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Building Something Different
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138 Putnam Street | PO Box 738 | Marietta, OH 45750
Our Promise
We will work side by side to overcome challenges and
seize opportunities. We listen and work with you.
Together we 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 Core Values
Peoples’ Core Values represent how we do business and
our never-ending pursuit of creating value for our clients.
Our strategies to serve clients and enhance shareholder
value often change, but our Core Values remain constant.
Business With Integrity
Continuous Will to Win
Trust Among Clients,
Communities, and Associates
Commitment to Communities
Clients are our Focus
Development of Associate Skills
Building “The
Best Community
Bank in America”
Everywhere you look, we are building something
different! This philosophy guides our decisions, efforts,
investments, and teamwork at Peoples. It shapes each
day. You can see it in the early morning work of our
associates as they prepare for the first customer. You
can see it brought to life in the way we have redesigned
our branches to ensure convenient access to our
financial experts and to provide a welcoming fresh look.
Every action we take and every interaction we have
is purposely designed to promote individual financial
success and help our customers breathe a little easier.
By working side by side with our customers and
community leaders, we have developed a comprehensive
approach to serving our communities. This approach
creates success by delivering full-service insurance,
investments, and banking. Organizationally, responsible
risk management and an extraordinary client experience
provide the foundation for generating profitable and
disciplined revenue growth. Our continuous coaching
and mentoring culture produces superior teams better
equipped to create that extraordinary client experience.
Through all of this, we are striving to build “The Best
Community Bank in America.”
1
Financial Highlights
Peoples Bancorp Inc. is a $2.1 billion diversified financial
lending, investment management, trust and brokerage
holding company headquartered in Marietta, Ohio. Peoples
services, and a full range of insurance products. Peoples has
Bank, the company’s principal operating subsidiary, provides
been in business since 1902 and maintains a strong record of
a comprehensive suite of financial services through its 49
financial stability and growth that has remained unshaken in
offices in Ohio, West Virginia, and Kentucky, as well as its
these uncertain economic times.
mobile and Internet banking channels, and network of 47
ATMs. Nearly 600 dedicated associates deliver consumer
Peoples Bancorp’s common shares are traded on the
and commercial banking, mortgage lending, personal
NASDAQ Global Select Market under the symbol “PEBO.”
Dollars in Thousands, except Per Share Data
2013
2012
2011
2013
2012
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
Total 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
$
$
$
$
$
$
$
$
$
$
92,605
68,265
17,574
6,161
1.65
1.63
0.57
20.89
13.57
22.51
$ 2,059,108
$ 680,526
$ 1,196,234
$ 1,580,758
$ 221,553
$ 1,474,555
0.91%
7.92%
3.25%
71.90%
13.78%
7.26%
0.47%
$ 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
$ 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
1.11%
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%
3.5%
7.5%
-13.8%
24.9%
-14.1%
-15.1%
23.9%
-0.6%
-6.5%
10.2%
7.4%
-4.0%
21.4%
5.9%
-0.1%
14.1%
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%
(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 (excluding gains or losses on investment securities, asset disposals and other transactions).
2
A Message from the
President and CEO
Fellow Shareholders,
We are well on our way to transforming Peoples Bancorp into
a unique community bank. Our capabilities and sophistication
allow us to compete against the large national banks. Yet, we’ve
preserved our rich 112-year history of serving the financial needs
of our local communities. Overall, we’re very pleased with the
progress made in 2013 and have positioned Peoples Bancorp for
many years of success!
In the coming pages, you’ll see examples of how we are working
to differentiate our bank from our competitors. From our
approach with customers to the sizable investments in our
communities, we stand out because our promise of “Working
Together. Building Success.” not only applies to our customers,
but to our employees, shareholders, and the communities we
serve as well.
OUR PROGRESS
Over the past two years, we’ve made significant investments
in our people, sales process, and branch renovations. In 2013,
these investments began to produce positive results across the
company. Our sales execution has improved, which has led to
greater revenue generation. We are seeing more referral activity
as our lines of businesses work together to help clients achieve
their financial goals.
A few years ago in the midst of the Great Recession, we set
an ambitious goal to become “The Best Community Bank in
America.” It’s a lofty ambition, but we believe in aiming high!
We are pleased to report the progress we have made in 2013.
Our greatest achievement was our ability to grow the company
organically despite major headwinds within the banking industry.
Equally exciting was our continued success with acquisitions. We
also were pleased to restore asset quality to pre-crisis levels.
We’ve come a long way and we have a long way to go. To us,
the endpoint is being the bank of choice in the communities we
serve. We believe a broad-based approach to financial services
provides our clients and communities the best path to financial
security. To achieve our goal of helping our customers with all
of their finances, we provide comprehensive solutions for their
investment, insurance, and banking needs. We can deliver this
sophisticated suite of services in person with our dedicated
professionals, or with the best contemporary electronic services,
for those who seek these capabilities.
Chuck Sulerzyski, President and CEO
Chuck Sulerzyski, President and CEO
2013 RESULTS
In 2013, our net income was $17.6 million, or $1.63 per share,
compared to $20.4 million, or $1.92 per share, in 2012. This
modest decline was due to one-time costs for acquisitions
and surrendering BOLI, which lowered 2013 earnings by $3
million, or $0.30 per share. However, we finished the year
with meaningfully stronger revenue generation than at the
start of the year. As a result, our earnings gained significant
momentum in the second half of the year, highlighted by a
32% increase in fourth quarter earnings.
Key successes for 2013 included stronger than expected
organic loan growth, improved revenue generation within our
fee-based businesses, and restoration of our asset quality. We
are proud of these accomplishments, given the challenges to
profitability and growth in our industry.
The overall improvement in our performance also has
translated into higher cash dividends for our common
shareholders. Since 2011, the Board of Directors has increased
the quarterly dividend rate four times – from $0.10 per
common share to $0.15 per common share. The most recent
increase occurred in early 2014. In total, the cash dividends paid
with respect to 2013 earnings were $0.57 per common share,
up 24% from the $0.46 per common share paid for 2012.
BUILDING THROUGH GROWTH
In 2013, we were active with our plans to grow through
acquisitions. In the first half of the year, our insurance division
completed transactions that added over $2 million in annual
insurance revenue and new sales talent. These transactions
also allowed us to enter two new markets – Pikeville, Kentucky,
and Jackson, Ohio.
Then in the fourth quarter, we completed our acquisition of
Ohio Commerce Bank and its full-service banking office in
the Cleveland, Ohio, suburb of Beachwood. This transaction
allowed us to enter a very attractive market with a proven
team. It also added nearly $100 million in loans and $110
million of deposits. This acquisition added valuable SBA
lending expertise, which is being used throughout the
company.
20.43
22.51
14.81
2013
2012
2011
2013
2012
2011
$1.63
$1.92
$1.07
2013
2012
2011
EARNINGS PER COMMON SHARE
CLOSING STOCK PRICE
$89.4
$86.9
$92.6
2013
2012
2011
0.91%
1.11%
0.69%
TOTAL REVENUE ($ Millions)
RETURN ON ASSETS
3
Throughout the year, we evaluated several other acquisition
opportunities. Many of these we chose not to pursue given our
disciplined approach that emphasizes protecting shareholder
value and our company values. Our efforts led to our planned
acquisition of Midwest Bancshares Inc. and its subsidiary,
First National Bank of Wellston. We’re pleased to have this
opportunity to expand our presence in Jackson County, Ohio.
Our future customers in the area will benefit from having access
to our full array of products and services. This transaction also
provides us with an excellent opportunity to leverage existing
insurance relationships in the Jackson area.
2013
$1.92
$1.63
2011
2012
Another significant accomplishment in 2013 was strong
organic loan growth. Our credit team was very active in 2013,
as production levels continued to increase. Because of these
efforts, period-end loan balances grew 12% during 2013 –
$1.07
surpassing our 8% to 10% growth goal for the year. Adding the
EARNINGS PER COMMON SHARE
balances acquired from Ohio Commerce, our total 2013 loan
growth was 21%. Even more noteworthy than the strong growth
is the increased contribution from our consumer lending
group. Non-mortgage balances increased 33% in 2013, which
accounted for nearly one-third of the overall loan growth.
2013
2012
2011
BUILDING SUCCESSFUL PARTNERSHIPS
Another measure of our 2013 sales success is our cross-sell
rate. Simply put, this is the number of products and services
each household is using on average. We are pleased to have
improved our cross-sell rate in 2013. At year-end 2013, our
cross-sell rate was 5.5, up from 5.1 a year ago. This success is
due largely to greater collaboration by our sales professionals
within the local markets. Our philosophy is to establish long-
lasting partnerships with clients. We aim to ensure clients are
using the products and services that simplify their lives and
help them achieve their financial goals. We’re not focused
merely on growing our business.
22.51
20.43
Our increased referral activity also is translating into
meaningful growth in other areas. For example, most of our
personal insurance sales today are a direct result of referrals
from our branches. This increased activity was a contributing
factor in the double-digit growth in our insurance revenue
during 2013.
CLOSING STOCK PRICE
14.81
2013
2012
2011
$92.6
$89.4
$86.9
TOTAL REVENUE ($ Millions)
We also have been successful in breaking down barriers that
are a hindrance to growth. In most banks, sales professionals
are reluctant to create partnerships and cross business lines
to serve clients. Rather, major in-fighting or competition with
each other is commonplace. This has not been the case at
Peoples. For example, our investment business added several
new 401(k) plans during 2013. Most of this new business came
from existing commercial banking and insurance clients.
We’re proud of this level of teamwork within our company.
RETURN ON ASSETS
0.69%
0.91%
1.11%
2013
2012
2011
BUILDING SALES SUCCESS
A major area of focus for us over the past two years has been
improving our sales culture and execution. In 2013, we began
to see a return on the investments made. We also are seeing
many positive results simply by executing better than the
proverbial bank across the street.
In each of our lines of business, our associates are having
richer dialogues with clients. These conversations have helped
many clients make progress toward their financial goals.
Greater teamwork is occurring across our business lines to
ensure the clients are getting the expertise and advice they
desire. Foot traffic within our branches also has remained
steady, standing in contrast to the declining trend occurring
with many banks.
In 2013, our retail banking business saw a 3.7% net increase
in the number of checking accounts. What makes this
growth more meaningful is how we achieved it. Most of our
markets are not experiencing significant growth. So, we must
attract customers from other banks to achieve growth. This
is occurring by having deeper conversations and providing
superior service – not by offering cash bonuses or other
incentives like some of our competitors. Given our approach,
we believe the customers will choose to stay with Peoples for
many years to come.
For over 112 years, we’ve been committed to making a
positive contribution to the communities we call home
through strong partnerships. We take great pride, as we do
each year, that in 2013 our associates volunteered their time
with organizations ranging from national civic associations
to local food banks. We’re also pleased to provide significant
financial support to organizations within our markets – both
directly and through the Peoples Bancorp Foundation. We
are excited about what we are doing together to help build
successful communities.
.
POSITIONED FOR SUCCESS IN 2014
As we start 2014, we are already working to sustain the
progress made with several strategic priorities in 2013. These
include generating positive operating leverage every year,
maintaining superior asset quality, and remaining prudent
with the use of capital.
The lack of positive operating leverage in 2013 was
disappointing. However, we’re positioned to grow revenue
much faster than expenses in 2014. We are confident we
will achieve this goal. Our focus continues to be on growing
revenue, rather than cutting expenses. We’ve built capacity
to be a much bigger and better company. Our infrastructure
is capable of driving meaningful revenue growth for many
quarters to come.
4
2013
2012
2011
2013
2012
2011
As we focus on revenue growth, we also intend to remain
disciplined with operating expenses. For 2014, we’re
expecting an increase in operating expenses. The additional
expenses will be due largely to a full year’s impact of the 2013
acquisitions, plus depreciation related to our $5 million branch
renovation project. Outside these items, we will be working to
hold the line on expenses to ensure revenue growth exceeds
expense growth by 1% to 2%. Our long-term goal is to widen
this gap in future years and improve our overall efficiency.
During the Great Recession, our asset quality metrics fell to
the bottom of our peer group. In 2013, we restored asset
quality, and key metrics are now in the top-quartile. Our
nonperforming assets are at their lowest point since year-end
2007. Loan loss recoveries also exceeded charge-offs in every
quarter of 2013, which benefited our bottom line earnings.
We believe our credit discipline will benefit us during future
economic downturns. Our goal is to maintain key metrics in
the top-quartile of our peer group – not just during the good
times, but during the bad times too.
22.51
2013
2012
20.43
14.81
2011
We have the resources and desire to grow by acquiring more
banks in our footprint. Many smaller institutions are feeling the
stress of lower net interest margins, lackluster loan demand, and
increasing regulatory burden. We’re having conversations on a
regular basis, and many institutions view us as a great strategic
partner. The combination of our community banking approach,
broad insurance and investment capabilities, and cutting-edge
electronic services is making us a partner of choice.
CLOSING STOCK PRICE
$1.63
$1.92
$1.07
EARNINGS PER COMMON SHARE
$89.4
$86.9
$92.6
2013
2012
2011
0.91%
1.11%
0.69%
TOTAL REVENUE ($ Millions)
RETURN ON ASSETS
MEASURING SUCCESS IN 2014
Our focus for 2014 will be to continue the transition from
being simply a good community bank to “The Best Community
Bank in America.” Our ability to achieve this aspiration will
require a steadfast commitment to four key areas: responsible
risk management, extraordinary client experience, profitable
revenue growth, and maintaining a superior workforce.
Strong fee-based businesses continue to be a major asset for the
company. Our fee revenue comprised 40% of 2013 total revenue.
This was up from 39% in 2012. We have capabilities that many
banks in our region lack, including some of the largest national
banks. These include robust retirement plan services and
comprehensive insurance products. This competitive advantage
directly enhances our revenue growth potential.
origination volumes. Looking to 2014 and beyond, we believe
our loan origination volumes are capable of consistently
generating annual loan growth of 5% to 10%.
When you combine meaningful loan growth with our strong
fee revenue, we are confident in our ability to outperform
most of our peers in terms of revenue generation. For 2014,
we expect to grow total revenue by more than 10%.
In 2014, we will continue to pursue acquisition opportunities
in all three lines of business – banking, insurance, and
investments. Our management team is prepared to act
quickly should a potential opportunity arise. We will remain
disciplined with our approach to ensure transactions create
long-term shareholder value. It would be disappointing not to
announce any additional deals in 2014.
Overall, we remain committed to profitable growth of the
company and building long-term shareholder value in an
environment that fosters sound credit discipline, compliance,
and operating controls. I am confident we will succeed
through disciplined execution of our strategies and partnership
with our clients and communities.
FINAL THOUGHTS
I close this letter with two personal notes.
First, after 23 years of service, current Director Pat Sauber
has announced his plans to retire from the Board of Directors
of both Peoples Bancorp and Peoples Bank effective with the
2014 Annual Meeting of Shareholders. On behalf of the entire
Board of Directors, it’s my privilege to thank Pat for his many
years of service and to congratulate him on his upcoming
retirement. His insight and leadership to our company will be
missed. We are thankful for his dedication and wish him all the
best in his retirement.
Lastly, we were saddened by the recent death of one of
our director emeriti, Norman J. Murray. Norm served as a
Director of Peoples Bancorp from 1980 until his retirement
in 1999. During his 19 years of service, he was a valued
member of the Board, providing thoughtful leadership and
making many contributions to the success of the company.
He will be missed by his family, friends, and former
colleagues at Peoples.
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,
Revenue growth also calls for meaningful loan growth each
year. In 2013, we continued to invest in both our consumer
and commercial lending areas, which led to increased loan
Chuck Sulerzyski, President and CEO
Chuck Sulerzyski, President and CEO
5
66
Adding Value and Ease
Building something different and adding value for our
Peoples Insurance Agency expanded our ability to offer
customers takes vision, effort and, sometimes, even physical
group health insurance options for companies and their
change; it takes hard work to make life easier for customers.
employees. As a full-service insurance agency, we have the
Each day we anticipate customer needs, prepare our
expertise and resources to provide multiple carrier quotes
teams, and seek ways to reach our goal of being “The Best
and to assist customers in finding comprehensive and
Community Bank in America.” Through a combination of
affordable coverage that is tailored to their needs.
new banking conveniences, more extensive and diverse
insurance services, and our expanded wealth management
resources, we are closer than ever to that goal.
ADDING VALUE
ADDING EASE
Customers can now access online banking from their
smartphone or tablet device via the Peoples Mobile app.
Peoples Mobile provides customers around-the-clock account
In 2013, we significantly enhanced the knowledge of our
access and the convenience of being able to deposit their
bankers so they can have deeper financial conversations
checks from anywhere, anytime, with their smartphone.
to better address customers’ needs. Numerous branch
With Peoples Mobile, customers can bank on the go: transfer
managers and personal bankers have completed the
funds, check account balances and transactions, find Peoples
development program with Series 6 and 63 as well as
Bank locations and ATMs, and more. Adding to these 24/7
Life & Health Insurance licenses.
conveniences is our new online loan application process.
From anywhere at anytime, you can manage your finances
In addition, we rolled out new processes and programs for
and apply for a personal or home loan.
investment Goal Planning and Monitoring that complement
the skills and product offerings already in place. Goal
Peoples Bank is committed to adding value and ease to
Planning and Monitoring is a sophisticated, powerful
everyday life and ensuring our customers’ financial needs
and convenient tool designed to help build and manage
are supported by the convenience of service and expertise
retirement plans for clients.
they would expect. We know what it takes to become “The
Best Community Bank in America,” and the ambitious
journey is underway.
7
Randall and Melinda Holden, owners of Mister Bee
8
Managing Claims to Minimize a Crisis
At Peoples Bank, we are dedicated to helping local businesses build success, or in the
case of Parkersburg, WV-area business, Mister Bee, rebuild success.
Established in 1951, the successful potato chip company
“I was amazed we were able to get the settlement as
was growing its business volumes and working on
requested,” says Holden. “Peoples Insurance really
expansion plans when it became a Peoples Insurance
positioned our claim to expedite the process. In addition,
client in February 2013. Disaster struck two and a half
our adjustor made sure all business interruption
months later.
expenses were handled promptly and appropriately.”
A fire destroyed the primary fryer at Mister Bee—the key
For Mister Bee, this type of fire claim could have resulted
piece of equipment in the production of the company’s
in substantial loss of business, a damaged reputation,
chips. At that moment, the company’s ability to produce
and a reduction in product quality. But today, Mister Bee
potato chips was in jeopardy. Fortunately, Mister Bee
is fully functioning and has even upgraded its facility.
was insured through Peoples Insurance.
Peoples Insurance stepped up to help. Working with
the insurance carrier to enable a quick and appropriate
response, Peoples Insurance provided the key details
and explanation of President Randall Holden’s needs and
his critical situation. Through countless hours of claim
mediation and support, Mister Bee’s claim was expedited,
and numerous processing hurdles were overcome.
“Peoples Insurance Agency
truly moved mountains for
us and quite frankly, helped
save our company.”
- Randall Holden, President of Mister Bee
9
Dan Atkinson, CEO of Muskingum Valley Health Centers
10
Building a Healthcare Center and
the Financial Futures of its Staff
At Peoples Bank, we are dedicated to building stronger communities,
“That was just the beginning of our relationship,” says Atkinson.
and having access to quality healthcare services is key to any
In 2013, MVHC transitioned its 401(k) plan over to Peoples Bank.
community’s strength.
Having its 401(k) locally managed with experts close at hand
In Zanesville, Ohio, the Muskingum Valley Health Centers
(MVHC) represent a community asset that serves thousands of
community members. Peoples Bank is proud to be the partner
ensuring their continued success.
“Peoples Bank is great,” says Dan Atkinson, CEO of MVHC. “They
saw what we were doing, believed in it, and reached out to ask:
How can we help this succeed?”
was critically important to MVHC.
“Peoples Bank works closely with
each new employee, providing a very
in-depth orientation and one-on-one
assistance. Their partnership and local
presence is invaluable.”
- Dan Atkinson, CEO of MVHC
In 2007, community leaders in Morgan and Muskingum
With $1.5 billion of assets under management, Peoples’ Trust
counties identified a dramatic need for additional primary
and Investment Services offers the size and strength needed
care services in the area. In 2008, funded through a Federally
with the personal care and local decision-making that many
Qualified Health Center Grant, MVHC first opened its doors to
organizations seek.
begin its mission of “serving the underserved.”
“Our 401(k) was increasing in complexity and was becoming
Working together with MVHC, Peoples Bank provided a key
a corporate challenge. Peoples stepped in and, from the first
line of credit for new equipment. This line of credit was
moment, we felt at ease. Their administration team provided instant
instrumental in MVHC being able to purchase a cutting-edge
support and their preparation made every meeting efficient and
Electronic Medical Records System. “This is the best software
productive. We knew we had the right, local partner,” says Atkinson.
program of its kind,” explains Atkinson. “It really helps us
improve the quality of care for our patients.” Additionally,
With their employee 401(k) plan in expert, local hands, MVHC
Peoples Bank helped provide the funding to outfit the facility’s
believes that employees feel more confident in managing
38 exam rooms with beds and standard medical equipment,
their retirement savings and appreciate the extra support and
and furnished the new waiting rooms.
information that Peoples provides.
11
Dell Duncan, Peoples Bank Senior
Vice President, Commercial
Banking Market Leader; and
Chuck Sulerzyski, Peoples Bank
President & CEO
Redefining Our Footprint
Peoples Bank has a 112-year history in southeast Ohio. Over
the years, we have expanded our footprint to include parts
OHIO COMMERCE BANK
The acquisition of Ohio Commerce Bank provided an entry
of West Virginia and Kentucky. Building on our rich history of
into the highly affluent Beachwood market situated in
community involvement, we continue to create a more visible
northern Ohio, along the I-77 corridor near Cleveland. In
and committed presence within each of our markets, existing
addition to its $122 million of assets, this bank acquisition
and new. A combination of additional locations, refreshed
provides a solid platform for commercial banking. The
branch offices, and new services allows us to improve the
expertise gained with SBA and small business lending fits
customer’s experience and build their success each and
our community banking approach and provides significant
every day.
NEW INSURANCE EXPERTISE
Adding new insurance agencies to Peoples Insurance helped
opportunities for our insurance and investment lines of
business. Acquisitions of this type not only add depth to
our associate team, they also provide growth opportunities
for lines of business and complement our organic core
to grow our insurance revenue, which now represents 14% of
market growth.
our total revenue base. It also provides unique opportunities
to enter new markets, as well as expand our product reach in
existing markets. In 2013, we added four insurance agencies
EXPANDING COMMERCIAL BANKING
2013 represented significant geographic expansion for our
which enhanced our expertise and created better diversity
commercial banking team. Adding commercial bankers in
within our product mix. These new additions were:
Millersburg and Akron/Canton opens new Ohio markets.
Pikeville Insurance
• Pikeville, Kentucky
• Commercial Property and Casualty
McNelly Insurance
• Jackson, Ohio
• Employee benefits insurance
Jackson Insurance Brokerage
• Jackson and Chillicothe, Ohio
• Employee benefits insurance
FreedomChoice Benefits Group
• Jackson and Chillicothe, Ohio
• Employee benefits insurance
12
Millersburg is a vibrant Amish community that has significant
commercial banking and lending opportunities that provide
key growth potential.
The Akron/Canton area is a productive manufacturing
area that fits our lending portfolio and introduces us to
a market that responds well to community banking. The
new commercial bankers, combined with the Charleston,
WV, location added in 2012, expand our reach and provide
opportunities to gain a foothold in attractive markets.
Building Market Opportunities
Our footprint, which is diverse geographically and demographically,
provides unique opportunities for capturing growth from
BRANCH REDESIGN
In 2012, we launched a new brand that aligned our internal
emerging businesses and several vibrant new economic
strengths with the needs and opportunities of the external
development plans. Being active community leaders, we are
marketplace. In 2013, we brought our new brand to life by
attuned to the opportunities and are deeply involved in helping
extending it to our branch network in the form of an extensive
establish the foundations upon which the communities can
$5 million branch renovation project.
prosper. Being responsible business leaders, we are building
plans and supporting our associates in responding to the
The branch redesign process represents a significant investment
market with our products, services, and expertise.
in our physical branches that yields more consistency, efficiency,
OIL AND GAS
Wood County, WV, Guernsey County, OH, and the surrounding
areas have experienced significant oil and gas activity in the
past year. Our commercial banking, insurance, and trust &
investment areas have developed a cohesive service offering to
support the area’s growth potential and economic impact. Land
leasing and ongoing royalties can lead to significant deposit
growth. In addition, the announcement of a potential multi-
billion dollar ethylene production complex in Wood County, WV,
and ease of doing business for our customers.
Each redesign incorporates a better utilization of office space and
a “best-in-class” delivery channel to increase office visits and sales
activity, both leading indicators of market growth and success.
Customers will experience a more engaging environment that
promotes our full-service capability and highlights our associate
experts. Through the new design, we are increasing the focus on
our full line of investment, insurance, and banking services.
could have an anticipated $7 billion of economic impact which
may reshape the area. Our Wood County branch locations will
ZANESVILLE RELOCATION
In December 2013, we relocated our Zanesville office. This
provide easy access and enable us to serve the people who
decision was in response to customer feedback. Our new
will fill the 10,000 potential new jobs this complex is expected
office is now located in the heart of Zanesville. Additionally,
to create. Over the next 24 months, the market opportunity in
the layout of the office space is better organized so customers
this area is significant, and we are well positioned to capture the
can access our full-service offerings more easily. This
growth across all business lines.
relocation is one example of how we are striving to be “The
Best Community Bank in America.”
13
1313
Building Our Key
Resource
Creating a best-in-class experience for our customers means
developing best-in-class associates. Through a strong
coaching and mentoring culture, and continuous efforts
to support our associates’ community involvement, we are
building success for our customers and communities.
MENTORING AND COACHING
Our nearly 600 associates are the lifelines to our customers,
and they maintain the connection to our communities.
Knowing that each associate benefits from internal support
and opportunity, we have built a culture of mentoring and
coaching within our entire organization. Continuous skill
improvement and incremental gains in productivity and
effectiveness are priorities for our team. Building and
supporting teamwork among our business lines ensures that
we can work together side by side with our customers in their
pursuit of financial success.
DEVELOPING LEADERS
The key to a vibrant organization is acknowledgement
of success and providing opportunity for growth. Our
Professional Development program is designed to educate
our future leaders through a progressive program of
leadership positions in chambers of commerce, community
development associations, charitable organizations,
educational groups, and more. To make sure our team
can make an impact in our communities, we support them
by providing time, opportunity, encouragement, facilities,
donations from the bank, and funds from our community
involvement and training in all areas of our bank’s operations.
foundation.
The result is a continuous pipeline of talented leaders and
abundant opportunity for our associates to grow and excel.
COMMUNITY ENGAGEMENT
In 2013, the Peoples Bancorp Foundation awarded more
grants and contributions than ever since its formation in
2004. Supporting our communities by encouraging our
EMPLOYEE ENGAGEMENT
To build a strong team, it takes everyone working together
and focusing on the same initiatives and goals. As part of
our culture of mentoring and coaching, we regularly conduct
an Employee Engagement Survey to measure our progress
and identify opportunities for us to grow as an organization.
associates’ community involvement is an integral component
In 2013, we had an amazing response rate of 86%. Our
to our success and creates the connections we have in each
results demonstrated measurable increases in satisfaction
market. What we are most proud of is the participation
of our associates and the impact they’ve had on our
communities.
in communications, clarity of expectations, and effective
sharing of the bank’s mission and objectives. Every line of
business utilizes the survey results in their coaching efforts to
help make Peoples a better place to work. We firmly believe
Being a good “community corporate citizen” means
that when we listen to our team and work to improve as a
investing time, effort, and money to support community
company, our associates will be more engaged. Engaged
initiatives. Our associates are actively involved in community
associates provide a first-class customer experience.
14
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, 2013
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 28, 2013, the aggregate market value of the registrant’s Common Shares (the only common equity of the registrant) held by
non-affiliates was $215,454,000 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:
10,900,227 common shares, without par value, at February 26, 2014.
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 24, 2014,
are incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I
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
Equity Securities
ITEM 6.
ITEM 7.
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
15
21
21
22
22
23
26
28
61
61
61
61
61
110
111
111
112
112
113
114
115
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Table of Contents
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 immediately following Item 9B of this Form 10-K.
PART I
ITEM 1. BUSINESS
Corporate Overview
Peoples Bancorp Inc. is a financial holding company and was 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
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 personal computers 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, 2013, see Peoples'
Consolidated Financial Statements and Notes to the Consolidated Financial Statements found immediately following Item 9B
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
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wealth management; and (4) improve operating efficiency by redirecting resources to offices and markets with greater growth
potential.
Recent Corporate Developments
On January 21, 2014, Peoples announced that it entered into an Agreement and Plan of Merger dated January 21, 2014
(the "Midwest Agreement") with Midwest Bancshares, Inc. (“Midwest”). The Midwest Agreement calls for Midwest to
merge into Peoples, and for Midwest's wholly-owned subsidiary, First National Bank of Wellston, which operates two full-
service branches in Wellston and Jackson, Ohio, to merge into Peoples' wholly-owned subsidiary, Peoples Bank. Additional
information can be found in Note 18 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, Cuyahoga, Fairfield, Franklin, Gallia,
Guernsey, Jackson, Meigs, Morgan, Muskingum, Noble, Tuscarawas and Washington in Ohio; Cabell, Kanawha, Mason,
Tyler, 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 Cleveland-Elyria-Mentor, OH and Columbus, OH MSAs. This primary market area largely
consists of rural or small urban areas with a diverse group of industries and employers. Principal industries in this area
include health care, education and other social services; plastics, petrochemical and other 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 within Peoples'
primary market area 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, real estate
construction loans, residential real estate loans, home equity lines of credit, 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, 2013, 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, 2013, Peoples Bank's legal lending limit was $27.0 million. During 2013, 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 57.1% of total loans at
December 31, 2013. 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 identified 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 10 years.
The primary analytical technique used in determining whether to grant a commercial loan is the review of a schedule
of cash flows to evaluate whether the borrower's anticipated future cash flows will be adequate to service both
interest and principal due.
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On an annual basis, and at other times as warranted, Peoples Bank evaluates all loan relationships whose
aggregate debt to Peoples Bank is greater than $1,000,000 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. Loan relationships whose aggregate debt to Peoples Bank is equal to or less than $1,000,000 are
reviewed on an event driven basis. Triggers for review include knowledge of adverse events affecting the business,
receipt of financial statements indicating deteriorating credit quality and other events.
Construction Loans
Peoples Bank originates various construction loans to provide temporary financing during the construction phase for
commercial and residential properties. At December 31, 2013, outstanding construction loans comprised 4.0% 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. If
the estimate of value proves inaccurate, Peoples Bank may be confronted, at or prior to the maturity of the loan, with a
project having a value insufficient to ensure full repayment, should the borrower default. In the event a default on a
construction loan occurs and foreclosure follows, Peoples Bank must take control of the project and attempt to either
arrange for completion of construction or dispose of the unfinished 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.
Additional risk exists as the developer may lack funds to pay the loan if the property is not sold upon completion.
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 are 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, 2013, portfolio residential real estate loans comprised 22.5% of
total loans. Peoples also had $1.7 million of residential real estate loans held for sale and was servicing $341.2 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.
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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, 2013, outstanding home equity lines of credit comprised 5.0% of Peoples' total
loans. Peoples Bank currently offers home equity lines of credit with a prime-based variable rate for the entire 10-year
term of the loan. Peoples Bank also offers a home equity line of credit whose terms include a fixed rate for the first five
years which converts to a variable interest rate for the remaining five years. At December 31, 2013, total outstanding
principal balances and available credit amounts of these convertible rate home equity lines of credit were $17.9 million
and $20.0 million, respectively, and the weighted-average remaining maturity was 6.6 years. The average original loan
amount for these convertible rate home equity lines of credit was approximately $31,000 at December 31, 2013.
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, 2013, consumer loans comprised 11.3% 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, an established credit record 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 an 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
At December 31, 2013, investment securities comprised 33.0% 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
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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 of Directors approved policy, which is
administered by Peoples' Asset-Liability Management Committee (“ALCO”). The primary purpose of Peoples' investment
portfolio is to: (1) employ excess funds not needed for loan demand; (2) provide a source of liquid assets to accommodate
unanticipated deposit and loan fluctuations and overall liquidity needs; (3) provide eligible securities to secure public and
trust funds; and (4) earn the maximum overall return commensurate with the investment's risk and corporate needs.
Investment strategies to achieve these objectives are reviewed and approved by the ALCO. In its evaluation of investment
strategies, the ALCO considers various factors, including the interest rate environment, balance sheet mix, actual and
anticipated loan demand, funding opportunities and Peoples' overall interest rate sensitivity. The ALCO also has much
broader responsibilities, which are discussed in the “Interest Rate Sensitivity and Liquidity” section of “Management's
Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of 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 8 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.
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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 9 and 10 of the Notes to the Consolidated Financial Statements.
Competition
Peoples experiences intense competition within its primary market area due to the presence of several national, regional
and local financial institutions and other service providers, including finance companies, insurance agencies and mutual
funds. Competition within the financial 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 and northeastern 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, 2013, Peoples had 546 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").
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The Federal Reserve Board also has extensive enforcement authority over financial holding companies. In general,
the Federal Reserve Board may initiate enforcement actions for violations of laws and regulations and unsafe or unsound
practices. The Federal Reserve Board may assess civil money penalties, issue cease and desist or removal orders, and
require that a financial holding company divest subsidiaries, including subsidiary banks. Peoples is also required to file
reports and other information with the Federal Reserve Board regarding its business operations and those of its
subsidiaries.
Subsidiary Bank
Peoples Bank is subject to regulation and examination primarily by the Office of the Comptroller of the Currency
(the "OCC") and secondarily by the Federal Reserve Board and the Federal Deposit Insurance Corporation (the “FDIC”).
OCC regulations govern permissible activities, capital requirements, dividend limitations, investments, loans and other
matters. The OCC has the authority to impose sanctions on Peoples Bank and, under certain circumstances, may place
Peoples Bank into receivership.
Peoples Bank is subject to certain restrictions imposed by the Federal Reserve Act and Federal Reserve Board
regulations regarding such matters as the maintenance of reserves against deposits, extensions of credit to the financial
holding company or any of its subsidiaries, investments in the stock or other securities of the financial holding company
or its subsidiaries, and the taking of such stock or securities as collateral for loans to any borrower.
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 regulates consumer financial products
and services, and certain financial services providers. The CFPB is authorized to prevent unfair, deceptive or abusive
acts or practices, and ensures consistent enforcement of laws so that consumers have access to fair, transparent and
competitive markets for consumer financial products and services. The CFPB has rulemaking and interpretive authority.
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 The 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 registration, 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.
Insurance premiums for each insured depository institution are determined based upon the institution's
capital level and supervisory rating provided to the FDIC by the institution's primary federal regulator and other
information the FDIC determines to be relevant to the risk posed to the Deposit Insurance Fund by the
institution. The assessment rate determined by considering such information is then applied to the amount of
the institution's average assets minus average tangible equity to determine the institution's insurance premium.
An increase in the assessment rate could have a material adverse effect on the earnings of the affected
institution, depending on the amount of the increase.
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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 prohibition on the payment of interest on commercial 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;
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 (although the cap is not applicable to Peoples Bank,
it may have an adverse effect on Peoples Bank as the debit cards issued by Peoples Bank and other smaller banks,
which have higher interchange fees, may become less competitive);
new capital regulations have been adopted as discussed below in the section captioned "Capital Adequacy and
Prompt Corrective Action"; 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.
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In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire a
company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the
financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the
CRA, which is more fully discussed in the section captioned “Community Reinvestment Act” included later in this item.
In addition, financial holding companies, like Peoples, are permitted to acquire companies engaged in activities that are
financial in nature and in activities that are incidental and complementary to financial activities without prior Federal
Reserve Board approval.
The BHC Act and other federal and state statutes regulate acquisitions of commercial banks. The BHC Act requires
the prior approval of the Federal Reserve Board for the direct or indirect acquisition of more than 5% of the voting
shares of a commercial bank or its parent holding company. Under the federal Bank Merger Act, the prior approval of
the OCC is required for a national bank to merge with another bank or purchase the assets or assume the deposits of
another bank. In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory
authorities will consider, among other things, the competitive effect and public benefits of the transactions, the capital
position of the combined organization, the applicant's performance record under the CRA and fair housing laws, and the
effectiveness of the subject organizations in combating money laundering activities.
Under Federal Reserve Board policy, a financial holding company is expected to act as a source of financial strength
to each subsidiary bank and to commit resources to support each subsidiary bank. Under this policy, the Federal Reserve
Board may require a financial holding company to contribute additional capital to an undercapitalized subsidiary bank
and may disapprove of the payment of dividends to the shareholders if the Federal Reserve Board believes the payment
of such dividends would be an unsafe or unsound practice.
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 provided 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 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
the bank 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
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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.
The Federal Reserve Board has adopted risk-based capital guidelines for financial holding companies and other bank
holding companies as well as state member banks. The OCC and the FDIC have adopted risk-based capital guidelines for
national banks and state non-member banks, respectively. The guidelines provide a systematic analytical framework
which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes
off-balance sheet exposures expressly into account in evaluating capital adequacy, and minimizes disincentives to
holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial
institutions for purposes of certain prompt corrective action regulatory provisions.
The minimum guideline for the ratio of total capital to risk-weighted assets (including certain off-balance sheet
items such as standby letters of credit) is 8%. At least half of the minimum total risk-based capital ratio (4%) must be
composed of common shareholders’ equity, minority interests in certain equity accounts of consolidated subsidiaries and
a limited amount of qualifying preferred stock and qualified trust preferred securities, less goodwill and certain other
intangible assets, including the unrealized net gains and losses, after applicable taxes, on available-for-sale securities
carried at fair value (commonly known as “Tier 1” risk-based capital). The remainder of total risk-based capital
(commonly known as “Tier 2” risk-based capital) may consist of certain types and amounts of each of hybrid capital
instruments, mandatory convertible debt, subordinated debt, preferred stock not qualifying as Tier 1 capital, allowance
for loan losses and net unrealized gains on available-for-sale equity securities.
Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included
in the balance sheet, one of four risk weights (0%, 20%, 50% and 100%) is applied to different balance sheet and off-
balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification
are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The Federal Reserve Board has established minimum leverage ratio guidelines for financial holding companies and
other bank holding companies. The Federal Reserve Board guidelines provide for a minimum ratio of Tier 1 capital to
average assets (excluding the allowance for loan losses, goodwill and certain other intangibles), or “leverage ratio,” of
3% for financial holding companies and bank holding companies that meet certain criteria, including having the highest
regulatory rating, and 4% for all other financial holding companies and bank holding companies. The guidelines further
provide that financial holding companies and bank holding companies making acquisitions will be expected to maintain
strong capital positions substantially above the minimum levels. The OCC and the FDIC have each also adopted
minimum leverage ratio guidelines for national banks and for state non-member banks, respectively.
In order to be “well capitalized,” a bank must have total risk-based capital of at least 10%, Tier 1 risk-based capital
of at least 6% and a leverage ratio of at least 5%, and the bank must not be subject to any written agreement, order,
capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital
measure. Peoples’ management believes that Peoples Bank meets the ratio requirements to be deemed “well capitalized”
according to the guidelines described above.
The risk-based capital guidelines adopted by the federal banking agencies are based on the “International
Convergence of Capital Measurement and Capital Standards” (Basel I), published by the Basel Committee on Banking
Supervision (the “Basel Committee”) in 1988. In 2004, the Basel Committee published a new capital adequacy
framework (Basel II) for large, internationally active banking organizations and in December 2010 and January 2011, the
Basel Committee issued an update to Basel II (“Basel III”). The Basel Committee frameworks did not become applicable
to banks supervised in the United States until adopted into United States law or regulations. Although the United States
banking regulators imposed some of the Basel II and Basel III rules on banks with $250 billion or more in assets or $10
billion of on-balance sheet foreign exposure, it was not until July 2013 that the United States banking regulators issued
final (or, in the case of the FDIC, interim final) new capital rules applicable to smaller banking organizations which also
implement certain of the provisions of the Dodd-Frank Act (the “Basel III Capital Rules”). Community banking
organizations, including Peoples and Peoples Bank, will begin transitioning to the new rules on January 1, 2015. The
new minimum capital requirements are effective on January 1, 2015, whereas a new capital conservation buffer and
deductions from common equity capital phase in from January 1, 2016, through January 1, 2019, and most deductions
from common equity tier 1 capital will phase in from January 1, 2015, through January 1, 2019.
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The following is a summary of the major changes from the current general risk-based capital rule:
• higher minimum capital requirements, including a new common equity tier 1 capital ratio of 4.5% and criteria
instruments must meet in order to be considered common equity tier 1 capital; a tier 1 capital ratio of 6.0%; the
retention of a total capital ratio of 8.0%; and a minimum leverage ratio of 4.0%;
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stricter eligibility criteria for regulatory capital instruments;
restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus
payments to executive officers, if the organization does not hold a capital conservation buffer of greater than
2.5% composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its
eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at
the beginning of the quarter;
replacement of the external credit ratings approach to standards of creditworthiness with a simplified
supervisory formula approach, implementing the requirements of Sectin 939A of the Dodd-Frank Act;
stricter limitations on the extent to which mortgage servicing assets, deferred tax assets and significant
investments in unconsolidated financial institutions may be included in common equity tier 1 capital and the
risk weight to be assigned to any amounts of such assets not deducted; and
increased risk weights for past-due loans, certain commercial real estate loans and some equity exposures, and
selected other changes in risk weights and credit conversion factors.
The Basel III Capital Rules are effective for Peoples and Peoples Bank on January 1, 2015 (subject to a phase-in
period). The implementation of Basel III is not expected to have a material impact on Peoples’ or Peoples Bank's capital
ratios.
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, 2013, 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, refer to Note 16 of the Notes to the Consolidated Financial Statements.
Peoples' ability to pay dividends to its shareholders may also be restricted. Current Federal Reserve Board policy
requires a financial holding company to act as a source of financial strength to each of its banking subsidiaries. Under
this policy, the Federal Reserve Board may require Peoples to commit resources or contribute additional capital to
Peoples Bank, which could restrict the amount of cash available for dividends. The Federal Reserve Board requires a
bank holding company to provide advance notification of, and obtain approval for, the declaration and payment of
dividends to common shareholders under certain conditions.
Peoples also has entered into certain agreements that place restrictions on dividends. Specifically, Peoples 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
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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.
Volcker Rule
In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision of the
Dodd-Frank Act (the "Volcker Rule"). The Volcker Rule places limits on the trading activity of insured depository
institutions and entities affiliated with a depository institution, subject to certain exceptions. The trading activity includes
a purchase or sale as principal of a security, derivative, commodity future or option on any such instrument in order to
benefit from short-term price movements or to realize short-term profits. The Volcker Rule exempts specified U.S.
government, agency and/or municipal obligations, and it excepts trading conducted in certain capacities, including as a
broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers, to satisfy
a debt previously contracted, repurchase and securities lending agreements, and risk-mitigating hedging activities.
The Volcker Rule also prohibits a banking entity from having an ownership interest in, or certain relationships with,
a hedge fund or private equity fund, with a number of exceptions. Peoples Bank does not engage in any of the trading
activities or does not have an amount recorded on its financial statements for any ownership interest in or relationship
with any of the types of funds regulated by the Volcker Rule.
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 and Peoples Bank. 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 Joint Rules”). The
Proposed Joint Rules generally apply to financial institutions with $1.0 billion or more in assets that maintain incentive-
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based compensation arrangements for certain covered employees. The Proposed Joint Rules: (1) 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; (2) 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; (3) 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 Joint Rules; and (4) 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 SEC in January 2013 under the Dodd-Frank
Act, public company compensation committee members must meet heightened independence requirements and 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.
Effect of Environmental Regulation
Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures,
earnings or competitive position of Peoples and its subsidiaries. Peoples believes the nature of the operations of its
subsidiaries has little, if any, environmental impact. Peoples, therefore, anticipates no material capital expenditures for
environmental control facilities for its current fiscal year or for the foreseeable future.
Peoples believes its primary exposure to environmental risk is through the lending activities of Peoples Bank. In
cases where management believes environmental risk potentially exists, Peoples Bank mitigates its environmental risk
exposures by requiring environmental site assessments at the time of loan origination to confirm collateral quality as to
commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference
to present and past uses of the subject property and adjacent sites. In addition, environmental assessments are typically
required prior to any foreclosure activity involving non-residential real estate collateral.
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
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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.
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. More recently, oil and gas exploration has
created more activity in some of Peoples' market areas. A significant decline in this activity could result in more adverse
conditions than what may be experienced at the national level. 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 2013 remained 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 or be spread evenly throughout the markets
served by Peoples. 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,
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 2013, Peoples completed multiple acquisitions which required integration of the acquired business into
Peoples' business platform. Peoples may not be able to integrate 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 financial services 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 held by an institution and the adequacy of an institution's allowance for loan
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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 market consider winding down Fannie Mae and Freddie Mac, which could negatively affect sales of
loans.
In July 2013, Peoples' primary federal regulator, the Federal Reserve, published final rules (the “Basel III Capital
Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the
Basel Committee's December 2010 framework known as “Basel III” for strengthening international capital standards as
well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules substantially revise the risk-based capital
requirements applicable to financial holding companies and other bank holding companies as well as depository
institutions, including Peoples and Peoples Bank, compared to the current U.S. risk-based capital rules. The Basel III
Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions'
regulatory capital ratios. The Basel III Capital Rules also address risk weights and other issues affecting the denominator
in banking institutions' regulatory capital ratios and replace the existing risk-weighting approach, which was derived
from Basel I capital accords of the Basel Committee, with a more risk-sensitive approach based, in part, on the
standardized approach in the Basel Committee's 2004 “Basel II” capital accords. The Basel III Capital Rules also
implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the
federal banking agencies' rules. The Basel III Capital Rules are effective for Peoples and Peoples Bank on January 1,
2015 (subject to a phase-in period). The implementation of Basel III is not expected to have a material impact on
Peoples' or Peoples Bank's capital ratios.
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, as well as financial
holding companies 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 implemented rules and regulations have already resulted in increased compliance costs and
fees paid to regulators, along with 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.
• 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 Peoples' 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.
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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
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 increased significantly between 2007 and 2013, 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.
• 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 (1) Peoples' ability to originate loans and obtain deposits, (2) the fair value of Peoples' financial
assets and liabilities, and (3) 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.
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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.
• Peoples' allowance for loan losses may be insufficient to absorb potential losses in its loan portfolio.
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 ("FASB") 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 FASB, the Public Company Accounting Oversight 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 generally accepted accounting principles in
the United States of America ("US 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 adopted extensive changes to their capital
requirements, including raising required amounts and eliminating the inclusion of certain instruments from the
calculation of capital. If Peoples Bank experiences significant loan losses, additional capital may be needed. In addition,
Peoples and Peoples Bank may elect to raise additional capital to support their businesses or to finance acquisitions, if
any, or for other 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 potential acquisitions.
• 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
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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
funding 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 have a material adverse impact on Peoples' costs of operations.
• Peoples is exposed to operational risk.
Similar to any large organization, Peoples is exposed to many types of operational risk, including reputational risk,
legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees
or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or
telecommunications systems.
Negative public opinion can result from Peoples’ actual or alleged conduct in any number of activities, including
lending practices, corporate governance and acquisitions, and from actions taken by governmental regulators and
community organizations in response to those activities. Negative public opinion can adversely affect Peoples’ ability to
attract and keep customers and can expose Peoples to potential litigation and regulatory action.
Given the volume of transactions Peoples processes, certain errors may be repeated or compounded before they are
discovered and successfully rectified. Peoples’ necessary dependence upon automated systems to record and process its
transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation of
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those systems will result in losses that are difficult to detect. Peoples may also be subject to disruptions of its operating
systems arising from events that are wholly or partially beyond its control (for example, computer viruses or electrical or
telecommunications outages), which may give rise to disruption of service to customers and to financial loss or liability.
Peoples is further exposed to the risk that its external vendors may be unable to fulfill their contractual obligations (or
will be subject to the same risk of fraud or operational errors by their respective employees as Peoples is) and to the risk
that Peoples' (or its vendors’) business continuity and data security systems prove to be inadequate.
• Peoples depends upon the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, Peoples may
rely on information provided 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 Bank may assume that the customer’s audited
financial statements conform with US GAAP and present fairly, in all material respects, the financial condition, results of
operations and cash flows of the customer. Peoples Bank 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 Bank relies on financial statements that do not comply with US GAAP or on financial statements and other
financial information that are materially misleading.
• 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 became effective 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 Peoples' 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 Item 7 of 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 Athens (2 offices), Baltimore, Beachwood, Belpre (2 offices), Byesville,
Caldwell, Cambridge (2 offices), Gallipolis, Lancaster (2 offices), Lowell, Marietta (4 offices), McConnelsville, Nelsonville,
New Philadelphia, Pomeroy (2 offices), Reno, The Plains, Worthington and Zanesville. In West Virginia, Peoples Bank
operates offices in Charleston, Huntington (2 offices), New Martinsville (2 offices), Parkersburg (4 offices), Point Pleasant (2
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offices), Sistersville and Vienna (2 offices). In Kentucky, Peoples Bank's office locations include Ashland, Greenup, Russell
and Summit. 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 also leases office space from third parties in
Chillicothe, Jackson and Marietta, Ohio, and in Pikeville, Kentucky.
Rent expense on the leased properties totaled $945,000 in 2013, which excludes intercompany rent expense. The
following are the only properties that have a lease term expiring on or before June 2015:
Location
New Philadelphia
Hart Street
Vienna Wal-Mart
Charleston
Parkersburg
The Plains
Parkersburg Wal-Mart
Marietta Kroger
Athens Mall
Address
136 1/2 Second Street NE
New Philadelphia, Ohio
416 Hart Street
Marietta, Ohio
701 Grand Central Avenue
Vienna, West Virginia
10 Hale Street, Suite 410
Charleston, West Virginia
2107 Pike Street
Parkersburg, West Virginia
70 N. Plains Road
The Plains, Ohio
2900 Pike Street
Parkersburg, West Virginia
40 Acme Street
Marietta, Ohio
801 East State Street
Athens, Ohio
Lease Expiration Date (a)
April 2014
May 2014
June 2014
July 2014
July 2014
December 2014
January 2015
March 2015
June 2015
(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.
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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,
2013, Peoples had 1,528 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
during the indicated periods.
2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Sales
Low
Sales
Dividends
Declared
$
24.00 $
20.11 $
23.81
22.34
22.65
20.02
19.30
20.00
$
23.80 $
17.72 $
23.93
22.54
17.84
20.22
16.48
14.59
0.14
0.14
0.14
0.12
0.12
0.11
0.11
0.11
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 Exchange Act of Peoples’ common shares during the three months ended December 31, 2013:
Total
Number of
Common
Shares
Purchased
—
905 (2)
170 (2)
1,075
Period
October 1 – 31, 2013
November 1 – 30, 2013
December 1 – 31, 2013
Total
$
$
$
Average Price
Paid per Share
$
—
22.45 (2)
23.67 (2)
22.64
Total Number of
Common Shares
Purchased as Part of
Publicly Announced
Plans or Programs (1)
—
—
—
—
Maximum
Number of Common
Shares that May Yet
Be Purchased Under
the Plans or
Programs (1)
—
—
—
—
(1) Peoples’ Board of Directors did not authorize any stock repurchase plans or programs for 2013.
(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, as amended by the First Amendment thereto.
23
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Performance Graph
The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed”
with the SEC, nor shall such information be deemed to be incorporated by reference into any future filing under the
Securities Act or the Exchange Act, except to the extent that Peoples specifically incorporates the Performance Graph by
reference into such filing.
The following line graphs compare the five-year cumulative total shareholder return of Peoples' common shares, based
on an initial investment of $100 on December 31, 2008, 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”).
Historically, Peoples has obtained the information used to compile the performance graph included in Peoples' Annual
Report on Form 10-K from NASDAQ. NASDAQ changed the data used to perform the analysis effective January 2014. As
a result of a change in the total return data made available to Peoples through NASDAQ, Peoples' performance graphs going
forward will be using a comparable index provided by NASDAQ OMX Global Indexes. Please note, information for the
NASDAQ Stocks (U.S. Companies) index and NASDAQ Bank Stocks, which were from the Center for Research in Security
Prices ("CRSP"), are provided only from December 31, 2008 through December 31, 2013, the last day this data was available
by Peoples' third-party index provider. Two performance graphs are provided below, the first with the NASDAQ OMX
Global Indexes and the second with the CRSP indexes.
COMPARISON OF FIVE-YEAR TOTAL RETURN AMONG
PEOPLES BANCORP INC., NASDAQ STOCKS (U.S. COMPANIES),
AND NASDAQ BANK STOCKS
(NASDAQ OMX Global Indexes)
Peoples Bancorp Inc.
NASDAQ Stocks (U.S. Companies)
NASDAQ Bank Stocks
2008
100.00 $
100.00 $
100.00 $
$
$
$
2009
At December 31,
2011
2010
53.21 $
129.26 $
98.65 $
88.68 $
151.94 $
109.85 $
86.70 $
152.42 $
81.92 $
2012
122.45 $
177.46 $
110.37 $
2013
138.37
236.88
150.79
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COMPARISON OF FIVE-YEAR TOTAL RETURN AMONG
PEOPLES BANCORP INC., NASDAQ STOCKS (U.S. COMPANIES),
AND NASDAQ BANK STOCKS
(CRSP Indexes)
Peoples Bancorp Inc.
NASDAQ Stocks (U.S. Companies)
NASDAQ Bank Stocks
2008
100.00 $
100.00 $
100.00 $
$
$
$
2009
At December 31,
2011
2010
53.21 $
143.74 $
84.30 $
88.68 $
170.17 $
100.68 $
86.70 $
171.08 $
90.16 $
2012
122.45 $
202.40 $
105.38 $
2013
138.37
281.91
150.84
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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 gain (loss) on investment securities and other
transactions
Total non-interest income
FDIC insurance expense
Other expense
Preferred dividends (a)
Net income available to common shareholders
Balance Sheet Data
Total investment securities
Loans, net of deferred fees and costs
Allowance for loan losses
Total intangible assets
Total assets
Non-interest-bearing deposits
Total retail interest-bearing deposits
Brokered certificates of 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 common share – basic
Earnings per common share – diluted
Cash dividends declared per share
Book value per share (c)
At or For the Year Ended December 31,
2011
2010
2012
2009
2013
$
67,071 $
69,470 $
75,133 $
89,335 $
102,105
11,686
55,385
(4,410)
—
334
37,220
1,036
67,229
—
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
$
17,574 $
20,385 $
11,212 $
3,529 $
40,262
61,843
25,721
(7,707)
1,343
32,050
3,442
55,240
1,876
2,314
680,526
1,196,234
17,065
77,603
709,085
985,172
17,811
68,525
669,228
938,506
23,717
64,475
641,307
751,866
960,718
1,052,058
26,766
64,870
27,257
65,599
$ 2,059,108 $ 1,918,050 $ 1,794,161 $ 1,837,985 $ 2,001,827
409,891
317,071
239,837
215,069
198,000
1,121,826
1,119,633
1,047,189
1,059,066
1,095,466
49,041
113,590
121,826
—
—
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
221,553
221,728
206,657
192,036
205,425
1,981,505
1,849,525
1,729,686
1,773,115
1,936,228
143,950
153,203
142,182
165,811
178,369
143,950 $
153,203 $
142,182 $
127,166 $
139,826
1.65 $
1.92 $
1.07 $
0.34 $
1.63
0.54
20.89
1.92
0.45
21.02
1.07
0.30
19.67
0.34
0.40
18.36
0.22
0.22
0.66
19.80
13.48
$
$
Tangible book value per share (b) (c)
$
13.57 $
14.52 $
13.53 $
12.16 $
Weighted-average number of common shares outstanding –
basic
Weighted-average number of common shares outstanding –
diluted
10,581,222
10,527,885
10,482,318
10,424,474
10,363,975
10,679,417
10,528,286
10,482,318
10,431,990
10,374,792
Common shares outstanding at end of period
10,605,782
10,547,960
10,507,124
10,457,327
10,374,637
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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 total 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)
Nonperforming assets as a percent of total loans and other real
estate owned (c)(f)
At or For the Year Ended December 31,
2011
2010
2012
2009
2013
5.72%
7.92 %
5.61
7.92
0.69
0.91
3.43
3.25
68.98
71.90
1.41
1.26
12.12
11.48
70.79
69.86
33.20 % 23.58% 28.35% 119.33% 298.23%
1.80%
1.17
0.21
3.48
60.14
1.74
11.50
77.97
2.33%
1.76
0.28
3.51
60.30
1.76
12.20
73.01
9.52%
9.52
1.11
3.39
69.55
1.41
11.63
68.23
0.73 %
0.47
1.50%
0.82
3.26%
1.84
4.26%
2.48
3.31%
2.06
0.81
1.58
1.81
3.49
2.53
4.70
2.79
3.89
2.59
119.75
77.18
65.09
78.12
(0.49)
0.84
2.61
2.35
Allowance for loan losses as a percent of loans, net of deferred fees
and costs (c)
Allowance for loan losses as a percent of nonperforming loans (c)(f) 194.13
(Recovery of) provision for loan losses as a percent of average total
loans
1.43
(0.42)
Net (recoveries) charge-offs as a percent of average total loans
CAPITAL RATIOS (c)
Tier 1 common
Tier 1
Total (Tier 1 and Tier 2)
Tier 1 leverage
Tangible equity to tangible assets (b)
Tangible common equity to tangible assets (b)
(0.35)%
0.12%
1.16%
2.66%
1.96%
12.42 % 14.06% 12.82% 11.59% 10.58%
14.86
12.42
16.20
13.78
9.45
8.52
8.22
7.26
8.22%
7.26 %
16.91
18.24
10.63
9.35
7.17%
15.49
16.80
10.06
9.21
7.22%
14.06
15.43
8.83
8.28
8.28%
(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 included immediately following Item 9B of this Form 10-K.
(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, asset disposals and other transactions).
(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.
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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 , Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of
1995. Words such as “anticipate”, “estimates”, “may”, “feels”, “expects”, “believes”, “plans”, “will”, “would”, “should”,
“could” and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of
identifying such statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results
to differ materially. Factors that might cause such a difference include, but are not limited to:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
the success, impact, and timing of the implementation of Peoples' business strategies, including the
successful integration of the recently completed acquisitions, the expansion of consumer lending activity
and rebranding efforts;
Peoples' ability to complete and, if completed, successfully integrate future acquisitions, including the
pending merger of Midwest with and into Peoples;
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;
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;
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;
legislative or regulatory changes or actions, including in particular the Dodd-Frank Act and the regulations
promulgated and to be promulgated thereunder by the OCC, the Federal Reserve Board and the CFPB,
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;
deterioration in the credit quality of Peoples' loan portfolio, which may adversely impact the provision for
loan losses;
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, including political developments,
which may adversely affect the fair value of securities within Peoples' investment portfolio and interest rate
sensitivity of Peoples' consolidated balance sheet;
(11)
changes in stock market prices, which may adversely impact income from Peoples' brokerage, asset and
wealth management businesses;
(12)
Peoples' ability to receive dividends from its subsidiaries;
(13)
Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;
(14)
(15)
(16)
the impact of larger or similar sized financial institutions encountering problems, which may adversely
affect the banking industry and/or Peoples' business generation and retention, funding and liquidity;
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 Peoples' third-party vendors and other service providers,
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may prove inadequate, which could adversely affect customer confidence in Peoples and/or result in
Peoples incurring a financial loss;
(17)
the overall adequacy of Peoples' risk management program; and
(18)
other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples’
reports filed with the 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.
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:
On January 21, 2014, Peoples announced that it entered into an Agreement and Plan of Merger dated January 21,
2014 (the "Midwest Agreement") with Midwest Bancshares, Inc. (“Midwest”). The Midwest Agreement calls for
Midwest to merge into Peoples, and for Midwest's wholly-owned subsidiary, First National Bank of Wellston, which
operates two full-service branches in Wellston and Jackson, Ohio, to merge into Peoples' wholly-owned subsidiary,
Peoples Bank. Under the terms of the Midwest Agreement, shareholders of Midwest will receive $65.50 per share,
or $12.6 million total value, with between 50% and 75% of the total consideration to be paid in Peoples' common
stock and the remainder to be paid in cash, with the actual mix to be based on the elections of the shareholders of
Midwest and subject to proration. The exchange ratio for the stock component of the transaction will be determined
based on the Peoples' average closing stock price during the 20 consecutive trading days immediately preceding the
closing of the transaction.
At the close of business on October 11, 2013, Peoples Bank completed the acquisition of Ohio Commerce Bank
("Ohio Commerce") and its single full-service office in Beachwood, Ohio. Under the terms of the agreement,
Peoples Bank paid $13.75 in cash for each share of Ohio Commerce common stock for a total cash consideration of
$16.5 million. The acquisition added $96.6 million of loans and $110.9 million of deposits. Management expects
this transaction to be accretive to Peoples' earnings starting in 2014 as one-time acquisition costs more than offset
the incremental 2013 earnings. This transaction is more fully described in Note 18 of the Notes to the Consolidated
Financial Statements.
On January 2, 2013, Peoples Insurance acquired a commercial insurance agency office and related customer
accounts in the Pikeville, Kentucky area (the "Pikeville Acquisition"). On April 5, 2013, Peoples Insurance acquired
McNelly Insurance and Consulting Agency, LLC and related customer accounts in Jackson, Ohio. On May 15,
2013, Peoples Insurance acquired two additional insurance agency offices and related customer accounts in Jackson,
Ohio. These acquisitions are expected to help Peoples maintain revenue diversity by continuing to grow the fee-
based businesses. These transactions are more fully described in Note 18 of the Notes to the Consolidated Financial
Statements.
In 2013, Peoples incurred $1.5 million of acquisition-related expenses, compared to $641,000 in 2012, which were
primarily fees for legal costs, other professional services, deconversion costs and write-offs associated with assets
acquired. There were no acquisition-related expenses incurred in 2011.
During 2013, Peoples took steps to reduce its investment in bank-owned life insurance ("BOLI") contracts and
redeploy the funds in order to enhance long-term shareholder return. The first action was a $5.2 million partial
withdrawal of the original premium paid, which was completed in May 2013. The next action was a request for a
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full surrender of certain BOLI policies, which had a cash surrender value of $42.8 million and cost basis of $36.5
million at June 30, 2013. In late July 2013, Peoples Bank received $36.2 million from the liquidation of the
underlying investments in connection with the surrender request. The remaining cash surrender value of
approximately $6.6 million was recorded as a receivable at December 31, 2013, of which $3.1 million was received
January 23, 2014, with the remaining expected to be paid out by the end of first quarter of 2014 in accordance with
the terms of the BOLI policies (collectively the "BOLI Surrender").
The BOLI Surrender proceeds initially were redeployed into Peoples Bank's investment portfolio, while the long-
term goal is to ultimately use the proceeds to fund future loan growth. This redeployment is expected to increase
Peoples' annual net interest income by at least $1 million. The BOLI Surrender caused Peoples to incur a $2.2
million federal income tax liability in 2013 for the gain associated with the policies surrendered.
Peoples periodically has taken actions to reduce interest rate exposure within the investment portfolio and the entire
balance sheet, such as the sale of low yielding investment securities and repayment of high-cost borrowings. During
the first quarter of 2013, Peoples sold $68.8 million of investment securities, primarily low yielding or volatile
residential mortgage-backed securities. The proceeds from these sales were reinvested in investment securities
during 2013. Peoples intends to use the cash flow generated from the investment portfolio to fund loan growth.
During 2013, Peoples increased the quarterly dividend declared to common shareholders by 17%. The dividend
declared in the first quarter of 2013 and fourth quarter of 2012 was $0.12 per common share, and the dividend
declared in the second and third quarters of 2013 was $0.14 per common share. On January 23, 2014, Peoples
declared a quarterly dividend to common shareholders of $0.15 per common share, representing a 7% increase over
the fourth quarter 2013 dividend of $0.14 per common share.
As described in Note 12 of the Notes to the Consolidated Financial Statements, Peoples incurred settlement charges
of $270,000 during 2013 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 third quarter. Settlement
charges of $835,000 and $815,000 were recognized during 2012 and 2011, respectively.
On December 19, 2012, Peoples repaid the entire $30.9 million aggregate outstanding principal amount of its Series
A and Series B Junior Subordinated Debentures and the proceeds were used by PEBO Capital Trust I to redeem
22,975 Series B 8.62% Capital Securities having an aggregate liquidation amount of $23.0 million, held by
institutional investors, as well as 928 outstanding Common Securities and 7,025 Series B 8.62% Capital Securities,
having an aggregate liquidation amount of $8.0 million, held by Peoples (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 $24.0 million of the repayment with a term note from an unaffiliated financial
institution at a significantly lower interest rate, and the balance with cash on hand. As a result of the Trust Preferred
Redemption, Peoples realized interest expense savings of approximately $1.1 million in 2013.
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. Peoples incurred costs throughout 2013
associated with the brand revitalization, including marketing due to advertisements, and depreciation expense for
new assets related to the $5 million branch renovation project.
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 recoveries of loan losses of $4.4 million in
2013 and $4.7 million in 2012.
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 a 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
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Board continues to indicate there is the potential for these short-term rates to remain unchanged until certain
inflation and unemployment rates are achieved.
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.
In December 2013, the Federal Reserve Board announced plans to taper its quantitative easing efforts. 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 late 2011 through 2012, while moderate steepening occurred in the second half of 2009, late 2010 and
mid 2013.
The impact of these transactions, where material, is discussed in the applicable sections of this Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
Critical Accounting Policies
The accounting and reporting policies of Peoples conform to 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, 2013 showed changes in the rate of 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.
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
recovery of or 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 recovery or 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
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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.
The 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, 2013 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 33% of total assets at December 31, 2013, of which approximately 89%
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 or loss. 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 the duration and magnitude of the decline in value, the financial condition of the
issuer or pool of issuers, and the 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
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 or loss, 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.
Peoples has not recognized an impairment loss in 2013, 2012 or 2011. Management performed its quarterly analysis
of the investment securities with an unrealized loss at December 31, 2013, and concluded no individual securities were
other-than-temporarily impaired.
Goodwill and Other Intangible Assets
During 2013 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
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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 goodwill impairment test consists
of a two step process that includes (1) determining if potential goodwill impairment exists and (2) measuring the
impairment loss, if any. At June 30, 2013, management's analysis concluded that the estimated fair value of Peoples'
single reporting unit exceeded its carrying value. The analysis also included an assessment of events and circumstances
considering several key factors such as economic and local market conditions, overall financial performance, changes in
management or key personnel, and share price.
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, 2013, Peoples' market capitalization was more
than its book value, which management considered to be evidence that goodwill was not impaired.
Peoples records servicing rights (“SRs”) in connection with its mortgage banking and small business lending
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.
SRs 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, 2013, management concluded no portion of the recorded SRs
was impaired since the fair value equaled or exceeded the carrying value. However, future events, such as a significant
increase in prepayment speeds, could result in a fair value that is less than the carrying amount, which would require the
recognition of an impairment loss in earnings.
Income Taxes
Income taxes are recorded based on the liability method of accounting, which includes the recognition of deferred
tax assets and liabilities for the temporary differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. In general, Peoples records deferred tax assets when the event giving rise to the tax
benefit has been recognized in the Consolidated Financial Statements.
A valuation allowance is recognized to reduce any deferred tax asset that, based upon available information, it is
more-likely-than-not all, or any portion, of the deferred tax asset will not be realized. Assessing the need for, and
amount of, a valuation allowance for deferred tax assets requires significant judgment and analysis of evidence regarding
realization of the deferred tax assets. In most cases, the realization of deferred tax assets is dependent upon Peoples
generating a sufficient level of taxable income in future periods, which can be difficult to predict. Peoples' largest
deferred tax assets involve differences related to Peoples' allowance for loan losses and realization of income tax credits
received from Peoples' investments in low-income housing projects and funds. Given the nature of Peoples' deferred tax
assets, management determined no valuation allowances were needed at either December 31, 2013 or 2012.
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, 2013 and 2012.
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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,
2013, all of Peoples' available-for-sale investment securities were measured using observable market data.
At December 31, 2013, the majority of the investment securities with Level 2 fair values were determined using
information provided by third-party pricing services. Management reviews the valuation methodology and quality
controls utilized by the pricing services in their overall assessment of the reasonableness of the fair values provided.
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. To the extent available, management utilizes an independent third-party pricing
source to assist in its assessment of the values provided by its primary pricing services. Management challenges third-
party valuations for any security where it believes a material difference in pricing exists. Based on Peoples' past
experience, these challenges more-often-than-not result in the third party adjusting its valuation of the security.
Impaired loans
For loans considered impaired, the amount of impairment loss recognized is determined based on a discounted cash
flow analysis or the fair value of the underlying collateral if repayment is expected solely from the sale of the collateral.
Management typically relies on the fair value of the underlying collateral due to the significant uncertainty surrounding
the borrower's ability to make future payments. The vast majority of the collateral securing impaired loans is real estate,
although 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.
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
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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.
Servicing Rights
SRs are carried at the lower of amortized cost or market value, and, therefore, can be subject to fair value
measurements on a nonrecurring basis. SRs 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 SRs.
EXECUTIVE SUMMARY
Net income available to common shareholders for the year ended December 31, 2013 was $17.6 million, compared to
$20.4 million in 2012 and $11.2 million in 2011, representing earnings per diluted common share of $1.63, $1.92 and $1.07,
respectively. The lower earnings in 2013 were due to additional operating costs associated with various strategic investments
to grow revenue over the past year, plus a lower recovery of loan losses. Peoples generated positive operating leverage
during 2012 as growth in total revenue was larger than the growth in total non-interest expenses.
In 2013, Peoples had a recovery of loan losses of $4.4 million as several asset quality metrics maintained favorable
trends. The favorable trends included net recoveries of $3.7 million for 2013, compared to net charge-offs of $1.2 million in
2012. Peoples recorded a recovery of loan losses of $4.7 million for 2012 and provision for loan losses of $8.0 million for
2011. These recoveries or provisions represented amounts needed to maintain the adequacy of the allowance for loan losses.
Net interest income was relatively stable in 2013 compared to 2012, due to the reduction in interest income being offset
by the reduction of interest expense. For the past several years, the prolonged low interest rate environment has continued to
put downward pressure on asset yields, which contributed to the 14 basis point compression in net interest margin during
2013. However, the impact on net interest income has been offset by higher loan balances and lower funding costs. 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.
Total non-interest income, which excludes gains and losses on investment securities, asset disposals and other
transactions, was up 6% in 2013 compared to 2012, as insurance and trust and investment income both experienced double-
digit percentage increases. Acquisitions completed in late 2012 and early 2013 have benefited both business lines; however,
this growth was partially offset by lower mortgage banking income due to the slowdown of refinancing activity, and the
retention of residential real estate loans in the portfolio. Total non-interest income 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 increased $1.2 million, or 71%, over the prior year due to higher refinancing activity.
Total other expense increased 8%, or $4.8 million, for the year ended December 31, 2013, due primarily to strategic
investments to grow revenue. This increase was driven by salaries and employee benefits, as a result of an increase in the
number of employees largely due to acquisitions. Acquisition-related expenses during 2013 were $1.4 million compared to
$569,000 in 2012. In 2012, other expense increased 3%, primarily due to additional sales and incentive compensation of $1.8
million, which was a result of the improved financial performance of Peoples.
At December 31, 2013, total assets were up 7% to $2.06 billion versus $1.92 billion at year-end 2012, with the increase
due mostly to higher net loan balances. Portfolio loan balances grew $211.1 million during 2013, which was due to the loans
acquired in the Ohio Commerce acquisition and 12% organic growth. The allowance for loan losses decreased $0.7 million
to $17.1 million, or 1.43% of loans, net of deferred fees and costs, compared to $17.8 million and 1.81% at December 31,
2012. Total investment securities compressed to $680.5 million at December 31, 2013, compared to $709.1 million at the
prior year-end.
Total liabilities were $1.84 billion at December 31, 2013, up $141.2 million since December 31, 2012. More than half of
this increase was attributable to growth in non-interest-bearing deposits, which increased $92.8 million from year-end 2012.
The acquisition of Ohio Commerce during 2013 provided an additional $30.9 million of non-interest-bearing deposits and
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$80.0 million of interest-bearing deposits. Non-interest-bearing deposits comprised 26.8% of total retail deposits at
December 31, 2013, versus 22.1% at year-end 2012. At December 31, 2013, total borrowed funds were $235.4 million, up
$58.8 million compared to the prior year-end, as Peoples began utilizing short-term borrowings to fund loan growth.
At December 31, 2013, total stockholders' equity was $221.6 million, which was relatively flat compared to
December 31, 2012. Earnings exceeded dividends declared by $11.7 million, which was offset by a decrease in accumulated
other comprehensive loss of $13.9 million; however, regulatory capital ratios remained significantly higher than "well
capitalized" minimums. Peoples' Tier 1 Common Capital ratio decreased to 12.42% at December 31, 2013, versus 14.06% at
December 31, 2012, while the Total Capital ratio was 13.78% versus 15.43% at December 31, 2012. The lower capital ratios
were largely the result of acquisitions completed by Peoples in 2013. In addition, Peoples' tangible common equity to
tangible assets ratio was 7.26% and tangible book value per share was $13.57 at December 31, 2013, versus 8.28% and
$14.52 at December 31, 2012, respectively. A significant contributing factor to the lower tangible equity ratio was the change
in market value of Peoples' available-for-sale investment securities during 2013.
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 ALCO
meetings. The asset-liability management process employed by the ALCO is intended to mitigate the impact of future
interest rate changes on Peoples' net interest income and earnings. However, the frequency and/or magnitude of changes in
market interest rates are difficult to predict, and may have a greater impact on net interest income than adjustments
management is able to make.
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The following table details Peoples’ average balance sheets for the years ended December 31:
2013
2012
2011
(Dollars in thousands)
Short-term investments
Other long-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
Average
Balance
Income/
Expense
Average
Balance
Income/
Expense
Yield/
Cost
94 0.59 % $
2 0.27 %
9,705 $
—
$
16,154 $
743
Yield/
Cost
20 0.21 % $
— — %
Average
Balance
Income/
Expense
Yield/
Cost
11,522 $
—
24 0.21 %
— — %
646,884
50,487
697,371
17,026 2.63 %
2,461 4.87 %
19,487 2.79 %
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 %
636,156
289,022
121,193
1,046,371
(17,935)
1,028,436
1,742,704
72,420
117,243
$1,932,367
29,225 4.59 %
13,320 4.61 %
6,143 5.18 %
48,688 4.66 %
618,846
252,647
95,673
967,166
(21,473)
29,672 4.79 %
12,982 5.14 %
5,716 5.97 %
48,370 5.00 %
616,970
246,878
87,103
950,951
(27,259)
945,693
48,688 4.73 %
68,271 3.92 % 1,640,837
65,881
134,571
$1,841,289
923,692
48,370 5.11 %
70,557 4.30 % 1,604,979
64,621
141,479
$1,811,079
$ 200,190 $
146,955
107 0.05 % $ 162,055 $
642 0.44 %
151,877
125,984
259,226
51,287
358,918
1,142,560
101 0.08 %
379 0.15 %
1,871 3.65 %
113,022
255,345
56,451
3,952 1.10 %
404,872
7,052 0.62 % 1,143,622
90 0.06 % $ 132,365 $
937 0.62 %
117 0.10 %
147,688
101,094
262,374
423 0.17 %
1,996 3.54 %
70,417
5,496 1.36 %
419,226
9,059 0.79 % 1,133,164
44,127
37,167
81,294
64,004
40,000
22,096
55 0.16 %
59 0.12 %
114 0.14 %
2,167 3.39 %
1,471 3.68 %
882 3.94 %
13,240
37,401
50,641
68,041
44,208
22,729
17 0.12 %
57 0.15 %
74 0.14 %
2,305 3.39 %
1,610 3.58 %
1,947 8.62 %
5,525
41,589
47,114
84,193
65,000
22,583
30,375 4.92 %
13,111 5.31 %
6,039 6.93 %
49,525 5.21 %
49,525 5.36 %
76,266 4.75 %
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 %
126,100
207,394
1,349,954
335,637
24,865
1,710,456
—
221,911
221,911
134,978
4,520 3.57 %
4,634 2.23 %
185,619
11,686 0.86 % 1,329,241
171,776
5,862 4.27 %
5,936 3.17 %
218,890
14,995 1.13 % 1,352,054
7,121 4.11 %
7,224 3.27 %
21,154 1.56 %
273,893
24,037
1,627,171
—
214,118
214,118
228,093
11,435
1,591,582
19,492
200,005
219,497
Total liabilities and stockholders’
equity
$1,932,367
$1,841,289
$1,811,079
Interest rate spread
Net interest margin
$ 56,585 3.06 %
3.25%
$ 55,562 3.17 %
3.39%
$ 55,112 3.19 %
3.43%
(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.
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(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 fully tax-equivalent (“FTE”) net interest income:
(Dollars in thousands)
Increase (decrease) in:
INTEREST INCOME:
Short-term investments
Other long-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
Changes from 2012 to 2013
Volume
Rate
Total (1)
Changes from 2011 to 2012
Volume
Rate
Total (1)
$
54 $
—
20 $
2
$
74
2
— $
—
(4) $
—
(4)
—
(2,985)
(266)
(3,251)
(1,250)
(1,421)
(867)
(3,538)
(6,735)
(4)
(266)
(28)
(50)
62
(964)
(1,250)
3
(978)
(975)
50
521
571
803
1,759
1,294
3,856
4,449
21
(29)
12
6
(187)
(580)
(757)
37
(364)
(327)
(2,935)
255
(2,680)
(447)
338
427
318
(2,286)
17
(295)
(16)
(44)
(125)
(1,544)
(2,007)
40
(1,342)
(1,302)
(3,309)
(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)
Total interest expense
(2,225)
(1,084)
Net interest income
$
(4,510) $
5,533 $
1,023
$
(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 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.
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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
2013
2012
2011
$
$
55,385 $
54,475 $
1,200
56,585 $
1,087
55,562 $
53,979
1,133
55,112
The yield curve remained relatively flat and interest rates remained low during 2013, which placed greater downward
pressure on Peoples' net interest income and margin. In 2013, Peoples recognized $270,000 of normal accretion income from
the Ohio Commerce acquisition, and $976,000 of additional interest income from prepayment fees and interest recovered on
nonaccrual loans, which when combined added approximately 6 basis points to net interest margin. In comparison,
additional interest income from prepayment fees and interest recovered on nonaccrual loans was $467,000 in 2012 and
$348,000 in 2011, adding approximately 3 basis points and 2 basis points, respectively, to net interest margin.
The yield on investment securities declined further in 2013, as the impact of lower reinvestment rates was magnified by
higher levels of principal prepayments within mortgage-backed securities. This intensified during the first half of 2013, as
long-term interest rates pushed to historic lows but tapered as rates increased later in 2013 and prepayments slowed. During
2013, the average monthly principal cash flow received by Peoples from its investment portfolio was approximately $8.0
million, compared to a monthly average of approximately $11.9 million in 2012. The cash flow received from the investment
portfolio in 2013 had an average yield of 2.77% 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' 2012 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 realized an annual interest expense savings of $1.1 million 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.
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’ recovery of, or 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 percent of average total loans
2013
356
(4,766)
(4,410)
(0.42)%
$
$
2012
2011
$
$
294
(5,010)
(4,716)
(0.49)%
418
7,580
7,998
0.84%
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 2013 was driven mostly by recoveries on commercial real estate loans that had previously incurred charge-offs.
Peoples also experienced 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”.
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Net Other Losses
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 on loans held-for-sale
Loss on debt extinguishment
Net (loss) gain on bank premises and equipment
Bargain purchase gains
Net other losses
$
$
2013
2012
2011
— $
86
—
(241)
—
(155) $
— $
66
(4,144)
(261)
13
(4,326) $
(1,395)
469
—
10
—
(916)
Net losses on bank premises and equipment during 2013 included $248,000 of losses due largely to asset write-offs of
associated with the Ohio Commerce acquisition and the sales and relocation of banking offices during the year. 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 2011 were the result
of write-downs on a commercial property held as OREO since late 2009 and sold in early 2012.
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. Peoples continues to focus on revenue growth from non-interest income sources in
order to maintain a diversified revenue stream through greater reliance on fee-based revenues. As a result, total non-interest
income accounted for 40.2% of Peoples' total revenues in 2013, compared to 39.1% in 2012 and 37.9% in 2011.
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
$
2013
2012
2011
9,873 $
804
1,227
90
207
12,201 $
7,974 $
1,026
526
122
196
9,844 $
7,419
944
624
158
120
9,265
During 2013, growth in property and casualty insurance commissions, and life and health insurance commissions, was
primarily driven by the successful integration of acquisitions, a higher rate of referrals between lines of business and higher
premiums throughout the industry. The bulk of performance-based commissions typically are recorded annually in the first
quarter and are based on a combination of factors, such as loss experience of insurance policies sold, production volumes,
and overall financial performance of the individual insurance carriers.
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. 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 $
2013
2012
2011
7,233 $
1,283
248
8,764 $
7,481 $
1,246
238
8,965 $
8,153
1,315
297
9,765
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. Management periodically evaluates
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its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets
by competitors. As a result, Peoples increased overdraft and non-sufficient fund fees during 2013. Although the fees per
transaction were increased during 2013, consumer behavior was the key factor in the lower overdraft and non-sufficient funds
fees.
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
2013
2012
2011
$
$
5,103 $
2,019
7,122 $
4,557 $
1,572
6,129 $
4,293
1,255
5,548
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
Annual average
2013
$ 1,000,171 $
474,384
2012
888,134 $
404,320
2011
821,659
262,196
$ 1,474,555 $ 1,292,454 $ 1,083,855
$ 1,395,137 $ 1,182,494 $ 1,092,781
Over the last several years, Peoples has continued to attract new managed funds, due in part to the addition of
experienced financial advisors in previously underserved market areas. In addition, Peoples added new business related to
the retirement plans for which it manages assets and provides services. The U.S. financial markets continued to experience a
general increase during 2013, which also contributed to the increase in managed assets. During 2012, Peoples added
approximately $100 million in brokerage assets due to acquisitions completed.
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 2013, electronic banking
income grew $236,000, or 4% compared to 2012, due to a continued increase in the volume of debit card transactions. In
2013, Peoples' customers used their debit cards to complete $416 million of transactions, versus $391 million in 2012 and
$372 million in 2011.
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. During 2013,
refinancing activity slowed and Peoples retained a larger percentage of mortgage loans originated because of customers'
preferences for shorter-term loans, which reduced mortgage banking income. Higher production volumes driven mostly by
refinancing activity due to historically low mortgage rates resulted in higher revenue in 2012. In 2013, Peoples sold
approximately $73.2 million of loans to the secondary market compared to $129.4 million in 2012 and $72.7 million in 2011.
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
2013
2012
2011
24,028 $
7,110
3,622
1,362
(2,292)
2,642
36,472 $
21,076 $
6,484
4,277
942
(1,884)
2,531
33,426 $
546
531
494
499
21,320
4,646
5,927
310
(1,370)
2,793
33,626
513
535
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Compared to prior years, base salaries and wages in 2013 increased as a result of completed acquisitions and the addition
of new sales talent in several markets, which impacted the number of full-time equivalent employees. Previous expense
reduction efforts maintained lower costs in 2011 and 2012. Peoples' sales-based and incentive compensation is tied to
corporate incentive plans and commission from sales production. This area has grown over recent years in conjunction with
the increased commission-based revenue and improved financial performance.
Peoples' employee benefit costs decreased largely due to pension settlement charges of $270,000 incurred in 2013,
$835,000 in 2012 and $815,000 in 2011. Effective March 1, 2011, Peoples froze the accrual of pension benefits, and future
settlement charges will be largely based on timing of retirements of individuals and their election of lump-sum distributions.
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 continued pension settlement charges in future years as
individuals retire and elect lump-sum distributions from the plan. Peoples' employee benefit costs also continued to benefit
from lower employee medical benefit plan expenses in 2013, which are tied to claims activity.
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. During 2013, Peoples granted restricted shares to non-employee directors, officers and key employees with
performance-based vesting periods and time-based vesting periods. Stock-based compensation expense in 2013 included
$891,000 of expense related to these awards and the remaining expense recognized was for grants awarded in previous years.
As it is probable that all outstanding performance-based vesting conditions will be satisfied, Peoples recorded the pro-rata
expense for all outstanding performance-based awards in 2013, as required by US GAAP. 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
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 $
2013
2012
2011
2,581 $
1,739
925
1,595
6,840 $
2,212 $
1,467
866
1,549
6,094 $
1,967
1,614
891
1,413
5,885
In 2013, Peoples experienced increased depreciation expense in connection with several strategic initiatives, including
the renovation of its branch network, the rebranding project completed in late 2012 and recent branch openings.
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. Peoples incurred professional fees as a result of acquisition-related activities of $448,000 and $300,000 in 2013 and
2012, respectively.
Peoples' e-banking expense, which is comprised of bankcard and internet-based banking costs, increased in both 2012
and 2013 as a result of customers completing a higher volume of transactions using their debit cards and Peoples' internet
banking service. These factors 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.
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Marketing expense, which includes advertising, donation and other public relations costs, decreased in 2013 due to the
higher expenses in 2012 recognized in connection with the rebranding efforts. Contributions totaling $200,000 were made to
Peoples Bancorp Foundation Inc. in 2013, compared to $400,000 in 2012. Peoples formed this private foundation in 2004 to
make charitable contributions to organizations within Peoples' primary market area. Prior to 2012, 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.
Peoples is subject to state franchise taxes, which are based largely on Peoples Bank's equity at year-end, in the states
where Peoples Bank has a physical presence. Franchise taxes increased during 2013 due to an increase in equity from the
overall improvement in earnings. 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 2013 and 2012, foreclosed real estate and other loan expenses continued to decrease in connection with
a reduction in the amount of foreclosed properties compared to prior years.
Peoples' FDIC insurance costs stabilized during 2013 and 2012, after new regulations required by the Dodd-Frank Act
became effective during 2011, reducing 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 increased during 2013 due to recent acquisition activity. Management
expects this amount to increase in 2014 as it will recognize a full year of amortization for acquisitions completed during
2013.
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 71.90% for 2013, compared to 69.55% for 2012 and 68.98% for 2011. The
increase in 2013 was largely a result of one-time costs for acquisitions plus higher salaries and employee benefit costs. The
increase in 2012 was due mostly to rebranding and acquisition-related costs.
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.
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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)
2013
2012
2011
2010
2009
Pre-Provision Net Revenue:
Income before income taxes
Add: provision for loan losses
Add: net loss on debt extinguishment
Add: net loss on loans held-for-sale and OREO
Add: net loss on securities transactions
Add: net loss on other assets
Less: recovery of loan losses
Less: net gain on loans held-for-sale and OREO
Less: net gain on securities transactions
Less: net gain on other assets
Pre-provision net revenue
Pre-provision net revenue
Total average assets
$
$
$
29,084
—
—
—
—
241
4,410
86
489
—
24,340
24,340
1,932,367
$
$
$
29,910
—
4,144
—
—
248
4,716
66
3,548
—
25,972
25,972
1,841,289
$
$
$
17,151
7,998
—
926
—
—
—
—
473
10
25,592
25,592
1,811,079
$
$
$
5,753
26,916
3,630
3,173
1,786
88
—
—
6,852
—
34,494
34,494
1,961,727
$
$
$
3,126
25,721
—
118
7,707
—
—
—
1,446
15
35,211
35,211
2,024,311
Pre-provision net revenue to total average assets
1.26%
1.41%
1.41%
1.76%
1.74%
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, 2013, excess cash reserves at the Federal Reserve Bank were $14.2 million, compared to $11.6 million at
December 31, 2012. 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.
In 2013, Peoples' total cash and cash equivalents decreased $8.7 million, as cash provided by Peoples' operating and
financing activities of $40.5 million and $30.8 million, respectively, were more than offset by the $80.0 million of cash used
by investing activities. Investing activities used $109.6 million to fund loan growth, while the BOLI Surrender provided cash
of $43.1 million. Within Peoples' financing activities, the increase in short-term borrowings of $65.8 million was the result of
loan growth, and decreases in deposit balances of $22.4 million, excluding the impact of acquired deposits.
In comparison, Peoples' total cash and cash equivalents increased $23.6 million in 2012, 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. Cash was used by investing activities to fund the $16.9 million of 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.
Further information regarding the management of Peoples' liquidity position can be found later in this discussion under
“Interest Rate Sensitivity and Liquidity.”
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Investment Securities
The following table provides information regarding Peoples’ investment portfolio at December 31:
(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
Total fair value
Total amortized cost
Net unrealized (loss) gain
2013
2012
2011
2010
2009
$
$
$
$
20 $
319
50,962
510,097
32,304
7,829
4,577
—
—
606,108 $
621,126 $
(15,018) $
26 $
516
45,668
514,096
64,416
10,357
4,106
—
—
639,185 $
628,584 $
10,601 $
32 $
39 $
13,037
35,745
527,003
37,289
12,211
3,254
—
—
12,262
47,379
507,534
30,700
12,984
3,088
—
—
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
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
$
$
$
$
3,850 $
37,536
7,836
49,222 $
3,860 $
33,494
7,921
45,275 $
3,525 $
12,776
—
16,301 $
— $
—
—
— $
—
—
—
—
670,348 $
655,330 $
673,859 $
684,460 $
633,429 $
644,872 $
617,122 $
613,986 $
706,444
726,547
During 2013, the fair value of Peoples' available-for-sale investment portfolio declined due to market conditions,
primarily higher long-term interest rates. In 2013, and throughout 2012, Peoples continued to designate additional securities
as "held-to-maturity" at the time of their purchase, as management has made the determination Peoples would hold these
securities until maturity and concluded Peoples has the ability to do so.
Peoples has taken actions within the investment portfolio to in an effort to reduce interest rate exposure, resulting in sales
during 2013 of several residential mortgage-backed securities and commercial mortgage-backed securities.
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
2013
2012
2011
2010
2009
$
$
$
$
23,446 $
—
23,446 $
22,926 $
520 $
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
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, 2013, 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
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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.
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
2013
2012
2011
2010
2009
$
47,539
450,170
497,709
232,754
268,617
60,076
135,018
2,060
$1,196,234
1,046,371
(17,935)
$1,028,436
$ 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
4.0 %
37.6 %
41.6 %
19.5 %
22.5 %
5.0 %
11.3 %
0.1 %
100.0%
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%
Residential real estate loans being serviced for others $ 341,183
$ 330,721
$ 275,715
$ 250,691
$ 227,855
Gross portfolio loans increased $211.1 million, or 21% since December 31, 2012 due to organic growth, as well as the
Ohio Commerce acquisition which added $59.0 million of commercial real estate loans, $29.1 million of commercial and
industrial loans, $8.2 million of residential real estate loans and $0.2 million of consumer loans. The loans acquired from
Ohio Commerce mainly consisted of commercial real estate and, commercial and industrial. The increase in construction
loans was due to both advances on loans with current relationships and new relationships. During 2013, Peoples retained a
larger percentage of residential mortgage loans originated than in prior years which caused the increase in residential real
estate loans.
In 2013, Peoples placed greater emphasis on its consumer lending business, which primarily consists of automobile loans
obtained directly, or indirectly through automobile dealerships. Peoples added additional sales talent to this business line and
establishing better relationships with dealers, resulting in substantially higher loan balances compared to prior years.
46
Table of Contents
The following table details the maturities of Peoples' commercial and construction loans at December 31, 2013:
(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
$
$
$
$
$
$
1,107 $
38,961
40,068 $
4 $
3,817
3,821 $
15,216 $
184,672
199,888 $
107,482 $
90,783
198,265 $
4,416 $
154,818
159,234 $
43,296 $
2,079
45,375 $
3,647 $
3
3,650 $
45,262 $
6,755
52,017 $
28,145 $
—
28,145 $
4,758
42,781
47,539
167,960
282,210
450,170
75,857
156,897
232,754
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.
Loans secured by commercial real estate, including commercial construction loans, continue to comprise the largest
portion of Peoples' loan portfolio. The following table provides information regarding the largest concentrations of
commercial real estate loans within the loan portfolio at December 31, 2013:
Outstanding
Balance
Loan
Commitments
Total
Exposure % of Total
$
3,638 $
1,481
26,830
430
3
433
46
2,883
2,929
1,778
3,672
6,778
47,539 $
7,896 $
5,055
5,769
1,138
4,800
5,938
1,682
27
1,709
715
—
2,841
29,923 $
11,534
6,536
32,599
1,568
4,803
6,371
1,728
2,910
4,638
2,493
3,672
9,619
77,462
14.9 %
8.4 %
42.1 %
2.0 %
6.2 %
8.2 %
2.2 %
3.8 %
6.0 %
3.2 %
4.7 %
12.5 %
100.0%
(Dollars in thousands)
Commercial real estate, construction:
Assisted living facilities and nursing homes
Residential property
Apartment complexes
Office buildings and complexes:
Owner occupied
Non-owner occupied
Total office buildings and complexes
Mixed commercial use facilities:
Owner occupied
Non-owner occupied
Total mixed commercial use facilities
Day care facilities - owner occupied
Restaurant facilities
Other
Total commercial real estate, construction
$
47
Table of Contents
(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
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
$
58,827 $
51,544
— $
55
13,334
26,248
39,582
27,995
1,770
29,765
13,581
27,671
41,252
46,636
22,201
18,752
40,953
16,268
6,236
15,580
21,816
84
247
331
603
—
603
165
72
237
258
1,078
251
1,329
—
11
—
11
58,827
51,599
13,418
26,495
39,913
28,598
1,770
30,368
13,746
27,743
41,489
46,894
23,279
19,003
42,282
16,268
6,247
15,580
21,827
12.9 %
11.3 %
2.9 %
5.8 %
8.7 %
6.2 %
0.4 %
6.6 %
3.1 %
6.1 %
9.2 %
10.3 %
5.1 %
4.2 %
9.3 %
3.6 %
1.4 %
3.4 %
4.8 %
9,126
1,506
10,632
92,895
450,170 $
—
—
—
2,870
5,694 $
9,126
1,506
10,632
95,765
455,864
2.0 %
0.3 %
2.3 %
21.0 %
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, 2013 and December 31, 2012.
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Table of Contents
Allowance for Loan Losses
The amount of the allowance for loan losses at the end of each period represents management's estimate of probable
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
As a percent of loans, net of deferred
fees and costs
$
2013
2012
2011
2010
2009
13,215
2,174
15,389
881
343
316
136
17,065
$
$
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
1.43%
1.81%
2.53%
2.79%
2.59%
The addition of $96.6 million of loans added in the Ohio Commerce acquisition caused a 13 basis point reduction in the
allowance for loan losses as a percent of total loans ratio at December 31, 2013 due to more favorable loss rates on the
acquired loans compared to the loss rates on the remaining loans in Peoples' portfolio.
During 2013, Peoples extended the historical loss period from two years to three years for its quantitative calculation of
the allowance for loan losses. Management believes this change more appropriately reflects inherent losses in the portfolio,
and this change in methodology is more fully detailed in Note 4 of the Notes to the Consolidated Financial Statements.
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 2013, 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 $30.8 million, or 34%, since year-end
2012, reflecting $25.6 million in principal paydowns. Peoples upgraded $6.6 million in loans during 2013 based upon the
financial condition of the borrowers. Net charge-offs also remained at or below Peoples' long-term historical rate for the
tenth consecutive quarter. These factors had a direct impact on the estimated loss rates used to determine the appropriate
allocations for commercial loans.
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.
49
Table of Contents
The following table summarizes the changes in the allowance for loan losses for the years ended December 31:
2013
17,811
2012
23,717
$
2011
26,766
$
2010
27,257
$
2009
22,931
$
$
(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 (recoveries) 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
—
1,053
1,053
44
621
162
1,084
527
3,491
—
5,839
5,839
40
536
26
552
162
7,155
—
(4,786)
(4,786)
4
85
136
532
365
(3,664)
(4,410)
17,065
$
$
—
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
(4,716)
17,811
$
$
— %
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
— %
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%
Total net (recoveries) charge-offs
(Recoveries of) provision for loan losses,
December 31
$
Allowance for loan losses, December 31 $
Net (recoveries) charge-offs as a percent of average 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
— %
(0.46 )%
(0.46 )%
— %
0.01 %
0.01 %
0.05 %
0.04 %
(0.35)%
In 2013, Peoples experienced significantly lower charge-offs compared to previous years, returning to pre-crisis
levels. Peoples continues to focus on sound underwriting and prudent risk management to maintain this lower level of
charge-offs. Also in 2013 were recoveries of approximately $2.9 million on three commercial relationships that were
previously charged-off in 2010 and 2011.
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Table of Contents
The following table details Peoples’ nonperforming assets at December 31:
(Dollars in thousands)
Loans 90+ days past due and accruing:
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total
Nonaccrual loans:
Commercial real estate, construction
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total
Troubled debt restructurings:
Commercial real estate
Residential real estate
Home equity lines of credit
Total
Total nonperforming loans (NPLs)
Other real estate owned (OREO)
Commercial
Residential
Total
2013
2012
2011
2010
2009
$
— $
—
37
873
—
910
— $
181
—
1,050
4
1,235
— $
—
—
708
—
708
— $
—
27
645
—
672
—
7,259
627
2,786
24
20
10,716
2,572
350
—
2,922
14,873
815
21
836
15,709
$
—
20,587
2,262
3,440
349
—
26,638
2,959
425
—
3,384
30,730
2,194
—
2,194
32,924
$
—
34,392
1,714
3,197
554
—
39,857
—
593
—
593
41,122
4,280
215
4,495
45,617
$
96
2,801
708
2,565
81
58
6,309
916
650
6
1,572
8,791
$
465
428
893
9,684
0.73%
0.47%
0.81%
194.13%
164
—
238
506
9
917
—
25,852
2,884
4,687
546
3
33,972
—
—
—
—
34,889
6,087
226
6,313
41,202
Total nonperforming assets (NPAs)
$
NPLs as a percent of total loans
NPAs as a percent of total assets
NPAs as a percent of total loans and OREO
Allowance for loan losses as a percent of NPLs
1.50%
0.82%
1.58%
119.75%
3.26%
1.84%
3.49%
77.18%
4.26%
2.48%
4.70%
65.09%
3.31%
2.06%
3.89%
78.12%
During the third quarter of 2013, and as further detailed in Note 4 of the Notes to the Consolidated Financial Statements,
Peoples identified certain home equity lines of credit that had matured and the borrowers were not sent notices that the
principal was due. These loans have been reported as past due since the principal was contractually due during a previous
period. The decrease in total nonperforming assets during 2013 was primarily due to paydowns and payoffs on loans. The
reduction contributed to the decrease in total criticized loans.
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, but no less frequently than
annually. Given the volatility in commercial real estate values, management continues to monitor changes in real estate
values from quarter-to-quarter and updates its estimates as needed based on observable changes in market prices and/or
updated appraisals for similar properties.
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 $0.2 million for 2013, $0.5 million for 2012 and $1.0 million for 2011. No portion of the
amounts was recorded during 2013, 2012 or 2011, 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, 2013, based on all significant
information currently available. Still, there can be no assurance the allowance for loan losses will be adequate to cover future
51
Table of Contents
losses or that the amount of nonperforming loans will remain at current levels, especially considering the current economic
uncertainty that exists and the concentration of commercial loans in Peoples’ loan portfolio.
Deposits
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
$
$
2013
2012
2011
2010
2009
363,226 $
275,801
132,379
215,802
134,618
1,121,826
49,041
1,170,867
409,891
1,580,758 $
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
The Ohio Commerce acquisition added approximately $80.0 million of interest-bearing deposits, mainly money market
accounts of $37.8 million and certificates of deposits (“CDs”) of $31.7 million, and $30.9 million of non-interest-bearing
deposits.
In 2013, Peoples continued to maintain its 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 led to the fluctuations in deposit balances in
2013.
Non-interest-bearing deposits continued to grow in 2013, due largely to higher commercial deposit balances. The
increased balances reflected Peoples' increased focus on obtaining the deposit relationships of its commercial clients. Since
year-end 2012, non-interest-bearing commercial deposit balances have increased $53.6 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
2013
2012
2011
2010
2009
$
$
44,476 $
16,435
24,118
90,801
175,830 $
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
52
Table of Contents
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
Total short-term borrowings
Long-term borrowings:
2013
2012
2011
2010
2009
$
71,000 $
42,590
113,590
15,000 $
32,769
47,769
8,500 $
43,143
51,643
— $
51,509
51,509
FHLB advances
Callable national market repurchase agreements
Term note payable (parent company)
Total long-term borrowings
Subordinated debentures held by subsidiary trust
62,679
40,000
19,147
121,826
—
64,904
40,000
23,919
128,823
—
Total borrowed funds
$
235,416 $
176,592 $
77,312
65,000
—
142,312
22,600
216,555 $
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
During 2013, Peoples increased its usage of short-term FHLB advances, which consist mainly of overnight borrowings
in connection with the management of the daily liquidity position, because of the relatively low cost.
The reduction in the long-term borrowings during 2012 was due to Peoples prepaying a $10 million FHLB advance and
$25 million of national market repurchase agreements during the first quarter of 2012. Peoples also completed the Trust
Preferred Redemption, and entered into a loan agreement and is subject to certain covenants. At December 31, 2013, Peoples
was in compliance with the applicable material covenants imposed by the loan agreement.
Additional information regarding Peoples' borrowed funds can be found in Notes 9 and 10 of the Notes to the
Consolidated Financial Statements.
Capital/Stockholders’ Equity
During 2013, Peoples' total stockholders' equity continued to benefit from earnings exceeding dividends declared, which
was offset by the decline in the market value of available-for-sale investment securities. Regulatory capital ratios continued
to fluctuate due to recent acquisitions.
At December 31, 2013, capital levels for both Peoples and Peoples Bank remained substantially higher than the
minimum amounts needed to be considered "well capitalized" under banking regulations. These higher capital levels reflect
Peoples' desire to maintain strong capital positions to provide greater flexibility 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)
Tier 1 leverage
2013
2012
2011
2010
2009
$
$
166,217
166,217
184,457
1,338,811
$
$
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
12.42%
12.42%
13.78%
8.52%
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%
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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
$
$
$
$
$
$
$
$
2013
2012
2011
2010
2009
221,553
77,603
143,950
143,950
—
143,950
$
$
$
$
221,728
68,525
153,203
153,203
—
153,203
$
$
$
$
206,657
64,475
142,182
142,182
—
142,182
2,059,108
77,603
1,981,505
$ 1,918,050
68,525
$ 1,849,525
$ 1,794,161
64,475
$ 1,729,686
143,950
10,605,782
$
153,203
10,547,960
$
142,182
10,507,124
$
$
$
$
$
$
$
230,681
64,870
165,811
165,811
38,645
127,166
1,837,985
64,870
1,773,115
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
13.57
$
14.52
$
13.53
$
12.16
$
13.48
Tangible Equity to Tangible Assets Ratio:
$
Tangible equity
$
Tangible assets
143,950
1,981,505
$
153,203
$ 1,849,525
$
142,182
$ 1,729,686
$
$
165,811
1,773,115
$
$
178,369
1,936,228
Tangible equity to tangible assets
7.26%
8.28%
8.22%
9.35%
9.21%
Tangible Common Equity to Tangible Assets Ratio:
Tangible common equity
Tangible assets
143,950
1,981,505
$
$
153,203
$
$ 1,849,525
142,182
$
$ 1,729,686
$
$
127,166
1,773,115
$
$
139,826
1,936,228
Tangible common equity to tangible assets
7.26%
8.28%
8.22%
7.17%
7.22%
During 2013, Peoples' tangible common equity to tangible assets ratio declined due to the impact of assets acquired in
the Ohio Commerce acquisition, as well as reductions in the fair value of the available-for-sale investment securities.
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Future Outlook
Peoples achieved success in several major areas in 2013 due largely to the significant investments made in the sales
process, and branch renovations over the past two years. Key accomplishments included stronger than expected loan growth,
improved revenue generation across the company, restoration of asset quality, and continued success with acquisitions. These
successes occurred despite the challenges to profitability and growth that continue to exist within the banking industry.
For 2014, Peoples’ key strategic priorities will include generating positive operating leverage, maintaining superior asset
quality, and remaining prudent with the use of capital. Overall, Peoples' key strategic objectives are to be a steady,
dependable performer for its shareholders and take advantage of market expansion opportunities. By doing so, Peoples
expects to generate results in the top quartile of performance relative to Peoples' defined peer group and providing returns for
its shareholders superior to those of its peers, regardless of operating conditions.
Peoples failed to have positive operating leverage - or grow revenue faster than expenses - in 2013 due to the delayed
start to loan growth and net interest margin pressure during the first half of the year. However, management believes Peoples
is positioned to grow revenue faster than expenses in 2014 and is confident this goal will be achieved. The primary focus
continues to be on growing revenue, rather than decreasing expenses.
For 2014, management expects Peoples to grow total revenue (net interest income plus non-interest income) by more
than 10%, which will exceed the expected total non-interest expense growth by 1% to 2%. Peoples' efficiency ratio is
expected to be in the range of 68% to 70%, absent acquisition-related costs or other one-time expenses.
Peoples has the capacity to be a much bigger company. Its existing infrastructure also has the ability to drive meaningful
revenue growth for many quarters to come. Thus, Peoples’ long-term goal is to widen the revenue and expense growth gap in
future years, which should cause Peoples’ efficiency ratio to improve by 1% to 2% each year.
A major asset for Peoples is its strong fee-based businesses, such as insurance and wealth management. In 2013,
Peoples' fee revenue comprised 40% of its total revenue, up from 39% in 2012. Peoples has capabilities that many banks in
its market area lack, including some of the largest national banks, which include robust retirement plan services and
comprehensive insurance products. Thus, management considers Peoples to have a competitive advantage that directly
enhances revenue growth potential. For 2014, management expects total non-interest income to benefit from continued
double-digit growth in insurance and investment income. Within insurance income, management is projecting annual
performance-based income will top $1 million in 2014. Mortgage banking income could be negatively impacted by higher
long-term rates, although more of Peoples’ new production in recent quarters has been the result of new home sales versus
refinancing activity.
Even with a more diversified revenue stream than most community banks, net interest income remains a major source of
revenue for Peoples. Thus, Peoples' ability to grow revenue in 2014 will be impacted by the amount of net interest income
generated. The current outlook is for the Federal Reserve Board to hold short-term interest rates at their historically low
levels throughout all of 2014. Long-term rates could increase but remain more volatile than prior years. Changes in long-
term rates would affect reinvestment rates within the loan and investment portfolios. Should the yield curve flatten, Peoples
would have limited opportunities to offset the impact on asset yields with a similar reduction in funding costs. Thus, Peoples'
ability to produce meaningful loan growth remains the key driver for improving net interest income and margin in 2014.
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.
While the primary focus is on revenue growth, management intends to remain disciplined with operating expenses. For
2014, total non-interest expense will increase due to a full year’s impact of the 2013 acquisitions, plus additional depreciation
related to the $5 million branch renovation project. Outside these items, management will be working to limit increases in
other expense areas. However, Peoples continues to have limited control over some expenses, such as employee medical and
pension costs.
Peoples continues to be more exposed to pension settlement charges given the frozen status of its defined benefit plan.
The recognition of settlement charges is largely dependent upon the timing of distributions, the amount of pension benefit
earned by the retirees, and whether the individuals elect a lump sum distribution. For 2014, management anticipates a sizable
increase in settlement charges compared to the amount incurred in 2013. Additionally, Peoples could incur a charge of up to
$1 million in the first quarter of 2014. This expectation is based on normal retirement activity within the plan, but assumes
all potential distributions are lump sum payouts.
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A key to Peoples’ 2014 revenue growth goal is achieving meaningful loan growth. Management believes period-end
loan balances could increase by 6% to 8% in 2014, with this growth divided nearly equally between commercial and
consumer lending. Within Peoples' commercial lending activity, the primary emphasis continues to be on non-mortgage
commercial lending opportunities and capitalizing on growth opportunities provided by the Ohio Commerce acquisition. As
a result, commercial and industrial loan balances should increase at a greater rate than commercial real estate loan balances.
Consumer lending activity is continuing to build and will remain a larger contributor to overall loan growth than it was prior
to 2013. On average, total loan balances should increase by 15% to 20% in 2014, due largely to a full year’s impact of 2013
loan growth.
Peoples' long-term strategy is to reduce the size of the investment portfolio to between 25% and 30% of its total assets.
Consistent with this goal, management plans to use $20 to $30 million of the normal cash flow generated by Peoples’
significant investment in mortgage-backed securities to fund new loan production. This action would temper the overall
growth in total earning assets in 2014. Management could adjust the size or composition of the portfolio in response to other
factors, such as changes in liquidity needs and interest rate conditions.
In 2014, Peoples' funding strategy continues to emphasize growth of core deposits, such as checking and savings
accounts, rather than higher-cost deposits. Thus, CD balances could maintain the declining trend experienced in recent years.
Given the expected increase in earning assets, borrowed funds would increase in 2014 to the extent earning asset growth is
more than deposit growth. Should this occur, management would evaluate using longer-term borrowings to match the
duration of the assets being funded to minimize the long-term interest rate risk.
During the Great Recession, Peoples’ asset quality metrics fell to the bottom of its peer group, which is comprised of the
21 banks used to evaluate executive compensation and conduct performance benchmarking. In 2013, overall asset quality
was restored, as reflected by key metrics moving to the top-quartile of the peer group. Much of this success was due to
Peoples’ renewed commitment to sound underwriting and prudent risk management. Management believes this credit
discipline will benefit Peoples during future economic downturns. The long-term goal is to maintain key metrics in the top-
quartile of Peoples' peer group regardless of economic conditions.
In 2013, Peoples experienced loan loss recoveries in excess of gross charge-offs in each quarter. While management will
continue to pursue collection of prior charge-offs, it is unlikely Peoples will sustain the level of recoveries experienced during
2013. As a result, management anticipates Peoples' net charge-off rate for 2014 to be near the low end of its long-term
historical range of 0.20% to 0.50% of average loans.
Also in 2013, Peoples reduced the size of its allowance for loan losses consistent with the improvement in overall asset
quality. For 2014, management intends to remain prudent with the level of Peoples' allowance for loan losses. Given the
continued focus on consumer lending, management does not expect the level to drop much below its current level of 1.43%
of total loans during 2014. However, the level will continue to be based upon management's quarterly assessment of the
losses inherent in the loan portfolio, and the amount of any provision for loan losses should be driven mostly by a
combination of the net charge-off rate and loan growth.
Peoples will continue to explore market expansion opportunities in or near its current market areas during 2014.
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 merger and acquisition strategy, and expansion of Peoples' core financial
service businesses of banking, insurance and wealth management. Consequently, management continues to explore
acquisition opportunities in these activities. In evaluating acquisition opportunities, management will balance the potential
for earnings accretion with maintaining adequate capital levels, which could result in Peoples' common stock being the
predominate form of consideration and/or the need for Peoples to raise capital.
Conversations with potential strategic partners are occurring on a regular basis. The evaluation of any potential
opportunity will favor a transaction that complements 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. Peoples’ management team is prepared to act quickly should a potential opportunity arise, but will remain disciplined
with its approach. All transactions must be accretive by no later than the second year in order to satisfy Peoples' goal of
improving shareholder return. Management is optimistic regarding Peoples’ ability to complete any additional deals in 2014.
Management is committed to overcoming any challenges Peoples will face in 2014 and building upon the earnings
momentum of 2013. This will require management to remain focused on four key areas: responsible risk management;
extraordinary client experience; profitable revenue growth; and maintaining a superior workforce. Success will be achieved
through disciplined execution of strategies and partnership with Peoples' clients and communities.
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Interest Rate Sensitivity and Liquidity
While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major
risks that can materially impact future results of operations and financial condition due to their complexity and dynamic
nature. The objective of Peoples' asset/liability management (“ALM”) function is to measure and manage these risks in order
to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires
Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and
liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the ALM function
is intended to guide management in the acquisition and disposition of earning assets and selection of appropriate funding
sources.
Interest Rate Risk
Interest rate risk (“IRR”) is one of the most significant risks arising in the normal course of business of financial
services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can
impact both the earnings stream as well as market values of financial assets and liabilities. Peoples' exposure to IRR is
due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition,
other factors, such as prepayments of loans and investment securities or early withdrawal of deposits, can affect Peoples'
exposure to IRR and increase interest costs or reduce revenue streams.
Peoples has assigned overall management of IRR to the Asset and Liability Management Committee (“ALCO”),
which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and
managing the level 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 economic 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 twenty-four 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 economic value of equity 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%
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The following table shows the estimated changes in net interest income and the economic value of equity based
upon a standard, parallel shock analysis (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, 2013
$
300
200
100
5,473
4,494
2,885
8.9% $
7.3%
4.7%
9,688
8,627
6,311
19.6% $ (65,867)
(46,077)
17.5%
(23,910)
12.8%
December 31, 2012
December 31, 2013
(24.8)% $ (20,348)
(3,888)
(17.4)%
7,344
(9.0)%
December 31, 2012
(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
directionally changed the same amount of basis points. For example, 100 basis points are 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 most 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 Board
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, 2013, 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 2013,
Peoples became less sensitive to rising interest rates due to several factors as management took action to increase base
case net interest income. The largest factors impacting Peoples' interest rate sensitivity were the investment strategy
implemented during the first quarter of 2013, changes in prepayment speeds in the investment portfolio and the Ohio
Commerce acquisition.
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.
A primary source of liquidity for Peoples is retail deposits. 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-
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government and agency securities, municipal securities and loans. Management has established a minimum level of
liquid assets in the liquidity management policy, which is expressed as a percentage of loans and unfunded loan
commitments. Peoples also has established a policy limit around the level of liquefiable assets, also expressed as a
percentage of loans and unfunded loan commitments. Liquefiable assets are defined as liquid assets plus the market
value of unpledged securities not included in the liquid asset measurement.
An essential element in the management of liquidity risk is a forecast of the sources and uses of anticipated cash
flows. On a monthly basis, Peoples forecasts sources and uses of cash for the next twelve months. To assist in the
management of liquidity, management has established a liquidity coverage ratio, which is defined as the total sources of
cash divided by the total uses of cash. A ratio of greater than 1.0 times indicates that forecasted sources of cash are
adequate to fund forecasted uses of cash. The liquidity management policy establishes a minimum limit of 1.0 times. As
of December 31, 2013, 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, 2013, 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, increases in the funding required for 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 Federal Home Loan Bank 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 ("KRI's") that are
monitored on a 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.
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Off-Balance Sheet Activities and Contractual Obligations
Peoples routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or
in part in the Consolidated Financial Statements. These activities are part of Peoples' normal course of business and include
traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional
capital contributions in low-income housing tax credit investments.
The following is a summary of Peoples’ significant off-balance sheet activities and contractual obligations. Detailed
information regarding these activities and obligations can be found in the Notes to the Consolidated Financial Statements as
follows:
Activity or Obligation
Off-balance sheet credit-related financial instruments
Operating lease obligations
Long-term debt obligations
Contingent consideration related to acquisitions
Note
15
5
10
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.
For certain acquisitions, often those involving insurance businesses and wealth management books of businesses, a
portion of the consideration is contingent upon revenue metrics being achieved. US GAAP requires that the amounts be
recorded upon acquisition based on the best estimate of the future amounts to be paid at the time of acquisition. Any
subsequent adjustment to the estimate is recorded in earnings. Based on the acquisitions completed to date, management
does not expect contingent consideration to have a material impact on Peoples' future performance.
The following table details the aggregate amount of future payments Peoples is required to make under certain
contractual obligations as of December 31, 2013:
(Dollars in thousands)
Long-term debt (1)
Operating leases
Time deposits
Contingent consideration related to acquisitions (2)
Total
$
$
Total
121,826 $
2,190
412,267
1,513
537,796 $
Less than 1
year
Payments due by period
1-3 years
3-5 years
More than
5 years
6,498 $
753
202,677
468
210,396 $
12,296 $
1,030
154,440
960
168,726 $
87,362 $
389
42,126
85
129,962 $
15,670
18
13,024
—
28,712
(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
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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.
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, 2013. 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 62 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 63 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, 2013, that have materially affected, or are
reasonably likely to materially affect, Peoples’ internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
61
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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, 2013, using the Internal Control-Integrated Framework set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework).
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, 2013,
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
62
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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,
2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Peoples Bancorp, Inc.’s 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, 2013, 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 of Peoples Bancorp, Inc. and subsidiaries as of December 31, 2013 and 2012, 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, 2013 of Peoples Bancorp, Inc. and subsidiaries and our report dated
February 27, 2014 expressed an unqualified opinion thereon.
Charleston, West Virginia
February 27, 2014
63
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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, 2013 and 2012, 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, 2013. These financial statements are
the responsibility of the Company'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, 2013 and 2012, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended December 31, 2013, 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.’s internal control over financial reporting as of December 31, 2013, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 framework) and our report dated February 27, 2014 expressed an unqualified opinion
thereon.
Charleston, West Virginia
February 27, 2014
64
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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
$621,126 at December 31, 2013 and $628,584 at December 31, 2012)
Held-to-maturity investment securities, at amortized cost (fair value of $46,094
at December 31, 2013 and $47,124 at December 31, 2012)
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
Accrued expenses and other liabilities
Total liabilities
Stockholders’ Equity
Preferred stock, no par value, 50,000 shares authorized, no shares issued at
December 31, 2013 and December 31, 2012
Common stock, no par value, 24,000,000 shares authorized, 11,206,576 shares
issued at December 31, 2013 and 11,155,648 shares issued at December 31,
2012, including shares in treasury
Retained earnings
Accumulated other comprehensive (loss) income, net of deferred income taxes
Treasury stock, at cost, 600,794 shares at December 31, 2013 and 607,688
shares at December 31, 2012
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to the Consolidated Financial Statements
65
$
$
$
December 31,
2013
2012
36,016 $
17,804
53,820
47,256
15,286
62,542
606,108
639,185
49,222
45,275
25,196
680,526
1,196,234
(17,065)
1,179,169
1,688
29,809
1,880
70,520
7,083
34,613
2,059,108 $
409,891 $
1,170,867
1,580,758
113,590
121,826
21,381
1,837,555
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
—
—
168,869
167,039
80,898
(13,244)
(14,970)
69,158
654
(15,123)
221,553
2,059,108 $
221,728
1,918,050
$
Table of Contents
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
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
FDIC insurance
Foreclosed real estate and other loan expenses
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
66
2013
2012
2011
$
48,522 $
16,853
1,600
96
67,071
48,238 $
19,778
1,434
20
69,470
7,052
114
4,520
—
11,686
55,385
(4,410)
59,795
12,201
8,764
7,122
6,191
1,759
489
(155)
1,183
37,554
36,472
6,840
4,207
3,586
2,301
2,012
1,643
1,339
1,036
880
807
7,142
68,265
29,084
11,510
17,574 $
—
17,574 $
1.65 $
1.63 $
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
1,002
1,001
509
6,298
63,474
29,910
9,525
20,385 $
—
20,385 $
1.92 $
1.92 $
10,581,222
10,679,417
10,527,885
10,528,286
$
$
$
$
49,410
24,149
1,550
24
75,133
13,930
103
5,142
1,979
21,154
53,979
7,998
45,981
9,265
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
1,867
1,213
586
5,545
61,331
17,151
4,596
12,555
1,343
11,212
1.07
1.07
10,482,318
10,482,318
Table of Contents
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 (loss) gain arising in the period
Related tax benefit (expense)
Less: reclassification adjustment for net gain included in net income
Related tax expense
Net effect on other comprehensive (loss) income
Defined benefit plans:
Net gain (loss) arising during the period
Related tax (expense) benefit
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 income (loss)
Total other comprehensive (loss) income, net of tax
Total comprehensive income
2013
2012
2011
$
17,574 $
20,385 $
12,555
(25,130)
8,795
489
(171)
(16,653)
3,788
(1,326)
182
(64)
270
(95)
2,755
(13,898)
$
3,676 $
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
See Notes to the Consolidated Financial Statements
67
Table of Contents
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Preferred
Stock
Common
Stock
Retained
Earnings
Accumulated Other
Comprehensive
(Loss) Income
Balance, December 31, 2010
$
38,645 $ 166,298 $
45,547 $
(4,453) $
Total
Stockholders'
Equity
Treasury
Stock
(15,356) $
Net income
Other comprehensive income, net of tax
Accrued dividends on preferred shares
Amortization of discount on preferred shares
355
Cash dividends declared on common shares
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 shares
Balance, December 31, 2011
Net income
Other comprehensive loss, net of tax
Repurchase of common stock warrant
Cash dividends declared on common shares
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
Balance, December 31, 2012
$
— $ 167,039 $
69,158 $
654 $
(15,123) $
17,574
(5,834)
(13,898)
Net income
Other comprehensive loss, net of tax
Cash dividends declared on common shares
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
79
423
(34)
1,362
168
(228)
213
Balance, December 31, 2013
$
— $ 168,869 $
80,898 $
(13,244) $
(14,970) $
See Notes to the Consolidated Financial Statements
68
230,681
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
17,574
(13,898)
(5,834)
79
168
(228)
423
179
1,362
221,553
Table of Contents
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:
2013
2012
2011
$
17,574 $
20,385 $
12,555
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
(Decrease) increase in accrued expenses
Decrease in interest receivable
Excess tax benefit from share-based payments
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 investing activities
Financing activities:
Net increase in non-interest-bearing deposits
Net (decrease) increase in interest-bearing deposits
Net increase (decrease) in short-term borrowings
Proceeds from long-term borrowings
Payments on long-term borrowings
Redemption of junior subordinated debentures
Repurchase of preferred shares and common stock warrant
Cash dividends paid on preferred shares
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 (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest paid
Income taxes paid
See Notes to the Consolidated Financial Statements
69
16,110
(4,410)
(56)
(489)
—
(68,323)
74,049
(1,544)
4,627
(13)
313
(79)
2,705
40,464
18,765
(4,716)
(40)
(3,548)
4,144
(132,714)
131,040
(2,746)
4,521
2,345
462
16
3,340
41,254
17,194
7,998
(351)
(473)
—
(72,132)
73,507
(1,432)
462
1,472
290
—
4,294
43,384
(223,979)
125,658
99,372
(271,520)
113,756
140,470
(198,556)
59,868
126,587
(5,216)
885
(109,609)
(6,604)
1,036
43,100
(4,536)
(120)
(80,013)
61,935
(84,344)
65,821
—
(7,025)
—
—
—
(5,419)
(228)
8
79
30,827
(8,722)
62,542
53,820 $
(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)
24,768
(35,379)
134
—
(15,391)
—
(39,000)
(1,232)
(3,922)
(187)
10
—
(70,199)
(35,694)
74,644
38,950
11,839 $
7,473 $
15,570 $
5,563 $
21,386
1,574
$
$
$
Table of Contents
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 49 financial service locations and 47 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 interest 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. 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 in funds at both December 31, 2013
and 2012, 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.
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
70
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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 9 and 10.
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 $2.3 million and $1.5 million at December 31, 2013 and 2012, 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 $1 million. 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 carrying
value of the loan to its estimated net realizable value. Impaired loans, or portions thereof, are charged off when deemed
uncollectible. Upon detection of the reduced ability of a borrower to meet cash flow obligations, 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.
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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 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 commercial 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 reviews, at least annually, all loan relationships with aggregate outstanding debt to Peoples of
$1,000,000 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 and strength of guarantors. The primary source of repayment for commercial real estate loans and commercial
and industrial loans is normally the business's operating cash flow available to repay debt. Management's analysis of
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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 $0.3
million and $0.8 million at December 31, 2013 and 2012, 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, less
estimated costs to sell the property. Peoples had OREO totaling $0.9 million at December 31, 2013, and $0.8 million at
December 31, 2012.
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, 2013, based upon the estimated fair value
of Peoples' single reporting unit.
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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.
Servicing Rights: Servicing rights (“SRs”) represent the right to service loans sold to third-party investors. SRs are
recognized separately as a servicing asset or liability whenever Peoples undertakes an obligation to service financial
assets. SRs 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 SRs 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 SRs 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, subsequently 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 are evaluated for liability or equity treatment. The common stock warrant issued by Peoples
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 form of common stock warrant as
permanent equity. This view is consistent with the objective of the Capital Purchase Program that the equity represented
by 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.
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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, 2013 and 2012.
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
including a complete line of banking, investment, insurance and trust solutions.
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 February 2013, the Financial Accounting Standards Board issued an accounting standards update with new
guidance on the presentation of accumulated other comprehensive income (“AOCI”). This standard was effective for
public companies for interim and annual periods beginning after December 15, 2012. The amendment requires an entity to
present the reclassification adjustments out of AOCI and into net income for each component reported. These amounts
may be disclosed before-tax or after-tax, and must be disclosed in either the income statement or the notes to the financial
statements. This update is intended to supplement changes made in 2012 to increase the prominence of items reported in
other comprehensive income. Peoples adopted this new guidance on January 1, 2013, as required. As a result of the
adoption, the disclosure of AOCI included in Note 11 contains additional information regarding reclassifications out of
AOCI and into net income.
In January 2014, the Financial Accounting Standards Board issued an accounting standards update allowing entities
to make an accounting policy election with respect to using the proportional amortization method for investments in
qualified affordable housing projects, if certain conditions are met. This standard will be effective for public companies
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for interim and annual periods beginning after December 15, 2014. Peoples will adopt this new guidance as required, and
it is not expected to have a material impact on Peoples’ Consolidated Financial Statements.
Also in January 2014, the Financial Accounting Standards Board issued an accounting standards update clarifying
guidance for in substance reposessions and foreclosures, and requiring additional disclosures regarding foreclosed
residential real estate property and recorded investments in consumer mortgage loans collateralized by residential real
estate in the process of foreclosure. This standard will be effective for public companies for interim and annual periods
beginning after December 15, 2014. Peoples will adopt this new guidance as required, and it is not expected to have a
material impact on Peoples’ Consolidated Financial Statements.
Note 2. Fair Value of Financial Instruments
Assets measured at fair value on a recurring basis comprised the following at December 31:
(Dollars in thousands)
December 31, 2013
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, 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
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
$
$
$
$
20 $
319
50,962
510,097
32,304
7,829
4,577
606,108 $
26 $
516
45,668
514,096
64,416
10,357
4,106
639,185 $
— $
—
—
—
—
—
4,443
4,443 $
— $
—
681
—
—
—
3,971
4,652 $
20 $
319
50,962
510,097
32,304
7,829
134
601,665 $
26 $
516
44,987
514,096
64,416
10,357
135
634,533 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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Held-to-maturity securities reported at fair value comprised the following at December 31:
(Dollars in thousands)
December 31, 2013
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
December 31, 2012
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
Fair Value 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
$
$
$
$
3,929 $
34,530
7,635
46,094 $
4,250 $
34,560
8,314
47,124 $
— $
—
—
— $
— $
—
—
— $
3,929 $
34,530
7,635
46,094 $
4,250 $
34,560
8,314
47,124 $
—
—
—
—
—
—
—
—
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). The available-for-sale securities' fair values of the states and political subdivisions
measured at fair value using Level 1 inputs at December 31, 2012 represented the purchase price of the securities since they
were acquired near year-end 2012. At December 31, 2013, these securities were classified as Level 2 as a pricing model was
used to value the securities, which was consistent with the classification of the rest of the sector.
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, 2013, impaired loans with an aggregate
outstanding principal balance of $2.4 million were measured and reported at a fair value of $1.4 million. For the year
ended December 31, 2013, Peoples recognized losses of $0.9 million on impaired loans through the allowance for
loan losses.
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:
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(Dollars in thousands)
Financial assets:
Cash and cash equivalents
Investment securities
Loans
Financial liabilities:
Deposits
Short-term borrowings
Long-term borrowings
2013
2012
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
53,820 $
680,526
1,180,857
53,820
677,398
1,165,560
$
62,542 $
709,085
973,907
62,542
710,934
897,132
$ 1,580,758 $ 1,587,448
113,590
128,205
113,590
121,826
$ 1,492,303 $ 1,503,098
47,769
141,691
47,769
128,823
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 short-term 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).
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.
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Note 3. Investment Securities
Available-for-sale
The following table summarizes Peoples’ available-for-sale investment securities:
(Dollars in thousands)
December 31, 2013
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, 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
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
$
$
$
20 $
308
50,509
527,283
33,256
8,508
1,242
621,126 $
26 $
486
42,458
511,305
62,129
10,966
1,214
628,584 $
— $
11
1,480
5,334
274
—
3,421
10,520 $
— $
30
3,292
12,558
2,330
73
2,977
21,260 $
— $
—
(1,027)
(22,520)
(1,226)
(679)
(86)
(25,538) $
— $
—
(82)
(9,767)
(43)
(682)
(85)
(10,659) $
20
319
50,962
510,097
32,304
7,829
4,577
606,108
26
516
45,668
514,096
64,416
10,357
4,106
639,185
Peoples’ investment in equity securities was comprised entirely of common stocks issued by various unrelated bank
holding companies at both December 31, 2013 and December 31, 2012. At December 31, 2013, 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
2013
2012
2011
$
$
3,358 $
2,869
489 $
4,306 $
758
3,548 $
1,110
637
473
The cost of investment securities sold, and any resulting gain or loss, were based on the specific identification method
and recognized as of the trade date.
79
Table of Contents
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, 2013
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
15,848
—
—
659
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Bank-issued trust preferred
securities
Equity securities
Total
December 31, 2012
Obligations of:
310,315
16,709
19,560
2,013
—
$ 347,736 $
779
90
—
18,237
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
135,250
2,326
7,681
2,376
—
$ 149,865 $
43
18
—
2,469
— $
— $
—
22
75
4
1
—
102
—
6,180
57,440
7,205
4,803
97
$ 75,725 $
— $
— $
—
—
—
—
368
5,811
447
589
86
7,301
—
—
—
—
8
28
2
2
—
40
89,958
7,441
—
5,434
91
$ 95,483 $
—
664
85
8,190
—
—
—
—
82
— $
— $
—
22,028
1,027
367,755
22,520
26,765
1,226
6,816
97
$ 423,461 $
679
86
25,538
— $
— $
—
4,558
225,208
9,767
7,681
7,810
91
$ 245,348 $
43
682
85
10,659
—
10
20
2
4
2
38
—
—
20
—
5
1
26
Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair
value on a quarterly basis. At December 31, 2013, 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, 2013 and December 31, 2012, were attributable to changes in market interest rates and spreads since the
securities were purchased.
At December 31, 2013, approximately 96% of the mortgage-backed securities that had been at an unrealized loss
position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 4%, or five
positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to
2004. Three of the five positions had a fair value less than 90% of their book value, with an aggregate book and fair value of
$1.8 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, the four bank-issued trust preferred securities that had been in an unrealized loss position for twelve
months or more at December 31, 2013 were primarily attributable to the floating nature of those investments, the current
interest rate environment and spreads within that sector.
80
Table of Contents
The table below presents the amortized cost, fair value and weighted-average yield of available-for-sale securities by
contractual maturity at December 31, 2013. 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
— $
—
353
46
—
—
20
308
2,900
7,586
5,265
—
$
— $
—
18,935
38,079
23,149
—
— $
—
28,321
481,572
4,842
8,508
399
$ 16,079
$ 80,163
$ 523,243
— $
—
359
46
—
—
20
319
3,081
7,710
5,540
—
$
— $
—
19,365
36,895
21,952
—
— $
—
28,157
465,446
4,812
7,829
20
308
50,509
527,283
33,256
8,508
1,242
$ 621,126
20
319
50,962
510,097
32,304
7,829
4,577
$ 606,108
Total available-for-sale securities
$
Total average yield
405
3.56%
$ 16,670
$ 78,212
$ 506,244
4.33%
2.86%
2.76%
2.83%
Held-to-Maturity
The following table summarizes Peoples’ held-to-maturity investment securities:
(Dollars in thousands)
December 31, 2013
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
December 31, 2012
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
$
$
$
3,850 $
37,536
7,836
49,222 $
91 $
35
2
128 $
(12) $
(3,041)
(203)
(3,256) $
3,929
34,530
7,635
46,094
3,860 $
33,494
7,921
45,275 $
390 $
1,107
393
1,890 $
— $
(41)
—
(41) $
4,250
34,560
8,314
47,124
There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for the years
ended December 31, 2013, 2012 and 2011.
81
Table of Contents
The following table presents a summary of held-to-maturity investment securities that had an unrealized loss:
Less than 12 Months
Unrealized
Loss
No. of
Securities
Fair
Value
(Dollars in thousands)
December 31, 2013
Obligations of:
12 Months or More
Unrealized
Loss
No. of
Securities
Fair
Value
Total
Fair
Value
Unrealized
Loss
States and political subdivisions $
321 $
12
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
December 31, 2012
Obligations of:
31,341
2,908
6,547
203
$ 38,209 $
3,123
States and political subdivisions $
— $
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
2,398
—
$
2,398 $
—
41
—
41
1
7
1
9
$
— $
1,181
—
$
1,181 $
— $
— $
2
—
—
—
2
$
— $
—
133
—
133
—
—
—
—
— $
321 $
12
1
—
32,522
3,041
6,547
203
1
$ 39,390 $
3,256
— $
— $
—
—
2,398
—
— $
2,398 $
—
41
—
41
The table below presents the amortized cost, fair value and weighted-average yield of held-to-maturity securities by
contractual maturity at December 31, 2013. 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
$
$
$
$
— $
—
—
— $
— $
—
—
— $
—%
— $
—
—
— $
— $
—
—
— $
—%
334
527
—
861
$
3,516
37,009
7,836
$ 48,361
$
3,850
37,536
7,836
$ 49,222
322
501
—
823
2.60%
$
3,607
34,029
7,635
$ 45,271
$
3,929
34,530
7,635
$ 46,094
2.80%
2.80%
Pledged Securities
Peoples had pledged available-for-sale investment securities with a carrying value of $303.8 million and $260.9 million
at December 31, 2013 and December 31, 2012, 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 $21.4 million and $45.3 million at December 31, 2013 and December 31, 2012,
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 $16.2 million and $50.4
million at December 31, 2013 and December 31, 2012, respectively, and held-to-maturity securities with a carrying value of
$25.9 million at December 31, 2013 to secure additional borrowing capacity at the FHLB and the FRB.
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Table of Contents
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, northeastern 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
$
2013
2012
47,539 $
450,170
497,709
232,754
268,617
60,076
135,018
2,060
1,196,234 $
34,265
378,073
412,338
180,131
233,841
51,053
101,246
6,563
985,172
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, commonly referred to as "purchase credit impaired" loans. During 2013, Peoples determined that some loans which
had originally been classified as purchased credit impaired did not have evidence of deterioration of credit quality on acquisition.
As a result, the carrying amounts of loans considered purchased credit impaired have decreased and amounts reported in the
following table are reflective of this change. 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
2013
2012
963 $
78
1,236
—
2,277 $
1,875 $
39
—
1,524
8
1,571
1,095
$
$
$
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 $259.1 million and $202.0 million at
December 31, 2013 and December 31, 2012, respectively. Peoples also had pledged commercial loans to secure borrowings with
the FRB. The outstanding balances of these loans totaled $113.0 million and $123.8 million at December 31, 2013 and
December 31, 2012, 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, 2013, 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:
(Dollars in thousands)
Balance, December 31, 2012
New loans and disbursements
Repayments
Balance, December 31, 2013
$
$
7,011
11,433
(7,085)
11,359
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Table of Contents
Nonaccrual and Past Due Loans
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)
2013
2012
2013
2012
Commercial real estate, construction
$
96 $
— $
— $
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total
3,717
3,813
708
3,215
87
9,831
9,831
627
3,136
24
58
7,881 $
20
13,638
$
$
—
—
—
37
873
—
910 $
—
—
—
181
—
1,050
4
1,235
The following table presents the aging of the recorded investment in past due loans and leases:
(Dollars in thousands)
December 31, 2013
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, 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
Loans Past Due
30 - 59 days 60 - 89 days
90 + Days
Total
Current
Loans
Total
Loans
$
$
$
$
1,340 $
432
1,772
171
5,445
254
976
47
8,665 $
— $
11,382
11,382
3,841
4,640
390
926
55
21,234 $
— $
679
679
90
1,509
65
165
—
2,508 $
77 $
705
782
116
1,049
65
127
—
2,139 $
— $
1,249
1,249
127
1,452
929
58
—
3,815 $
—
5,144
5,144
294
2,019
1,074
10
—
8,541 $
1,340
2,360
3,700
388
8,406
1,248
1,199
47
14,988
77
17,231
17,308
4,251
7,708
1,529
1,063
55
31,914
$
46,199 $
447,810
494,009
232,366
260,211
58,828
133,819
2,013
47,539
450,170
497,709
232,754
268,617
60,076
135,018
2,060
$ 1,181,246 $ 1,196,234
34,188 $
360,842
395,030
175,880
226,133
49,524
100,183
6,508
953,258 $
34,265
378,073
412,338
180,131
233,841
51,053
101,246
6,563
985,172
$
During 2013, Peoples identified certain home equity lines of credit that had matured and were not sent notices that the
principal was due. The majority of the borrowers continued to make required payments past maturity and had not defaulted.
These loans should have been reported as past due since the principal was contractually due during a previous period. The total
balance of these loans was $0.8 million at December 31, 2013, $1.2 million and $0.8 million at December 31, 2012 and 2011,
respectively. Peoples has mailed letters to these customers, informing of the amount of principal due. Peoples has adjusted prior
period amounts reported to appropriately reflect the payment status of these loans, and expects the impact of these loans on past
due balances to decrease significantly during the first quarter of 2014.
84
Table of Contents
Credit Quality Indicators
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.
“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 by 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”.
85
Table of Contents
The following table summarizes the risk category of Peoples' loan portfolio based upon the most recent analysis performed:
(Dollars in thousands)
December 31, 2013
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, 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
Pass Rated
Watch
Substandard
Doubtful
(Grades 1 - 4)
(Grade 5)
(Grade 6)
(Grade 7)
Not
Rated
Total
Loans
$
$
$
$
43,407 $
423,313
466,720
212,193
26,822
844
50
—
706,629 $
29,738 $
328,435
358,173
150,180
22,392
1,051
66
—
531,862 $
148 $
13,433
13,581
6,013
2,787
—
5
—
22,386 $
— $
18,940
18,940
21,566
1,768
—
—
—
42,274 $
68 $
12,921
12,989
14,006
8,094
1,014
24
—
36,127 $
1,095 $
29,573
30,668
7,054
7,597
1,094
47
—
46,460 $
— $
—
—
542
4
—
—
—
546 $
— $
—
—
—
10
—
—
—
10 $
3,916 $
503
4,419
—
230,910
58,218
134,939
2,060
430,546 $
3,432 $
1,125
4,557
1,331
202,074
48,908
101,133
6,563
364,566 $
47,539
450,170
497,709
232,754
268,617
60,076
135,018
2,060
1,196,234
34,265
378,073
412,338
180,131
233,841
51,053
101,246
6,563
985,172
Impaired Loans
The following tables summarize loans classified as impaired:
(Dollars in thousands)
December 31, 2013
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, 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
$
$
Unpaid
Principal
Balance
Recorded Investment
Without
Allowance Allowance
With
Total
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
— $
4,970
4,970 $
617
3,498
347
182
9,614 $
— $
19,023
19,023 $
696
3,943
349
114
24,125 $
— $
1,150
1,150 $
575
—
—
—
1,725 $
— $
2,785
2,785 $
182
418
—
—
3,385 $
— $
1,729
1,729 $
5
3,280
347
182
5,543 $
— $
7,053
7,053 $
437
3,063
349
114
11,016 $
— $
2,879
2,879 $
580
3,280
347
182
7,268 $
— $
9,838
9,838 $
619
3,481
349
114
14,401 $
— $
83
83 $
575
—
—
—
658 $
— $
1,262
1,262 $
36
123
—
—
1,421 $
— $
4,586
4,586 $
278
2,800
327
127
8,118 $
— $
11,048
11,048 $
518
2,014
140
49
13,769 $
—
6
6
1
86
12
15
120
—
—
—
—
149
17
14
180
At December 31, 2013, Peoples' impaired loans shown in the table above included loans that were classified as troubled debt
restructurings.
86
Table of Contents
The following table summarizes the loans that were modified as a TDR during the years ended December 31, 2013 and 2012.
Recorded Investment (1)
Recorded Investment (1)
Number
of
Contracts
Pre-
Modification
Post-
Modification
At
December 31,
2013
Number
of
Contracts
Pre-
Modification
Post-
Modification
At
December 31,
2012
Commercial real
estate, other
Commercial and
industrial
Residential real
estate
Home equity lines
of credit
Consumer
2 $
1 $
486 $
486 $
5 $
5 $
461
5
4 $
1,765 $
1,765 $
1,734
— $
— $
— $
—
23 $
1,216 $
1,219 $
1,020
66 $
2,550 $
2,550 $
2,550
5 $
37 $
89 $
279 $
89 $
279 $
88
142
24 $
37 $
349 $
115 $
349 $
115 $
349
115
(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, 2013 and 2012:
Number
of
Contracts
2013
Recorded
Investment
(1)
Impact on the
Allowance for
Loan Losses
Number
of
Contracts
Recorded
Investment
(1)
Impact on the
Allowance for
Loan Losses
2012
Residential real estate
2 $
63 $
—
1 $
26 $
Home equity lines of credit
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.
—
26 $
—
1 $
6
69 $
1
3 $
—
—
—
—
—
Peoples had no additional commitments to lend additional funds to the related debtors whose terms have been modified in a
TDR.
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Table of Contents
Allowance for Loan Losses
Changes in the allowance for loan losses in the periods ended December 31, were as follows:
(Dollars in thousands)
Balance, January 1, 2013
Charge-offs
Recoveries
Net recoveries (charge-offs)
(Recovery of) provision for loan losses
Balance, December 31, 2013
Period-end amount allocated to:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
Ending balance
Balance, January 1, 2012
Charge-offs
Recoveries
Net (charge-offs) recoveries
(Recovery of) provision for loan losses
Balance, December 31, 2012
Period-end amount allocated to:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
Ending balance
Commercial
Real Estate
Commercial
and
Industrial
Residential
Real Estate
Home
Equity
Lines of
Credit Consumer
Deposit
Account
Overdrafts
Total
$
14,215 $
1,733 $
801 $
479 $
438 $
145 $ 17,811
(1,053)
5,839
4,786
(5,786)
13,215 $
(44)
40
(4)
445
(621)
(162)
(1,084)
(527)
(3,491)
536
(85)
165
26
(136)
—
552
(532)
410
162
(365)
7,155
3,664
356
(4,410)
2,174 $
881 $
343 $
316 $
136 $ 17,065
83 $
575 $
— $
— $
— $
— $
658
13,132
13,215 $
1,599
2,174 $
881
343
881 $
343 $
316
316 $
136
16,407
136 $ 17,065
18,947 $
2,434 $
1,119 $
541 $
449 $
227 $ 23,717
(5,146)
4,399
(747)
(3,985)
(34)
358
324
(1,025)
(1,091)
773
(318)
—
(94)
32
(62)
—
(572)
561
(11)
—
(574)
(7,511)
198
6,321
(376)
(1,190)
294
(4,716)
14,215 $
1,733 $
801 $
479 $
438 $
145 $ 17,811
1,262 $
36 $
123 $
— $
— $
— $ 1,421
12,953
14,215 $
1,697
1,733 $
678
479
801 $
479 $
438
438 $
145
16,390
145 $ 17,811
$
$
$
$
$
$
$
During 2013, Peoples extended the historical loss period from two years to three years for its quantitative calculation of the
allowance for loan losses. As discussed in Note 1, the historical loss period may be updated based on actual charge-offs
experienced, and management believes this change more appropriately reflects inherent losses in the portfolio, considering both
the economic decline and progress of the recovery, and associated losses and recoveries in the loan portfolio. Peoples also uses
qualitative factors in its determination of the allowance for loan losses, which were appropriately adjusted based on internal and
external factors, and the impact of these changes on the allowance for loan losses was immaterial.
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Table of Contents
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
2013
2012
$
6,802
$
38,281
20,350
65,433
(35,624)
29,809
$
$
7,039
34,943
18,789
60,771
(33,758)
27,013
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 $2.6 million, $2.2 million and $2.0
million, in 2013, 2012 and 2011, 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 $950,000, $887,000, $921,000 in 2013, 2012 and 2011, respectively.
Peoples Insurance leases certain properties from certain of its directors. Payments related to these leases totaled
$151,000, $146,000 and $141,000 in 2013, 2012 and 2011, 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, 2013:
(Dollars in thousands)
Payments
$
2014
2015
2016
2017
2018
Thereafter
Total future operating lease payments
$
753
549
481
233
156
18
2,190
Note 6. Bank Owned Life Insurance
In May 2013, Peoples initiated a partial surrender of its bank owned life insurance ("BOLI") contracts, resulting in the
receipt of $5.2 million in cash and a reduction of the BOLI asset. In July 2013, Peoples requested the full surrender of BOLI
contracts reported at $42.8 million, with a cost basis of $36.5 million at June 30, 2013. Peoples received $36.2 million in
July 2013 in partial satisfaction of the surrender request, and recorded the remainder as a receivable with the expectation of
receiving it within six months of the surrender notification. The remaining cash surrender value of $6.6 million was recorded
as a receivable at December 31, 2013, of which $3.1 million was received January 23, 2014 with the remaining expected to
be paid out by the end of first quarter of 2014 in accordance with the terms of the BOLI policies.
As a result of this transaction, Peoples recorded an additional $2.2 million in income tax expense in the third quarter of
2013.
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Table of Contents
Note 7. 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
2013
2012
$
$
64,881 $
5,639
70,520 $
62,520
2,361
64,881
Peoples performed the required goodwill impairment tests and concluded there was no impairment in the recorded value
of goodwill as of December 31, 2013, based upon the estimated fair value of the single reporting unit.
Other intangible assets
Other intangible assets were comprised of the following at December 31:
(Dollars in thousands)
Core Deposit
Customer
Relationships
Total
2013
Gross intangibles
Acquired intangibles
Accumulated amortization
Total acquired intangibles
Servicing rights
Total other intangibles
2012
Gross intangibles
Acquired intangibles
Accumulated amortization
Total acquired intangibles
Servicing rights
Total other intangibles
$
$
$
$
7,195
$
6,189
$
1,565
(6,815)
1,945
8,192
661
(8,232)
621
$
$
$
2,458
(5,804)
2,843
6,182
1,008
(6,240)
950
$
$
$
$
$
13,384
4,023
(12,619)
4,788
2,295
7,083
14,374
1,669
(14,472)
1,571
2,073
3,644
The following table details estimated aggregate future amortization expense of core deposit and customer relationship
intangible assets at December 31, 2013:
(Dollars in thousands)
2014
2015
2016
2017
2018
Thereafter
Total
$
$
Core
Deposits
Customer
Relationships
$
512
434
357
279
200
542
495
446
391
332
163
1,945
$
637
2,843
$
Total
$
1,054
929
803
670
532
800
4,788
For further information regarding Peoples' acquisitions, please refer to Note 18.
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Table of Contents
The following is an analysis of activity of servicing rights for the years ended December 31:
(Dollars in thousands)
Balance, beginning of year
Amortization
Servicing rights originated
Servicing rights acquired
Balance, end of year
2013
2012
2011
$
$
2,073
(652)
675
199
2,295
$
$
1,544
(616)
1,145
—
2,073
$
$
1,353
(397)
588
—
1,544
No valuation allowances were required at December 31, 2013, 2012 and 2011 for Peoples’ servicing rights since the fair
value equaled or exceeded the book value.
Note 8. 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
2013
2012
$
175,830 $
184,558
187,396
363,226
134,618
275,801
132,379
215,802
207,755
392,313
124,787
288,404
130,630
183,499
Total retail interest-bearing deposits
1,121,826
1,119,633
Brokered certificates of deposits
Total interest-bearing deposits
Non-interest-bearing deposits
Total deposit balances
49,041
55,599
1,170,867
1,175,232
409,891
317,071
$ 1,580,758 $ 1,492,303
The contractual maturities of certificates of deposits for each of the next five years and thereafter are as follows:
(Dollars in thousands)
2014
Retail
Brokered
Total
$
190,451 $
12,226 $
202,677
2015
2016
2017
2018
74,322
56,127
20,701
21,425
5,882
18,109
—
—
80,204
74,236
20,701
21,425
Thereafter
Total maturities $
200
363,226 $
12,824
49,041 $
13,024
412,267
Deposits from related parties approximated $5.9 million and $6.9 million at December 31, 2013 and 2012, respectively.
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Table of Contents
Note 9. Short-Term Borrowings
Peoples utilizes various short-term borrowings as sources of funds, which are summarized as follows:
(Dollars in thousands)
2013
Ending balance
Average balance
Highest month-end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
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
Retail
Repurchase
Agreements
FHLB
Advances
Other
Short-Term
Borrowings
$
$
$
$
$
$
42,590
37,077
46,850
58
0.16%
0.16%
32,769
37,386
44,905
57
0.15%
0.15%
43,143
41,542
49,162
98
$
$
$
71,000
44,127
92,500
55
0.14%
0.12%
15,000
13,240
39,900
17
0.15%
0.12%
8,500
5,525
21,900
5
—
90
—
1
—%
0.74%
—
15
—
—
—%
0.74%
—
47
—
—
0.16%
0.24%
0.14%
0.08%
—%
0.74%
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 10, 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
matured on December 17, 2013. The loan was renewed for an additional one year term 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 covenants as detailed in Note 10 for the term loan. At December 31, 2013, this revolving
credit loan had no outstanding principal balance.
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Table of Contents
Note 10. Long-Term Borrowings
Long-term borrowings consisted of the following at December 31:
2013
2012
(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
19,147
40,000
50,000
12,679
121,826
$
$
Weighted-
Average
Rate
Weighted-
Average
Rate
Balance
3.80 % $
3.63 %
3.32 %
23,919
40,000
50,000
3.58 %
3.53% $
14,904
128,823
3.80 %
3.63 %
3.32 %
3.60 %
3.54%
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 Loan 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, 2013, 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.
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
collateral requirements. These advances require monthly interest payments, with no repayment of principal until the earlier
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Table of Contents
of either an option exercise by the FHLB or the stated maturity. The amortizing, fixed rate FHLB advances have a 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, 2013, the aggregate minimum annual retirements of long-term borrowings in future periods were as
follows:
(Dollars in thousands)
Balance
Weighted-
Average Rate
2014
2015
2016
2017
2018
Thereafter
Total long-term borrowings
$
$
6,498
6,250
6,046
5,880
81,482
15,670
121,826
3.73 %
3.74 %
3.75 %
3.76 %
3.49 %
3.34 %
3.53%
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Table of Contents
Note 11. Stockholders’ Equity
The following table details the activity in shares of Peoples’ preferred, common and treasury stock during the years
ended December 31:
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
Changes related to stock-based compensation awards:
Release of restricted common shares
Changes related to deferred compensation plan:
Purchase of treasury stock
Reissuance of treasury stock
Preferred
Stock
39,000
Common
Stock
11,070,022
Treasury
Stock
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
18,849
— 11,155,648
3,918
(8,897)
(6,726)
607,688
31,246
6,862
Common shares issued under dividend reinvestment plan
Common shares issued under Board of Directors'
compensation plan
Shares at December 31, 2013
19,682
— 11,206,576
3,652
(9,147)
(8,261)
600,794
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.
Peoples repurchased the Warrant for a purchase price of $1.2 million in 2012.
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Table of Contents
Accumulated Other Comprehensive (Loss) Income
The following details the change in the components of Peoples’ accumulated other comprehensive (loss) income for the
years ended December 31:
(Dollars in thousands)
Balance, December 31, 2010
Current period change, net of tax
Balance, December 31, 2011
Current period change, net of tax
Balance, December 31, 2012
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax
Realized loss due to settlement and curtailment, net of tax
Current period change, net of tax
Balance, December 31, 2013
Note 12. Employee Benefit Plans
Unrealized
(Loss) Gain on
Securities
Unrecognized
Net Pension and
Postretirement
Costs
Accumulated
Other
Comprehensive
(Loss) Income
$
$
$
$
(2,038) $
9,477
7,439 $
(547)
6,892 $
(318)
—
(16,335)
(9,761) $
(2,415) $
(3,612)
(6,027) $
(211)
(6,238) $
—
175
2,580
(3,483) $
(4,453)
5,865
1,412
(758)
654
(318)
175
(13,755)
(13,244)
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. Effective July
1, 2013, a participant in the pension plan who is employed by Peoples may elect to receive or to commence receiving such
person's retirement benefits as of the later of such person's normal retirement date or the first day of the month first following
the date such person makes an election to receive his or her retirement benefits.
Peoples also provides post-retirement health and life insurance benefits to 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.
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Table of Contents
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, 2013, and a statement of the funded status as of December 31, 2013 and 2012:
Accumulated benefit obligation at December 31
$ 14,723
$ 17,306
(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
Change in plan assets:
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefit payments
Settlements
Fair value of plan assets at December 31
Funded status at December 31
Amounts recognized in Consolidated Balance Sheets:
Prepaid benefit costs
Accrued benefit liability
Net amount recognized
Pension Benefits
Postretirement
Benefits
2013
2012
2013
2012
$ 17,306
$ 16,505
$
244
$
543
—
(2,333)
(154)
(639)
$ 14,723
599
—
1,863
(169)
(1,492)
$ 17,306
$ 10,019
$ 10,409
2,061
—
1,271
—
—
—
(154)
(169)
(639)
(1,492)
$ 10,019
$ 11,287
$ (3,436) $ (7,287)
— $
— $
$
$ (3,436) $ (7,287)
$ (3,436) $ (7,287)
5
40
(85)
(61)
—
143
$
— $
— $
—
21
40
(61)
—
— $
(143) $
— $
(143) $
(143) $
$
$
$
$
$
$
$
224
10
54
42
(86)
—
244
—
—
—
32
54
(86)
—
—
(244)
—
(244)
(244)
2
15
17
Amounts recognized in Accumulated Other Comprehensive Income
(Loss):
Unrecognized prior service cost
Unrecognized net loss
Total
Weighted-average assumptions at year-end:
Discount rate
$
$
— $
— $
3,533
3,533
$
6,260
6,260
$
(2) $
(65)
(67) $
4.30%
3.30%
4.30%
3.30%
The estimated costs relating to Peoples’ pension benefits that will be amortized from accumulated other comprehensive
income (loss) into net periodic cost over the next fiscal year are $131,000 of net loss.
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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
Weighted-average assumptions:
Discount rate
Expected return on plan assets
Rate of compensation increase
Pension Benefits
2012
2013
$ — $ — $
543
(659)
—
189
—
270
343
$
$
599
(756)
—
162
—
835
840
$
2011
2013
2012
Postretirement Benefits
2011
— $ — $ — $ —
12
724
(1,033)
—
—
—
(9)
75
—
—
—
815
3
581
5
—
—
(7)
—
—
(2) $
10
—
—
(2)
—
—
8
$
$
3.75%
7.50%
n/a
4.00%
7.50%
n/a
5.40% 3.30%
n/a
8.00%
n/a
n/a
4.00%
n/a
n/a
5.70%
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 2013, 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
immediately prior to the settlement. In general, both the projected benefit obligation and fair value of plan assets are required
to be remeasured in order to determine the settlement gain or loss.
In the third quarter of 2013, the total lump-sum distributions made to participants, when added to the lump-sum
distributions made through the first six months of 2013, caused the total settlements through nine months of 2013 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, 2013 as part of the calculation of the settlement loss recognized.
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.
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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, 2013
Equity securities:
Mutual funds - equity
Debt securities:
Mortgage-backed securities
Municipal obligations
Corporate bonds
Mutual funds - taxable income
Total fair value of pension assets
December 31, 2012
Equity securities:
Mutual funds - equity
Debt securities:
Mortgage-backed 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
8,863
$
8,863
$
97
649
357
—
—
357
901
10,867
$
901
10,121
$
7,545
$
7,545
$
157
932
363
599
9,596
$
—
—
363
599
8,507
$
—
97
649
—
—
746
—
157
932
—
—
1,089
Pension plan assets also included cash and cash equivalents of $400,000 and accrued income of $20,000 at December 31,
2013. Cash and cash equivalents were $401,000 and accrued income was $22,000 at December 31, 2012. 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 2013 or 2012.
Cash Flows
Peoples has not determined if any contributions will be made to its pension plan in 2014; 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
2014
2015
2016
2017
2018
2019 to 2023
Total
$
$
$
3,280
1,149
1,158
874
925
4,120
11,506
$
21
22
22
22
12
50
149
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'
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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 $924,000, $758,000
and $763,000 in 2013, 2012 and 2011, 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
$ 10,179
35.0 % $ 10,469
35.0 % $
5,890
34.3 %
2013
2012
2011
Differences in rate resulting from:
Tax-exempt interest income
Investments in tax credit funds
Bank owned life insurance
Other, net
Total income tax expense
(645)
(314)
2,183
(2.2)%
(1.1)%
7.5 %
107
$ 11,510
0.4 %
39.6 % $
(565)
(387)
(14)
22
9,525
(1.9)%
(1.3)%
(0.1)%
0.1 %
31.8 % $
(574)
(497)
(44)
(179)
4,596
(3.4)%
(2.9)%
(0.3)%
(0.9)%
26.8 %
Peoples' reported income tax expense consisted of the following for the years ended December 31:
(Dollars in thousands)
Current income tax
Deferred income tax
Total income tax expense
2013
2012
2011
$
$
6,883
4,627
11,510
$
$
5,004
4,521
9,525
$
$
4,134
462
4,596
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
Available-for-sale securities
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
2013
2012
$
$
$
$
8,014
—
5,257
3,536
2,108
769
19,684
6,442
—
1,968
1,769
691
10,870
8,814
$
$
$
$
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
The tax credit carryforward at December 31, 2012 was fully utilized in 2013. No valuation allowance for deferred tax
assets was required at December 31, 2013, as it is more likely than not that all of the deferred tax assets will be realized in
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future periods. The related federal income tax expense on securities transactions approximated $171,000 in 2013, $1,241,000
in 2012 and $166,000 in 2011.
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 year ended
December 31, 2012. 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)
2013
2012
2011
Distributed earnings allocated to common shareholders
Undistributed earnings allocated to common shareholders
Net earnings allocated to common shareholders
$
$
5,749 $
4,770 $
11,685
15,494
3,167
8,019
17,434 $
20,264 $
11,186
Weighted-average common shares outstanding
10,581,222
10,527,885
10,482,318
Effect of potentially dilutive common shares
98,195
401
—
Total weighted-average diluted common shares outstanding 10,679,417
10,528,286
10,482,318
Earnings per common share:
Basic
Diluted
$
$
1.65 $
1.63 $
1.92 $
1.92 $
1.07
1.07
Anti-dilutive common shares excluded from calculation:
Stock options and SARs
91,902
144,535
210,370
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.
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.
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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
2013
2012
49,533 $
30,203
137,661
217,397
43,818
11,839
113,868
169,525
33,998 $
35,373
$
$
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 $14.7 million and fair value of $0.7 million at December 31, 2013,
and a notional value of $11.2 million and fair value of $1.4 million at December 31, 2012. These interest rate swaps did not
have a 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 FRB, based on the amount of deposit liabilities. Average required reserve balances were approximately
$11.2 million and $5.8 million in 2013 and 2012, respectively.
Limits on Dividends
The primary source of funds for the dividends paid by Peoples is dividends received from Peoples Bank. The payment
of dividends by Peoples Bank is subject to various banking regulations. The most restrictive provision requires regulatory
approval if dividends declared in any calendar year exceed the total net profits of that year plus the retained net profits of the
preceding two years. At December 31, 2013, Peoples Bank had approximately $5.9 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, 2013.
As of December 31, 2013, 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.
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Peoples and Peoples Bank's actual capital amounts and ratios as of December 31 are also presented in the following
table:
December 31, 2013
Ratio
Amount
December 31, 2012
Ratio
Amount
13.8% $
8.0%
10.0%
12.4% $
4.0%
6.0%
176,224
91,355
114,194
160,604
45,678
68,516
8.5% $
4.0%
5.0%
160,604
72,775
90,969
$ 1,141,938
14.1% $
8.0%
10.0%
12.9% $
4.0%
6.0%
189,601
91,044
113,805
175,331
45,522
68,283
8.8% $
4.0%
5.0%
175,331
72,384
90,480
$ 1,138,054
15.4%
8.0%
10.0%
14.1%
4.0%
6.0%
8.8%
4.0%
5.0%
16.7%
8.0%
10.0%
15.4%
4.0%
6.0%
9.7%
4.0%
5.0%
(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
$
$
184,457
107,105
133,881
166,217
53,552
80,329
$
166,217
78,080
97,600
$ 1,338,811
188,814
106,961
133,701
$
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
(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
$
$
172,097
77,830
97,288
$ 1,337,008
172,097
53,480
80,220
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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. The total number of common shares
available under the 2006 Equity Plan is 1,081,260. The maximum number of shares that can be issued for incentive stock
options is 800,000 shares. Prior to 2007, Peoples granted nonqualified and incentive stock options to employees and
nonqualified stock options to non-employee directors under the 2006 Equity Plan and predecessor plans. Since February
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. The following summarizes the changes to Peoples' stock options for the year ended December 31, 2013:
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
101,594
44,500
57,094
57,094
$
$
$
26.09
23.69
27.96
27.96
1.4 years
1.4 years
$
$
—
—
The following table summarizes Peoples’ stock options outstanding at December 31, 2013:
Common
Shares Subject
to Options
Outstanding
Options Outstanding & Exercisable
Weighted-
Average
Remaining
Contractual
Life
0.6 years $
1.0 year
1.8 years
1.7 years
1.4 years $
Weighted-
Average
Exercise Price
25.41
27.08
28.25
29.17
27.96
2,792
20,334
17,632
16,336
57,094
Range of Exercise Prices
$25.94
to
$23.59
$27.74
to
$26.01
$28.26
to
$28.25
$28.57
$30.00
to
Total
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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, 2013:
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
22,849
1,557
21,292
21,292
$
$
$
25.97
25.99
25.96
25.96
3.7 years
3.7 years
$
$
—
—
The following table summarizes Peoples’ SARs outstanding at December 31, 2013:
Number of Common
Shares Subject to
SARs Outstanding &
Exercisable
Weighted-
Average Remaining
Contractual
Life
2,000
10,582
8,710
21,292
3.6 years
4.1 years
3.1 years
3.7 years
Exercise
Price
$23.26
$23.77
$29.25
Total
Restricted Shares
Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-
employee directors. In general, the restrictions on common shares awarded to non-employee directors expire after six
months, while the restrictions on common shares awarded to employees expire after periods ranging from one to three years.
In the first quarter of 2013, Peoples granted restricted common shares to non-employee directors with a six months time-
based vesting period. Also during the first quarter of 2013, Peoples granted restricted common shares subject to
performance-based vesting to officers and key employees with restrictions that will lapse one to three years after the grant
date provided that in order for the restricted common shares to vest on each of the three foregoing dates, Peoples must have
reported positive net income and maintained a well capitalized status by regulatory standards in the year immediately
preceding the vesting date. In addition, Peoples has granted restricted common shares during 2013 to attract and/or retain
key employees with vesting periods ranging from one to three years.
The following summarizes the changes to Peoples’ restricted common shares for the period ended December 31, 2013:
Time Vesting
Performance Vesting
Outstanding at January 1
Awarded
Released
Forfeited
Outstanding at December 31
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
16.36
21.75
16.62
16.22
17.18
78,731 $
10,500
27,262
1,763
60,206 $
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
16.07
21.82
13.14
19.97
20.98
17,865 $
72,706
3,154
2,163
85,254 $
The total intrinsic value of restricted common shares released was $654,000, $77,000 and $307,000 in 2013, 2012 and
2011, respectively.
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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
2013
2012
2011
$
$
1,362 $
(477)
885 $
942 $
(330)
612 $
310
(109)
201
Restricted common shares were the only stock-based compensation awards granted by Peoples in 2013, 2012 and 2011.
The fair value of restricted stock awards on the grant date is the market price of Peoples' common shares. Total unrecognized
stock-based compensation expense related to unvested awards was $824,000 at December 31, 2013, which will be recognized
over a weighted-average period of 1.5 years. In 2012, the Board of Directors granted 8,490 unrestricted common shares to
certain employees that did not already participate in the 2006 Equity Plan, which resulted in an additional $180,000 of stock-
based compensation expense being recognized.
Note 18. Acquisitions
On January 2, 2013, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired a commercial insurance agency
office and related customer accounts in the Pikeville, Kentucky area for total cash consideration of $1.5 million.
On April 5, 2013, Peoples Insurance acquired an insurance agency office and related customer accounts in the Jackson,
Ohio area for total cash consideration of $0.7 million. A portion of the consideration is contingent upon revenue metrics
being achieved.
On May 15, 2013, Peoples Insurance acquired two insurance agency offices and related customer accounts in the
Jackson, Ohio area for total cash consideration of $1.1 million. A portion of the consideration is contingent upon revenue
metrics being achieved.
On October 11, 2013, Peoples completed its acquisition of Ohio Commerce Bank ("Ohio Commerce") for total cash
consideration of $16.5 million. Ohio Commerce operates one full-service office in Beachwood, Ohio, and has been merged
into Peoples' wholly-owned subsidiary, Peoples Bank. The acquisition is complete and 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 deductible for
income tax purposes. As a result of the Ohio Commerce acquisition, Peoples acquired loans of $96.6 million and deposits of
$110.9 million.
The balances and operations related to these acquisitions are included in Peoples' consolidated financial statements from
the date of the acquisition. These acquisitions, individually and collectively, did not materially impact Peoples' financial
position, results of operations or cash flows for any period presented.
Please refer to Note 7 for details of the changes in goodwill and intangible assets arising from the acquisitions.
On January 21, 2014, Peoples announced that it entered into an Agreement and Plan of Merger dated January 21, 2014
(the "Midwest Agreement") with Midwest Bancshares, Inc. (“Midwest”). The Midwest Agreement calls for Midwest to
merge into Peoples, and for Midwest's wholly-owned subsidiary, First National Bank of Wellston, which operates two full-
service branches in Wellston and Jackson, Ohio, to merge into Peoples' wholly-owned subsidiary, Peoples Bank.
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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, 2013 and 2012, respectively)
Investments in subsidiaries:
Bank
Non-bank
Other assets
Total assets
Liabilities:
Accrued expenses and other liabilities
Long-term borrowings
Total liabilities
Common stockholders' equity
Total stockholders' equity
Total liabilities and stockholders' equity
Condensed Statements of Income
(Dollars in thousands)
Income:
Dividends from subsidiary bank
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,
2013
2012
$
50 $
5,541
828
4,548
205,167
30,527
854
247,515 $
6,815 $
19,147
25,962
221,553
221,553
247,515 $
$
$
$
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
Year Ended December 31,
2013
2012
2011
$
15,000 $
12,750 $
25,500
—
—
132
15,132
—
1,257
3,411
4,668
273
(1,033)
205
12,195
1,948
1,049
2,216
5,213
—
—
175
25,675
2,014
921
1,335
4,270
Income before federal income taxes and equity in (excess dividends from)
undistributed earnings of subsidiaries
Applicable income tax benefit
Equity in (excess dividends from) undistributed earnings of subsidiaries
Net income
10,464
(1,510)
5,600
17,574 $
6,982
(2,127)
11,276
20,385 $
21,405
(1,734)
(10,584)
12,555
$
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Table of Contents
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 investing activities
Financing activities
Proceeds from long-term borrowings
Payments on 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 increase (decrease) 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,
2013
2012
2011
$
17,574 $
20,385 $
12,555
(5,600)
—
—
1,803
13,777
—
—
(619)
(619)
—
(4,800)
—
—
—
(228)
8
(5,419)
79
(10,360)
2,798
2,793
5,591 $
(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
915 $
2,246 $
1,981
$
$
108
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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 (loss) on investment securities
Other income
Intangible asset amortization
Acquisition-related expenses
Other expenses
Income tax expense
Net income
Earnings per common share - Basic
Earnings per common share - Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2013
$
16,066
$
16,111
$
16,509
$
3,091
12,975
(1,065)
(5)
418
9,072
189
65
2,956
13,155
(1,462)
(6)
26
9,216
164
37
2,833
13,676
(919)
(19)
(1)
9,586
180
182
15,931
16,221
16,901
2,318
5,022
0.47
0.47
$
$
$
2,510
4,921
0.46
0.46
$
$
$
4,381
2,517
0.24
0.23
$
$
$
$
$
$
18,385
2,806
15,579
(964)
(125)
46
9,346
274
1,128
16,993
2,301
5,114
0.48
0.47
Weighted-average common shares outstanding - Basic
10,556,261
10,576,643
10,589,126
10,602,266
Weighted-average common shares outstanding - Diluted
10,571,383
10,597,033
10,692,555
10,718,465
(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
Acquisition-related expenses
Other expenses
Income tax expense
Net income
Earnings per common share - Basic
Earnings per common share - Diluted
2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
17,612
$
17,341
$
16,942
$
4,180
13,432
(2,137)
(3,062)
3,163
9,082
107
2
3,729
13,612
(1,120)
(43)
—
8,498
109
231
3,621
13,321
(956)
(161)
112
8,572
134
265
17,575
3,465
14,110
(503)
(1,060)
273
8,819
159
71
14,907
15,346
15,267
16,876
3,079
6,657
0.63
0.63
$
$
$
2,471
5,030
0.47
0.47
$
$
$
2,310
4,824
0.45
0.45
$
$
$
1,665
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
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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 24, 2014 (“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 2013
Annual Meeting of Shareholders held on April 25, 2013.
The information regarding Peoples' executive officers required by Item 401 of SEC Regulation S-K will be included in
the section captioned “EXECUTIVE OFFICERS” of Peoples' Definitive Proxy Statement, which section is incorporated
herein by reference.
The information required by Item 405 of SEC Regulation S-K will be included under the caption “SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” of Peoples' Definitive Proxy Statement, which section is
incorporated herein by reference.
The Board of Directors of Peoples has adopted charters for each of the Audit Committee, the Compensation Committee
and the Governance and Nominating Committee.
In accordance with the requirements of Rule 5610 of the NASDAQ Stock Market 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.
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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 2013”, “GRANTS OF PLAN-BASED AWARDS FOR
2013”, “OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2013”, “OPTION EXERCISES AND STOCK
VESTED FOR 2013”, “PENSION BENEFITS FOR 2013”, “NONQUALIFIED DEFERRED COMPENSATION FOR
2013”, “OTHER POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL”, “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.
Equity Compensation Plan Information
The table below provides information as of December 31, 2013, with respect to compensation plans under which
common shares of Peoples are authorized for issuance to directors, officers or employees in exchange for consideration in the
form of goods or services. These compensation plans include:
the Peoples Bancorp Inc. 1995 Stock Option Plan (the “1995 Plan”);
(i)
(ii) the Peoples Bancorp Inc. 1998 Stock Option Plan (the “1998 Plan”);
(iii) the Peoples Bancorp Inc. 2002 Stock Option Plan (the “2002 Plan”);
(iv) the Peoples Bancorp Inc. Second Amended and Restated 2006 Equity Plan (the “2006 Plan”); and
(v) the Peoples Bancorp Inc. Second Amended and Restated Deferred Compensation Plan for Directors of Peoples
Bancorp Inc. and Subsidiaries (the “Deferred Compensation Plan”).
All of these compensation plans were approved by the shareholders of Peoples.
(a)
Number of
common shares
to be issued
upon exercise
of outstanding
options,
warrants and
rights
(b)
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
(c)
Number of common
shares remaining
available for future
issuance under equity
compensation plans
(excluding common
shares reflected in
column (a))
318,113 (1) $
27.42 (2)
512,476 (3)
—
318,113
$
—
27.42
—
512,476
Plan Category
Equity compensation plans
approved by shareholders
Equity compensation plans not
approved by shareholders
Total
(1) Includes an aggregate of 92,709 common shares issuable upon exercise of options granted under the 1995 Plan, the
1998 Plan and the 2002 Plan and options and stock appreciation rights granted under the 2006 Plan and 157,330
restricted common shares subject to time-based or performance-based vesting restrictions, and 68,074 common
shares allocated to participants' bookkeeping accounts under the Deferred Compensation Plan.
(2) Represents weighted-average exercise price of outstanding options granted under the 1995 Plan, the 1998 Plan and
the 2002 Plan and options and stock appreciation rights granted under the 2006 Plan. The weighted-average
exercise price does not take into account the common shares allocated to participants' time-based or performance-
based restricted stock awards or bookkeeping accounts under the Deferred Compensation Plan.
(3) Includes 512,476 common shares remaining available for future grants under the 2006 Plan at December 31, 2013.
No common shares were available for future grants under the 1995 Plan, the 1998 Plan and the 2002 Plan at
111
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December 31, 2013. No amount is included for potential future allocations to participants' bookkeeping accounts
under the Deferred Compensation Plan since the terms of the Deferred Compensation Plan do not provide for a
specified limit on the number of common shares which may be allocated to participants' bookkeeping accounts.
Additional information regarding Peoples' stock-based compensation plans can be found in Note 17 of the Notes to the
Consolidated Financial Statements.
Since 1991, Peoples has maintained the Deferred Compensation Plan, which provides a non-employee director of
Peoples the ability to defer all or part of the compensation, and related federal income tax, received for services provided as a
director of Peoples or one of its subsidiaries. Since 1998, directors participating in the Deferred Compensation Plan have
been permitted to allocate their deferrals between a cash account and a stock account. The cash account earns interest equal
to Peoples Bank's three-year certificate of deposit interest rate. The stock account receives allocations to a bookkeeping
account of Peoples' common shares on the first business day of each calendar quarter based upon amounts deferred during the
previous calendar quarter and fair market value of Peoples' common shares and is credited with subsequent cash dividends on
the common shares previously allocated to the account (which will be similarly credited to the bookkeeping account as
Peoples' common shares). The only right a participant in the Deferred Compensation Plan for Directors has with respect to
his or her cash account and/or stock account is to receive distributions upon termination of service as a director. Distribution
of the deferred amounts is made in a lump sum or annual installments. The stock account is distributed in common shares of
Peoples or in cash as elected by each participant and the cash account is distributed only in cash.
In addition, Peoples maintains the Peoples Bancorp Inc. Retirement Savings Plan, which is intended to meet the
qualification requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 will be included in the sections captioned “TRANSACTIONS WITH
RELATED PERSONS”, “PROPOSAL NUMBER 1: ELECTION OF DIRECTORS”, “THE BOARD 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.
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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, 2013 and 2012
Consolidated Statements of Income for each of the three years in the period ended December 31, 2013
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31,
2013
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2013
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2013
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
62
63
64
65
66
67
68
69
70
107
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 115. 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 115.
(c) Financial Statement Schedules
None.
113
Table of Contents
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 27, 2014
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
2/27/2014
2/27/2014
2/27/2014
2/27/2014
2/27/2014
2/27/2014
2/27/2014
2/27/2014
2/27/2014
2/27/2014
2/27/2014
2/27/2014
* The above-named directors of the Registrant sign this Annual Report on Form 10-K by Charles 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 27th day of February, 2014.
By:
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
Attorney-in-Fact
114
Table of Contents
EXHIBIT INDEX
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013
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.
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 to
Peoples’ Current Report on Form 8-K dated and
filed on February 2, 2009 (File No. 0-16772)
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")
115
Table of Contents
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
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)*
Incorporated herein by reference to Exhibit 10.1(a)
to Peoples’ 2008 Form 10-K
10.1(a)
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)*
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)
10.1(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*
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
116
Table of Contents
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.*
Filed herewith
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. Second Amended and Restated 2006 Equity
Plan (approved by shareholders on April 25, 2013; sometimes
referred to as "Peoples Bancorp Inc. 2006 Equity Plan")*
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Current Report on Form 8-K dated and
filed on April 26, 2013 (File No. 0-16772)
*Management Compensation Plan or Agreement
117
10.15
10.16
10.17
10.18
10.19
10.20
Table of Contents
Exhibit
Number
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
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)
Form of Peoples Bancorp Inc. 2006 Equity Plan Restricted Stock
Agreement for employees used and to be used to evidence awards of
restricted stock granted to employees of Peoples Bancorp Inc.*
Incorporated herein by reference to Exhibit 10.29
of Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 2006 (File No.
0-16722) (“Peoples’ 2006 Form 10-K”)
Form of Peoples Bancorp Inc. 2006 Equity Plan 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
Peoples Bancorp Inc. Second Amended and Restated 2006 Equity
Plan Time-Based Restricted Stock Award Agreement (for
Executives) to be used for grants on and after June 27, 2013
Incorporated herein by reference to Exhibit 10.2 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2013 (File No.
0-16772) ("Peoples' June 30, 2013 Form 10-Q")
Peoples Bancorp Inc. Second Amended and Restated 2006 Equity
Plan Time-Based Restricted Stock Award Agreement (for Non-
Employee Directors) to be used for grants on and after June 27, 2013
Incorporated herein by reference to Exhibit 10.3 to
Peoples' June 30, 2013 Form 10-Q
Peoples Bancorp Inc. Nonqualified Deferred Compensation Plan
(adopted effective July 25, 2013)
Incorporated herein by reference to Exhibit 10.4 to
Peoples' June 30, 2013 Form 10-Q
Peoples Bancorp Inc. Second Amended and Restated 2006 Equity
Plan Performance-Based Restricted Stock Award Agreement (for
Executives) to be used for grants on and after July 25, 2013
Incorporated herein by reference to Exhibit 10.5 to
Peoples' June 30, 2013 Form 10-Q
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
10.32
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
10.33
10.34
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)
10.35
Change in Control Agreement between Peoples Bancorp Inc. and
Charles W. Sulerzyski (adopted April 4, 2011).*
10.36
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)
*Management Compensation Plan or Agreement
118
Table of Contents
Exhibit
Number
10.37
10.38
10.39
21
23
24
Description
Exhibit Location
Form of Peoples Bancorp Inc. Amended and Restated 2006 Equity
Plan Performance-Based Restricted Stock Agreement for executives
used to evidence awards of performance-based restricted stock
granted to executives of Peoples Bancorp Inc. (from January 1, 2012
to July 24, 2013)*
Form of Peoples Bancorp Inc. Amended and Restated 2006 Equity
Plan Time-Based Restricted Stock Agreement for executives used to
evidence awards of time-based restricted stock granted to executives
of Peoples Bancorp Inc. (from January 1, 2012 to June 26, 2013)*
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 10.41
to Peoples’ 2011 Form 10-K
Incorporated herein by reference to Exhibit 10.43
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, 2013 of Peoples Bancorp Inc. are
the following documents formatted in XBRL (eXtensive Business Reporting Language): (i) Consolidated Balance Sheets at December
31, 2013 and December 31, 2012; (ii) Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011; (iii)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011; (iv) Consolidated
Statements of Stockholders' Equity for the years ended December 31, 2013, 2012 and 2011; (v) Consolidated Statements of Cash Flows
for the years ended December 31, 2013, 2012 and 2011 and (vi) Notes to the Consolidated Financial Statements.
119
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Cleveland
CleCleCleCleCleCle
Cleveland
Beachwood
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Beachwood
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77
New Philadelphia
New Philadelphia
orthington
Worthington
orthington
orthington
orthington
orthington
Worthington
Cambridge
Cambridge
Baltimore
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Zanesville
Zanesville
Byesville
Byesville
Caldwell
Caldwell
Columbus
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70
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71
Chillicothe
Chillicothe
Chillicothe
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33
McConnelsville
McConnelsville
Cincinnati
Cincinnati
Nelsonville
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32
Jackson
Jackson
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Athens
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Vienna
Parkersburg
PP
PP
Parkersburg
50
79
Greenup
Greenup
Summit
Summit
64
Marietta
Marietta
Marietta
Marietta
Marietta
Marietta
Marietta
Marietta
Gallipolis
Gallipolis
Point Pleasant
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Russell
Russell
Russell
Russell
Ashland
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Huntington
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Charleston
Charleston
Pikeville
Pikeville
Pikeville
Pikeville
Map and Locations
Ohio
Athens County
Athens
Nelsonville
The Plains
Cuyahoga County
Beachwood
Fairfield County
Baltimore
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Franklin County
Worthington
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Jackson
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Pikeville
15
Left to right: T. Sauber, T. Abraham, J. Huggins, G. Broughton, S. Rector, C. Baker, C. Sulerzyski, R. Ferguson, D. Mead, B. Jones and T. Wolf
Peoples Bancorp Inc.
and Peoples Bank Directors
TARA M. ABRAHAM
RICHARD FERGUSON
SUSAN D. RECTOR
Chairman and Co-CEO, Accel, Inc.
Chairman, Peoples Bancorp Inc.
Attorney-At-Law, Ice Miller LLP
CARL L. BAKER, JR.
T. PAT SAUBER
President and Chief Executive Officer
JAMES S. HUGGINS
Vice President, T.C.K.S., Inc.
B & N Coal, Inc.
Attorney-At-Law, Theisen Brock, LPA
Owner, Ferguson Consulting, LLC
GEORGE W. BROUGHTON
Owner and President
BRENDA F. JONES, M.D.
Medical Director
Broughton Commercial Properties, LLC
Marietta Ophthalmology Associates, Inc.
GWB Specialty Foods, LLC
GWB Oil & Gas, LLC
CHUCK SULERZYSKI
President and Chief Executive Officer
Peoples Bancorp Inc. and Peoples Bank
THOMAS J. WOLF
DAVID L. MEAD
Owner, McDonald’s Restaurants
Associate Professor, Marietta College
Meet Our Officers and Directors Emeritus
Peoples Bancorp Inc. Officers
CHUCK SULERZYSKI
President and Chief Executive Officer
TIMOTHY H. KIRTLEY
Executive Vice President
Chief Credit Officer
DANIEL K. MCGILL
Executive Vice President
Chief Commercial Banking Officer
CAROL A. SCHNEEBERGER
Executive Vice President
Chief Administrative Officer
EDWARD G. SLOANE
Executive Vice President
Chief Financial Officer and Treasurer
16
RICHARD W. STAFFORD
Executive Vice President
Sales and Marketing
M. RYAN KIRKHAM
Corporate Counsel and
Corporate Secretary
KATHRYN M. BAILEY
Controller
AMY M. AUCH
Assistant Corporate Secretary
CATHY M. LAWRENCE
Assistant Corporate Secretary
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
FRED R. PRICE
ROBERT W. PRICE
PAUL T. THEISEN
JOSEPH H. WESEL
Market Makers
Stockholder Information
Stock Listing
NASDAQ Symbol: PEBO
NASDAQ Global Select Market, CUSIP 709789101
Alternate Newspaper Listings: PEBOOH and PeBcOh
Corporate Offices
Peoples’ Headquarters:
138 Putnam Street, PO Box 738
Marietta, OH 45750-0738
Stock Transfer Agent, Registrar
Shareowner Services
161 N. Concord Exchange
South St. Paul, MN 55075
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
212.412.4000
212.325.2000
Deutsche Bank Securities Inc.
212.250.2500
Merrill Lynch
800.937.0516
Morgan Stanley & Co. Inc.
Sweney Cartwright & Co.
800.223.6559
800.334.7481
17
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
FRED R. PRICE
ROBERT W. PRICE
PAUL T. THEISEN
JOSEPH H. WESEL
Our Promise
We will work side by side to overcome challenges and
seize opportunities. We listen and work with you.
Together we 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 Core Values
Peoples’ Core Values represent how we do business and
our never-ending pursuit of creating value for our clients.
Our strategies to serve clients and enhance shareholder
value often change, but our Core Values remain constant.
Business With Integrity
Continuous Will to Win
Trust Among Clients,
Communities, and Associates
Commitment to Communities
Clients are our Focus
Development of Associate Skills
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800.374.6123
peoplesbancorp.com
Visit your local office
138 Putnam Street | PO Box 738 | Marietta, OH 45750