
2012
2011
$
$
$
16,505 $
599
—
1,863
(169)
(1,492)
17,306 $
12,501
724
—
5,175
(205)
(1,690)
16,505
17,306 $
16,505
$
$
$
224 $
10
54
42
(86)
—
244 $
— $
231
12
73
11
(103)
—
224
—
93
(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:
Accrued benefit liability
Net amount recognized
Unrecognized prior service cost
Unrecognized net loss
Total
Weighted-average assumptions at year-end:
Discount rate
Amounts recognized in Accumulated Comprehensive Income (Loss):
Pension Benefits
Postretirement Benefits
2012
2011
2012
2011
$
— $
$ 10,409
1,271
—
—
(169)
(1,492)
$ 10,019
$ 12,543
(239)
—
—
(205)
(1,690)
$ 10,409
(6,096)
(7,287) $
(7,287) $
(7,287) $
(6,096)
(6,096)
$
$
$
$
$
$
$
$
$
— $
— $
6,260
6,260
$
6,032
6,032
$
—
32
54
(86)
—
— $
(244) $
(244) $
(244) $
2
15
17
$
$
—
—
30
73
(103)
—
—
(224)
(224)
(224)
3
42
45
3.30%
4.00%
3.30%
4.00%
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 $210,000 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 (credit)
Amortization of net loss (gain)
Curtailment
Settlement of benefit obligation
Net periodic benefit cost
Pension Benefits
2011
2010
2012
$ — $ — $
599
(756)
—
162
—
835
840
724
(1,033)
—
75
—
815
581
$
$
$
750
785
(1,149)
4
151
23
—
564
Postretirement Benefits
2012
2010
2011
$ — $ — $ —
13
—
(3)
(9)
—
—
1
10
—
—
(2)
—
—
8
12
—
—
(9)
—
—
3
$
$
$
Weighted-average assumptions:
Discount rate
Expected return on plan assets
Rate of compensation increase
4.00%
7.50%
n/a
5.40%
8.00%
n/a
6.40% 4.00%
n/a
8.50%
n/a
2.50%
5.70%
n/a
n/a
6.40%
n/a
n/a
For measurement purposes, an 8% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost
trend rate) was assumed for 2012, grading down to an ultimate rate of 5% in 2026. 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.
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
94
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 second quarter of 2012, the total lump-sum distributions made to participants, when added to the lump-sum
distributions made in the first quarter of 2012, caused the total settlements through six months of 2012 to exceed the
recognition threshold for settlement gains or losses. As a result, Peoples remeasured its pension obligation and plan assets as
of April 1, 2012 as part of the calculation of the settlement loss recognized.
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)
December 31, 2012
Equity securities:
Common stock
Mutual funds - equity
Debt securities:
Mortgage-backed securities
Municipal obligations
Corporate bonds
Mutual funds - taxable income
Total fair value of pension assets
December 31, 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
— $
7,545
157
932
363
599
9,596
$
300
$
7,562
38
828
471
700
9,899
$
95
— $
7,545
—
—
363
599
8,507
$
300
$
7,562
—
—
471
700
9,033
$
—
—
157
932
—
—
1,089
—
—
38
828
—
—
866
Pension plan assets also included cash and cash equivalents of $401,000 and accrued income of $22,000 at December 31,
2012. Cash and cash equivalents were $497,000 and accrued income was $13,000 at December 31, 2011. 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 2012 or 2011.
Cash Flows
Peoples has not determined if any contributions will be made to its pension plan in 2013; 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
Postretirement
Benefits
2013
2014
2015
2016
2017
2018 to 2022
Total
$
$
$
2,293
2,276
1,106
1,143
917
4,578
12,313
$
32
32
32
32
32
75
235
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 $758,000, $763,000
and $425,000 in 2012, 2011 and 2010, respectively.
Note 13. 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
$ 10,469
35.0 % $
5,890
34.3 % $
1,956
34.0 %
2012
2011
2010
Differences in rate resulting from:
Tax-exempt interest income
Investments in tax credit funds
Bank owned life insurance
Other, net
Total income tax expense
(565)
(387)
(1.9)%
(1.3)%
(14)
(0.1)%
22
9,525
$
0.1 %
31.8 % $
(574)
(497)
(44)
(179)
4,596
(3.4)%
(2.9)%
(0.3)%
(0.9)%
26.8 % $
(808)
(715)
(207)
(54)
172
(14.1)%
(12.4)%
(3.6)%
(0.9)%
3.0 %
96
Peoples' reported income tax expense consisted of the following for the years ended December 31:
(Dollars in thousands)
Current income tax
Deferred income tax (benefit)
Total income tax expense
2012
2011
2010
$
$
5,004
4,521
9,525
$
$
4,134
462
4,596
$
$
1,986
(1,814)
172
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
Tax credit carryforward
Investments
Accrued employee benefits
Other
Total deferred tax assets
Deferred tax liabilities:
Purchase accounting adjustments
Available-for-sale securities
Bank premises and equipment
Deferred loan income
Other
Total deferred tax liabilities
Net deferred tax asset
2012
2011
7,526
4,607
3,632
3,421
516
19,702
5,460
3,711
1,536
1,442
1,830
13,979
5,723
$
$
$
$
8,833
6,412
3,628
3,026
1,203
23,102
4,733
4,005
1,478
1,398
1,584
13,198
9,904
$
$
$
$
The tax credit carryforward at December 31, 2012 and 2011 may be carried over for a period of 20 years and will expire
over the period of 2029 and 2032. No valuation allowance for deferred tax assets was required at December 31, 2012, 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 $1,241,000 in 2012, $166,000 in 2011 and $2,398,000 in 2010.
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, 2009 through 2011. The years open to examination by state taxing authorities vary by jurisdiction.
Note 14. Earnings Per Common Share
The calculations of basic and diluted earnings per common share for the years ended December 31 were as follows:
(Dollars in thousands, except per common share data)
2012
2011
2010
Distributed earnings allocated to common shareholders
Undistributed earnings allocated to common shareholders
Net earnings allocated to common shareholders
$
$
4,770 $
3,167 $
15,494
8,019
20,264 $
11,186 $
4,209
(683)
3,526
Weighted-average common shares outstanding
10,527,885
10,482,318
10,424,474
Effect of potentially dilutive common shares
401
—
7,516
Total weighted-average diluted common shares outstanding 10,528,286
10,482,318
10,431,990
Earnings per common share:
Basic
Diluted
$
$
1.92 $
1.92 $
1.07 $
1.07 $
0.34
0.34
97
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 per common share since it was anti-dilutive. In
addition, restricted shares, stock options and SARs covering 144,535, 210,370 and 243,560 common shares were excluded
from the calculations for the years ended December 31, 2012, 2011 and 2010, respectively, since they were anti-dilutive.
Note 15. 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
2012
2011
43,818 $
11,839
113,868
169,525
44,850
10,023
135,110
189,983
35,373 $
40,821
$
$
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. Peoples had interest rate swaps
associated with commercial loans with a notional value of $11.2 million and fair value of $1.4 million at December 31, 2012,
and a notional value of $12.0 million and fair value of $0.9 million at December 31, 2011. These interest swaps did not have
material impact on Peoples' results of operation or financial condition.
Note 16. 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 $5.8 million and $6.1 million in 2012 and 2011, respectively.
98
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. At December 31, 2012, Peoples Bank had approximately $1.0 million of net profits available for
distribution to Peoples as dividends without regulatory approval.
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, 2012.
As of December 31, 2012, 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.
Peoples and Peoples Bank's actual capital amounts and ratios as of December 31 are also presented in the following
table:
December 31, 2012
Ratio
Amount
December 31, 2011
Ratio
Amount
$
(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
(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
$
$
176,224
91,355
114,194
160,604
45,678
68,516
160,604
72,775
90,969
1,141,938
15.4% $
8.0%
10.0%
14.1% $
4.0%
6.0%
8.8% $
4.0%
5.0%
180,053
88,915
111,144
165,121
44,458
66,687
165,121
69,913
87,392
1,111,443
16.2%
8.0%
10.0%
14.9%
4.0%
6.0%
9.5%
4.0%
5.0%
99
(Dollars in thousands)
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, 2012
Ratio
Amount
December 31, 2011
Ratio
Amount
$
$
189,601
91,044
113,805
175,331
45,522
68,283
$
175,331
72,384
90,480
$ 1,138,054
16.7% $
8.0%
10.0%
15.4% $
4.0%
6.0%
166,622
88,546
110,682
152,665
44,273
66,409
9.7% $
4.0%
5.0%
152,665
69,277
86,596
$ 1,106,824
15.1%
8.0%
10.0%
13.8%
4.0%
6.0%
8.8%
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
On December 19, 2012, Peoples redeemed Trust Preferred Securities that had previously qualified as Tier 1 Capital for
risk-based capital purposes, reducing Peoples' Tier 1 Risk-Based Capital Ratio, Total Risk-Based Capital Ratio and Tier 1
Leverage Ratio at December 31, 2012. For more information on this redemption, please refer to Note 10.
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 17. 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
and unrestricted common share awards to employees and non-employee directors. Restricted and unrestricted awards are
limited to 50% of the total number of common shares available under the 2006 Equity Plan. The total number of common
shares available under the 2006 Equity Plan is 500,000. 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 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 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.
100
The following summarizes the changes to Peoples' stock options for the year ended December 31, 2012:
Number of
Common
Shares
Subject to
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Outstanding at January 1
Expired
Outstanding at December 31
Exercisable at December 31
150,602
49,008
101,594
101,594
$
$
$
25.55
24.45
26.09
26.09
1.6 years
1.6 years
$
$
—
—
The following table summarizes Peoples’ stock options outstanding at December 31, 2012:
Common
Shares Subject
to Options
Outstanding
Options Outstanding & Exercisable
Weighted-
Average
Remaining
Contractual
Life
0.2 years $
0.2 years
1.6 years
1.7 years
3.0 years
2.2 years
1.6 years $
Weighted-
Average
Exercise Price
21.71
22.32
25.41
27.03
28.25
29.09
26.09
4,043
28,993
2,792
25,710
18,573
21,483
101,594
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
$28.57
$30.00
to
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 most recent grant of SARs occurred in 2008. The following
summarizes the changes to Peoples' SARs for the year ended December 31, 2012:
Number of
Common
Shares
Subject to
SARs
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Outstanding at January 1
Forfeited
Outstanding at December 31
Exercisable at December 31
29,075
6,226
22,849
22,849
$
$
$
25.85
25.43
25.97
25.97
4.7 years
4.7 years
$
$
—
—
The following table summarizes Peoples’ SARs outstanding at December 31, 2012:
Exercise
Price
$23.26
$23.77
$29.25
Total
Number of Common
Shares Subject to
SARs Outstanding &
Exercisable
Weighted-
Average Remaining
Contractual
Life
4.6 years
5.1 years
4.1 years
4.7 years
2,000
11,509
9,340
22,849
101
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 2012, Peoples granted restricted common shares to officers and key employees with a two-year time-
based vesting period, a three-year time-based vesting period or a two-year performance-based vesting period. For the
restricted common shares subject to performance-based vesting, the restrictions on these restricted common shares will lapse
two years after the grant date upon the achievement of cumulative diluted earnings per common share of $2.83 for the three-
year period ending December 31, 2013. The following summarizes the changes to Peoples’ restricted common shares for the
period ended December 31, 2012:
Time Vesting
Performance Vesting
Outstanding at January 1
Awarded
Released
Forfeited
Outstanding at December 31
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
12.89
17.53
12.15
15.49
16.36
26,544 $
60,628
4,000
4,441
78,731 $
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
13.14
16.76
—
16.98
16.07
3,363 $
15,360
—
858
17,865 $
The total intrinsic value of restricted common shares released was $77,000, $307,000 and $94,000 in 2012, 2011 and
2010, respectively.
Stock-Based Compensation
Peoples recognized stock-based compensation expense, which is included as a component of Peoples’ salaries and
employee benefit 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
2012
2011
2010
$
$
942 $
(330)
612 $
310 $
(109)
201 $
92
(32)
60
Restricted common shares were the only stock-based compensation awards granted by Peoples in 2012, 2011 and 2010.
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 $627,000 at December 31, 2012, which will be recognized
over a weighted-average period of 1.5 years.
On October 30, 2012, the Board of Directors granted 8,490 unrestricted common shares to certain employees that did not
already participate in the 2006 Equity Plan. The grant resulted in an additional $180,000 of stock-based compensation
expense being recognized in the fourth quarter of 2012, which is included in the table above.
102
Note 18. Acquisitions
On June 1, 2012, Peoples acquired a small financial advisory book of business in Wood County, West Virginia for cash
consideration of $0.9 million. A portion of the consideration is contingent upon revenue metrics being achieved. The
balances and operations related to the acquisition are included in Peoples' consolidated financial statements from the date of
the acquisition, and did not materially impact Peoples' financial position, results of operations or cash flows for any period
presented.
On September 1, 2012, Peoples acquired a small financial advisory book of business in Gallipolis, Ohio for cash
consideration of $0.4 million. A portion of the consideration is contingent upon revenue metrics being achieved. The
balances and operations related to the acquisition are included in Peoples' consolidated financial statements from the date of
the acquisition, and did not materially impact Peoples' financial position, results of operations or cash flows for any period
presented.
On September 14, 2012, Peoples completed its acquisition of Sistersville Bancorp, Inc. ("Sistersville") for total cash
consideration of $9.8 million. Sistersville merged into Peoples and Sistersville's wholly-owned subsidiary, First Federal
Savings Bank, which operated two full-service branches in Sistersville and Parkersburg, West Virginia, merged into Peoples'
wholly-owned subsidiary, Peoples Bank, National Association. The acquisition was accounted for under the acquisition
method of accounting under US GAAP. The assets purchased, liabilities assumed, and related identifiable intangible assets
were recorded at their acquisition date fair values. The goodwill recognized will not be tax deductible for income tax
purposes.
As a result of the Sistersville acquisition, Peoples acquired loans of $31 million and deposits of $39 million. The
balances and operations related to the acquisition are included in Peoples' consolidated financial statements from the date of
the acquisition, and did not materially impact Peoples' financial position, results of operations or cash flows for any period
presented.
On January 2, 2013, Peoples acquired a commercial insurance agency office and related customer accounts in the
Pikeville, Kentucky area for cash consideration of $1.5 million. This acquisition did not materially impact Peoples' financial
position, results of operations or cash flows.
Please refer to Note 6 for details of the changes in goodwill and intangible assets arising from the acquisitions.
103
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 at
December 31, 2012 and 2011, respectively)
Investments in subsidiaries:
Bank
Non-bank
Other assets
Total assets
Liabilities:
Accrued expenses and other liabilities
Long-term borrowings
Junior subordinated debentures held by subsidiary trust
Total liabilities
Preferred stockholders' equity
Common stockholders' equity
Total stockholders' equity
Total liabilities and stockholders' equity
Condensed Statements of Income
(Dollars in thousands)
Income:
Dividends from subsidiary bank
Dividends from non-bank subsidiary
Net gain on securities transactions
Net loss on other transactions
Interest and other income
Total income
Expenses:
Interest expense on junior subordinated debentures held by subsidiary trust
Intercompany management fees
Other expense
Total expenses
December 31,
2012
2011
$
50 $
2,743
482
4,106
214,385
29,893
866
252,525 $
6,878 $
23,919
—
30,797
—
221,728
$
$
221,728
252,525 $
$
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
Year Ended December 31,
2012
2011
2010
$
12,750 $
25,500 $
—
273
(1,033)
205
12,195
1,948
1,049
2,216
5,213
—
—
—
175
25,675
2,014
921
1,335
4,270
8,600
950
16
—
366
9,932
2,021
950
1,010
3,981
Income before federal income taxes and equity in undistributed earnings of
subsidiaries
Applicable income tax benefit
Equity in (excess dividends from) undistributed earnings of subsidiaries
Net income
6,982
(2,127)
11,276
20,385 $
21,405
(1,734)
(10,584)
12,555 $
5,951
(1,354)
(1,724)
5,581
$
104
Statements of Cash Flows
(Dollars in thousands)
Operating activities
Net income
Adjustment to reconcile net income to cash provided by operations:
(Equity in) excess dividends from undistributed earnings of subsidiaries
Gain on investment securities
Loss on debt extinguishment
Other, net
Net cash provided by operating activities
Investing activities
Net proceeds from sales and maturities of investment securities
Investment in subsidiaries
Change in receivable from subsidiary
Net cash (used in) provided by investing activities
Financing activities
Proceeds from long-term borrowings
Repurchase of preferred shares
Redemption of junior subordinated debentures
Preferred stock dividends
Purchase of treasury stock
Proceeds from issuance of common stock
Cash dividends paid
Excess tax benefit for share based payments
Net cash used in 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,
2012
2011
2010
$
20,385 $
12,555 $
5,581
(11,276)
(273)
1,033
(663)
9,206
273
(9,815)
3,814
(5,728)
24,000
—
(23,668)
—
(1,357)
6
(4,457)
709
(4,767)
(1,289)
4,082
2,793 $
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
(16)
—
447
7,736
171
—
(15)
156
—
—
—
(1,950)
(181)
447
(3,822)
4
(5,502)
2,390
23,776
26,166
2,246 $
1,981 $
1,980
$
$
105
Note 20. Summarized Quarterly Information (Unaudited)
(Dollars in thousands, except per share data)
Total interest income
Total interest expense
Net interest income
Recovery of loan losses
Net loss on asset disposals and other transactions
Net gain on investment securities
Other income
Intangible asset amortization
FDIC insurance
Other expenses
Income tax expense
Net income
Preferred dividends
Net income available to common shareholders
Earnings per common share - Basic
Earnings per common share - Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2012
$
17,612
$
17,341
$
16,942
$
4,180
13,432
(2,137)
(3,062)
3,163
9,082
107
309
3,729
13,612
(1,120)
(43)
—
8,498
109
223
3,621
13,321
(956)
(161)
112
8,572
134
257
17,575
3,465
14,110
(503)
(1,060)
273
8,819
159
213
14,600
15,354
15,275
16,734
3,079
6,657
—
6,657
0.63
0.63
$
$
$
2,471
5,030
—
5,030
0.47
0.47
$
$
$
2,310
4,824
—
4,824
0.45
0.45
$
$
$
1,665
3,874
—
3,874
0.36
0.36
$
$
$
Weighted-average common shares outstanding - Basic
10,513,388
10,524,429
10,530,800
10,542,810
Weighted-average common shares outstanding - Diluted
10,513,388
10,524,429
10,530,876
10,542,810
(Dollars in thousands, except per share data)
Total interest income
Total interest expense
Net interest income
Provision for (recovery of) loan losses
Net gain (loss) on asset disposals and other transactions
Net gain on investment securities
Other income
Intangible asset amortization
FDIC insurance
Other expenses
Income tax expense
Net income
Preferred dividends
Net income available to common shareholders
Earnings per common share - Basic
Earnings per common share - Diluted
2011
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
19,317
$
18,941
$
18,400
$
5,822
13,495
5,311
60
360
8,374
162
662
5,510
13,431
2,295
(556)
56
7,891
152
450
5,136
13,264
865
389
57
8,391
141
440
18,475
4,686
13,789
(473)
(809)
—
8,288
131
315
13,794
14,117
14,849
16,118
491
1,869
523
1,346
0.13
0.13
$
$
$
887
2,921
238
2,683
0.26
0.26
$
$
$
1,885
3,921
237
3,684
0.35
0.35
$
$
$
1,333
3,844
345
3,499
0.33
0.33
$
$
$
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
106
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 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 25, 2013 (“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 2012
Annual Meeting of Shareholders held on April 26, 2012.
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 NASDAQ Stock Market 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” 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 under the "Governance Documents" tab on the “Corporate Governance” 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.
107
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: COMPENSATION DISCUSSION
AND ANALYSIS”, “SUMMARY COMPENSATION TABLE FOR 2012”, “GRANTS OF PLAN-BASED AWARDS FOR
2012”, “OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2012”, “OPTION EXERCISES AND STOCK
VESTED FOR 2012”, “PENSION BENEFITS FOR 2012”, “NON-QUALIFIED DEFERRED COMPENSATION FOR
2012” and “OTHER POTENTIAL POST EMPLOYMENT PAYMENTS”, “DIRECTOR COMPENSATION” and
“COMPENSATION COMMITTEE REPORT” of Peoples' Definitive Proxy Statement, which sections are incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item 12 regarding the security ownership of certain beneficial owners and management
will be included in the section captioned “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT” of Peoples' Definitive Proxy Statement, which section is incorporated herein by reference.
The information required by Item 201(d) of SEC Regulation S-K is incorporated herein by reference from the disclosure
to be included under the caption "EQUITY COMPENSATION PLAN INFORMATION" of Peoples' Definitive Proxy
Statement.
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 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.
108
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
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, 2012 and 2011
Consolidated Statements of Income for each of the three years in the period ended December 31, 2012
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31,
2012
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2012
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2012
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)
(a)(2) Financial Statement Schedules
Page
60
61
62
63
64
65
66
67
68
104
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 or furnished 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 111. 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 or furnished 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 111.
(c) Financial Statement Schedules
None.
109
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, 2013
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/ TARA M. ABRAHAM*
Tara M. Abraham
/s/ CARL L. BAKER, JR.*
Carl L. Baker, Jr.
/s/ GEORGE W. BROUGHTON*
George W. Broughton
President, Chief Executive Officer and Director
Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial and Accounting Officer)
Director
Director
Director
/s/ RICHARD FERGUSON*
Chairman of the Board and Director
Richard Ferguson
/s/ JAMES S. HUGGINS*
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
/s/ THEODORE P. SAUBER*
Theodore P. Sauber
/s/ THOMAS J. WOLF*
Thomas J. Wolf
Director
Director
Director
Director
Director
Director
Date
2/28/2013
2/28/2013
2/28/2013
2/28/2013
2/28/2013
2/28/2013
2/28/2013
2/28/2013
2/28/2013
2/28/2013
2/28/2013
2/28/2013
* 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 28th day of February, 2013.
By:
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
Attorney-in-Fact
110
EXHIBIT INDEX
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012
Exhibit
Number
Description
Exhibit Location
3.1(a)
Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed
Incorporated herein by reference to Exhibit 3(a) to
with the Ohio Secretary of State on May 3, 1993)
3.1(b)
Certificate of Amendment to the Amended Articles of Incorporation of
Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April
22, 1994)
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”)
3.1(c)
3.1(d)
Certificate of Amendment to the Amended Articles of Incorporation of
Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April
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”)
3.1(e)
Certificate of Amendment by Shareholders to the Amended Articles of
Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary
of State on January 22, 2009)
Incorporated herein by reference to Exhibit 3.1 to
Peoples’ Current Report on Form 8-K dated and
filed on January 23, 2009 (File No. 0-16772)
3.1(f)
Certificate of Amendment by Directors to Articles filed with the
Secretary of State of the State of Ohio on January 28, 2009, evidencing
adoption of amendments by the Board of Directors of Peoples Bancorp
Inc. to Article FOURTH of Amended Articles of Incorporation to
establish express terms of Fixed Rate Cumulative Perpetual Preferred
Shares, Series A, each without par value, of Peoples Bancorp Inc.
Incorporated herein by reference to Exhibit 3.1 to
Peoples’ Current Report on Form 8-K dated and
filed on February 2, 2009 (File No. 0-16772)
3.1(g)
Amended Articles of Incorporation of Peoples Bancorp Inc. (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.
3.2(b)
Certified Resolutions Regarding Adoption of Amendments to Sections
1.03, 1.04, 1.05, 1.06, 1.08, 1.10, 2.03(C), 2.07, 2.08, 2.10 and 6.02 of
the Code of Regulations of Peoples Bancorp Inc. by shareholders on
April 10, 2003
Incorporated herein by reference to Exhibit 3.1(g)
to Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 2008 (File No.
0-16772) (“Peoples’ 2008 Form 10-K”)
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
3.2(c)
Certificate regarding adoption of amendments to Sections 3.01, 3.03,
3.04, 3.05, 3.06, 3.07, 3.08 and 3.11 of the Code of Regulations of
Peoples Bancorp Inc. by shareholders on April 8, 2004
Incorporated herein by reference to Exhibit 3(a) to
Peoples’ Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2004 (File No.
0-16772)
3.2(d)
3.2(e)
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")
111
Exhibit
Number
Description
Exhibit Location
3.2(f)
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
Agreement to furnish instruments and agreements defining rights of
holders of long-term debt
Filed herewith
Loan Agreement, dated as of December 18, 2012, between Peoples
Bancorp Inc., as Borrower, and U.S. Bank National Association, as
Lender
Incorporated herein by reference to Exhibit 4.1 to
Peoples' Current Report on Form 8-K, dated and
filed December 21, 2012 (File No. 0-16772)
("Peoples' December 21, 2012 Form 8-K")
Revolving Credit Note in the principal sum of $5,000,000 issued by
Peoples Bancorp Inc. on December 18, 2012 to U.S. Bank National
Association
Incorporated herein by reference to Exhibit 4.2 to
Peoples' December 21, 2012 Form 8-K
Term Note in the principal sum of $24,000,000 issued by Peoples
Bancorp Inc. on December 18, 2012 to U.S. Bank National
Association
Incorporated herein by reference to Exhibit 4.3 to
Peoples' December 21, 2012 Form 8-K
4.5
Negative Pledge Agreement, dated December 18, 2012 between
Peoples Bancorp Inc. and U.S. Bank National Association
Incorporated herein by reference to Exhibit 4.4 to
Peoples' December 21, 2012 Form 8-K
10.1(a)
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)
*
10.1(b)
First Amendment to the Second Amended and Restated Deferred
Compensation Plan for Directors of Peoples Bancorp Inc. and
Subsidiaries (Amended Effective October 25, 2012)*
10.1(c)
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 10.2 to
Peoples’ Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2012 (File
No. 0-16772) (“Peoples’ September 30, 2012
Form 10-Q”)
Incorporated herein by reference to Exhibit 10.1(c)
to Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 (File No.
0-16772)
10.2
10.3
10.4
10.5
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
Summary of Incentive Plan for Executive Officers and other
employees of Peoples Bancorp Inc. [Effective for the fiscal year
ended December 31, 2010]*
Summary of Peoples Bancorp Inc. Annual Incentive Program for
Executive Officers and other employees of Peoples Bancorp Inc.
[Effective for the fiscal year beginning January 1, 2012]*
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")
Incorporated herein by reference to Exhibit 10.2(c)
to Peoples' Annual Report of Form 10-K for the
fiscal year ended December 31, 2011 (File No.
0-16772) ("Peoples’ 2011 Form 10-K")
Summary of Peoples Bancorp Inc. Long Term Incentive Program
for Executive Officers and other employees of Peoples Bancorp Inc.
[Effective for the fiscal year beginning January 1, 2012]*
Incorporated herein by reference to Exhibit 10.2
(d) to Peoples’ 2011 Form 10-K
10.6
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)
*Management Compensation Plan or Agreement
112
Exhibit
Number
10.7
10.8
10.9
Description
Exhibit Location
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.*
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’
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.*
10.10
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)
10.11
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
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
10.14
Peoples Bancorp Inc. 2002 Stock Option Plan.*
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.*
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 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
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
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
10.21
Summary of Compensation for Directors of Peoples Bancorp Inc.*
Filed herewith
10.22
Peoples Bancorp Inc. Amended and Restated 2006 Equity Plan
(sometimes referred to as "Peoples Bancorp Inc. 2006 Equity Plan)*
Incorporated herein by reference to Exhibit 10.28
to Peoples’ 2008 Form 10-K
*Management Compensation Plan or Agreement
113
10.15
10.16
10.17
10.18
10.19
10.20
Exhibit
Number
10.23
Description
Exhibit Location
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)
10.24
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”)
10.25
10.26
10.27
10.28
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
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
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
10.29
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)
Change in Control Agreement between Peoples Bancorp Inc. and
Richard W. Stafford (adopted February 8, 2010)*
Incorporated herein by reference to Exhibit 10.31
to Peoples' 2009 Form 10-K
10.30
10.31
Change in Control Agreement between Peoples Bancorp Inc. and
Timothy H. Kirtley (adopted August 29, 2011).*
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 10.2 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2011 (File No.
0-16772)
10.32
Change in Control Agreement between Peoples Bancorp Inc. and
Charles W. Sulerzyski (adopted April 4, 2011).*
10.33
10.34
10.35
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. *
Incorporated herein by reference to Exhibit 10.8 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2011 (File No.
0-16772)
Form of Peoples Bancorp Inc. Amended and Restated 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. *
Form of Peoples Bancorp Inc. Amended and Restated 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. *
Incorporated herein by reference to Exhibit 10.41
to Peoples’ 2011 Form 10-K
Incorporated herein by reference to Exhibit 10.42
to Peoples’ 2011 Form 10-K
*Management Compensation Plan or Agreement
114
Exhibit
Number
10.36
10.37
10.38
21
23
24
Description
Exhibit Location
Form of Peoples Bancorp Inc. Amended and Restated 2006 Equity
Plan Time-Based Restricted Stock Agreement for executives used
and to be used to evidence awards of time-based restricted stock
granted to executives of Peoples Bancorp Inc. *
Form of Peoples Bancorp Inc. Amended and Restated 2006 Equity
Plan Time-Based Restricted Stock Agreement for employees used
and to be used to evidence awards of time-based restricted stock
granted to employees of Peoples Bancorp Inc. *
Form of Peoples Bancorp Inc. Amended and Restated 2006 Equity
Plan Time-Based Restricted Stock Award Agreement for executives
used and to be used to evidence awards of time-based restricted
stock granted to executives of Peoples Bancorp Inc.*
Incorporated herein by reference to Exhibit 10.43
to Peoples’ 2011 Form 10-K
Incorporated herein by reference to Exhibit 10.44
to Peoples’ 2011 Form 10-K
Incorporated herein by reference to Exhibit 10.1 to
Peoples’ September 30, 2012 Form 10-Q
Subsidiaries of Peoples Bancorp Inc.
Consent of Independent Registered Public Accounting Firm - Ernst
& Young LLP.
Filed herewith
Filed herewith
Powers of Attorney of Directors and Executive Officers of Peoples
Bancorp Inc.
Filed herewith
31.1
Rule 13a-14(a)/15d-14(a) Certifications [President and Chief
Filed herewith
Executive Officer]
31.2
Rule 13a-14(a)/15d-14(a) Certifications [Executive Vice President,
Filed herewith
Chief Financial Officer and Treasurer]
32
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
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, 2012 of Peoples Bancorp Inc. are
the following documents formatted in XBRL (eXtensive Business Reporting Language): (i) Consolidated Balance Sheets at December
31, 2012 and December 31, 2011; (ii) Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010; (iii)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010; (iv) Consolidated
Statements of Stockholders' Equity for the years ended December 31, 2012, 2011 and 2010; (v) Consolidated Statements of Cash Flows
for the years ended December 31, 2012, 2011 and 2010; and (vi) 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, 2012 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.
115
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Map and Locations
Ohio
West Virginia
Athens County
Cabell County
Huntington
Kanawha County
Charleston
Mason County
Point Pleasant
Tyler County
Sistersville
Wetzel County
New Martinsville
Wood County
Parkersburg
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Greenup
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Belpre
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Martin
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Logan
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Wyoming
Summers
Breathitt
Pike
Monroe
McDowell
Mercer
Peoples Bancorp Inc.
and Peoples Bank Directors
TARA M. ABRAHAM
JAMES S. HUGGINS
CHUCK SULERZYSKI
Chairman and Co-CEO, Accel, Inc.
Attorney-At-Law, Theisen Brock, LPA
President and Chief Executive Officer
Peoples Bancorp Inc. and Peoples Bank
CARL L. BAKER, JR.
BRENDA F. JONES, M.D.
President and Chief Executive Officer
Medical Director
THOMAS J. WOLF
B & N Coal, Inc.
Marietta Ophthalmology Associates, Inc.
Owner, McDonald’s Restaurants
GEORGE W. BROUGHTON
DAVID L. MEAD
Owner and President
Associate Professor, Marietta College
Broughton Commercial Properties, LLC
GWB Specialty Foods, LLC
GWB Oil & Gas, LLC
RICHARD FERGUSON
Chairman, Peoples Bancorp Inc.
Owner, Ferguson Consulting, LLC
SUSAN D. RECTOR
Attorney-At-Law, Ice Miller LLP
T. PAT SAUBER
Vice President, T.C.K.S., Inc.
Meet Our Officers and Directors Emeritus
Peoples Bancorp Inc. Officers
CHUCK SULERZYSKI
President and Chief Executive Officer
RICHARD W. STAFFORD
Executive Vice President
Sales and Marketing
TIMOTHY H. KIRTLEY
Executive Vice President
Chief Credit Officer
DANIEL K. MCGILL
Executive Vice President
Chief Commercial Banking Officer
M. RYAN KIRKHAM
Corporate Counsel and
Corporate Secretary
KATHRYN M. BAILEY
Controller
AMY M. AUCH
Peoples Bank
Director Emeritus
HAROLD D. LAUGHLIN
Peoples Bancorp Inc.
Directors Emeritus
DAVE M. ARCHER
JEWELL BAKER
FRANK L. CHRISTY
WILFORD D. DIMIT
BARTON S. HOLL
CAROL A. SCHNEEBERGER
Assistant Corporate Secretary
NORMAN J. MURRAY
Executive Vice President
Chief Administrative Officer
EDWARD G. SLOANE
Executive Vice President
Chief Financial Officer and Treasurer
CATHY M. LAWRENCE
Assistant Corporate Secretary
FRED R. PRICE
ROBERT W. PRICE
PAUL T. THEISEN
JOSEPH H. WESEL
Director Emeritus
PAUL T. THEISEN
Paul T. Theisen has been elected
Peoples Bancorp and its subsidiaries
Director Emeritus of the Peoples
have benefitted significantly from
Bancorp Board of Directors in
Mr. Theisen’s wisdom and integrity.
recognition of his 34 years of
He has provided invaluable guidance
corporate leadership as a director.
through his leadership and
Mr. Theisen was a dedicated
continuing passion for excellence.
member of the Peoples Bancorp
We wish him great joy and happiness
Inc. Board of Directors since 1980
in his retirement.
and the Board of Directors of its
subsidiary, Peoples Bank, since 1978.
Building Something Different.
Market Makers
Stockholder Information
Stock Listing
NASDAQ Symbol: PEBO
Stock Transfer Agent, Registrar
Shareowner Services
NASDAQ Global Select Market, CUSIP 709789101
161 N. Concord Exchange
Alternate Newspaper Listings: PEBOOH and PeBcOh
South St. Paul, MN 55075
Corporate Offices
Peoples’ Headquarters:
138 Putnam Street, PO Box 738
Marietta, OH 45750-0738
800.468.9716 • shareowneronline.com
General Shareholder Inquiries
Peoples Bancorp Inc.
Attn: Investor Relations
Investor Relations phone number: 740.374.6136
138 Putnam Street, PO Box 738
peoplesbancorp.com
Marietta, OH 45750-0738
Market Makers in Peoples Bancorp Inc. Stock
Wedbush Securities Inc.
Citigroup Global Markets Inc.
Sandler O’Neill & Partners
213.688.8000
800.223.7743
800.635.6860
Goldman Sachs
800.221.8320
UBS Securities, LLC
RBC Capital Markets
800.421.6172
800.285.4964
Knight Equity Markets, L.P.
Barclays Capital Inc.
Credit Suisse First Boston
800.222.4910
Deutsche Bank Securities Inc.
212.250.2500
212.412.4000
Merrill Lynch
800.937.0516
Morgan Stanley & Co., Inc.
800.223.6559
Sweney Cartwright & Co.
800.334.7481
212.325.2000
our Brand Promise
We will work side by side to overcome challenges and seize
opportunities. We listen and work with you. Together
we will build and execute thoughtful plans and actions,
blending our experience and expertise, to move you
toward your goals. Our core difference is providing you
peace of mind, confidence, and clarity in your financial life.
our new logo
As we worked throughout 2012 to build something different at Peoples
Bank, we introduced a new logo designed to visually convey our new
brand promise.
Our name, Peoples Bank, offers a reflective connection to our rich history
and our core strength, our people.
The icon is referred to as “Peoples In Motion” and represents teamwork,
strength, energy and a connection to a modern, responsive organization.
The tagline — “Working Together. Building Success.” — represents
standing side by side with our customers to meet their individual needs
and applying our strengths in problem solving and financial expertise to
help them succeed.
Working Together.
Building Success.
our Mission
our core values
Our mission is to be the primary financial resource
Peoples’ Core Values represent how we do business and
for our target clients. We grow these relationships by
our never-ending pursuit of creating value for our clients.
delivering trusted advice, extraordinary personal service
Our strategies to serve clients and enhance shareholder
and a seamless, integrated suite of services that meets
value often change, but our Core Values remain constant.
• Clients as a Focus
• Business With Integrity
• Trust Among Clients, Communities and Associates
• Commitment to Communities
• Continuous Will to Win
• Development of Associate Skills
all their needs. Our target clients are businesses and
consumers who value us as true financial partners.
Our success depends on empowering our skilled and
dedicated personnel to meet and exceed our clients’
needs. We win by serving clients, supporting those
who serve clients and delivering a competitive return
to our shareholders.
We are a team and we are good teammates. We take
care of our customers and we take care of each other.
our vision
Our vision is to be the leading financial services provider
to the clients and markets we serve.
Building Something Different
The Peoples Bank Difference
Celebrating 110 years | 1902-2012
scan foR
online veRsion
ANNUAL
REPORT
Building Something Different
Call.
Click.
Come In.
800.374.6123
peoplesbancorp.com
Visit your local office
138 Putnam Street | PO Box 738 | Marietta, OH 45750