2015
ANNUAL
REPORT
Building For The Future
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138 Putnam Street | PO Box 738 | Marietta, OH 45750
138 Putnam Street | PO Box 738 | Marietta, OH 45750
138 Putnam Street | PO Box 738 | Marietta, OH 45750
Financial Highlights
Peoples Bancorp Inc. is a diversified financial holding company
headquartered in Marietta, Ohio, with $3.3 billion in total
assets, 82 offices and 81 ATMs in Ohio, West Virginia, and
Kentucky. Over 850 dedicated associates deliver Peoples’
complete line of banking, investment, insurance and trust
solutions through its subsidiaries – Peoples Bank and Peoples
Insurance Agency, LLC. Peoples has been in business since
1902 and has established a heritage of financial stability,
growth and community impact for 113 years.
Peoples’ common shares are traded on the NASDAQ Global
Select Market under the symbol PEBO.
Dollars in Thousands, except Per Share Data
2015
2014
2013
2015
2014
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)
$ 145,053
$ 115,081
10,941
$
11,017
$
$ 109,559
85,009
$
16,684
$
7,842
$
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
$
$
$
$
$
$
0.62
0.61
0.60
22.81
14.68
18.84
$ 3,258,970
$ 868,830
$ 2,072,440
$ 2,535,944
$ 419,789
$ 1,939,406
0.35%
2.69%
3.53%
75.50%
14.55%
8.69%
0.62%
$
$
$
$
$
$
$
$
$
$
92,605
68,265
17,574
6,161
1.65
1.63
0.57
20.89
13.57
22.51
$
$
$
$
$
$
1.36
1.35
0.60
22.92
15.57
25.93
$ 2,567,769
$ 713,659
$ 1,620,898
$ 1,933,074
$ 340,118
$ 1,612,278
$ 2,059,108
$ 680,526
$ 1,196,234
$ 1,580,758
$ 221,553
$ 1,539,555
0.74%
6.16%
3.45%
75.37%
15.48%
9.39%
0.47%
0.91%
7.92%
3.23%
71.90%
13.78%
7.26%
0.39%
32.4%
35.4%
-34.4%
40.5%
-54.4%
-54.8%
0.0%
-0.5%
-5.7%
-27.3%
26.9%
21.7%
27.9%
31.2%
23.4%
20.3%
18.3%
24.5%
-5.1%
27.3%
-17.6%
-17.2%
5.3%
9.7%
14.7%
15.2%
24.7%
4.9%
35.5%
22.3%
53.5%
4.7%
(1) Net interest income and non-interest income (which excludes 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.
Our Promise
We will work side by side to overcome
challenges and seize opportunities.
We listen and work with you. Together
we will build and execute thoughtful
plans and actions, blending our
experience and expertise, to move you
toward your goals. Our core difference is
providing you peace of mind, confidence,
and clarity in your financial life.
Our 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
15
Chuck Sulerzyski,
President and CEO
A Message from the President and CEO
Dear Fellow Shareholders,
2015 was both an exciting and challenging year for Peoples
Bancorp Inc. (Peoples). We reached historic growth milestones
with the acquisition of NB&T Financial Group, Inc. (“NB&T”),
which expanded our footprint and positioned us for future
growth. At the same time, we increased our operational
capabilities and scale to deliver enhanced products and
services with greater efficiency. Our per-share earnings,
however, fell from $1.35 to $0.61 largely driven by a $13.1
million dollar charge off, and $11.3 million of one-time
acquisition expenses related to the NB&T transaction. This
letter discusses the impact of recent acquisitions, addresses
our asset quality metrics, shares our go-to-market strategies,
and provides our outlook for 2016 and beyond.
ACQUISITIONS AT PEOPLES BANK
On March 6, 2015, we completed the acquisition of NB&T
in Wilmington, Ohio. This was the largest acquisition in
our history, giving us 22 additional branches, $711 million
in assets, and more than 21,000 new client relationships.
It also provided us with access to the rapidly expanding
Cincinnati-Dayton corridor, and product expertise in
agriculture lending.
NB&T was our sixth bank acquisition in the previous four
years. In all of those transactions, we achieved our cost-
save targets. In the five acquisitions prior to the NB&T
transaction, we also consistently hit our post-acquisition
revenue targets. The NB&T acquisition has been challenging
for us in meeting projected revenue targets primarily as the
result of lower than expected loan balances.
“We treat clients like family and
never seek to sell a product
or service that is not in the
best interest of the client.”
Revenue Growth
32%
25%
Trust & Investment
Revenue Growth
Growth in Number
of Checking Accounts 32%
28%
Loan Growth
1
The acquired loan portfolio balances for NB&T were initially
less than we had expected due to some unanticipated,
pre-closing runoff in the portfolio. After we closed the
transaction, the portfolio declined by another 6%, about half
of which constituted planned exits resulting from portfolio
management decisions that we made in reflection of our
risk appetite. During the course of the year, we have taken
aggressive actions to get loan balances back to targeted
levels. We added commercial banking talent to complement
the existing high-quality lending team on-boarded through
the NB&T deal. As a result of these actions, loan production
levels and our opportunity pipeline have strengthened
considerably. We believe that we will be back on track for
loan growth in southwest Ohio in 2016. We still consider this
market to be of high value to us and of primary importance
to our future from a long-term growth perspective.
In recent years, we have also completed a number of
acquisitions in our insurance and investments businesses.
In July, we acquired Hedges Gallery of Insurance in
Lebanon, Ohio which has further strengthened our market
presence in southwest Ohio. The opportunity to add fee-
based insurance and investment businesses enables us
to provide broader solutions to our clients and prospects
and serves to differentiate Peoples from many of our
competitors. These acquisitions will also help us increase
the percentage of income derived from fees toward our
strategic objective of 35% to 40% of total revenue. For
the year, fee income stood at 33% of total revenue.
Acquisitions will continue to be an essential ingredient
of our future success. For the time being, we do not see
ourselves closing a bank deal in 2016 or 2017. We are in a
rapidly consolidating industry, and increasing scale allows
for greater efficiency, more capabilities and increased
profitability. Our efficiency ratio, excluding one-time
costs and other non-core items, fell to 64.7% in the fourth
quarter of 2015. That is a dramatic improvement over the
recent past and demonstrates our efficient integration
of acquisitions and leveraging of our growing scale.
When we do decide to get back to expanding our core
banking franchise, we will continue to look for acquisition
opportunities that increase earnings per share in the first
full calendar year, earn back tangible book dilution in four
years or less, beat our internal rate of return thresholds,
and make our distribution network even more convenient
for our clients.
ASSET QUALITY AT PEOPLES
During 2015 we charged off $13.1 million dollars related to
a single large coal operator. Needless to say, the energy
sector has been under intense regulatory and market
pressure recently. As a result, we have reduced our credit
exposure to the energy industry to $40 million at year-end.
This represents 1.7% of our total loan commitments. In
addition, we have strengthened our portfolio management
activities to better identify, address and resolve problem loan
situations. At year-end, our nonperforming assets (defined
as nonperforming loans plus other real estate owned) as a
percentage of total assets stood at 0.62%. This is in line
with the median for the universe of banks with total assets
between $1 billion and $10 billion which was 0.61% at year-
end. We are determined to restore our nonperforming asset
percentage to the top quartile of industry performance.
HOW WE COMPETE
Across our footprint, we organize into local market teams
that deliver a full suite of insurance, investment and
banking solutions to clients. We distinguish ourselves
by the speed and quality of our credit processes.
Recent acquisitions have seen their turnaround time for
small business and consumer loan decisions improve
dramatically. In many cases, we can provide a credit
decision before the client leaves the branch.
Consumers and businesses increasingly are turning to
electronic services to conduct their business. We continue
to broaden our electronic capabilities and strive to be the
best in class in both electronic and in-person delivery.
In all cases, we seek to understand the client’s goals and
aspirations, and then to provide products and services
that help them reach those goals. We treat clients like
family and never seek to sell a product or service that
is not in the best interests of the client. This approach
combined with our broad product set has our cross-sell
rate nearing 6.2 products per customer.
2
$145.1
$109.6
$92.6
2015 2014
2013
TOTAL REVENUE
($ Millions)
$3.3
$2.6
$2.1
2015 2014
2013
TOTAL ASSETS
($ Billions)
3.53% 3.45%
3.23%
2016 AND BEYOND
We look forward to restoring Peoples to acceptable
levels of performance in 2016. We expect loan demand
to be similar to 2015 and for interest rates to rise slightly
during the course of the year. We will also be undertaking
a conversion of our core operating system late in 2016
that will further improve efficiency and broaden our
operational capabilities.
In 2016, we will continue our journey to become the “Best
Community Bank in America.” This long-term, aspirational
goal will be achieved when we are consistently delivering
superior returns to our shareholders, exceeding client
expectations, upholding our culture of coaching and
professional development, and deepening our support for
the communities we serve.
FINAL THOUGHTS
I want to take this opportunity to introduce the two
newest members of the Board of Directors for both
Peoples Bancorp Inc. and Peoples Bank: Brooke W.
James and S. Craig Beam. Both served as members of
the Board of Directors of NB&T and its wholly-owned
subsidiary, The National Bank and Trust Company. Brooke
has been a partner for WMSALL Farms, her family’s
farming operation, since 1999. Craig has been an owner
of Thorobeam Farm, LLC, a thoroughbred horse business
since 2006, and a private investor since his retirement
from the sand and gravel business in 1999. We are
fortunate to have both of these talented and experienced
individuals serving on the Board.
We look forward to continuing to serve those of you who
are our clients, and rewarding those of you who are our
shareholders.
All the best,
2015 2014
2013
NET INTEREST MARGIN
Chuck Sulerzyski, President and CEO
Chuck Sulerzyski, President and CEO
3
Setting the Foundation
Peoples’ past accomplishments and vision for the
future rest upon our Four Pillars of Success. Rooted
in the fundamentals of community banking, sound
practices, and a desire for excellence, these pillars
represent the foundation of our goal to become the
Best Community Bank in America. Each of these pillars
adds strength and support to the others. Peoples’ Four
Pillars of Success are the following:
Responsible Risk Management
As a financial institution, we are in the business of taking
appropriate risk. Only through responsible management
of this risk do we position ourselves for future success.
At Peoples, everyone is considered a risk manager.
Maintaining compliance and the proper controls will help
ensure that Peoples will remain sound and able to grow.
Extraordinary Client Experience
At Peoples, our goal is to consistently exceed client
expectations and create raving fans. Through trusted
advice and thoughtful plans, our employees provide
solutions that set the customer experience apart. By
asking the right questions, we uncover client needs
and deliver the appropriate financial solutions to help
our customers succeed. While our brick and mortar
locations provide an extraordinary in-person experience
for our clients, we continue to invest in technology and
capabilities that allow customers to conduct business
through the channels that are most convenient for them.
Profitable Revenue Growth
A sound community bank that provides the best
client experience is our formula for long-term growth
for our shareholders. This is also achieved through
relentless execution of our sales culture and careful
evaluation of acquisition opportunities. Our broad
capabilities in banking, investments, and insurance
provide a diversified revenue base beyond the
capabilities of many of our competitors.
First-Class Workplace
Offering an extraordinary experience for our clients
starts with a team of employees who truly care
and have pride in what they do: helping customers
succeed. We hire associates based on their values
and have established a culture of coaching and
continuous improvement. On-going development of
associate skills and rewarding those who exemplify
our culture creates sustainable excellence. We strive
to take care of our employees so that they will take
care of our customers.
In 2015, the Four Pillars helped to cement the
foundation of success as we worked toward our goal
of becoming the Best Community Bank in America.
This is a lofty ambition but one that can be achieved
using a roadmap that keeps us focused on what’s
important: our shareholders, our customers, our
employees and our communities.
4
Saundra Kesterson, Vice President - Director of Learning and Development
with Peoples Bank Professional Development Associates
5
Historic Year for Peoples
2015 was a year of historic progress for Peoples.
Acquisitions, enhancements to technology and
service, and the continued deepening of our client
relationships all contributed to our growth. Peoples
entered new markets and became more significant in
our existing footprint by expanding our branch and
ATM network and adding key services and capabilities.
Throughout our 113-year history, there has never been
a better time than now to make a meaningful impact
for the greatest number of customers in the greatest
number of communities. Our growth and expansion in
2015 was marked by the following:
• Acquisition of NB&T Financial Group, Inc.
(“NB&T”), $711 million in assets and 22 office
locations in southwest Ohio
• Acquisition of the Hedges Gallery of Insurance
Agency in Lebanon, Ohio
• Introduction of a new commercial banking team
in southwest Ohio
The most significant undertaking of 2015 was the
acquisition of NB&T. This represented a historic
step forward with the successful integration of our
largest-ever acquisition. Peoples expanded the
services available to NB&T’s customers and markets -
enhancing the capabilities with technology, expertise
and execution. Furthermore, we brought our
“Commitment to Communities” core value to these
markets and began to make a meaningful impact
within these new communities.
2015 was also highlighted by growth in our trust,
brokerage, retirement planning and insurance
sectors. This growth was the result of flourishing
partnerships between our businesses working
together to help customers achieve their goals.
These businesses strive to make our customers’
dreams come true by sitting side by side with them
to help them plan, invest, protect and build success.
• Addition of more than 24,000 surcharge-free
ATMs nationwide through the MoneyPass® ATM
Network
• Significant efforts to increase operational
efficiency including the introduction of a new
electronic workflow process
As we look forward to 2016, our core operations
are strong and growing, our efficiencies are
improving, and we are making a bigger impact in the
communities we serve. This is just the beginning of
our ongoing efforts to execute for our shareholders,
customers, employees, and communities.
6
Peoples Bank Wilmington Main Office
7
Committed to Our
Communities
Ask a dozen bankers for the definition of “community bank,” and
you will receive a dozen different answers. For Peoples, an essential
part of being a community bank is making a meaningful impact in the
communities where we live, work and play. Our associates help build
those communities by fulfilling their customers’ financial needs. Our
organization donates monetary support through various charitable
giving efforts, and our associates invest personal time and effort back
into our communities. We direct our giving into four categories:
• Community Investment & Economic Development
• Youth & Education
• Health & Human Services
• Arts & Culture
Here are just a few examples of how we helped strengthen our
communities in 2015:
Financial Literacy
In April of 2015, Peoples was honored with the Innovation in Financial
Education Award by NASDAQ and EverFi. Since 2012, Peoples
has reached more than 3,400 area students with a web-based
educational tool to help them achieve financial literacy. Peoples
Bancorp Foundation has contributed $53,000 to this effort. As of
year-end 2015, Peoples Bank has begun to expand this web-based
tool to help local adults better understand financial topics such as
buying a home, planning for retirement, etc.
Fighting Hunger
In 2015, Peoples Bancorp Foundation contributed $55,000 to
local food banks in a coordinated effort to help fight hunger in our
communities. Peoples Bank associates joined the cause, raising more
than $68,000 across our communities to add to the effort.
Peoples Bank Theatre
A new sign has been added to the historic storefronts of downtown
Marietta, Ohio, with the completion of the fully renovated Peoples
Bank Theatre in late 2015. Peoples Bank worked closely with theatre
representatives and civic leaders to turn the dream of reopening the
historic theatre into a reality and providing a unique entertainment
venue for the region.
As the number of communities that we serve continues to grow,
the opportunity to work with individuals and groups within those
communities grows as well. Side by side, we will continue to work
together to successfully build stronger communities.
8
Maps and
Locations
OHIO
Athens County
Athens
Nelsonville
The Plains
Brown County
Georgetown
Mount Orab
Sardinia
Clermont County
Batavia
Milford
Owensville
Williamsburg
Clinton County
Blanchester
New Vienna
Sabina
Wilmington
Coshocton County
Coshocton
Cuyahoga County
Beachwood
Fairfield County
Baltimore
Lancaster
Franklin County
Worthington
Gallia County
Gallipolis
Guernsey County
Byesville
Cambridge
Highland County
Hillsboro
Jackson County
Jackson
Wellston
Knox County
Mount Vernon
Licking County
Heath
Newark
Cleveland
Cleveland
Beachwood
Beachwood
Munroe Falls
Munroe Falls
CuyaHoga Falls
Cuyahoga Falls
Akron
Akron
Norton
Norton
77
Mount Vernon
Mount Vernon
New Philadelphia
New Philadelphia
Newark
Newark
Heath
Heath
Baltimore
Baltimore
Lancaster
Lancaster
33
Nelsonville
Nelsonville
The Plains
The Plains
Coshocton
Coshocton
Cambridge
Cambridge
Zanesville
Zanesville
McConnelsville
McConnelsville
Lowell
Lowell
Byesville
Byesville
Caldwell
Caldwell
New Martinsville
New Martinsville
Sistersville
Sistersville
Marietta
Marietta
Belpre
Belpre
Athens
Athens
Reno
Reno
Vienna
Vienna
Parkersburg
Parkersburg
50
Morgantown
Morgantown
Worthington
Worthington
70
Columbus
Columbus
Centerville
Centerville
71
Chillicothe
Chillicothe
Carlisle
Carlisle
Franklin
Franklin
Springboro
Springboro
Lebanon
Lebanon
MasonMason
Cincinnati
Cincinnati
Waynesville
Waynesville
Sabina
Sabina
Wilmington
Wilmington
Maineville
Maineville
New Vienna
New Vienna
Blanchester
Blanchester
Milford
Milford
Owensville
Owensville
Williamsburg
Williamsburg
Hillsboro
Hillsboro
Sardinia
Sardinia
Batavia
Batavia
Mount Orab
Mount Orab
Jackson
Jackson
Wellston
Wellston
Pomeroy
Pomeroy
32
79
Georgetown
Georgetown
Gallipolis
Gallipolis
Point Pleasant
Point Pleasant
Greenup
Greenup
Russell
Russell
Ashland
Ashland
Summit
Summit
Huntington
Huntington
Charleston
Charleston
64
77
Pikeville
Pikeville
WEST VIRGINIA
Cabell County
Huntington
Kanawha County
Charleston
Mason County
Point Pleasant
Tyler County
Sistersville
Wetzel County
New Martinsville
Wood County
Parkersburg
Vienna
Meigs County
Pomeroy
Montgomery County
Centerville
Morgan County
McConnelsville
Muskingum County
Zanesville
Noble County
Caldwell
Ross County
Chillicothe
Summit County
Akron
Cuyahoga Falls
Munroe Falls
Norton
Tuscarawas County
New Philadelphia
Warren County
Carlisle
Franklin
Lebanon
Maineville
Mason
Springboro
Waynesville
Washington County
Belpre
Lowell
Marietta
Reno
KENTUCKY
Boyd County
Ashland
Summit
Greenup County
Greenup
Russell
Pike County
Pikeville
9
15
Peoples Bancorp Inc.
and Peoples Bank Directors
TARA M. ABRAHAM
Chairman and Co-CEO
Accel, Inc.
DAVID F. DIERKER
Retired Banking Executive
SunTrust Banks, Inc.
BRENDA F. JONES, M.D.
Retired Ophthalmologist
Marietta Healthcare Physicians, Inc.
CARL L. BAKER, JR.
RICHARD FERGUSON
DAVID L. MEAD
President and Chief Executive Officer
Chairman, Peoples Bancorp Inc.
Associate Professor
B & N Coal, Inc.
Owner
Marietta College
S. CRAIG BEAM
Owner
Thorobeam Farm, LLC
GEORGE W. BROUGHTON
Ferguson Consulting, LLC
JAMES S. HUGGINS
Attorney-At-Law
Theisen Brock, LPA
SUSAN D. RECTOR
Attorney-At-Law
Ice Miller LLP
CHUCK SULERZYSKI
Vice Chairman, Peoples Bancorp Inc.
BROOKE W. JAMES
President and Chief Executive Officer
Owner and President
Partner
Peoples Bancorp Inc. and Peoples Bank
Broughton Commercial Properties, LLC
WMSALL Farms
GWB Specialty Foods, LLC
GWB Oil & Gas, LLC
THOMAS J. WOLF
Owner
McDonald’s Restaurants
10
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
JOHN C. ROGERS
Executive Vice President
Chief Financial Officer and Treasurer
CAROL A. SCHNEEBERGER
Executive Vice President
Chief Administrative Officer
M. RYAN KIRKHAM
General Counsel and Corporate Secretary
KATHRYN M. BAILEY
Controller
AMY M. AUCH
Assistant Corporate Secretary
ANNE P. GILLILAND
Assistant Corporate Secretary
CATHY M. LAWRENCE
Assistant Corporate Secretary
Peoples Bank
Director Emeritus
HAROLD D. LAUGHLIN
Peoples Bancorp Inc.
Directors Emeritus
DAVE M. ARCHER
FRANK L. CHRISTY
WILFORD D. DIMIT
FRED R. PRICE
ROBERT W. PRICE
T. PAT SAUBER
PAUL T. THEISEN
JOSEPH H. WESEL
In Memorium
Joseph H. Wesel
May 2, 1929 to February 29, 2016
The Peoples Bank family expresses its
sincere condolences to the family and
friends of Joseph H. Wesel. For 36 years,
Mr. Wesel provided superior service to Peoples as a distinguished
Board Member serving on various committees. Mr. Wesel held the
position of Chairman of the Board from 1991 until 2003 and from
2005 to 2008. He led with loyalty, dignity and vision.
Mr. Wesel left a lasting impression in Marietta as a devoted leader
and servant in the community. His legacy will be felt by many for
generations to come, and his contributions not forgotten.
11
Market Makers
Stockholder Information
Stock Listing
NASDAQ Symbol: PEBO
Stock Transfer Agent, Registrar
Shareowner Services
NASDAQ Global Select Market, CUSIP 709789101
161 N. Concord Exchange
Alternate Newspaper Listings: PEBOOH and PeBcOh
South St. Paul, MN 55075
Corporate Offices
Peoples’ Headquarters:
138 Putnam Street, PO Box 738
Marietta, OH 45750-0738
800.468.9716 • shareowneronline.com
General Shareholder Inquiries
Peoples Bancorp Inc.
Attn: Investor Relations
Investor Relations Phone Number: 740.374.6136
138 Putnam Street, PO Box 738
peoplesbancorp.com
Marietta, OH 45750-0738
Market Makers in Peoples Bancorp Inc. Stock
UBS Securities LLC
800-421-6172
Hovde Group, LLC
847-991-6622
JP Morgan
212-270-6000
Boenning & Scattergood, Inc.
Credit Suisse
Citigroup Global Markets Inc.
800-883-1212
212-325-2000
800-223-7743
Goldman Sachs & Co.
Sandler O’Neill and Partners
Barclays Capital
800-221-8320
800-635-6851
212-412-4000
Raymond James & Associates
Keefe, Bruyette, and Woods Inc.
Cantor Fitzgerald, L.P.
800-248-8863
212-887-7777
212-938-5000
Merrill Lynch
800-937-0516
12
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, 2015
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
The NASDAQ Stock Market LLC
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 30, 2015, the aggregate market value of the registrant’s Common Shares (the only common equity of the registrant) held by
non-affiliates was $414,006,000 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:
18,176,291 common shares, without par value, at February 24, 2016.
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 28, 2016,
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
16
23
24
24
24
25
27
29
63
63
64
64
64
120
121
121
122
122
123
124
126
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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. OTHER INFORMATION" 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. As of the date of this Form 10-K, Peoples' other wholly-owned subsidiary was
Peoples Investment Company and Peoples held all of the common securities of NB&T Statutory Trust III, which was
acquired in connection with the acquisition of NB&T Financial Group, Inc. ("NB&T") on March 6, 2015 as described below.
Peoples Bank's operating subsidiaries include Peoples Insurance Agency, LLC ("Peoples Insurance") and two asset
management companies, PBNA, L.L.C. and Peoples Tax Credit Equity, LLC. Peoples Investment Company has one
subsidiary, 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 in 2000 was reorganized as a national banking association under the name "Peoples
Bank, National Association". Effective December 30, 2015, the banking subsidiary converted from a national banking
association back to an Ohio state-chartered bank which is a member of the Federal Reserve System. As a result of the charter
conversion, the legal name of Peoples' banking subsidiary was changed to "Peoples Bank" and the converted bank will
continue to operate under the trade name and federally registered service mark "Peoples Bank". Additionally, Peoples'
banking subsidiary will see a reduction in the annual cost associated with regulatory examination fees commencing in 2016.
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, and
Peoples Tax Credit Equity, LLC. was formed in 2014, 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 affordable housing tax credit funds or projects, historical tax credit funds, 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, insurance, investment 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;
credit cards for individuals and businesses;
merchant credit card transaction processing services;
corporate and personal trust services;
safe deposit rental facilities;
money orders and cashier's checks;
a full range of life, health and property and casualty insurance products;
brokerage services; and
custom-tailored fiduciary, employee benefit plans and asset 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 Bank credit card and merchant processing services are provided, through joint marketing arrangements with third
parties.
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Peoples' business activities are currently limited 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, 2015, see Peoples'
Consolidated Financial Statements and Notes to the Consolidated Financial Statements found immediately following "ITEM
9B. OTHER INFORMATION" 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 may include 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) providing opportunities to integrate non-
traditional products and services, such as insurance and investments, with the traditional banking products offered to its
clients; (2) increasing market share in existing markets; (3) expanding Peoples' core financial service businesses of banking,
insurance and investments; and (4) improving operating efficiency by directing resources toward offices and markets with the
greatest earnings opportunities.
Recent Corporate Developments
On March 6, 2015, Peoples completed its acquisition of NB&T, which included the assumption of Fixed/Floating Rate
Junior Subordinated Debt Securities due 2037 (the "junior subordinated debt securities") at an acquisition-date fair value of
$6.6 million held in NB&T Statutory Trust III, a Delaware statutory trust whose common securities were wholly-owned by
NB&T (the "Statutory Trust"). The sole assets of the Statutory Trust are the junior subordinated debt securities and related
payments. The junior subordinated debt securities and the back-up obligations, in the aggregate, constitute a full and
unconditional guarantee of the obligations of the Statutory Trust with respect to the Capital Securities held by third-party
investors. Distributions on the Capital Securities are payable at the annual rate of 1.50% over the 3-month LIBOR.
Distributions on the Capital Securities are included in interest expense in the Consolidated Financial Statements. These
securities are considered Tier I capital (with certain limitations applicable) under current regulatory guidelines. The junior
subordinated debt securities are subject to mandatory redemption, in whole or in part, upon repayment of the Capital
Securities at maturity or their earlier redemption at the liquidation amount. Subject to prior approval of the Federal Reserve,
the Capital Securities are redeemable prior to the maturity date of September 6, 2037, and are redeemable at par. Since
September 6, 2012, the Capital Securities have been redeemable at par, subject to such approval. Distributions on the Capital
Securities can be deferred from time to time for a period not to exceed 20 consecutive semi-annual periods. If Peoples
elected to defer payments of interest on the junior subordinated debt securities, or an event of default were to occur under the
indenture governing the junior subordinated debt securities, Peoples would be prohibited from declaring or paying any
dividends on the Peoples common shares, prohibited from redeeming, repurchasing or otherwise acquiring any of the Peoples
common shares and prohibited from making any payment to holders of Peoples common shares in the event of Peoples'
liquidation.
Effective December 30, 2015, Peoples' banking subsidiary converted from a national banking association to an Ohio
state-chartered bank which is a member of the Federal Reserve System. As a result of the charter conversion, the legal name
of Peoples' banking subsidiary was changed to "Peoples Bank" and the converted bank will continue to operate under the
trade name and federally registered service mark "Peoples Bank". Additionally, Peoples' banking subsidiary will see a
reduction in the annual cost associated with regulatory examination fees commencing in 2016.
On January 6, 2016, Peoples acquired a book of business from a financial advisor that was located in Marietta, Ohio.
Upon the terms and conditions of the purchase agreement, Peoples acquired certain rights with respect to that book of
business in exchange for payments to be made by Peoples to the seller.
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, which includes northeastern, central, southwestern and southeastern Ohio, west central West Virginia, and
northeastern Kentucky. Peoples currently operates 63 locations in Ohio, 14 locations in West Virginia and 5 locations in
Kentucky. 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, agriculture and other social services; plastics,
petrochemical and other manufacturing; oil, gas and coal production; and tourism and other service-related industries.
Because of this diversity of industries and employers, Peoples' earnings are not significantly dependent upon any single
industry segment.
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Lending Activities
Peoples Bank originates various types of loans, including commercial real estate loans, real estate construction loans,
commercial and industrial loans, agriculture, 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 may occasionally originate loans outside its primary markets. 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, and portions of select commercial real estate and commercial and industrial loans are sold into
the secondary market.
Peoples Bank's loans consist of credit extensions to borrowers spread over a broad range of industrial classifications. At
December 31, 2015, Peoples Bank had no concentration of loans to borrowers engaged in the same or similar industries that
exceeded 10% of total loans nor did it have any loans outstanding to non-U.S. entities.
Commercial Lending
Commercial real estate and commercial and industrial loans ("commercial loans"), including loans secured by
commercial real estate, represented the largest portion of Peoples Bank's total loan portfolio, comprising approximately
52.5% and 51.6% of total loans at December 31, 2015 and December 31, 2014, respectively. 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, the primary source of repayment for commercial loans is typically
considered to be the cash flows of the borrower's business, which can be susceptible to adverse changes in the economic
conditions of the general economy or within 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, although Peoples
Bank also originates commercial loans with fixed interest rates for periods generally ranging from 3 to 10 years. At
December 31, 2015, the commercial loan portfolio consisted of 71.8% variable interest rate loans and 28.2% fixed
interest rate loans. 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.
Peoples Bank evaluates all loan relationships whose aggregate credit exposure is greater than $5,000,000 on a
quarterly basis and exposure greater than $1 million on an annual basis, 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 outstanding exposure. Upon detection of the
reduced ability of a borrower to meet cash flow obligations, the loan is reviewed for possible downgrade or
placement on nonaccrual status. Loan relationships whose aggregate credit exposure to Peoples Bank is equal to or
less than $1 million are reviewed on an event driven basis. Triggers for review include knowledge of adverse events
affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or 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, 2015, outstanding construction loans comprised 3.7% of
Peoples Bank's loan portfolio, compared to 2.4% at December 31, 2014. Construction financing is generally considered
to involve the highest credit 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 property 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
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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, typically
completed by an independent third party, to ensure appropriate completion of the project prior to any disbursements.
Construction loans are structured to provide sufficient time to complete construction, giving consideration to
weather or other variables that influence completion time. In general, Peoples Bank typically requires the term of its
construction loans to be less than three years.
Residential Real Estate Loans
While commercial loans comprise the largest portion of Peoples Bank's loan portfolio, residential real estate lending
remains a major focus of Peoples Bank. The originated loans may either be retained in Peoples Bank's loan portfolio, or
sold into the secondary market. Peoples Bank's portfolio of residential real estate loans comprised 27.3% of total loans
at December 31, 2015, and 29.6% at December 31, 2014. Peoples Bank also had $2.0 million of residential real estate
loans held for sale and was servicing $390.4 million of loans, consisting primarily of one-to-four family residential
mortgages, previously sold in the secondary market. Peoples Bank requires evidence of insurance at the time of the loan
closing, and additionally, has a blanket insurance policy to cover residential real estate loans that do not include an
insurance escrow account.
Peoples Bank originates both fixed-rate and adjustable-rate real estate loans. Typically, Peoples Banks sells its
longer-term fixed-rate real estate loans in the secondary market, while retaining the 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. Numerous risk
factors attributable to real estate lending are considered during underwriting for the purposes of establishing an
interest rate commensurate with the inherent risks of the loan.
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 requires insurance, with Peoples
Bank named as the mortgagee and loss payee. Licensed appraisals are required for all real estate loans, and are
completed by an independent third party.
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, 2015, outstanding home equity lines of credit comprised 5.1% of Peoples
Bank's total loans, compared to 5.0% at December 31, 2014. Peoples Bank currently offers home equity lines of credit
with a prime-based variable rate for the entire 10-year term of the loan and fixed-rate installment loans with 5 to 15 year
terms. 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. Of the total home equity loan portfolio, there were
94.2% and 5.8% of variable interest rate and fixed interest rate loans, respectively. At December 31, 2015, total
outstanding principal balances and available credit amounts of the convertible rate home equity lines of credit were $19.0
million and $20.4 million, respectively, and the weighted-average remaining maturity was 7.8 years. The average
original loan amount for these convertible rate home equity lines of credit was approximately $33,000 at December 31,
2015.
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 (less the balance of the first mortgage) 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 5 to 15-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, as well as unsecured loans and personal lines of credit. At December 31, 2015 and
December 31, 2014, consumer loans comprised 11.3% of Peoples Bank's loan portfolio.
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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 or, 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
ongoing standards, while strictly adhering 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, and select commercial deposit customers, by establishing an Overdraft
Privilege amount. After a 60-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 such as
previous charge-off history or loan loss. 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, with a maximum of seven charges per day when the customer's account is overdrawn more than $5.
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, these fees may be offset by loan
loss provisioning necessary to ensure the maintenance of an appropriate allowance for losses against overdrafts deemed
uncollectable. This allowance, along with the related provision and net charge-offs, is included in Peoples Bank's
allowance for loan losses.
Investment Activities
At December 31, 2015, investment securities comprised 26.7% of Peoples' total assets compared to 27.8% at December
31, 2014. The majority of Peoples' investment activities are conducted through Peoples Bank, although Peoples and its non-
banking subsidiaries also may engage in investment activities from time to time. Investment activity by Peoples Bank is
subject to certain regulatory guidelines and limitations on the types of securities eligible for purchase. As a result, the
investment securities owned by Peoples Bank include obligations of the U.S. Treasury, agencies and corporations of the U.S.
government, including mortgage-backed securities, bank eligible obligations of any state or political subdivision in the U.S.
and bank eligible corporate obligations, including private-label mortgage-backed securities. The investments owned by
Peoples are comprised of common stocks issued by various unrelated banking holding companies. The investments owned
by Peoples' non-banking subsidiaries currently consist of tax credit funds, corporate obligations, municipal obligations and
privately issued mortgage-backed securities.
Peoples Bank's investment activities are governed internally by a written Board of Directors-approved policy, which is
administered by Peoples Bank's Asset-Liability Management Committee ("ALCO"). The primary purpose of Peoples Bank's
investment portfolio is to: (1) employ excess funds not needed to support 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 Peoples Bank's risk appetite and
liquidity 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 Bank's overall interest rate sensitivity. The ALCO
also has much broader responsibilities, which are discussed in the "Interest Rate Sensitivity and Liquidity" section of "ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION"
of this Form 10-K.
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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 "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION" of this Form 10-K.
The following is a brief description of the various sources of funds utilized by Peoples:
Deposits
Peoples Bank 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 Bank also offers its customers the ability to receive multi-million dollar federal deposit insurance coverage
for certificates of deposit ("CDs") through the Certificate of Deposit Account Registry Service ("CDARS") program and
money market deposit accounts through the Insured Cash Sweep Services ("ICS"). Under these programs, funds from
large customer deposits are placed into accounts issued by other members of the CDARS or ICS network in increments
below the federal deposit insurance limits to ensure both principal and interest remain eligible for insurance.
Peoples Bank occasionally obtains deposits from clients outside its primary market area, generally in the form of
CDs and has the ability, if needed, to obtain deposits from deposit brokers. These deposits are used to supplement
Peoples Bank's retail deposits to fund loans originated to customers located outside its 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 Bank to secure the funds with collateral, unlike most other borrowed funds.
Additional information regarding the amounts and composition of Peoples Bank's deposits can be found in the
"Deposits" section of "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION" of this Form 10-K and in Note 7 of the Notes to the Consolidated Financial
Statements.
Borrowed Funds
Peoples obtains funds through a variety of short-term and long-term borrowings, which typically include advances
from the Federal Home Loan Bank of Cincinnati ("FHLB") and repurchase agreements. Peoples also has the ability to
obtain funds, if needed, through federal funds purchased and advances from the Federal Reserve Discount Window.
Peoples also has the ability to obtain funds from unrelated financial institutions in the form of term loans or revolving
lines of credit. Short-term borrowings are used generally to manage Peoples' daily liquidity needs since they typically
may be repaid, in whole or part, at any time without a penalty. Long-term borrowings provide cost-effective options for
funding asset growth and satisfying capital needs, due to the variety of pricing and maturity options available.
Additional information regarding the amounts and composition of Peoples' borrowed funds can be found in the
"Borrowed Funds" section of "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION" of this Form 10-K and in Notes 8 and 9 of the Notes to the
Consolidated Financial Statements.
Competition
Peoples experiences intense competition within its primary market area due to the presence of several national, regional
and local financial institutions and other service providers, including finance companies, insurance agencies and mutual fund
providers. 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
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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, product
characteristics, interest rates on loans and deposits, and the availability and pricing of fiduciary, employee benefit plans,
brokerage and insurance services. However, some competitors may have greater resources, including higher lending limits
than Peoples, which may adversely affect 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.
Historically, Peoples 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, southwestern and northeastern Ohio. These larger areas typically contain entrenched service providers with
existing customer bases much larger than Peoples' current 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 derived
from such markets.
Employees
At December 31, 2015, Peoples had 817 full-time equivalent employees compared to 699 at December 31, 2014. The
increase in full-time equivalent employees from December 31, 2014 to December 31, 2015 was largely attributable to the
acquisition of NB&T completed on March 6, 2015.
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 5 to 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. Applicable laws and regulations restrict permissible activities and investments, and require actions to protect
loan, deposit, brokerage, fiduciary and other customers, as well as the federal Deposit Insurance Fund. They also may restrict
Peoples' ability to repurchase its common shares or to receive dividends from Peoples Bank, and impose capital adequacy
and liquidity requirements. The following is a summary of the regulatory agencies, statutes and related regulations that have,
or could have, a material impact on Peoples' business. This discussion is qualified in its entirety by reference to such
regulations and statutes.
Financial Holding Company
Peoples is a legal entity separate and distinct from its subsidiaries and affiliated companies. As a financial holding
company, Peoples is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "BHC Act"),
and to inspection, examination and supervision by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board").
The Federal Reserve Board 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 required to file
reports and other information with the Federal Reserve Board regarding its business operations and those of its
subsidiaries.
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Subsidiary Bank
Effective December 30, 2015, Peoples Bank converted from a national banking association into an Ohio state-
chartered bank which is a member of the Federal Reserve System. Peoples Bank had no disputes with the Office of the
Comptroller of the Currency (the "OCC") in relation to the conversion of Peoples Bank to a state-chartered bank.
Peoples Bank is now primarily supervised by the Ohio Division of Financial Institutions ("ODFI") and the Federal
Reserve Bank of Cleveland. Peoples Bank is also subject to regulations of the Consumer Financial Protection Bureau
(the “CFPB”), which regulates consumer financial products and services and certain financial services providers.
Various requirements and restrictions under the laws of the United States and the states of Ohio, West Virginia and
Kentucky affect the operations of Peoples Bank, including requirements to maintain reserves against deposits,
restrictions on the nature and amount of loans that may be made and the interest that may be charged thereon, restrictions
relating to investments and other activities, limitations on credit exposure to correspondent banks, limitations on
activities based on capital and surplus, limitations on transactions between Peoples Bank and Peoples, limitations on the
payment of dividends, and limitations on branching. Consumer laws and regulations designed to prevent unfair,
deceptive or abusive acts or practices, and to ensure that consumers have access to fair, transparent and competitive
markets for consumer financial products and services, affect the services provided to Peoples Bank customers.
Peoples' banking subsidiary will see a reduction in the annual cost associated with regulatory examination fees
commencing in 2016, as a result of the change from a national banking association to an Ohio state-charted bank which
is a member of the Federal Reserve System.
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 ("FDIC"). 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 Peoples Bank is 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.
The FDIC has proposed changing the deposit insurance premium assessment method for banks with less
than $10 billion in assets that have been insured by the FDIC for at least five years. The proposed changes
would revise the financial ratios method so that it would be based on a statistical model estimating the
probability of failure of a bank over three years; update the financial measures used in the financial ratios
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method consistent with the statistical model; eliminate risk categories for established small banks; and use the
financial ratios method to determine assessment rates for all such banks (subject to minimum or maximum
initial assessment rates based upon a bank’s composite examination rating).
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 to continue operations, 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 provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (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 some 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 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;
the standard maximum amount of deposit insurance per customer has been permanently increased to $250,000;
new corporate governance requirements 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 Federal Reserve Board has established rules regarding interchange fees charged for electronic debit transactions
by payment card issuers having assets over $10 billion. 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";
"ability to repay" regulations generally require creditors to make a reasonable, good faith determination (considering
at least 8 specified underwriting factors) of a consumer's ability to repay any consumer credit transaction secured
by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage or temporary loan) and provides
a presumption that the creditor making a "qualified mortgage" satisfied the ability-to-repay requirements; and
the authority of the Federal Reserve Board to examine financial holding companies and their non-bank subsidiaries
was expanded.
Some aspects of the Dodd-Frank Act are still subject to rulemaking and will take effect in the coming years, making
it difficult to anticipate the full financial impact on Peoples, its subsidiaries, their respective customers or the financial
services industry more generally. However, the implementation of certain provisions have already increased compliance
costs and the implementation of future provisions will most likely further increase both compliance costs and fees paid to
regulators, along with possibly restricting the operations of Peoples and its subsidiaries.
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 Secretary of the Treasury, or (2) complementary to a financial activity, and that does not pose a substantial risk
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to the safety and soundness of depository institutions or the financial system generally. Activities that are financial in
nature include securities underwriting and dealing, insurance underwriting and making merchant banking investments.
In 2002, Peoples elected, and received approval from the Federal Reserve Board, to become a financial holding
company.
In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire a
company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the
financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the
CRA, which is more fully discussed in the section captioned "Community Reinvestment Act" included later in this item.
In addition, financial holding companies, like Peoples, are permitted to acquire companies engaged in activities that are
financial in nature and in activities that are incidental and complementary to financial activities without prior Federal
Reserve Board approval.
The BHC Act and other federal and state statutes regulate acquisitions of commercial banks. The BHC Act requires
the prior approval of the Federal Reserve Board for the direct or indirect acquisition of more than 5% of the voting
shares of a commercial bank or its parent holding company. Under the federal Bank Merger Act, the prior approval of
the Federal Reserve Board is required for a state-chartered, Federal Reserve Bank member 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 under 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. Among other things, 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".
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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 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 banks. 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.
Prior to January 1, 2015, the guidelines included a minimum for the ratio of total capital to risk-weighted assets of
8%, with at least half of the ratio 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 (known as “tier 1” risk-based capital). The guidelines also provided for
a minimum ratio of tier 1 capital to average assets, or “leverage ratio,” of 3% for financial holding companies and bank
holding companies that met certain criteria, including having the highest regulatory rating, and 4% for all other financial
holding companies and bank holding companies.
The risk-based capital guidelines adopted by the federal banking agencies are based on the “International
Convergence of Capital Measurement and Capital Standard” (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 U.S. until adopted into U.S. law or regulations. Although the U.S. 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 U.S. 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, began transitioning to the new rules on January 1, 2015. The new minimum capital
requirements became 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.
The new rules include (a) a new common equity tier 1 capital ratio of at least 4.5%, (b) a tier 1 capital ratio of at
least 6.0%, rather than the former 4.0%, (c) a minimum total capital ratio that remains at 8.0%, and (d) a minimum
leverage ratio of 4.0%.
Common equity for the common equity tier 1 capital ratio includes common stock (plus related surplus) and retained
earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory
deductions.
Tier 1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-
cumulative preferred stock and related surplus, cumulative preferred stock and related surplus and trust preferred
securities that have been grandfathered (but which are not permitted going forward), and limited amounts of minority
interests in the form of additional tier 1 capital instruments, less certain deductions.
Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as
subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to new eligibility criteria, less
applicable deductions.
The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax
assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a
banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions
(above certain levels). The deductions phased in beginning in 2015 and will continue through 2019.
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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 several risk weights 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 new rules also place restrictions on the payment of capital distributions, including dividends, and certain
discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater
than 2.5 percent 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 percent at
the beginning of the quarter. The capital conservation buffer phased in starting January 1, 2016, at .625%.
The implementation of the portion of Basel III that has been phased in as of the date of this Form 10-K did not have
a material impact on Peoples’ or Peoples Bank’s capital ratios. Further, the implementation of Basel III, once fully
phased in, is not expected to have a material impact on Peoples’ or Peoples Bank’s capital ratios.
In order to be "well capitalized", a bank must have a common equity tier 1 capital ratio of at least 6.5%, a tier 1 risk-
based capital ratio of at least 8.0%, a total risk-based capital of at least 10.0%, and a leverage ratio of at least 5.0%, 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 measures. Peoples' management believes that Peoples and
Peoples Bank meet the ratio requirements to be deemed "well capitalized" according to the guidelines described above.
See Note 15 of the Notes to the Consolidated Financial Statements.
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, 2015, the most recent performance evaluation by the OCC (which was Peoples
Bank's primary federal banking regulator at the time of the examination) 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
Federal Reserve Board and a prohibition on paying dividends that would cause Peoples Bank's total capital to be less
than the required minimum levels under the capital requirements imposed by the Federal Reserve Board. Ohio law also
limits the amount of dividends that may be paid in any given year without prior approval of the Ohio Superintendent of
Financial Institutions. 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 15 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 has also issued a policy statement with regard to the payment of cash dividends by
financial holding companies and other bank holding companies. The policy statement provides that, as a matter of
prudent banking, a financial holding company or bank holding company should not maintain a rate of cash dividends
unless its net income available to common shareholders has been sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears to be consistent with the financial holding company's or bank holding
company's capital needs, asset quality and overall financial condition. Accordingly, a financial holding company or bank
holding company should not pay cash dividends that exceed its net income or can only be funded in ways that weaken
the financial holding company's or bank holding company's financial health, such as by borrowing.
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 permitted by law without requiring prior Federal Reserve
Board or other regulatory approval. In addition, if Peoples were to elect to defer payments of interest on the junior
subordinated debt securities held by the Statutory Trust or an event of default were to occur under the indenture
governing those junior subordinated debt securities, Peoples would be prohibited from declaring or paying any dividends
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on Peoples' common shares. Even when the legal ability exists, Peoples or Peoples Bank may decide to limit the
payment of dividends in order to retain earnings for corporate use.
Customer Privacy and Other Consumer Protections
Peoples Bank is subject to regulations limiting the ability of financial institutions to disclose non-public information
about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and,
in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated party.
Peoples Bank is also subject to numerous federal and state laws aimed at protecting consumers, including the Home
Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Truth in
Lending Act, the Bank Secrecy Act, the Community Reinvestment Act and the Fair Credit Reporting Act.
USA Patriot Act
The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (the "USA Patriot Act") and related regulations, among other things, require financial institutions
to establish programs specifying procedures for obtaining identifying information from customers seeking to establish
new accounts 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, 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 light of the
changing conditions in the economy, the money markets and the activities of monetary and fiscal authorities, Peoples can
make no definitive predictions as to future changes in interest rates, credit availability or deposit levels.
Executive and Incentive Compensation
In June 2010, the Federal Reserve Board, the OCC and the FDIC issued joint interagency guidance on incentive
compensation policies (the "Joint Guidance") intended to ensure that the incentive compensation policies of banking
organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
This principles-based guidance, which covers all employees that have the ability to materially affect the risk profile of an
organization, either individually or as part of a group, is based upon the key principles that a banking organization's
incentive compensation arrangements should: (1) provide incentives that do not encourage risk-taking beyond the
organization's ability to effectively identify and manage risks; (2) be compatible with effective internal controls and risk
management; and (3) be supported by strong corporate governance, including active and effective oversight by the
organization's board of directors.
Pursuant to the Joint Guidance, the Federal Reserve Board will review, as part of a regular, risk-focused examination
process, the incentive compensation arrangements of financial institutions such as Peoples 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-
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
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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
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.
• Changes in economic and political conditions could adversely affect Peoples’ earnings through declines in
deposits, loan demand, the ability of its customers to repay loans and the value of the collateral securing its loans.
Peoples’ success depends, in part, on economic and political conditions, local and national, as well as governmental
fiscal and monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and
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monetary policy and other factors beyond Peoples’ control may adversely affect its deposit levels and composition,
demand for loans, the ability of its borrowers to repay their loans, and the value of the collateral securing the loans it
makes. Economic turmoil in Europe and Asia and changes in oil production in the Middle East affect the economy and
stock prices in the United States, which can affect Peoples’ earnings and capital, and the ability of its customers to repay
loans.
The local economies of the majority of Peoples' market areas historically have been less robust than the economy of
the nation as a whole and typically are not subject to the same extent of 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; volatility in pricing and availability of
natural resources; natural disasters; or a combination of these or other factors.
Some businesses, states and municipalities are having difficulty, due to reduced cash flow and weakened financial
condition, despite the general recovery of the economy from the recession that started in 2008. Moreover, any reversal
of recent improvements in economic conditions 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 to pay such acquisition prices than Peoples does. Also,
acquisitions of regulated businesses such as banks are subject to various regulatory approvals. If Peoples fails to receive
the appropriate approvals, it will not be able to consummate an acquisition that it believes is in its best interest.
During 2014 and 2015, Peoples completed four bank 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. Peoples may not be able to fully achieve the strategic
objectives and operating efficiencies anticipated in the acquisitions it completes. 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 below those estimated. In addition, we may issue equity securities in connection with acquisitions which
could dilute the economic and voting interests of our shareholders.
• 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 ODFI,
the Federal Reserve Bank of Cleveland, 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 appropriateness of an institution's allowance for
loan losses. Additionally, actions by regulatory agencies or significant litigation against Peoples could cause Peoples to
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devote significant time and resources to defending its business and may lead to penalties that materially affect Peoples
and its shareholders.
In light of current conditions in the global financial markets and the global economy, regulators have increased their
focus on the regulation of the financial services industry. Most recently, the U.S. Congress and the federal agencies
regulating the financial services industry have acted on an unprecedented scale in responding to the stresses experienced
in the global financial markets. Some of the laws enacted by the U.S. Congress and regulations promulgated by federal
regulatory agencies subject Peoples, Peoples Bank and other financial institutions to which such laws and regulations
apply, to additional restrictions, oversight and costs that may have an impact on Peoples' business, results of operations
or the trading price of Peoples' common shares. 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 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 previous 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 became effective for Peoples and Peoples Bank on January 1,
2015 (subject to a phase-in period). Although the implementation of Basel III, once fully phased in, is not expected to
have a material impact on Peoples' or Peoples Bank's capital ratios, any future changes to capital requirements may have
such an effect.
Further information about government regulation of Peoples' business can be found under the caption "Supervision
and Regulation" in "ITEM 1. BUSINESS" of this Form 10-K.
• Recently enacted and further financial regulatory reforms may adversely impact Peoples’ results of operations
and financial condition.
On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act and regulations adopted under it
constituted a major change in the financial services industry throughout the United States and have significantly
impacted the way in which Peoples and Peoples Bank conduct business. Some provisions of the Dodd-Frank Act remain
to be implemented and interpreted by the banking regulators and the SEC, and the full effect of that law is not yet
known. Nonetheless, the parts of the law and regulations that have been implemented have already resulted in increased
compliance costs and may result in increased fees paid to regulators, as well as restrictions on the operations of Peoples
and its subsidiaries, all of which may have a material adverse effect on the results of operations and financial condition
of Peoples.
• Defaults by larger financial institutions could adversely affect Peoples' business, earnings and financial condition.
The 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 a limited amount of 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.
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• 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 revolving credit note of Peoples 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 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.
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.
Peoples Bank has limited ability to control the amount of premiums it is required to pay for FDIC insurance. The
Deposit Insurance Fund maintained by the FDIC to resolve bank failures is funded by fees assessed on insured
depository institutions, such as Peoples Bank. The costs of resolving bank failures have increased in recent years and
decreased the Deposit Insurance Fund balance. The FDIC collected a special assessment in 2009 to replenish the
Deposit Insurance Fund and also required a prepayment of an estimated amount of future deposit insurance premiums. If
the costs of future bank failures continue to increase, deposit insurance premiums may also increase. 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. In addition, the FDIC has proposed changes to its
assessment system for banks with less than $10 billion in assets that have been insured by the FDIC for at least five
years. It is uncertain how a final new assessment system might affect Peoples Bank's deposit insurance premiums in the
future.
• Changes in interest rates may adversely affect Peoples' profitability.
Peoples' earnings and cash flows 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" 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 that Peoples will have inaccurate or
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incomplete information about borrowers, risks that borrowers will become unable to repay loans, and, in the case of
loans secured by collateral, risks resulting from uncertainties about the future value of the collateral.
Commercial 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 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 may also have concentrated credit exposures to a particular industry, resulting
in a risk of a material adverse effect on earnings or financial condition, if there is an event adversely affecting that
industry.
• Peoples' allowance for loan losses may be insufficient to absorb the probable, incurred losses in its loan portfolio.
Peoples maintains an allowance for loan losses that is believed to be a reasonable estimate of the probable, incurred
losses within the loan portfolio based on management's quarterly analysis of the portfolio. The determination of the
allowance for loan losses requires management to make various assumptions and judgments about the collectability of
Peoples' loans, 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" 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 the
incurred losses from its loan portfolio, resulting in the need for additions to the allowance for loan losses which could
have a material adverse impact on Peoples' financial condition and results of operations. In addition, bank 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 required increase in the allowance for loan losses would be a capital charge at adoption and the future
impact could potentially decrease Peoples' pretax and net income going forward.
• 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 SEC and other regulatory bodies, periodically change the
financial accounting and reporting standards that govern the preparation of Peoples' Consolidated Financial Statements.
The pace of change continues to accelerate and changes in accounting standards 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. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" 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
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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 or 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
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. If Peoples is
unable to compete effectively, Peoples would lose market share, which could reduce income generated from deposits,
loans and other products. For a more complete discussion of Peoples' competitive environment, see "Competition" in
"ITEM 1. BUSINESS" of this Form 10-K.
• Peoples' ability to pay dividends is limited, and Peoples may not be in the position to pay dividends in the future.
Although Peoples has paid dividends on its common shares in the past, Peoples may reduce or eliminate dividends
in the future, in the discretion of the Board of Directors, for any reason, including a determination to use funds for other
purposes, or due to regulatory constraints. Peoples is a separate and distinct legal entity from Peoples' subsidiaries.
Peoples receives nearly all of its liquidity from dividends from Peoples Bank, which are limited by federal and state
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. BUSINESS" of this Form 10-K and Note 15 of the
Notes to the Consolidated Financial Statements.
• Peoples' business could be adversely affected by interruptions in the effective operations of, or security breaches
affecting its computer systems and telecommunications networks 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, designed to ensure the computer systems
will not be inoperable, to the extent possible. Nonetheless, risks to the systems result from a variety of factors, including
the potential for bad acts on the part of hackers, criminals, employees or others. As one example, in recent years, some
banks have experienced denial of service attacks in which individuals or organizations flood the bank’s website with
extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process
transactions. Peoples is also at risk from the impact of natural disasters, terrorism and internal hostilities on its systems
or for the effects of outages or other failures involving power or communications systems operated by others. These
risks also arise from the same types of threats to businesses with which Peoples deals.
Peoples’ systems and those of its third-party service providers may also be vulnerable to security breaches that result
in confidential customer information being lost or misappropriated. Any security breach involving confidential customer
information, whether by Peoples or its vendors, or any interruption to Peoples’ systems, could result in damage to its
reputation, loss of customer business, litigation or increased regulatory scrutiny, which might also result in financial loss
and require additional efforts and expense to attempt to prevent such adverse consequences in the future.
• 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.
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• 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.
Peoples may be subject to disruptions of its operating systems arising from events that are wholly or partially
beyond its control, which may include, for example, computer viruses, cyber-attacks, spikes in transaction volume and/or
customer activity, electrical or telecommunications outages, or natural disasters. Although Peoples has programs in place
related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity and
availability of its systems, business applications and customer information, such disruptions may give rise to
interruptions in service to customers, loss of data privacy and loss or liability to Peoples.
Any failure or interruption in Peoples' operations or information systems, or any security or data breach, could cause
reputational damage, jeopardize the confidentiality of customer information, result in a loss of customer business, subject
Peoples to regulatory intervention or expose Peoples to civil litigation and financial loss or liability, any of which could
have a material adverse effect on Peoples.
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
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' business could be adversely affected by third-party service providers, data breaches and cyber-attacks.
Peoples faces the risk of operational disruption, failure or capacity constraints due to its dependency on third-party
vendors for components of its business infrastructure. While Peoples has selected these third-party vendors through its
vendor management processes, Peoples does not control their operations. As such, any failure on the part of these
business partners to perform their various responsibilities could also adversely affect Peoples' business and operations.
Further, Peoples may be affected by data breaches at retailers and other third parties who participate in data
interchanges with Peoples and its customers that involve the theft of customer credit and debit card data, which may
include the theft of Peoples' debit card PIN numbers and commercial card information used to make purchases at such
retailers and other third parties. Such data breaches could result in Peoples' incurring significant expenses to reissue debit
cards and cover losses, which could result in a material adverse effect on Peoples' results of operations.
To date, Peoples has not experienced any material losses relating to cyber-attacks or other information security
breaches, but there can be no assurance that Peoples will not suffer such attacks or attempted breaches, or incur resulting
losses in the future. Peoples' risk and exposure to these matters remains heightened because of, among other things, the
evolving nature of these threats, Peoples' plans to continue to implement Internet and mobile banking to meet customer
demand, and the current economic and political environment. As cyber and other data security threats continue to evolve,
Peoples may be required to expend significant additional resources to continue to modify and enhance its protective
measures or to investigate and remediate any security vulnerabilities.
Peoples’s assets which are at risk for cyber-attacks include financial assets and non-public information belonging to
customers. Peoples utilizes several third-party vendors who have access to Peoples' assets via electronic media. Certain
cyber security risks arise due to this access, including cyber espionage, blackmail, ransom, and theft. Peoples employs
many preventive and detective controls to protect its assets, and provides mandatory recurring information security
training to all employees. Peoples maintains certain insurance coverage to prevent material financial loss from cyber-
attacks.
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• 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.
• Peoples Bank may be required to repurchase loans it has sold or indemnify loan purchasers under the terms of
the sale agreements, which could adversely affect Peoples’ liquidity, results of operations and financial condition.
When Peoples Bank sells a mortgage loan, it may agree to repurchase or substitute a mortgage loan if it is later
found to have breached any representation or warranty Peoples made about the loan or if the borrower is later found to
have committed fraud in connection with the origination of the loan. While Peoples Bank has underwriting policies and
procedures designed to avoid breaches of representations and warranties as well as borrower fraud, there can be no
assurance that no breach or fraud will ever occur. Required repurchases, substitutions or indemnifications could have an
adverse effect on Peoples’ liquidity, results of operations and financial condition.
• 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. 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 "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K.
• Peoples or one of its subsidiaries may be a defendant from time to time in the future in a variety of litigation and
other actions, which could have a material adverse effect on Peoples' financial condition, results of operations and
cash flows.
Peoples and its subsidiaries may be involved from time to time in the future in a variety of litigation arising out of
their respective businesses. The risk of litigation increases in times of increased troubled loan collection activity.
Peoples' insurance may not cover all claims that may be asserted against Peoples and its subsidiaries, and any claims
asserted against them, regardless of merit or eventual outcome, may harm their respective reputations. Should the
ultimate judgments or settlements in any litigation exceed the applicable insurance coverage, they could have a material
adverse effect on Peoples' financial condition, results of operations and cash flows. In addition, Peoples or one of its
subsidiaries may not be able to obtain appropriate types or levels of insurance in the future, nor may they be able to
obtain adequate replacement policies with acceptable terms, if at all.
23
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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 Akron, Athens (2 offices), Baltimore, Batavia, Beachwood, Belpre (2
offices), Blanchester, Byesville, Caldwell, Cambridge (2 offices), Carlisle, Centerville, Coshocton (2 Offices), Cuyahoga
Falls, Franklin, Gallipolis, Georgetown, Heath, Hillsboro, Jackson, Lancaster (2 offices), Lebanon, Lowell, Maineville,
Marietta (5 offices), Mason, McConnelsville, Milford, Mount Orab, Mount Vernon, Munroe Falls, Nelsonville, New
Philadelphia, New Vienna, Newark, Norton, Owensville, Pomeroy (2 offices), Sabina, Sardina, Springboro, The Plains,
Waynesville, Wellston, Williamsburg, Wilmington (3 offices), 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
offices), Sistersville and Vienna (2 offices). In Kentucky, Peoples Bank's office locations include Ashland (2 offices),
Greenup and Russell. Of these 78 offices, 17 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 Lebanon, Ohio, and in Pikeville, Kentucky.
Rent expense on the leased properties totaled $959,000 in 2015, compared to $934,000 in 2014, which excludes
intercompany rent expense. The following are the only properties that have a lease term expiring on or before June 2017:
Location
Jackson Insurance Office
Owensville Office
Lebanon Insurance Office
The Plains
Pikeville Insurance Office
Beachwood Office
Lancaster Fair Avenue Office
Marietta Kroger
Address
Lease Expiration Date (a)
78 Broadway Street
Jackson, Ohio
227 West Main Street
Owensville, Ohio
46 North Broadway Street
Lebanon, Ohio
70 N. Plains Road
The Plains, Ohio
233 Cassidy Boulevard Suite 2
Pikeville, Kentucky
24400 Chagrin Blvd
Beachwood, Ohio
2211 West Fair Ave
Lancaster, Ohio
40 Acme Street
Marietta, Ohio
May 2016
June 2016
July 2016
December 2016
February 2017
March 2017
March 2017
March 2017
(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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Table of Contents
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,
2015, Peoples had approximately 2,456 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 common
share declared during the indicated periods.
2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Sales
Low
Sales
Dividends
Declared
$
22.00 $
18.12 $
24.33
24.74
26.01
20.63
22.65
22.63
$
26.65 $
23.39 $
28.00
27.36
26.10
23.00
23.58
20.29
0.15
0.15
0.15
0.15
0.15
0.15
0.15
0.15
Peoples plans to continue to pay quarterly cash dividends, subject to certain regulatory restrictions described in Note 15
of the Notes to the Consolidated Financial Statements, as well as in the section captioned "Supervision and Regulation –
Dividend Restrictions" of "ITEM 1 - BUSINESS" 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) under the Securities Exchange Act of 1934, as amended, of Peoples' common shares during the three months ended
December 31, 2015:
(a)
Total
Number of
Common
Shares
Purchased
(b)
Average Price
Paid per
Common Share
(c)
Total Number of
Common Shares
Purchased as Part of
Publicly Announced
Plans or Programs (1)
(d)
Maximum
Number (or
Approximate Dollar
Value) of Common
Shares that May Yet Be
Purchased Under the
Plans or Programs (1)
2,053 (2)(3) $
1,811 (2)
$
850 (2)
$
$
19.59 (2)(3)
20.70 (2)
18.89 (2)
19.89
—
— $
— $
—
—
20,000,000
20,000,000
Period
October 1 - 31, 2015
November 1 - 30, 2015
December 1 - 31, 2015
Total
4,714
(2)
(1) On November 3, 2015, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to $20 million of its
outstanding common shares. No common shares were purchased under this share repurchase program during 2015. Additional information regarding
the share repurchase program can be found in Note 10 of the Notes to the Consolidated Financial Statements included immediately following "ITEM
9B - OTHER INFORMATION" of this Form 10-K.
Information includes 398 common shares, 1,484 common shares, and 200 common shares purchased in open market transactions during October,
November, and December, respectively, by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishes a rabbi trust
that holds assets to provide funds for the payment of the benefits under the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation
Plan for Directors of Peoples Bancorp Inc. and Subsidiaries.
Includes 1,655 common shares, 327 common shares, and 650 common shares withheld during October, November, and December, respectively, to
pay income tax or other tax liabilities associated with vested restricted common shares.
(3)
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Table of Contents
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 graph compares the five-year cumulative total shareholder return of Peoples' common shares, based
on an initial investment of $100 on December 31, 2010, and assuming reinvestment of dividends, against that of an index
comprised of all domestic common shares traded on The NASDAQ Stock Market (“NASDAQ Stocks (U.S. Companies)”),
and an index comprised of all depository institutions (SIC Code #602) and depository institution holding companies (SIC
Code #671) that are traded on The NASDAQ Stock Market (“NASDAQ Bank Stocks”).
COMPARISON OF FIVE-YEAR TOTAL RETURN AMONG
PEOPLES BANCORP INC., NASDAQ STOCKS (U.S. COMPANIES),
AND NASDAQ BANK STOCKS
Peoples Bancorp Inc.
NASDAQ Stocks (U.S. Companies)
NASDAQ Bank Stocks
$ 100.00 $
$ 100.00 $
$ 100.00 $
96.93 $
99.21 $
89.47 $
2010
2011
At December 31,
2013
2012
136.61 $ 154.29 $
116.70 $ 163.58 $
106.09 $ 150.36 $
2014
182.20 $
187.84 $
157.75 $
2015
136.03
201.19
171.70
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ITEM 6. SELECTED FINANCIAL DATA
The information below has been derived from Peoples' Consolidated Financial Statements.
Operating Data (a)
Total interest income
Total interest expense
Net interest income
Provision for (recovery of) loan losses
Net (loss) gain on investment securities and other
transactions
Total non-interest income
FDIC insurance expense
Other expense
Preferred dividends (b)
At or For the Year Ended December 31,
2015
2014
2013
2012
2011
$
108,333 $
80,200 $
67,071 $
69,470 $
10,721
97,612
14,097
(1,059)
47,441
2,084
112,997
—
10,694
69,506
339
(33)
40,053
1,260
83,749
—
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
—
75,133
21,154
53,979
7,998
(443)
32,944
1,867
59,464
1,343
Net income available to common shareholders
Balance Sheet Data (a)
Total investment securities
$
$
10,941 $
16,684 $
17,574 $
20,385 $
11,212
868,830 $
713,659 $
680,526 $
709,085 $
669,228
Loans, net of deferred fees and costs
2,072,440
1,620,898
1,196,234
985,172
938,506
Allowance for loan losses
Total intangible assets
Total assets
Non-interest-bearing deposits
Brokered certificates of deposits
Other interest-bearing deposits
Short-term borrowings
Junior subordinated debentures held by subsidiary trust
Other long-term borrowings
Total stockholders' equity
Tangible assets (c)
Tangible equity (c)
Per Common Share Data (a)
16,779
149,617
17,881
109,158
17,065
77,603
17,811
68,525
23,717
64,475
3,258,970
2,567,769
2,059,108
1,918,050
1,794,161
717,939
33,857
493,162
39,691
409,891
49,041
317,071
55,599
239,837
64,054
1,784,148
1,400,221
1,121,826
1,119,633
1,047,189
160,386
6,736
106,934
419,789
88,277
113,590
47,769
—
179,083
340,118
—
121,826
221,553
—
128,823
221,728
51,643
22,600
142,312
206,657
3,109,353
2,458,611
1,981,505
1,849,525
1,729,686
270,172
230,960
143,950
153,203
142,182
Earnings per common share – basic
Earnings per common share – diluted
Cash dividends declared per common share
Book value per common share (d)
$
0.62 $
1.36 $
1.65 $
1.92 $
0.61
0.60
22.81
1.35
0.60
22.92
1.63
0.54
20.89
1.92
0.45
21.02
Tangible book value per common share (c)(d)
$
14.68 $
15.57 $
13.57 $
14.52 $
1.07
1.07
0.30
19.67
13.53
Weighted-average number of common shares
outstanding – basic
Weighted-average number of common shares
outstanding – diluted
17,555,140 12,183,352 10,581,222 10,527,885 10,482,318
17,687,795 12,306,224 10,679,417 10,528,286 10,482,318
Common shares outstanding at end of period
18,404,864 14,836,727 10,605,782 10,547,960 10,507,124
27
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Significant Ratios (a)
Return on average stockholders' equity
Return on average common stockholders' equity
Return on average assets
Net interest margin
Efficiency ratio (c)(e)
Pre-provision net revenue to total average assets (f)
Average stockholders' equity to average assets
Average loans to average deposits
Dividend payout ratio
Asset Quality Ratios (a)
Nonperforming loans as a percent of total loans (d)(g)
Nonperforming assets as a percent of total assets (d)(g)
Nonperforming assets as a percent of total loans and other real estate
owned ("OREO") (d)(g)
Allowance for loan losses as a percent of originated loans, net of
deferred fees and costs (d)(i)
Allowance for loan losses as a percent of nonperforming loans (d)(g)(i)
Provision for (recovery of) loan losses as a percent of average total
loans
Net charge-offs (recoveries) as a percent of average total loans (h)
Capital Ratios (a)(c)
Common Equity Tier 1
Tier 1
Total (Tier 1 and Tier 2)
Tier 1 leverage
Tangible equity to tangible assets (c)
At or For the Year Ended December 31,
2015
2014
2013
2012
2011
2.69% 6.16 % 7.92 %
2.69
0.35
3.53
75.50
0.96
13.09
80.08
96.35% 43.10 % 33.20 % 23.58% 28.35%
5.72%
5.61
0.69
3.43
68.98
1.41
12.12
69.86
9.52%
9.52
1.11
3.36
69.55
1.41
11.63
68.23
6.16
0.74
3.45
75.37
1.10
12.08
79.58
7.92
0.91
3.23
71.90
1.26
11.48
70.79
0.94% 0.69 % 0.60 %
0.62
0.47
0.39
1.43%
0.78
3.26%
1.83
0.98
1.19
0.75
1.48
0.67
1.58
1.52
1.86
3.48
2.53
86.05
159.58
237.87
125.34
77.26
0.72
0.02
(0.42)
(0.49)
0.84
0.78% (0.03)% (0.35)%
0.12%
1.16%
13.37% N/A
14.32
13.68
15.48
14.55
9.92
9.52
9.39
8.69
N/A
12.42
13.78
8.52
7.26
N/A
14.06
15.43
8.83
8.28
N/A
14.86
16.20
9.45
8.22
(a) Reflects the impact of the acquisition of NB&T beginning March 6, 2015, of Midwest beginning May 30, 2014, of Ohio Heritage beginning
August 22, 2014 and of North Akron beginning October 24, 2014.
(b) Amounts relate to Series A Preferred Shares issued and sold by Peoples in connection with its participation in the TARP Capital Purchase
Program.
(c) 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”.
(d) Data presented as of the end of the year indicated.
(e) Total other expense (less intangible asset amortization) as a percentage of fully tax-equivalent net interest income plus non-interest income
(which excludes gains or losses on investment securities, asset disposals and other transactions). 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 “Efficiency Ratio”.
(f) 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”.
(g) 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.
(h) Net charge-offs (recoveries) as a percent of average total loans increased in 2015 as Peoples recorded a $13.1 million charge-off associated with
one large commercial relationship, resulting in 0.67% of the reported amount of 0.78%.
(i) The decrease is primarily due to a reduction in the five year historical loss rates. Additional information regarding the allowance for loan losses
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 "Allowance for Loan Losses".
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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)
(11)
(12)
(13)
the success, impact, and timing of the implementation of Peoples' business strategies, including the
successful integration of recently completed acquisitions and the expansion of consumer lending activity;
Peoples' ability to integrate the NB&T acquisition and any future acquisitions may be unsuccessful, or may
be more difficult, time-consuming or costly than expected;
Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and
economic dilution to Peoples' current shareholders;
local, regional, national and international economic conditions and the impact they may have on Peoples, its
customers and its counterparties, and Peoples' assessment of the impact, which may be different than
anticipated;
competitive pressures among financial institutions or from non-financial institutions may increase
significantly, including product and pricing pressures, third-party relationships and revenues, 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 rates, interest margins and
interest rate sensitivity;
changes in prepayment speeds, loan originations, levels of non-performing assets, delinquent loans and
charge-offs, which may be less favorable than expected and adversely impact the amount of interest income
generated;
adverse changes in economic conditions and/or activities, including, but not limited to, continued economic
uncertainty in the U.S., the European Union, Asia, and other areas, which could decrease sales volumes and
increase loan delinquencies and defaults;
legislative or regulatory changes or actions, promulgated and to be promulgated thereunder by the State of
Ohio, the Federal Deposit Insurance Corporation, 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, including in
particular the rules and regulations promulgated and to be promulgated under the Dodd-Frank Act;
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;
Peoples' assumptions and estimates used in applying critical accounting policies, which may prove
unreliable, inaccurate or not predictive of actual results;
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, the interest rate
sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment
activities;
(14)
Peoples' ability to receive dividends from its subsidiaries;
(15)
Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;
(16)
the impact of new minimum capital thresholds established as a part of the implementation of Basel III;
29
Table of Contents
(17)
(18)
(19)
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,
may prove inadequate, which could adversely affect customer confidence in Peoples and/or result in Peoples
incurring a financial loss;
(20)
the overall adequacy of Peoples' risk management program;
(21)
(22)
the impact on Peoples' businesses, as well as on the risks described above, of various domestic or
international military or terrorist activities or conflicts; and
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 disclosures under the heading "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' 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 6, 2016, Peoples Bank acquired a small financial advisory book of business in Marietta, Ohio for cash
consideration of $0.5 million. This acquisition did not materially impact Peoples' financial position, results of
operations or cash flows.
During 2015, Peoples recorded aggregate charge-offs of $13.1 million on a single impaired commercial loan
relationship consisting of four impaired loans. As of December 31, 2015, Peoples net recorded investment with
respect to these loans was zero.
On December 30, 2015, Peoples announced that Peoples Bank, National Association, the banking subsidiary of
Peoples, converted from a national banking association into an Ohio state-chartered bank which is a member of the
Federal Reserve System. As a result of the charter conversion, the legal name of Peoples' banking subsidiary was
changed to "Peoples Bank" and the converted bank will continue to operate under the trade name and federally
registered service mark "Peoples Bank." Additionally, Peoples' banking subsidiary will see a reduction in the annual
cost associated with regulatory examination fees commencing in 2016.
On November 3, 2015, Peoples announced that its Board of Directors approved and adopted a share repurchase
program authorizing Peoples to purchase, from time to time, up to an aggregate of $20 million of its outstanding
common shares. As of February 24, 2016, Peoples had repurchased an aggregate of 253,870 common shares with a
total cost of $4.5 million, although none of these common shares was purchased in 2015.
On July 24, 2015, Peoples repaid the principal balance of the $12.0 million term loan then outstanding under the
Amended Loan Agreement described in Note 9 of the Notes to the Consolidated Financial Statements. There were no
early termination fees associated with the repayment. The revolving credit loan commitment available under the
Amended Loan Agreement remains outstanding.
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On July 21, 2015, Peoples Insurance acquired an insurance agency and related customer accounts in the Lebanon,
Ohio area for total cash consideration of $0.9 million, and recorded $0.5 million of customer relationship intangibles
and $0.4 million of goodwill.
At the close of business on March 6, 2015, Peoples completed the acquisition of NB&T Financial Group, Inc.
("NB&T"). Under the terms of the merger agreement, Peoples paid $7.75 in cash and 0.9319 in Peoples' common
shares for each of the 3,442,329 outstanding NB&T common shares for a total consideration of $102.7 million.
NB&T merged into Peoples and NB&T's wholly-owned subsidiary, The National Bank and Trust Company, which
operated 22 full-service branches in southwest Ohio, merged into Peoples Bank. The acquisition added $384.6
million of loans and $629.5 million of deposits at the acquisition date, after acquisition accounting adjustments.
At the close of business on October 24, 2014, Peoples completed the acquisition of North Akron Savings Bank
("North Akron") and its 4 full-service offices in Akron, Cuyahoga Falls, Munroe and Norton, Ohio. Under the terms
of the merger agreement, Peoples paid $7.655 of consideration per share of North Akron common stock, or $20.1
million, of which 80% was paid in Peoples' common shares and the remaining 20% in cash. The acquisition added
$111.5 million of loans and $108.1 million of deposits at the acquisition date, after acquisition accounting
adjustments.
At the close of business on August 22, 2014, Peoples completed the acquisition of Ohio Heritage Bancorp, Inc.
("Ohio Heritage") and the 6 full-service offices of its subsidiary, Ohio Heritage Bank, in Coshocton, Newark, Heath,
Mount Vernon and New Philadelphia, Ohio. Under the terms of the merger agreement, Peoples paid $110.00 of
consideration per share of Ohio Heritage common stock, or $37.7 million, of which 85% was paid in Peoples'
common shares and the remaining 15% in cash. The acquisition added $175.8 million of loans and $174.9 million of
deposits at the acquisition date, after acquisition accounting adjustments.
On August 7, 2014, Peoples announced the completion of the sale of 1,847,826 common shares at $23.00 per share to
institutional investors through a private placement (the "Private Equity Issuance"). Peoples received net proceeds of
$40.2 million from the sale, and used the proceeds, in part, to fund the cash consideration for the NB&T acquisition.
At the close of business on May 30, 2014, Peoples completed the acquisition of Midwest Bancshares, Inc.
("Midwest") and the 2 full-service offices of its subsidiary, First National Bank of Wellston, in Wellston and Jackson,
Ohio. Under the terms of the merger agreement, Peoples paid $65.50 of consideration per share of Midwest common
stock, or $12.6 million, of which 50% was paid in cash and the remaining 50% in Peoples' common shares. The
acquisition added $58.7 million of loans and $77.9 million of deposits at the acquisition date, after acquisition
accounting adjustments.
In 2015, Peoples incurred an aggregate of $11.3 million of acquisition-related expenses, compared to $5.1 million in
2014 and $1.5 million in 2013, which were primarily severance costs, fees for legal services and other professional
services, deconversion costs and write-offs associated with assets acquired.
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. Peoples received proceeds of $43.1 million
during 2013 as a result of the liquidation of BOLI contracts, while the remaining cash surrender value of
approximately $6.6 million was recorded as a receivable at December 31, 2013. Peoples received the remaining cash
surrender value in the first quarter of 2014, in accordance with the terms of the BOLI contracts (collectively, the
"BOLI Surrender"). The BOLI Surrender caused Peoples to incur a $2.2 million federal income tax liability in 2013
for the gain associated with the BOLI contracts surrendered.
Peoples periodically has taken actions to reduce interest rate exposure within the investment portfolio and the entire
balance sheet, which have included the sale of low-yielding investment securities and repayment of high-cost
borrowings. These actions included the sale of $68.8 million of investment securities, primarily low or volatile
yielding residential mortgage-backed securities, during the first quarter of 2013. Some of the proceeds from these
investment sales were reinvested in securities during the first quarter with the remaining reinvested early in the
second quarter of 2013.
As described in Note 11 of the Notes to the Consolidated Financial Statements, Peoples incurred settlement charges
of $459,000 during 2015 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 period. Settlement charges of
$1.4 million and $270,000 were recognized during 2014 and 2013, respectively.
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. In 2014, Peoples acquired Midwest, Ohio Heritage and
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North Akron and in 2015 acquired NB&T and has continued the consistent company-wide brand revitalization in the
newly-acquired facilities.
Peoples' net interest income and net interest 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 the target Federal Funds Rate (the interest rate at which banks lend money to each other), Discount
Rate (the interest rate charged to banks for money borrowed from the Federal Reserve Bank) and longer-term market
interest rates (primarily U.S. Treasury securities). Longer-term market interest rates also are affected by the demand
for U.S. Treasury securities. The resulting changes in the yield curve slope have a direct impact on reinvestment rates
for Peoples' earning assets.
In December 2015, the Federal Reserve Board raised short-term rates, including the Federal Funds Rate and the
Discount Rate, 0.25%, to a range of 0.25% to 0.50% for the Federal Funds Rate and 1.00% for the Discount Rate.
The Federal Reserve Board had previously maintained its target Federal Funds Rate at a historically low level of 0%
to 0.25% since December 2008 and had maintained the Discount Rate at 0.75% since December 2010. The Federal
Reserve Board has indicated the possibility that these short-term rates could again be raised in 2016.
The Federal Reserve ended its program of quantitative easing in the fourth quarter of 2014. Much speculation
occurred throughout 2015 as to when the Federal Reserve would begin to raise short-term interest rates. The yield on
the 10-year Treasury note began the year with a significant rally, falling from 2.17% to 1.64% during the month of
January. The yield peaked half way through 2015 at 2.49%. It fell below 2% again in October and traded in a range
between 2.13% and 2.34% during the last two months of the year. Overall, the Treasury yield curve steepened
throughout the year with the 30-year bond yield ending 2015 roughly 25 basis points higher than at the beginning of
the year.
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.
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 uncollectable 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
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continually monitors the loan portfolio through Peoples Bank's Credit Administration Department and Loan Loss
Committee to evaluate the appropriateness 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 direct and indirect
consumer loans) and makes general allocations for each loan pool based upon historical loss experience. While
allocations are made to specific loans and pools of loans, the allowance is available for all loan losses.
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 the borrower, 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, 2015 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 collectability 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 26.7% and 27.8% of total assets at December 31, 2015, and December
31, 2014 respectively, of which approximately 90% of the securities were classified as available-for-sale.
Correspondingly, Peoples carries these securities at fair value on its Consolidated Balance Sheets, with any unrealized
gain or loss recorded in stockholders' equity as a component of accumulated other comprehensive income or loss. As a
result, Peoples' Consolidated Balance Sheet may be 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.
Management performed its quarterly analysis of the investment securities with an unrealized loss at December 31,
2015, and concluded no individual securities were other-than-temporarily impaired. Peoples has not recognized an
impairment loss in 2015, 2014 or 2013.
Goodwill and Other Intangible Assets
During 2015 and in prior years, Peoples recorded goodwill and other intangible assets as a result of acquisitions
accounted for under the acquisition method of accounting. Under the acquisition method, Peoples is required to allocate
the cost of an acquired company to the assets acquired, including identified intangible assets, and liabilities assumed
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based on their estimated fair values at the date of acquisition. Goodwill represents the excess cost over the fair value of
net assets acquired and is not amortized but is tested for impairment when indicators of impairment exist, or at least
annually. Peoples' other intangible assets consist of customer relationship intangible assets, including core deposit
intangibles, representing the present value of future net income to be earned from acquired customer relationships with
definite useful lives, which are required to be amortized over their estimated useful lives.
The value of recorded goodwill is supported ultimately by revenue that is driven by the volume of business transacted
and Peoples' ability to provide quality, cost-effective services in a competitive market place. A decline in earnings as a
result of a lack of growth or the inability to deliver cost-effective services over sustained periods can lead to impairment
of goodwill that could adversely impact earnings in future periods. Potential goodwill impairment exists when the fair
value of the reporting unit (as defined by US GAAP) is less than its carrying value. An impairment loss is recognized in
earnings only when the carrying amount of goodwill is less than its implied fair value.
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
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.
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, 2015, 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, 2015, Peoples completed the interim test for
goodwill, and due to potential indicators continued the analysis related to the first step of the goodwill impairment test.
Peoples utilized the income approach and market approach analysis in determining that the fair value of the reporting unit
exceeded the carrying amount and that the goodwill of the reporting unit was not considered impaired. Therefore,
Peoples did not complete the second step of the goodwill impairment test. For further information regarding goodwill,
refer to Note 6 of the Notes to the Consolidated Financial Statements.
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, 2015, 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
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deferred tax assets involve differences related to Peoples' allowance for loan losses and accrued employee benefits. At
December 31, 2015, management determined a valuation allowance would be recorded against the deferred tax assets
associated with its investment in a partnership investment. No other valuation allowances were needed at either
December 31, 2015 or 2014.
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.
Peoples' 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, 2015 and 2014.
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, 2015, all of Peoples'
available-for-sale investment securities were measured using observable market data.
At December 31, 2015, 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 management's overall assessment of the reasonableness of the fair values
provided. To the extent available, management utilizes an independent third-party pricing source to assist in its
assessment of the values provided by its primary pricing services. Management reviews the fair values provided by these
third parties on a quarterly basis and challenges prices when it believes a discrepancy in pricing exists. Based on Peoples'
past experience, no discrepancies have been noted related to current pricing and values.
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
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collateral, less costs incurred during the sale, based upon observable market data or market value data provided by
independent, licensed or certified appraisers.
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.
To determine the fair value of its servicing rights (“SRs”) each reporting quarter, Peoples provides information
representing loan information accompanied by escrow amounts to a third-party valuation firm. The third-party then
evaluates the possible impairment of SRs as described below. Loans are evaluated on a discounted earnings basis to
determine the present value of future earnings that Peoples expects to realize from the portfolio. Earnings are projected
from a variety of sources including loan service fees, net interest earned on escrow balances, miscellaneous income and
costs to service the loans. The present value of future earnings is the estimated fair value, calculated using consensus
assumptions that a third-party purchaser would utilize in evaluating a potential acquisition of the SRs.
Events that may significantly affect the estimates used are changes in interest rates and the related impact on
mortgage loan prepayment speeds, and the payment performance of the underlying loans. Peoples believes this
methodology provides a reasonable estimate. Mortgage loan prepayment estimates were determined through the
application of the current dealer projected prepayment rates by product type and interest rate as published by Bloomberg,
L.P. as of January 4, 2016, and adjusted for historical prepayment factors based on state, type of servicing, year of
origination, and pass through coupon. The adjustable rate mortgage loan prepayment estimates were determined through
the application of market trading assumptions as of January 4, 2016, and adjusted for historical prepayment factors based
on state, type of servicing, year of origination, and pass through coupon.
These earnings are used to calculate the approximate cash flow that could be received from the servicing portfolio.
Valuation results are provided quarterly to Peoples. At that time, Peoples reviews the information and SRs are marked to
the lower of amortized cost or fair value for the current quarter.
EXECUTIVE SUMMARY
Net income for the year ended December 31, 2015 was $10.9 million, compared to $16.7 million in 2014 and $17.6
million in 2013, representing earnings per diluted common share of $0.61, $1.35 and $1.63, respectively. The decrease in
earnings during 2015 was primarily driven by provision for loan losses of $14.1 million coupled with $11.3 million of
acquisition-related costs. The decrease in 2014 from 2013 was primarily driven by acquisition-related costs of $5.1 million
and pension settlement charges of $1.4 million. Earnings in 2013 were impacted by additional operating costs associated
with various strategic investments to grow revenue and a lower recovery of loan losses.
In 2015, Peoples had a provision for loan losses of $14.1 million related primarily to the charge-off of one large
commercial loan relationship coupled with loan growth and downward trends in criticized loans. Peoples recorded net
charge-offs of $15.2 million for 2015, compared to net recoveries of $0.5 million and $3.7 million, respectively, for 2014 and
2013, respectively. The provision for or recovery of loan losses represented amounts needed, in management's opinion, to
maintain the appropriate level of the allowance for loan losses.
Year-over-year income and expense was largely effected by the acquisitions completed in 2014 and 2015. In 2014,
Peoples acquired Midwest on May 30, Ohio Heritage on August 22, and North Akron on October 24, and in 2015, Peoples
acquired NB&T on March 6. Due to the timing of the acquisitions, 2015 included a full year impact of the 2014 acquisitions
compared to only a partial impact in 2014. In 2015, NB&T income and expenses were included beginning on March 6, 2015.
Net interest income grew 40% to $97.6 million in 2015 compared to $69.5 million in 2014 and $55.4 million in 2013,
mostly due to higher loan balances in connection with the recent acquisitions, coupled with organic loan growth. Net interest
margin was 3.53% in 2015, higher than the 3.45% in 2014 and 3.23% in 2013. The increase in 2015 was due to accretion
income from the completed acquisitions, organic loan growth, change in asset mix and a reduction in funding costs.
Accretion income from acquisitions added approximately 17 basis points to net interest margin in 2015 compared to 13 basis
points in 2014 and 4 basis points in 2013. The increase in net interest margin in 2014 was mostly due to higher loan balances
in connection with acquisitions and organic loan growth. The decrease in net interest margin during 2013 was largely a result
of the low interest rate environment, which put downward pressure on asset yields.
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Total non-interest income, which excludes gains and losses on investment securities, asset disposals and other
transactions, increased 18% in 2015 compared to 2014 and increased 8% comparing 2014 to 2013. During 2015, electronic
banking income grew 35%, or $2.3 million, trust and investment income increased 25%, or $1.9 million, service charges on
deposit accounts grew 18%, or $1.7 million and bank owned life insurance income increased $0.5 million. The noted
increases reflected a full year of income from the 2014 acquisitions and approximately nine months of income related to the
NB&T acquisition.
Total other expense increased 35%, or $30.1 million, for the year ended December 31, 2015, due largely to a full year of
expenses related to the 2014 acquisitions and approximately nine months of expenses related to the NB&T acquisition. The
NB&T acquisition added 22 additional branches which increased net occupancy and equipment, higher salaries and employee
benefits, due to additional employees, increased intangible asset amortization and increased electronic banking expense.
Acquisition-related expenses included in other expenses during 2015 were $10.7 million, compared to $4.8 million in 2014
and $1.4 million in 2013.
At December 31, 2015, total assets were up 27%, or $691.2 million to $3.26 billion versus $2.57 billion at year-end
2014. The increase was primarily related to the acquisition of $710.5 million in assets during 2015. Excluding the impact of
the loans acquired in the NB&T acquisition, loan balances grew 7% or $451.6 million for the year. The allowance for loan
losses decreased $1.1 million to $16.8 million, or 1.19% of originated loans, net of deferred fees and costs, compared to
$17.9 million and 1.48% at December 31, 2014. Total investment securities grew to $868.8 million, or 26.7% of total assets
at December 31, 2015, compared to $713.7 million, or 27.8% of total assets at the prior year-end.
Total liabilities were $2.84 billion at December 31, 2015, up $611.5 million since December 31, 2014. Contributing to
this increase were acquired deposits of approximately $629.5 million. Non-interest-bearing deposits comprised 28.7% of
total retail deposits at December 31, 2015, versus 26.0% at year-end 2014. At December 31, 2015, total borrowed funds were
$274.1 million, up $6.7 million compared to the prior year-end, as Peoples assumed $6.6 million from the NB&T acquisition.
At December 31, 2015, total stockholders' equity was $419.8 million, up $79.7 million from December 31, 2014. The
increase in common stock within total stockholders' equity was primarily due to the common shares issued in connection with
2015 acquisition of NB&T which had a value of $76.0 million. Peoples' regulatory capital ratios remained significantly
higher than "well capitalized" minimums. Peoples' Tier 1 Capital ratio decreased to 13.68% at December 31, 2015, versus
14.32% at December 31, 2014, while the Total Capital ratio was 14.55% versus 15.48% at December 31, 2014. In addition,
Peoples' tangible equity to tangible assets ratio was 8.69% and tangible book value per share was $14.68 at December 31,
2015, versus 9.39% and $15.57 at December 31, 2014, respectively. Additional information regarding capital requirements
can be found in Note 15 of the Notes to the Consolidated Financial Statements.
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:
2015
2014
2013
(Dollars in thousands)
Short-term investments
Other long-term investments
Investment Securities (1)(2):
Taxable
Nontaxable
Total investment securities
Loans (2)(3):
Commercial real estate, construction
Commercial real estate, other
Commercial and industrial
Residential real estate (4)
Home equity lines of credit
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
Total stockholders’ equity
Average
Balance
Income/
Expense
Average
Balance
Income/
Expense
Yield/
Cost
123 0.24 % $
12 0.95 %
15,394 $
1,913
$
50,858 $
1,261
Yield/
Cost
1 0.01 % $
8 0.42 %
Average
Balance
Income/
Expense
Yield/
Cost
16,154 $
743
94 0.59 %
2 0.27 %
727,239
106,518
833,757
18,235 2.51 %
4,603 4.32 %
22,838 2.74 %
630,057
59,759
689,816
17,023 2.70 %
2,785 4.66 %
19,808 2.87 %
646,884
50,487
697,371
17,036 2.63 %
2,462 4.87 %
19,498 2.79 %
64,421
692,773
329,030
554,909
99,984
211,124
1,952,241
(19,174)
44,205
2,730 4.24 %
494,440
31,781 4.59 %
250,248
14,003 4.26 %
345,398
24,554 4.42 %
66,826
4,575 4.58 %
163,691
9,695 4.59 %
87,338 4.47 % 1,364,808
(17,362)
1,933,067
2,818,943
144,013
148,897
$3,111,853
87,338 4.52 % 1,347,446
110,311 3.91 % 2,054,569
87,821
98,144
$2,240,534
35,494
1,808 4.09 %
391,965
22,724 4.60 %
190,414
11,079 4.43 %
253,955
16,051 4.65 %
53,350
2,398 3.59 %
121,193
7,658 4.68 %
61,718 4.52 % 1,046,371
(17,935)
61,718 4.58 % 1,028,436
81,535 3.97 % 1,742,704
72,420
117,243
$1,932,367
$ 388,802 $
276,367
209 0.05 % $ 247,419 $
597 0.22 %
165,622
135 0.05 % $ 200,190 $
470 0.28 %
146,955
178 0.08 %
614 0.16 %
1,352 3.72 %
148,687
293,214
42,598
124 0.08 %
472 0.16 %
1,568 3.68 %
125,984
259,226
51,287
3,256 0.70 %
383,574
6,206 0.35 % 1,281,114
3,337 0.87 %
358,918
6,106 0.48 % 1,142,560
42 0.25 %
140 0.17 %
182 0.18 %
2,256 2.75 %
1,471 3.68 %
606 4.58 %
36,678
59,362
96,040
80,837
40,000
17,334
47 0.13 %
99 0.17 %
146 0.15 %
2,299 2.84 %
1,471 3.68 %
672 3.88 %
44,127
37,167
81,294
64,004
40,000
22,096
1,569 4.36 %
18,882 4.75 %
7,960 4.12 %
12,089 4.76 %
2,045 3.83 %
6,143 5.07 %
48,688 4.62 %
48,688 4.70 %
68,282 3.90 %
107 0.05 %
642 0.44 %
101 0.08 %
379 0.15 %
1,871 3.65 %
3,952 1.10 %
7,052 0.62 %
55 0.12 %
59 0.16 %
114 0.14 %
2,167 3.39 %
1,471 3.68 %
882 3.94 %
138,171
4,333 3.20 %
4,515 1.92 %
234,211
10,721 0.53 % 1,515,325
126,100
4,442 3.21 %
4,588 1.96 %
207,394
10,694 0.71 % 1,349,954
4,520 3.57 %
4,634 2.23 %
11,686 0.86 %
433,798
20,722
1,969,845
270,689
$2,240,534
335,637
24,865
1,710,456
221,911
$1,932,367
222,868
384,258
36,303
465,861
1,774,459
16,863
83,574
100,437
82,184
40,000
13,064
135,248
235,685
2,010,144
663,395
31,018
2,704,557
407,296
Total liabilities and stockholders’
equity
$3,111,853
Interest rate spread
Net interest margin
$ 99,590 3.38 %
3.53%
$ 70,841 3.26 %
3.45%
$ 56,596 3.04 %
3.23%
(1) Average balances are based on carrying value.
38
Table of Contents
(2) Interest income and yields are presented on a fully tax-equivalent basis using a 35% federal statutory tax rate.
(3) Average balances include nonaccrual and impaired loans. Interest income includes interest earned on nonaccrual loans prior to the
loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for all periods presented.
(4) Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan
being sold is included in loan interest income.
The following table provides an analysis of the changes in 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 (2):
Commercial real estate, construction
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total loan income
Total interest income
INTEREST EXPENSE:
Deposits:
Savings accounts
Government deposit accounts
Interest-bearing demand accounts
Money market accounts
Brokered certificates of deposit
Retail certificates of deposit
Total deposit cost
Borrowed funds:
Short-term borrowings
Long-term borrowings
Total borrowed funds cost
Total interest expense
Changes from 2014 to 2015
Volume
Rate
Total (1)
Changes from 2013 to 2014
Volume
Rate
Total (1)
$
123 $
8
(1) $
(4)
$
122
4
(88) $
2
(5) $
4
(93)
6
(12)
323
311
239
3,842
3,119
3,962
353
1,515
2,497
2,034
4,531
855
9,099
3,368
9,305
1,400
2,180
1,212
1,818
3,030
922
9,057
2,924
8,503
2,177
2,037
437
(113)
324
(105)
(640)
596
(293)
(138)
(508)
(449)
436
(13)
344
4,482
2,523
4,255
491
2,023
26,207
30,733
25,620
28,776
(1,088)
(850)
14,118
14,104
13,030
13,254
76
259
59
145
(234)
643
948
(3)
(140)
(143)
805
74
127
54
142
(216)
(81)
100
36
(109)
(73)
27
2
(246)
4
40
17
(871)
(1,054)
—
(405)
(405)
(1,459)
26
74
19
53
(320)
257
109
32
327
359
468
28
(172)
23
93
(303)
(614)
(945)
32
(78)
(46)
(991)
(1,285)
(216)
(1,501)
67
(42)
(444)
(802)
777
(143)
(587)
(1,957)
(2)
(132)
(5)
(3)
18
(724)
(848)
39
31
70
(778)
Net interest income
$
(1,179) $
29,928 $
28,749
$
609 $
13,636 $
14,245
(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) Interest income and yields are presented on a fully tax-equivalent basis using a 35% federal statutory tax rate.
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-
39
Table of Contents
earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of
earning assets and interest-bearing liabilities.
The following table details the calculation of FTE net interest income for the years ended December 31:
(Dollars in thousands)
Net interest income, as reported
Taxable equivalent adjustments
Fully tax-equivalent net interest income
$
2015
2014
2013
97,612
69,506
1,978
99,590 $
1,335
70,841 $
55,385
1,211
56,596
During 2015, Peoples recognized accretion income, net of amortization expense, from acquisitions of $4.8 million,
which added approximately 17 basis points to net interest margin, compared to $2.6 million and 13 basis points, and $0.7
million and 4 basis points in 2014 and 2013, respectively. Also during 2015, additional interest income from prepayment fees
and interest recovered on nonaccrual loans was $591,000 compared to $240,000 in 2014 and $976,000 in 2013. The primary
driver of the increase in net interest income during 2015 was the higher loan balances resulting from organic growth and
acquired loans.
The yield on investment securities decreased in 2015 as interest rates fell and prepayment speeds on mortgage-backed
securities increased. The increase in prepayment speeds was due primarily to greater mortgage refinancing activity driven by
lower interest rates. This resulted in higher monthly principal cashflows in the investment portfolio. In 2015, the average
monthly principal cashflow was approximately $10.1 million compared to $6.0 million in 2014 and $8.0 million in 2013.
Funding costs have declined since 2013 as Peoples executed a strategy of replacing higher-cost funding with low-cost
deposits. In 2015, funding costs decreased 18 basis points, compared to15 basis points in 2014 and 27 basis points in 2013.
Additional improvement was due to deploying excess cash on the balance sheet by buying securities in the investment
portfolio and paying off a $12.0 million term loan. The continued increase in the balance of low-cost deposits has provided
funding for loan growth during these periods.
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”.
Provision for (Recovery of) Loan Losses
The following table details Peoples’ provision for (or recovery of) loan losses recognized for the years ended
December 31:
(Dollars in thousands)
Provision for checking account overdrafts
Provision (recovery) of other loan losses
Provision for (recovery of) loan losses
As a percent of average total loans
2015
612
13,485
14,097
$
$
$
$
0.72%
2014
$
$
339
—
339
0.02%
2013
356
(4,766)
(4,410)
(0.42)%
The provision for (or recovery of) loan losses represents the amount needed to maintain the appropriate level 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 provision for loan losses recorded in
2015 was primarily due to the charge-off of one large commercial loan relationship coupled with organic loan growth and
downward trends in criticized loans. The provision for loan losses recorded in 2014 was driven by checking account
overdrafts, while the impact of increases in criticized loans was mitigated by $1.8 million of recoveries on three loans that
were previously charged off. The recovery of loan losses recorded during 2013 was driven mostly by recoveries on
commercial real estate loans that had previously incurred charge-offs.
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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Table of Contents
Net Loss on Asset Disposals and Other Transactions
The following table details the other (losses) gains for the years ended December 31 recognized by Peoples:
(Dollars in thousands)
Net (loss) gain on OREO
Net (loss) gain on debt extinguishment
Net loss on bank premises and equipment
Loss on other assets
$
Net loss on asset disposals and other transactions $
2015
2014
2013
(529) $
(520)
(696)
(43)
(1,788) $
(68) $
67
(430)
—
(431) $
86
—
(241)
—
(155)
The net loss on OREO during 2015 was due mainly to the sale of six OREO properties and the write-down of four
OREO properties during the period. During the first quarter of 2015, Peoples recognized a loss on debt extinguishment from
the prepayment of several FHLB advances. Net losses on bank premises and equipment during 2015, 2014 and 2013
included $575,000, $380,000 and $248,000, respectively, of asset write-offs associated with acquisition-related activity. The
remaining net loss on bank premises and equipment in 2015 was attributable to the write-off of obsolete fixed assets and the
write-down of closed office locations that were for sale. Peoples recognized a gain on debt extinguishment from a
restructuring of acquired FHLB advances in 2014.
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 32.7% of Peoples' total revenues in 2015, compared to 36.6% in 2014 and 40.2% in 2013. The decline
in Peoples' total non-interest income as a percent of total revenue during 2015 and 2014 was primarily due to increased net
interest income from recent acquisitions.
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
Insurance income
$
2015
2014
2013
10,097 $
1,625
1,756
50
255
13,783 $
9,981 $
1,722
1,630
38
233
13,604 $
9,873
804
1,227
90
207
12,201
Continued increases in life and health insurance commissions over the past three years were the result of acquisitions and
increased business. Performance-based commissions are typically 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
Deposit account service charges
2015
2014
2013
$
$
8,276 $
2,126
443
10,845 $
7,177 $
1,690
306
9,173 $
7,233
1,283
248
8,764
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
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Table of Contents
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
its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets
by competitors. The yearly increases in account maintenance fees were the result of higher fees received on commercial
accounts and rewards checking accounts.
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
Trust and investment income
2015
2014
2013
$
$
6,950 $
2,627
9,577 $
5,567 $
2,118
7,685 $
5,103
2,019
7,122
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
2015
2014
$ 1,275,253 $ 1,022,189 $ 1,000,171
539,384
$ 1,939,406 $ 1,612,278 $ 1,539,555
$ 1,859,336 $ 1,576,656 $ 1,446,291
590,089
664,153
During 2015, the increase in fiduciary and brokerage revenues and managed assets was impacted by the acquisition of
NB&T. Additionally, during 2015, 2014 and 2013, fiduciary income increased primarily due to higher managed asset
account balances and retirement benefits plan income due to the addition of new plans. The U.S. financial markets also have
an impact on managed assets. In recent years, Peoples has added experienced financial advisors in previously underserved
market areas, and generated new business and revenue related to retirement plans for which it manages the assets and
provides services.
Peoples' e-banking services include ATM and debit cards, direct deposit services, internet and mobile banking, and serve
as alternative delivery channels to traditional sales offices for providing services to clients. During 2015, electronic banking
income grew $2.3 million, or 35% compared to 2014, due to acquisitions and a continued increase in the volume of debit card
transactions. In 2015, Peoples' customers used their debit cards to complete $591 million of transactions, versus $467 million
in 2014 and $416 million in 2013.
Mortgage banking income is comprised mostly of net gains from the origination and sale of long-term, fixed-rate real
estate loans in the secondary market. As a result, the amount of income recognized by Peoples is largely dependent on
customer demand and long-term interest rates for residential real estate loans offered in the secondary market. Mortgage
banking income increased 6% in 2015 due to acquisitions and additional market areas, while decreasing 30% in 2014 due to
slowed refinancing activity. In 2015, Peoples sold approximately $56.0 million of loans to the secondary market compared to
$48.8 million in 2014 and $73.2 million in 2013.
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Table of Contents
Non-Interest Expense
Year-over-year expenses were largely effected by the acquisitions completed in 2014 and 2015.
Salaries and employee benefit costs remain Peoples’ largest non-interest expense, accounting for over half of the 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
Salaries and employee benefit costs
Full-time equivalent employees:
Actual at end of the period
Average during the period
2015
2014
2013
$
$
42,140 $
6,340
6,016
1,843
(1,593)
4,470
59,216 $
29,265 $
7,265
5,880
2,111
(1,396)
3,468
46,593 $
817
799
699
602
24,028
7,110
3,622
1,362
(2,292)
2,642
36,472
546
531
Base salaries and wages, employee benefits, payroll taxes and other employment costs increased in 2015, 2014 and 2013
due to completed acquisitions, additional operational staff and the addition of new sales talent in several markets, which
significantly impacted the number of full-time equivalent employees. Peoples' sales-based and incentive compensation is tied
to corporate incentive plans and commission from sales production. Sales-based and incentive compensation decreased in
2015, due primarily to corporate goals and incentives not being attained.
The increase in employee benefits as a result of acquisitions was partially offset by a decrease in pension settlement
charges which were $0.5 million, $1.4 million and $0.3 million in 2015, 2014 and 2013, respectively. Effective March 1,
2011, Peoples froze the accrual of pension benefits, and since then, settlement charges have been largely based on the timing
of retirements of plan participants 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 plan participants retire and elect lump-sum distributions
from the plan.
Stock-based compensation is generally recognized over the vesting period, typically ranging from 6 months to 3
years. For all awards, expense is initially only recognized for the portion of awards that is expected to vest, and at the vesting
date, an adjustment is made to recognize the entire expense for vested awards and reverse expense for non-vested awards.
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 2015, 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 2015 was $1.8
million which included $792,000 of expense related to these awards, while 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 2015, as required by US GAAP.
Stock-based compensation expense in 2014 included $298,000 related to a one-time stock award of unrestricted common
shares to all full-time and part-time employees who did not already participate in the equity plan. Additional information
regarding Peoples' stock-based compensation plans and awards can be found in Note 16 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”.
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Table of Contents
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
Net occupancy and equipment expense
2015
2014
2013
$
$
4,639 $
2,908
844
2,816
11,207 $
2,986 $
2,057
931
1,865
7,839 $
2,581
1,739
925
1,595
6,840
During 2015, Peoples acquired 22 new offices which resulted in higher depreciation, repairs and maintenance costs, and
property taxes, utilities and other costs. In addition, Peoples completed renovations allowing for expanded service areas and
efficiencies of operations. During 2014, Peoples acquired 12 new offices which resulted in higher depreciation, repairs and
maintenance costs, and property taxes, utilities and other costs. In addition, Peoples completed the renovation of its branch
network that began in 2013 and began renovation on newly-acquired branches. 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, and increased 29% during 2015. The increase was primarily due to additional costs in relation to increased
accounting guidance, yearly audits and executive search fees. Professional fees incurred as a result of acquisition-related
activities were $1.7 million in 2015, compared to $2.0 million and $448,000 in 2014 and 2013, respectively.
Peoples' e-banking expense, which is comprised of bankcard, internet and mobile banking costs, increased in 2015, 2014
and 2013 due to additional accounts related to acquisitions, 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. Additionally, part of the increased e-banking expense in 2014 was due to increased
debit card compromises at certain large retail companies.
In 2015, marketing expense, which includes advertising, donation and other public relations costs, increased $0.5 million
due primarily to marketing associated with acquired branches and additional community donations in those markets.
Marketing expense remained relatively flat in 2014 compared to 2013. Peoples contributed $350,000 in 2015, $300,000 in
2014 and $200,000 in 2013 to Peoples Bancorp Foundation Inc. Peoples formed this private foundation in 2004 to make
charitable contributions to organizations within Peoples' primary market area. 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 2015 due to an increase in equity from the
issuance of common shares related to acquisitions in 2014 and 2015. In Ohio, Peoples is subject to Ohio Financial Institution
Tax ("FIT") which is a business privilege tax that is imposed on financial institutions organized for profit and doing business
in Ohio. The FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio.
Peoples' intangible asset amortization expense is driven by acquisition-related activity, and increased to $4.1 million in
2015 compared to $1.4 million in 2014. The increase in 2015 relates to the completed NB&T acquisition in 2015 and
recognition of a full year of amortization for acquisitions completed during 2014.
Data processing and software expense includes software support, maintenance and depreciation expense. These costs
increased during 2015 and 2014 due to the recent acquisitions and new software projects completed.
Peoples' FDIC insurance costs increased during 2015 and 2014 as a result of recent acquisitions. Additional information
regarding Peoples' FDIC insurance assessments may be found in "ITEM 1 - BUSINESS" of this Form 10-K in the section
captioned "Supervision and Regulation".
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 75.50% for 2015, compared to 75.37% for 2014 and 71.90% for 2013. The
increases in 2015 and 2014 were largely a result of one-time costs for acquisitions plus higher salaries and employee benefit
costs.
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Table of Contents
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 12 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 (recovery of) loan losses and all gains and losses
included in earnings. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or
used to absorb unexpected losses and preserve existing capital.
The following table provides a reconciliation of this non-GAAP financial measure to the amounts reported in Peoples'
Consolidated Financial Statements for the periods presented:
(Dollars in thousands)
2015
2014
2013
2012
2011
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 debt extinguishment
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
Total average assets
Pre-provision net revenue to total average
assets
$
$
14,816
14,097
520
529
—
739
—
—
—
729
—
29,972
3,111,853
$
$
24,178
339
—
95
30
430
—
67
27
428
—
24,550
2,240,534
$
$
29,084
—
—
—
—
241
4,410
—
86
489
—
24,340
1,932,367
$
$
29,910
—
4,144
—
—
248
4,716
—
66
3,548
—
25,972
1,841,289
$
$
17,151
7,998
—
926
—
—
—
—
—
473
10
25,592
1,811,079
0.96%
1.10%
1.26%
1.41%
1.41%
During 2015, PPNR was higher while the pre-provision net revenue to total average assets ratio decreased compared to
previous years due largely to the increase in net revenue as a result of the completion of the NB&T acquisition and
recognition of a full year of revenue for acquisitions completed during 2014 being offset by the increase of average assets
which also was reflective of the NB&T acquisition.
Efficiency Ratio
The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total
other expenses (less intangible amortization) as a percentage of fully tax-equivalent net interest income plus non-interest
income. This measure is non-GAAP since it excludes intangible amortization and all gains and/or losses included in
earnings, and uses fully tax-equivalent net interest income.
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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)
2015
2014
2013
2012
2011
Efficiency ratio:
Total other expenses
Less: Amortization of other intangible assets
Adjusted total other expenses
Total non-interest income
Net interest income
Add: Fully tax-equivalent adjustment
Net interest income on a fully taxable-equivalent basis
Adjusted revenue
Efficiency ratio
$ 115,081
4,077
111,004
$ 85,009
1,428
83,581
$ 68,265
807
67,458
$ 63,474
509
62,965
$ 61,331
586
60,745
47,441
97,612
1,978
99,590
40,053
69,506
1,335
70,841
37,220
55,385
1,211
56,596
34,971
54,475
1,087
55,562
32,944
53,979
1,133
55,112
$ 147,031
$ 110,894
$ 93,816
$ 90,533
$ 88,056
75.50%
75.37%
71.90%
69.55%
68.98%
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. At December 31, 2015, excess
cash reserves at the Federal Reserve Bank were $8.7 million, compared to $12.4 million at December 31, 2014. 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 2015, Peoples' total cash and cash equivalents increased $9.7 million, as cash provided by Peoples' operating activities
of $47.9 million was partially offset by cash used in financing activities of $37.1 million and investing activities of $1.1
million. Cash provided by investing activities from business combinations of $97.3 million was offset by activities in
available-for-sale securities of $12.8 million and funded loan growth of $77.9 million. Within Peoples' financing activities,
the decrease in interest-bearing deposits was tempered by an increase in non-interest bearing deposits of $99.3 million. The
paydown of long-term borrowings of $72.4 million was substantially offset by an increase of $72.1 million in short term
borrowings.
In 2014, Peoples' total cash and cash equivalents increased $7.6 million, as cash provided by Peoples' operating activities
of $31.5 million was mostly offset by cash used by investing activities of $14.2 million and financing activities of $9.7
million. Cash provided by activities in available-for-sale securities and business combinations of $44.7 million, and $17.1
million, respectively, partially funded loan growth of $76.1 million. Within Peoples' financing activities, the decreases in
interest-bearing deposits and short-term borrowings of $56.1 million were tempered by an increase in non-interest bearing
deposits of $18.4 million and $40.2 million in proceeds from issuance of common shares.
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
Total fair value
Total amortized cost
Net unrealized gain (loss)
Held-to-maturity securities, at amortized cost:
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total amortized cost
Other investment securities, at cost
Total investment securities:
Amortized cost
Carrying value
$
$
$
$
$
2015
2014
2013
2012
2011
$
$
$
$
— $
2,966
114,726
632,293
23,845
4,635
6,236
784,701 $
780,304 $
4,397 $
1 $
5,950
64,743
527,291
27,847
5,645
5,403
636,880 $
632,967 $
3,913 $
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 $
3,831 $
35,367
6,530
45,728 $
3,841 $
36,945
7,682
48,468 $
3,850 $
37,536
7,836
49,222 $
3,860 $
33,494
7,921
45,275 $
38,401 $
28,311 $
25,196 $
24,625 $
826,032 $
868,830 $
681,435 $
713,659 $
670,348 $
680,526 $
673,859 $
709,085 $
633,429
669,228
32
13,037
35,745
527,003
37,289
12,211
3,254
628,571
617,128
11,443
3,525
12,776
—
16,301
24,356
At December 31, 2015, Peoples' investment securities were approximately 26.7% of total assets compared to 27.8% at
December 31, 2014, as Peoples continued to focus on reducing the relative size of the investment portfolio. Peoples acquired
$156.4 million of investment securities as part of the NB&T acquisition, with the remaining fluctuation due to purchases
being more than offset by principal paydowns, sales, calls and maturities.
In 2013, and throughout 2012, Peoples designated certain securities as "held-to-maturity" at the time of their purchase, as
management made the determination Peoples would hold these securities until maturity and concluded Peoples had the ability
to do so. Since then, Peoples has maintained the size of the held-to-maturity securities portfolio at approximately the same
level. The unrealized gain or loss related to held-to-maturity securities does not directly impact stockholders' equity, in
contrast to the impact from the available-for-sale securities portfolio.
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 portions of Peoples' mortgage-backed securities consist of securities issued by other entities, including other
financial institutions, which are not guaranteed by the U.S. government.
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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
2015
2014
2013
2012
2011
$
$
$
$
4,201 $
—
4,201 $
4,331 $
(130) $
14,058 $
—
14,058 $
13,604 $
454 $
23,446 $
—
23,446 $
22,926 $
520 $
37,267 $
—
37,267 $
36,395 $
872 $
58,660
1,288
59,948
59,148
800
Management continues to reinvest the principal runoff from the non-agency securities in U.S agency investments, which
has accounted for the continued decline in the fair value of these securities. At December 31, 2015, Peoples' non-agency
portfolio consisted entirely of first lien residential mortgages, with nearly all of the underlying loans in these securities
originated prior to 2004 and possessing fixed interest rates. Management continues to monitor the non-agency portfolio
closely for leading indicators of increasing stress and will continue to be proactive in taking actions to mitigate such risk
when necessary.
Additional information regarding Peoples' investment portfolio can be found in Note 3 of the Notes to the Consolidated
Financial Statements.
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Table of Contents
Loans
The following table provides information regarding outstanding loan balances at December 31:
(Dollars in thousands)
Gross originated 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 originated loans
Gross acquired loans:
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total acquired loans (a)
Total loans
Average total loans
2015
2014
2013
2012
2011
$
63,785
$
37,901
$
44,703
$
32,000
$ 30,577
471,184
534,969
288,130
288,783
74,176
227,133
434,660
472,561
249,975
254,169
62,463
169,913
394,532
439,235
206,276
248,883
55,178
133,864
378,073
410,073
180,131
211,404
49,691
99,011
410,352
440,929
140,857
219,619
47,790
87,531
1,448
$1,414,639
2,933
$1,212,014
2,060
$1,085,496
6,563
$ 956,873
1,780
$ 938,506
12,114
265,092
277,206
63,589
276,772
32,253
1,051
121,475
122,526
30,056
225,274
18,232
2,836
55,638
58,474
26,478
19,734
4,898
2,265
—
2,265
—
22,437
1,362
—
—
—
—
—
—
7,981
$ 657,801
$2,072,440
1,952,241
12,796
$ 408,884
$1,620,898
1,364,808
1,154
$ 110,738
$1,196,234
1,046,371
2,235
28,299
$
$ 985,172
967,166
—
—
$
$ 938,506
950,951
(19,174)
Average allowance for loan losses
Average loans, net of average allowance for loan losses $1,933,067
Percent of loans to total loans:
Commercial real estate, construction
3.7 %
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total percentage
35.5 %
39.2 %
17.0 %
27.3 %
5.1 %
11.3 %
0.1 %
100.0%
(17,362)
$1,347,446
(17,935)
$1,028,436
(21,473)
$ 945,693
(27,259)
$ 923,692
2.4 %
34.2 %
36.6 %
17.3 %
29.6 %
5.0 %
11.3 %
4.0 %
37.6 %
41.6 %
19.5 %
22.5 %
5.0 %
11.3 %
3.5 %
38.4 %
41.9 %
18.3 %
23.7 %
5.2 %
10.3 %
3.3 %
43.7 %
47.0 %
15.0 %
23.4 %
5.1 %
9.3 %
0.2 %
100.0%
0.1 %
100.0%
0.6 %
100.0%
0.2 %
100.0%
Residential real estate loans being serviced for others
$ 390,398
$ 352,779
$ 341,183
$ 330,721
$ 275,715
(a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 and thereafter.
During 2015, total originated loans (excluding acquired loans) grew 17%, or $202.6 million, due to increases in all
categories except deposit account overdrafts. Consumer loan balances, which consist mostly of loans to finance automobile
purchases, have continued to increase in recent years due largely to Peoples placing greater emphasis on its consumer lending
activity. The increase in total acquired loans in 2015 was due to the NB&T acquisition. At December 31, 2015, loans
acquired from NB&T were approximately $333.8 million compared to $384.6 million at acquisition date.
During 2014, total originated loans grew 12%, or $126.5 million, largely due to growth in commercial real estate,
commercial and industrial and consumer loan balances. At December 31, 2014, loans acquired from Midwest, Ohio Heritage
and North Akron were approximately $52.5 million, $166.6 million and $108.8 million, respectively. During 2013, total
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Table of Contents
originated loans increased 13%, while acquired loans grew $84.5 million due to the Ohio Commerce Bank acquisition. Also
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.
During 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 within this
business line and established better relationships with dealers, resulting in substantially higher loan balances compared to
prior years.
The following table details the maturities of Peoples' commercial real estate and commercial and industrial loans at
December 31, 2015:
(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
$
$
$
$
$
$
1,009 $
51,264
52,273 $
3,256 $
11,656
14,912 $
8,100 $
614
8,714 $
26,607 $
313,858
340,465 $
104,474 $
177,488
281,962 $
77,768 $
36,081
113,849 $
4,000 $
235,901
239,901 $
75,141 $
6,014
81,155 $
30,340 $
323
30,663 $
12,365
63,534
75,899
208,849
527,427
736,276
109,481
242,238
351,719
Loan Concentration
Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations
in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner.
Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the
economy, with no single industry comprising over 10% of Peoples' total loan portfolio.
Loans secured by commercial real estate, including commercial construction loans, continue to comprise the largest
portion of Peoples' loan portfolio.
The following table provides information regarding the largest concentrations of commercial real estate loans within the
loan portfolio at December 31, 2015:
(Dollars in thousands)
Commercial real estate, construction:
Apartment complexes
Mixed commercial use facilities:
Owner occupied
Non-owner occupied
Total mixed commercial use facilities
Assisted living facilities and nursing homes
Residential property
Retail
Land development
Other
Commercial real estate, construction
Outstanding
Balance
Available
Loan
Commitments
Total
Exposure % of Total
$
30,986 $
45,073 $
76,059
50.6 %
1,886
3,217
5,103
8,773 $
6,977
3,434
1,877
18,749
75,899 $
6,492
9,909
16,401
1,142 $
2,834
4,413
1,810
2,640
74,313 $
8,378
13,126
21,504
9,915
9,811
7,847
3,687
21,389
150,212
5.6 %
8.7 %
14.3 %
6.6 %
6.5 %
5.2 %
2.5 %
14.3 %
100.0%
$
$
50
Table of Contents
(Dollars in thousands)
Commercial real estate, other:
Office buildings and complexes:
Owner occupied
Non-owner occupied
Total office buildings and complexes
Apartment complexes
Mixed commercial use facilities:
Owner occupied
Non-owner occupied
Total mixed commercial use facilities
Retail facilities:
Owner occupied
Non-owner occupied
Total retail facilities
Lodging and lodging related
Assisted living facilities and nursing homes
Light industrial facilities:
Owner occupied
Non-owner occupied
Total light industrial facilities
Warehouse facilities
Residential property:
Owner occupied
Non-owner occupied
Total residential property
Other
Commercial real estate, other
Outstanding
Balance
Available
Loan
Commitments
Total
Exposure % of Total
24,768
44,348
69,116
68,792
30,866
20,869
51,735
21,231
31,489
52,720
48,946 $
43,676
33,364
2,885
36,249
21,412
1,105
13,203
14,308
329,322
736,276 $
$
$
850
277
1,127
52
3,881
534
4,415
2,279
—
2,279
—
284
34
—
34
415
25,618
44,625
70,243
68,844
34,747
21,403
56,150
23,510
31,489
54,999
48,946
43,960
33,398
2,885
36,283
21,827
3.2 %
5.9 %
9.1 %
9.0 %
4.5 %
2.8 %
7.3 %
3.1 %
4.1 %
7.2 %
6.4 %
5.7 %
4.3 %
0.4 %
4.7 %
2.8 %
739
2,627
3,366
11,825
23,797 $
1,844
15,830
17,674
341,147
760,073
0.2 %
2.1 %
2.3 %
45.5 %
100.0%
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, 2015 and December 31, 2014.
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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
Originated allowance for loan losses
Purchased credit impaired loan losses
Acquired allowance for loan losses
Allowance for loan losses
$
As a percent of originated loans, net of
deferred fees and costs
2015
2014
2013
2012
2011
7,076
5,382
12,458
1,257
732
1,971
121
16,539
240
240
16,779
$
$
9,825
4,036
13,861
1,627
694
1,587
112
17,881
—
—
17,881
$
13,215
$
14,215
$
2,174
15,389
881
343
316
136
17,065
—
—
17,065
$
1,733
15,948
801
479
438
145
17,811
—
—
17,811
$
$
18,947
2,434
21,381
1,119
541
449
227
23,717
—
—
23,717
1.19%
1.48%
1.58%
1.86%
2.53%
The allowance for loan losses as a percent of originated loans decreased in 2015 from previous years as a result of the
continuation of the reduction in historic loss rates over the past five years. Past years included historic periods dating closer
to the recession which included larger charge-offs. Peoples also considers recent trends in criticized loans and loan growth
associated with each loan portfolio, as well as qualitative factors that could negatively impact these trends, such as
unemployment, rising interest rates, fragile real estate values, and plummeting oil and gas prices. Peoples believe the
reserves remain appropriate to cover probable losses that exist in the current portfolio.
The reductions in the allowance for loan losses allocated to commercial real estate during 2015 and 2014 were driven by
net recoveries in recent years reducing the historical loss rates. Increases in the commercial and industrial, home equity lines
of credit and consumer categories of the allowance for loan losses were driven by net charge-off activity, and increases in the
balances of the respective loan portfolios. The decrease in the allowance for loan losses allocated to residential real estate
during 2015 was due to a reduction in net charge-off activity in recent years.
The significant allocations to commercial loans reflect the higher credit risk associated with these types of lending and
the size of these loan categories in relationship to the entire loan portfolio. During 2015, Peoples experienced an increase of
$56.8 million in criticized loans, which are those classified as watch, substandard or doubtful. Net charge-offs were elevated
during 2015 as a result of the full charge-off of one large commercial loan relationship.
The allowance allocated to the residential real estate and consumer loan categories was 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.
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The following table summarizes the changes in the allowance for loan losses for the years ended December 31:
2015
17,881
$
2014
17,065
2013
17,811
$
2012
23,717
$
$
2011
26,766
$
(Dollars in thousands)
Allowance for loan losses, January 1
Gross charge-offs:
Commercial real estate, construction
Commercial real estate, other (a)
Commercial real estate
Commercial and industrial
Residential real estate (b)
Home equity lines of credit
Consumer
Deposit account overdrafts
Total gross charge-offs
Recoveries:
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total recoveries
Net charge-offs (recoveries):
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
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
—
302
302
13,576
631
125
1,353
774
16,761
—
104
104
98
315
119
755
171
1,562
—
198
198
13,478
316
6
598
603
15,199
14,097
16,779
—
203
203
199
478
128
1,191
516
2,715
—
2,060
2,060
77
169
36
697
153
3,192
—
1,053
1,053
44
621
162
1,084
527
3,491
—
5,839
5,839
40
536
26
552
162
7,155
—
(1,857)
(1,857)
122
309
92
494
363
(477)
339
17,881
$
$
—
(4,786)
(4,786)
4
85
136
532
365
(3,664)
(4,410)
17,065
$
$
$
$
— %
0.01 %
0.01 %
0.69 %
0.02 %
— %
0.03 %
0.03 %
0.78%
— %
(0.14 )%
(0.14 )%
0.01 %
0.02 %
0.01 %
0.04 %
0.03 %
(0.03)%
— %
(0.46 )%
(0.46 )%
— %
0.01 %
0.01 %
0.05 %
0.04 %
(0.35)%
—
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
— %
0.92 %
0.92 %
0.03 %
0.10 %
0.03 %
0.03 %
0.05 %
1.16%
Total net charge-offs (recoveries)
Provision for (recoveries of) loan losses,
December 31 (c)
$
Allowance for loan losses, December 31 $
Net charge-offs (recoveries) as a percent of average total loans:
Total
(a) Includes purchased credit impaired charge-off of $60,000 in 2015.
(b) Includes purchased credit impaired charge-off of $3,000 in 2015.
(c) Includes purchased credit impaired provision for loan losses of $303,000 in 2015.
During 2015, Peoples recorded charge-offs related to one large commercial loan relationship in the aggregate amount of
$13.1 million, or .67% of average total loans. Peoples also experienced higher net charge-offs in residential real estate and
consumer loans due to higher balances from recent originated loan growth.
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The following table details Peoples’ nonperforming assets at December 31:
$
(Dollars in thousands)
Loans 90+ days past due and accruing:
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total
Nonaccrual loans:
Commercial real estate, construction
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total
Nonaccrual troubled debt restructurings:
Commercial real estate, construction
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total
Total nonperforming loans (NPLs)
Other real estate owned (OREO)
Commercial
Residential
Total
Total nonperforming assets (NPAs)
$
NPLs as a percent of total loans
NPAs as a percent of total assets
NPAs as a percent of total loans and OREO
Allowance for loan losses as a percent of NPLs
2015
2014
2013
2012
2011
2,425
1,986
1,522
35
1
5,969
921
7,357
350
2,991
340
31
11,990
—
153
377
864
79
68
1,541
19,500
644
89
733
20,233
$
$
567
301
1,901
20
10
2,799
—
2,278
1,800
2,695
315
3
7,091
96
306
194
658
45
16
1,315
11,205
582
364
946
12,151
$
$
0.94%
0.62%
0.98%
86.05%
0.69%
0.47%
0.75%
159.58%
— $
78
289
873
—
1,240
— $
181
293
1,050
4
1,528
—
7,233
627
1,864
24
12
9,760
—
2,572
—
350
—
—
2,922
14,210
815
21
836
15,046
$
96
1,882
630
1,615
81
58
4,362
—
916
—
650
6
—
1,572
7,174
$
465
428
893
8,067
0.60%
0.39%
0.67%
237.87%
—
—
613
708
—
1,321
—
20,556
2,262
2,827
349
—
25,994
—
2,959
—
425
—
—
3,384
30,699
2,194
—
2,194
32,893
1.43%
0.78%
1.52%
125.34%
3.26%
1.83%
3.48%
77.26%
At December 31, 2015, loans 90+ days past due and accruing included $2.3 million of acquired loans that were
purchased credit impaired, as they had evidence of credit quality deterioration since origination. Interest income on those
loans is recognized on a level-yield method over the life of the loan.
The majority of Peoples' nonaccrual commercial real estate loans continued 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. The significant increases in nonaccrual commercial real estate loans during 2015
was a result of commercial real estate relationship in the skilled nursing sector being placed on nonaccrual status. The
increase in nonaccrual commercial and industrial loans during 2014 was driven by a single $1.2 million relationship placed
on nonaccrual. The significant decreases in nonaccrual status from 2011 to 2012 and 2013 was a result of the addition of a
special assets group and their efforts in collecting and recovering payments on delinquent commercial loans.
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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 $0.4 million for 2015, $0.5 million for 2014 and $0.2 million for 2013. No portion of
these amounts was recorded during 2015, 2014 or 2013, 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, 2015, based on all significant
information currently available. Still, there can be no assurance that the allowance for loan losses will be adequate to cover
future losses or that the amount of nonperforming loans will remain at current levels, especially considering the current
economic uncertainty that exists and the concentration of commercial loans in Peoples’ loan portfolio.
Deposits
The following table details Peoples’ deposit balances at December 31:
(Dollars in thousands)
Non-interest-bearing deposits
Interest-bearing deposits:
Retail certificates of deposit
Savings accounts
Money market deposit accounts
Governmental deposit accounts
Interest-bearing demand accounts
Brokered certificates of deposits
Total interest-bearing deposits
Total deposits
$
2015
2014
2013
2012
2011
$
717,939 $
493,162 $
409,891 $
317,071 $
239,837
448,992
414,375
394,119
276,639
250,023
33,857
1,818,005
2,535,944 $
432,563
295,307
337,387
161,305
173,659
39,691
1,439,912
1,933,074 $
363,226
215,802
275,801
132,379
134,618
49,041
1,170,867
1,580,758 $
392,313
183,499
288,404
130,630
124,787
55,599
1,175,232
1,492,303 $
411,247
138,383
264,873
126,453
106,233
64,054
1,111,243
1,351,080
The increase in governmental deposit accounts was due to fluctuations of balances held by state and local governmental
entities and their cash flow needs. Peoples also maintained 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. These actions accounted for much of the changes in deposit balances. Some of the increase in deposit balances was
due to the NB&T acquisition, which included non-interest bearing deposits of $177.2, retail CDs totaling $48.0 million,
savings accounts of $88.3 million, money market deposit accounts of $64.6 million, governmental deposit accounts of $104.8
million, and interest-bearing demand accounts of $57.9 million at December 31, 2015.
The increase in total deposits in 2014, included the Midwest, Ohio Heritage and North Akron acquisitions which added
an aggregate of $5.5 million of non-interest-bearing deposits, $105.0 million of CDs, $53.1 million of savings accounts,
$165.1 million of money market deposit accounts, $2.1 million of governmental deposit accounts and $1.0 million of
interest-bearing demand accounts at December 31, 2014.
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 retail CDs with total balances of $250,000 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
2015
2014
2013
2012
2011
$
$
18,994 $
9,618
9,086
24,843
62,541 $
14,058 $
7,072
12,600
25,301
59,031 $
19,969 $
5,952
11,551
26,419
63,891 $
10,745 $
6,422
12,020
23,643
52,830 $
20,457
2,726
7,416
19,681
50,280
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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
Short-term borrowings
Long-term borrowings:
FHLB advances
Callable national market repurchase agreements
Term note payable (parent company)
Subordinated debentures held by subsidiary trust
Long-term borrowings
Total borrowed funds
2015
2014
2013
2012
2011
$
$
76,000 $
84,386
160,386
66,934
40,000
—
6,736
113,670
274,056 $
15,000 $
73,277
88,277
71,000 $
42,590
113,590
15,000 $
32,769
47,769
124,714
40,000
14,369
—
179,083
267,360 $
62,679
40,000
19,147
—
121,826
235,416 $
64,904
40,000
23,919
—
128,823
176,592 $
8,500
43,143
51,643
77,312
65,000
—
22,600
164,912
216,555
Peoples' short-term FHLB advances generally consist of overnight borrowings being maintained in connection with the
management of Peoples' daily liquidity position. During 2015, Peoples repaid approximately $52.1 million of long-term
FHLB advances during 2015 and recorded a loss on debt extinguishment of $520,000.
During 2015, Peoples increased its usage of short-term FHLB advances due to the decrease and pre-payment of long-
term debt. During 2014, Peoples had reduced its usage of short-term FHLB advances due to acquiring long-term FHLB
advances from Ohio Heritage. Peoples' retail repurchase agreements consist of overnight agreements with commercial
customers and serve as a cash management tool. Additionally, in 2015, Peoples acquired subordinated debt in the NB&T
acquisition.
During 2012, Peoples entered into a loan agreement that was subsequently amended in 2014 (as amended, "Amended
Loan Agreement"), and Peoples is subject to certain covenants imposed by this Amended Loan Agreement. At December 31,
2015, Peoples was in compliance with the applicable covenants.
Additional information regarding Peoples' borrowed funds can be found in Note 8 and Note 9 of the Notes to the
Consolidated Financial Statements.
Capital/Stockholders’ Equity
During 2015, Peoples' total stockholders' equity increased primarily due to $76.0 million of common equity issued in
connection with the NB&T acquisition. Regulatory capital ratios continued to fluctuate due to recent acquisitions. At
December 31, 2015, 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. Also during the first quarter of
2015, Peoples adopted the new Basel III regulatory capital framework, as approved by the federal banking regulators. The
adoption of this new framework modified the calculations and well capitalized thresholds of the current capital ratios and
added the new Common Equity Tier 1 capital ratio. Additionally, under the new rules, in order to avoid limitations on capital
distributions, including dividend payments, Peoples must hold a capital conservation buffer above the adequately capitalized
Common Equity Tier 1 capital ratio. The capital conservation buffer is being phased in from 0.00% for 2015 to 2.50% by
2019.
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The following table details Peoples' actual risk-based capital levels and corresponding ratios at December 31:
(Dollars in thousands)
Capital Amounts:
2015
2014
2013
2012
2011
Common Equity Tier 1
Tier 1
Total (Tier 1 and Tier 2)
Net risk-weighted assets
$
$
288,416
295,151
313,974
2,157,410
N/A
241,707
261,371
1,687,968
N/A
166,217
184,457
1,338,811
N/A
160,604
176,224
1,141,938
N/A
165,121
180,053
1,111,443
$
$
$
$
Capital Ratios:
Common Equity Tier 1
Tier 1
Total (Tier 1 and Tier 2)
Tier 1 leverage
13.37%
13.68%
14.55%
9.52%
N/A
N/A
N/A
N/A
14.32%
15.48%
9.92%
12.42%
13.78%
8.52%
14.06%
15.43%
8.83%
14.86%
16.20%
9.45%
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 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
Less: goodwill and other intangible assets
Tangible equity
Tangible Assets:
Total assets
Less: goodwill and other intangible assets
Tangible assets
Tangible Book Value per Share:
Tangible common equity
Common shares outstanding
Tangible book value per share
$
$
$
$
$
$
2015
2014
2013
2012
2011
419,789
149,617
270,172
$
$
340,118
109,158
230,960
$
$
221,553
77,603
143,950
3,258,970
149,617
3,109,353
$ 2,567,769
109,158
$ 2,458,611
$ 2,059,108
77,603
$ 1,981,505
270,172
18,404,864
$
230,960
14,836,727
$
143,950
10,605,782
$
$
$
$
$
221,728
68,525
153,203
1,918,050
68,525
1,849,525
153,203
10,547,960
$
$
$
$
$
206,657
64,475
142,182
1,794,161
64,475
1,729,686
142,182
10,507,124
14.68
$
15.57
$
13.57
$
14.52
$
13.53
Tangible Equity to Tangible Assets Ratio:
$
Tangible equity
$
Tangible assets
270,172
3,109,353
$
230,960
$ 2,458,611
$
143,950
$ 1,981,505
$
$
153,203
1,849,525
$
$
142,182
1,729,686
Tangible equity to tangible assets
8.69%
9.39%
7.26%
8.28%
8.22%
The decrease in tangible equity to tangible assets ratio at December 31, 2015 compared to December 31, 2014 was due to
the impact of assets acquired in the NB&T acquisition as well as a reduction in retained earnings as most of the net income
was paid to common shareholders as dividends.
In 2014, Peoples' tangible equity to tangible assets ratio increased significantly due to recent acquisitions, in which
common shares represented a portion of the consideration, and the Private Equity Issuance. The reduction in 2013 was due to
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the impact of assets acquired in the Ohio Commerce Bank acquisition, which was funded solely by cash consideration, as
well as reductions in the fair value of the available-for-sale investment securities.
Future Outlook
In 2015, Peoples completed its largest bank acquisition to date, and incurred a large provision for loan losses attributable
primarily to one large commercial relationship. The first half of 2015 was a challenge for Peoples as there was minimal loan
growth and expenses were elevated, due in part to the acquisition costs incurred associated with the NB&T acquisition.
During the second half of 2015, Peoples showed improvement as loan growth was strong and expenses were managed;
however, these positives were largely overshadowed by the large provision for loan losses that was taken due to the one large
commercial relationship.
For 2016, Peoples will build off the momentum that was gained in the second half of 2015 related to loan growth and
expense management. Key strategic priorities continue to 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 to take advantage of market expansion opportunities. Peoples' long-
term strategic goals include generating results in the top quartile of performance relative to Peoples' peer group, as defined in
the Proxy Statement, and providing returns for its shareholders superior to those of its peers, regardless of operating
conditions.
Net interest income remains a major source of revenue for Peoples. Thus, Peoples' ability to grow revenue in 2016 will
be impacted by the amount of net interest income generated. The current outlook is mixed as to whether the Federal Reserve
Board will continue to raise interest rates throughout 2016. Long-term rates could increase but remain more volatile than in
prior years. Changes in long-term interest 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 2016.
Net interest margin for 2016 is expected to remain stable in the low 3.50%'s given the interest rate environment. Loan
growth will again be the key driver in stabilizing asset yields. The net accretion income impact on net interest margin is
expected to be slightly less than that experienced in 2015.
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.
Peoples continues to seek to maintain a diversified revenue stream though its strong fee-based businesses, such as
insurance and wealth management. In 2015, Peoples' fee revenue comprised 33% of its total revenue, down from 37% in
2014 and 40% in 2013. The decline in recent years was due primarily to the four bank acquisitions completed during 2014
and 2015, only one of which had a wealth management practice, and only two relatively small insurance agencies were
purchased during the same period of time. 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 2016,
acquisition activity will be focused primarily on growing fee-based businesses as management continues to strive for a
diversified revenue stream that consists of 35% to 40% fee-based revenue to total revenue.
While the primary focus will be on revenue growth, management remains disciplined with operating expenses. In 2015,
total non-interest expense included $10.7 million of one-time acquisition costs. For 2016, total non-interest expense will
increase due to a full year’s impact of the NB&T acquisition. Normalizing for these items, management expects expense
growth to be in the low single digits in 2016. However, Peoples continues to have limited control over some expenses, such
as employee medical and pension costs. Peoples continues to be exposed to more 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 2016, management anticipates a comparable volume of settlement charges to that incurred in 2015. This expectation is
based on normal retirement activity within the defined benefit plan, but assumes all potential distributions are lump sum
payouts.
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Normalizing 2015 for a full year impact of the NB&T acquisition, and excluding the acquisition costs incurred in 2015,
management expects 4% to 6% growth in total revenue in 2016, and the low-single digit percentage expense growth. As a
result, Peoples' efficiency ratio is expected to be below 65% for 2016.
A key to Peoples’ 2016 revenue growth goal is achieving meaningful loan growth. Management believes period-end
loan balances could increase by 6% to 8% in 2016. 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
acquisitions completed. 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 strengthen and will remain a larger
contributor to overall loan growth, primarily indirect lending.
In 2015, Peoples invested $50 million of excess cash in the investment portfolio, resulting in the investment portfolio
comprising 27% of total assets as of December 31, 2015. In 2016, the investment portfolio to anticipated to comprise
between 25% and 27% of total assets. Management can use the cash flow generated by Peoples’ significant investment in
mortgage-backed securities to fund new loan production. Peoples will continue to seek opportunities to execute a shift in the
mix on the asset side of the balance sheet to reduce the relative size of the investment portfolio allowing Peoples to fund the
expected loan growth. Management may adjust the size or composition of the investment portfolio in response to other
factors, such as changes in liquidity needs and interest rate conditions.
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 2016 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.
Peoples remains committed 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. Net charge-off trends are expected to normalize in 2016 as
the prospects of large charge-offs and recoveries diminish. Management anticipates Peoples' provision for loan losses and the
net charge-off rate for 2016 to normalize, with the net charge-off rate near the low end of its long-term historical range of
0.20% to 0.30% of average loans. For 2016, management intends to remain prudent with the level of Peoples' allowance for
loan losses. 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' capital position remains strong. Given the excess capital position and the anticipated pause in bank acquisitions,
Peoples will continue to look for ways to effectively manage its capital. Late in 2015, Peoples approved a share repurchase
program of up to $20 million. Given the activity in the stock market in early 2016, specifically as it related to the price of
Peoples' common shares, purchases were executed under the program in January and February, totaling $4.5 million. Peoples
will continue to evaluate additional purchase opportunities throughout 2016.
Management has built a culture where it is paramount that the associates take care of customers and take care of each
other. Management is committed to profitable growth of the company and building long-term shareholder value. 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 providing extraordinary service to Peoples' clients and communities.
Interest Rate Sensitivity and Liquidity
While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major
risks that can materially impact future results of operations and financial condition due to their complexity and dynamic
nature. The objective of Peoples' asset/liability management (“ALM”) function is to measure and manage these risks in order
to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires
Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and
liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the ALM function
is intended to guide management in the acquisition and disposition of earning assets and selection of appropriate funding
sources.
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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 the earnings stream as well as market values of financial assets and liabilities. Peoples' exposure to IRR is due
primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other
factors, such as prepayments of loans and investment securities or early withdrawal of deposits, can affect Peoples'
exposure to IRR and increase interest costs or reduce revenue streams.
Peoples has assigned overall management of IRR to the ALCO, which has established an IRR management policy
that sets minimum requirements and guidelines for monitoring and managing the level 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%
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, 2015
$
300
200
100
1,477
1,943
1,823
1.5% $
1.9%
1.8%
5,600
4,848
3,235
7.3% $ (88,774)
(57,205)
6.3%
(27,036)
4.2%
December 31, 2014
December 31, 2015
(15.3)% $ (66,730)
(41,537)
(9.9)%
(18,026)
(4.7)%
December 31, 2014
(15.7)%
(9.8)%
(4.2)%
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 equals 1%. While management
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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 usually 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, 2015, 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 2015,
Peoples became slightly sensitive to rising interest rates (as measured by the expected percentage change in economic
value of equity) due to several factors. The largest factors impacting Peoples' interest rate sensitivity were the NB&T
acquisition in March and the deployment of excess cash in the balance sheet post-acquisition.
Liquidity
In addition to IRR management, another major objective of the ALCO is to maintain sufficient levels 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, and 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 rollover risk.
An additional strategy used by Peoples in the management of liquidity risk is maintaining a targeted level of liquid
assets. These are assets that can be converted into cash in a relatively short period of time. Management defines liquid
assets as unencumbered cash (including cash on deposit at the Federal Reserve Bank), and the market value of U.S.
government and agency securities that are not pledged. Excluded from this definition are pledged securities, non-
government and agency securities, municipal securities and loans. Management has established a minimum level of
liquid assets in the liquidity management policy, which is expressed as a percentage of loans and unfunded loan
commitments. Peoples also has established a policy limit around the level of liquefiable assets also expressed as a
percentage of loans and unfunded loan commitments. Liquefiable assets are defined as liquid assets plus the market
value of unpledged securities not included in the liquid asset measurement.
An essential element in the management of liquidity risk is a forecast of the sources and uses of anticipated cash
flows. On a monthly basis, Peoples forecasts sources and uses of cash for the next twelve months. To assist in the
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, 2015, Peoples had a ratio of 1.8 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
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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, 2015, Peoples had a ratio of 7.4 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 CDs and reductions in cash earnings. Additionally, the
LCFP creates stress scenarios where access to external funding sources, or contingency funding, is suddenly limited
which includes a significant increase in the margin requirements where securities or loans are pledged, limited access to
funding from other banks and limited access to funding from the FHLB and the Federal Reserve Bank. Peoples' LCFP
scenarios include a base scenario, a mild stress scenario, a moderate stress scenario and a severe stress scenario. Each of
these is defined as to the severity, and action plans are developed around each.
Liquidity management also requires the monitoring of risk indicators that may alert the ALCO to a developing
liquidity situation or crisis. Early detection of stress scenarios allows Peoples to take actions to help mitigate the impact
to Peoples 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 at least on an annual basis by the ALCO and the Asset Liability Management
and Investment Committee of Peoples Bank's Board of Directors. Additionally, testing of the LCFP is required on an
annual basis. Various stress scenarios and the related actions are simulated according to the LCFP. The results are
reviewed and discussed, and changes or revisions are made to the LCFP accordingly. Additionally, every two years, the
LCFP is subjected to a third-party review for effectiveness and regulatory compliance.
Overall, management believes the current balance of cash and cash equivalents, and anticipated cash flows from the
investment portfolio, along with the availability of other funding sources, will allow Peoples to meet anticipated cash
obligations, as well as special needs and off-balance sheet commitments.
Off-Balance Sheet Activities and Contractual Obligations
Peoples routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or
in part in the Consolidated Financial Statements. These activities are part of Peoples' normal course of business and include
traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional
capital contributions in low-income housing tax credit investments.
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
Note
14
5
9
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
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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 business, 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, 2015:
(Dollars in thousands)
Time deposits
Long-term debt (1)
Operating leases
Contingent consideration related to acquisitions (2)
Pension benefits
Total
Payments due by period
Total
482,849 $
113,670
2,568
653
500
600,240 $
Less than 1
year
280,094 $
2,945
916
568
500
285,023 $
$
$
1-3 years
3-5 years
More than
5 years
131,483 $
84,720
1,098
85
—
217,386 $
69,910 $
5,327
282
—
—
75,519 $
1,362
20,678
272
—
—
22,312
(1) Amounts reflect solely the minimum required principal payments.
(2) Amounts assume projected revenue metrics are achieved.
Management does not anticipate Peoples’ current off-balance sheet activities will have a material impact on its future
results of operations and financial condition based on historical experience and recent trends.
Effects of Inflation on Financial Statements
Substantially all of Peoples’ assets relate to banking and are monetary in nature. As a result, inflation does not impact
Peoples to the same degree as companies in capital-intensive industries in a replacement cost environment. During a period
of rising prices, a net monetary asset position results in a loss in purchasing power and conversely a net monetary liability
position results in an increase in purchasing power. The opposite would be true during a period of decreasing prices. In the
banking industry, monetary assets typically exceed monetary liabilities. The current monetary policy targeting low levels of
inflation has resulted in relatively stable price levels. Therefore, inflation has had little impact on Peoples’ net assets.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Please refer to the section captioned “Interest Rate Sensitivity and Liquidity” under "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K,
which 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. OTHER INFORMATION" of this Form 10-K.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 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 Exchange Act) as of December 31, 2015. 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 65 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 66 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 the fiscal quarter ended December 31, 2015, that have materially affected, or are
reasonably likely to materially affect, Peoples’ internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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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, 2015, using the Internal Control-Integrated Framework set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 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 may occur in the degree of compliance with
policies or procedures; and (c) the possibility of control circumvention or override occurring, 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, 2015,
and, based on this assessment, has concluded Peoples' internal control over financial reporting was 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/ JOHN C. ROGERS
John C. Rogers
Executive Vice President,
Chief Financial Officer and Treasurer
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Report of Ernst & Young, LLP, 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,
2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 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, 2015, 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, 2015 and 2014, 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, 2015 of Peoples Bancorp Inc. and subsidiaries and our report dated
February 25, 2016 expressed an unqualified opinion thereon.
Charleston, West Virginia
February 25, 2016
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Report of Ernst and Young, LLP, 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, 2015, and 2014, 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, 2015. 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, 2015 and 2014, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended December 31, 2015, 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, 2015, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated February 25, 2016 expressed an unqualified opinion
thereon.
Charleston, West Virginia
February 25, 2016
67
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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
$780,304 at December 31, 2015 and $632,967 at December 31, 2014)
Held-to-maturity investment securities, at amortized cost (fair value of $45,853
at December 31, 2015 and $48,442 at December 31, 2014)
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
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, 2015 and December 31, 2014
Common stock, no par value, 24,000,000 shares authorized, 18,931,200 shares
issued at December 31, 2015 and 15,599,643 shares issued at December 31,
2014, including shares in treasury
Retained earnings
Accumulated other comprehensive loss, net of deferred income taxes
Treasury stock, at cost, 586,686 shares at December 31, 2015 and 590,246
shares at December 31, 2014
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to the Consolidated Financial Statements
68
$
$
$
December 31,
2015
2014
53,663 $
17,452
71,115
42,230
19,224
61,454
784,701
636,880
45,728
48,468
38,401
868,830
2,072,440
(16,779)
2,055,661
1,953
53,487
132,631
16,986
58,307
3,258,970 $
717,939 $
1,818,005
2,535,944
160,386
113,670
29,181
2,839,181
28,311
713,659
1,620,898
(17,881)
1,603,017
4,374
40,335
98,562
10,596
35,772
2,567,769
493,162
1,439,912
1,933,074
88,277
179,083
27,217
2,227,651
—
—
343,948
265,742
90,790
(359)
(14,590)
90,391
(1,301)
(14,714)
419,789
3,258,970 $
340,118
2,567,769
$
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
Total interest expense
Net interest income
Provision for (recovery of) loan losses
Net interest income after provision for (recovery of) 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 expense
Professional fees
Electronic banking expense
Amortization of other intangible assets
Data processing and software expense
Marketing expense
Communication expense
FDIC insurance expense
Franchise tax expense
Foreclosed real estate and other loan expenses
Other non-interest expense
Total other expenses
Income before income taxes
Income tax expense
Net income
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
69
2015
2014
2013
$
87,155 $
18,051
2,992
135
108,333
61,541 $
16,840
1,810
9
80,200
48,522
16,853
1,600
96
67,071
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
807
2,012
2,301
1,339
1,036
1,643
654
7,368
68,265
29,084
11,510
17,574
1.65
1.63
10,581,222
10,679,417
6,206
182
4,333
10,721
97,612
14,097
83,515
13,783
10,845
9,577
8,958
1,317
729
(1,788)
2,961
46,382
59,216
11,207
7,295
5,300
4,077
3,671
2,838
2,286
2,084
1,968
1,276
13,863
115,081
14,816
3,875
10,941 $
0.62 $
0.61 $
6,106
146
4,442
10,694
69,506
339
69,167
13,604
9,173
7,685
6,642
1,237
398
(431)
1,712
40,020
46,593
7,839
5,649
4,529
1,428
2,424
2,299
1,642
1,260
1,392
789
9,165
85,009
24,178
7,494
16,684 $
1.36 $
1.35 $
17,555,140
17,687,795
12,183,352
12,306,224
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 gain (loss) arising in the period
Related tax (expense) benefit
Less: reclassification adjustment for net gain included in net income
Related tax expense
Net effect on other comprehensive income (loss)
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 income (loss), net of tax
Total comprehensive income
See Notes to the Consolidated Financial Statements
2015
2014
2013
$
10,941 $
16,684 $
17,574
1,232
(431)
729
(255)
327
373
(130)
112
(38)
459
(161)
615
942
11,883 $
19,326
(6,764)
398
(139)
12,303
(2,083)
729
129
(45)
1,400
(490)
(360)
11,943
28,627 $
(25,130)
8,795
489
(171)
(16,653)
3,788
(1,326)
182
(64)
270
(95)
2,755
(13,898)
3,676
$
70
$ 168,869 $
80,898 $
(13,244) $
(14,970) $
221,553
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
$ 167,039 $
69,158 $
654 $
Treasury
Stock
(15,123) $
Total
Stockholders'
Equity
Table of Contents
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Balance, December 31, 2012
Net income
Other comprehensive loss, net of tax
Cash dividends declared
Tax benefit from exercise of stock options
79
Reissuance of treasury stock for deferred compensation
plan for Boards of Directors
Purchase of treasury stock
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for
Board of Directors
Stock-based compensation expense
Balance, December 31, 2013
Net income
Other comprehensive income, net of tax
Cash dividends declared
Reissuance of treasury stock for common stock option
exercises
Tax benefit from exercise of stock options
Reissuance of treasury stock for deferred compensation
plan for Boards of Directors
Reissuance of treasury stock for common stock awards
Purchase of treasury stock
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for
Board of Directors
Stock-based compensation expense
Issuance of common shares related to acquisitions:
Midwest Bancshares, Inc.
Ohio Heritage Bancorp, Inc.
North Akron Savings Bank
Common shares issued to institutional investors in
private placement
Balance, December 31, 2014
Net income
Other comprehensive income, net of tax
Cash dividends declared
17,574
(5,834)
(13,898)
168
(228)
213
423
(34)
1,362
16,684
(7,191)
11,943
72
175
10
(520)
221
298
85
(10)
409
(14)
1,813
6,305
32,017
16,106
40,162
$ 265,742 $
90,391 $
(1,301) $
(14,714) $
10,941
(10,542)
942
Tax benefit from exercise of stock options
51
Reissuance of treasury stock for deferred compensation
plan for Boards of Directors
Purchase of treasury stock
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for
Board of Directors
Stock-based compensation expense
Common shares issued under employee stock purchase
plan
Issuance of common shares related to acquisition of
NB&T Financial Group, Inc.
397
(43)
1,843
(69)
76,027
184
(741)
177
—
504
Balance, December 31, 2015
$ 343,948 $
90,790 $
(359) $
(14,590) $
See Notes to the Consolidated Financial Statements
71
221,728
17,574
(13,898)
(5,834)
79
168
(228)
423
179
1,362
16,684
11,943
(7,191)
72
85
175
—
(520)
409
207
2,111
6,305
32,017
16,106
40,162
340,118
10,941
942
(10,542)
51
184
(741)
397
134
1,843
435
76,027
419,789
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:
2015
2014
2013
$
10,941 $
16,684 $
17,574
Depreciation, amortization and accretion, net
Provision for (recovery of) loan losses
Bank owned life insurance income
Net gain on investment securities
Loss (gain) on debt extinguishment
Loans originated for sale
Proceeds from sales of loans
Net gains on sales of loans
Deferred income tax (benefit) expense
Decrease in accrued expenses
Decrease in interest receivable
Excess tax benefit from share-based payments
Increase (decrease) in other assets
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 in loans
Net expenditures for premises and equipment
Proceeds from sales of other real estate owned
Proceeds from bank owned life insurance
Business combinations, net of cash received
(Investment in) return of limited partnership and tax credit funds
Net cash used in investing activities
Financing activities:
Net increase in non-interest-bearing deposits
Net decrease in interest-bearing deposits
Net increase (decrease) in short-term borrowings
Proceeds from long-term borrowings
Payments on long-term borrowings
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 (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest paid
Income taxes paid
See Notes to the Consolidated Financial Statements
72
18,503
14,097
(598)
(729)
520
(53,570)
56,532
(1,005)
(1,582)
(4,412)
704
(51)
4,623
3,909
47,882
13,174
339
(106)
(398)
(67)
(51,458)
49,218
(943)
3,835
(631)
139
(85)
(1,505)
3,299
31,495
16,110
(4,410)
(56)
(489)
—
(68,323)
74,049
(1,544)
4,627
(13)
313
(79)
8,058
(5,353)
40,464
(196,599)
57,415
126,401
(143,184)
108,092
79,830
(223,979)
125,658
99,372
—
2,261
(77,893)
(9,429)
971
—
97,277
(1,514)
(1,110)
99,341
(125,360)
72,109
—
(72,446)
(10,065)
(741)
—
51
(37,111)
9,661
61,454
71,115 $
(1,017)
1,325
(76,100)
(7,105)
219
6,322
17,081
374
(14,163)
(5,216)
885
(109,609)
(6,604)
1,036
43,100
(4,536)
(120)
(80,013)
18,367
(26,713)
(29,373)
5,269
(10,288)
(6,767)
(520)
40,242
85
(9,698)
7,634
53,820
61,454 $
61,935
(84,344)
65,821
—
(7,025)
(5,419)
(228)
8
79
30,827
(8,722)
62,542
53,820
11,541 $
672 $
10,766 $
6,726 $
11,839
7,473
$
$
$
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. Services are provided through 82 financial service locations and 81 automated teller machines in Ohio, West Virginia and
Kentucky, as well as internet-based and mobile 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 $5.0 million and $3.5 million in funds at
December 31, 2015 and 2014, respectively, which were being used as collateral and not available for withdrawal.
Investment Securities: Investment securities are recorded initially at cost, which includes premiums and discounts if
purchased at other than par or face value. Peoples amortizes premiums and accretes discounts as an adjustment to interest
income on a level yield basis. The cost of investment securities sold, and any resulting gain or loss, is based on the
specific identification method and recognized as of the trade date.
Management determines the appropriate classification of investment securities at the time of purchase. Held-to-
maturity securities are those securities that Peoples has the positive intent and ability to hold to maturity and are recorded
at amortized cost. Available-for-sale securities are those securities that would be available to be sold in the future in
response to Peoples' liquidity needs, changes in market interest rates, and asset-liability management strategies, among
other considerations. Available-for-sale securities are reported at fair value, with unrealized holding gains and losses
reported in stockholders' equity as a separate component of other accumulated 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 primarily of shares of the Federal Home Loan Bank of Cincinnati (the
“FHLB”) and the Federal Reserve Bank of Cleveland (the "FRB").
Management systematically evaluates investment securities for other-than-temporary declines in fair value on a
quarterly basis. This analysis requires management to consider various factors, which include (1) 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
does not expect to recover the entire amortized cost basis of the security. In situations where Peoples intends to sell or
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Table of Contents
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 or loss, net of applicable 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 Note 8 and Note 9.
Securities pledged as collateral under Repurchase Agreements are included in investment securities on the Consolidated
Balance Sheets and are disclosed in Note 3. The fair value of the collateral pledged to a third party is continually
monitored and additional collateral is pledged or returned, as deemed appropriate.
Loans: Loans originated that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or
payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan
losses. The foreseeable future is based upon current market conditions and business strategies, as well as balance sheet
management and liquidity. As the conditions change, so may management's view of the foreseeable future. Net deferred
loan costs were $3.3 million and $2.4 million at December 31, 2015 and 2014, 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 balance in excess of $1 million on an annual basis 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 downgrade or placement on nonaccrual status. Loan
relationships whose aggregate debt to Peoples Bank is equal to or less than $1 million 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. 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
uncollectable. 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, commonly referred to
as "purchase credit impaired" loans, 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
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acquired purchased credit impaired 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 an impairment, with the amount of the expected loss
included in management's evaluation of the appropriateness of the allowance for loan losses. These purchase credit
impaired loans are considered to be accruing and performing even though collection of contractual payments on loans
may be in doubt, as income continues to be accreted as long as expected cash flows can be reasonably estimated.
Loans acquired in a business combination that are not impaired are recorded at fair value, and the difference between
the acquisition date fair value and the contractual amounts due at the acquisition date represents the discounts (or
premiums) to a loan's cost basis and are accreted (or amortized) to interest income over the loan's remaining life using the
level yield method. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan
losses for these loans is similar to originated loans; however, Peoples records a provision for loan losses only when the
required allowance exceeds the remaining discount.
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
mortgage 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 a freestanding 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 uncollectable 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 appropriateness of the allowance for loan
losses and the related 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 rates 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 rates 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)
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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 rate 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 appropriateness 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 million or more, and loan relationships with aggregate outstanding debt to Peoples of $5 million or more
and adversely classified loans are 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 the strength of guarantors. The primary source of repayment for commercial real estate loans and
commercial and industrial loans is normally the business's operating cash flow available to repay debt. Management's
analysis of operating cash flow for commercial real estate loans secured by non-owner occupied properties takes into
account factors such as rent rolls and vacancy statistics. Management's analysis of operating cash flow for commercial
real estate loans secured by owner occupied properties and all commercial and industrial loans considers the profitability,
liquidity and leverage of the business. The evaluation of construction loans is based largely on the borrower's ability to
complete construction within the established budget.
The primary factors considered when classifying consumer loans include the loan's past due status and declaration of
bankruptcy by the borrower(s). The classification of residential real estate and home equity lines of credit also takes into
account the current value of the underlying collateral.
Troubled Debt Restructuring: The restructuring of a loan is considered a troubled debt restructuring ("TDR") if both
(1) the borrower is experiencing financial difficulties and (2) the creditor has granted a concession. Loans acquired that
are restructured after acquisition are not considered TDRs if the loans evidenced credit deterioration as of the acquisition
date and are accounted for in pools of purchased credit impaired loans.
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 (1)
the borrower is currently in payment default on any of the borrower's debt, (2) a payment default is probable in the
foreseeable future without the modification, (3) the borrower has declared or is in the process of declaring bankruptcy, and
(4) the borrower's projected cash flow is insufficient to satisfy contractual payments due under the original terms of the
loan without a modification.
Peoples considers all aspects of the modification to loan terms to determine whether or not a concession has been
granted to the borrower. Key factors considered by Peoples include the borrower's ability to access funds at a market rate
for debt with similar risk characteristics, the significance of the modification relative to the unpaid principal balance or
collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual
terms of the loan. The most common concessions granted by Peoples generally include one or more modifications to the
terms of the debt, such as (1) a reduction in the interest rate for the remaining life of the debt, (2) an extension of the
maturity date at an interest rate lower than the current market rate for new debt with similar risk, (3) a temporary period of
interest-only payments, and (4) 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.
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
$3,000 and $45,000 at December 31, 2015 and 2014, respectively.
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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 $0.7 million at December 31, 2015 and $0.9 million at
December 31, 2014.
Business Combinations: Business combinations are accounted for using the acquisition method of accounting. Under
this accounting method, the acquired company's net assets are recorded at fair value on the date of acquisition, and the
results of operations of the acquired company are combined with Peoples' from the acquisition date forward. Costs
related to the acquisition are expensed as incurred. The purchase price paid over the fair value of the net assets acquired
(including intangible assets with finite lives) is recorded as goodwill.
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 when
indicators of impairment exist, or at least annually on June 30. Based upon the most recently completed goodwill
impairment test, Peoples concluded the recorded value of goodwill was not impaired as of December 31, 2015, based
upon the estimated fair value of Peoples' single reporting unit.
Peoples' other intangible assets consist of customer relationship and core deposit intangible assets representing the net
present value of future economic benefit 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.
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.
Revenue Recognition: Peoples recognizes revenues as it is earned based on contractual terms, or as services are
provided and collectability is reasonably assured. Peoples’ principal source of revenue is interest income, which is
recognized on an accrual basis primarily according to formulas in written contracts, such as loan agreements or securities
contracts.
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 is deducted from, and accretion of
discounts is 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 collectability 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 income is recognized when it is earned and can be reasonably estimated. 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
accumulated 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' valuation allowance and uncertain
income tax positions and unrecognized benefits are disclosed in Note 12.
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 some share-based payment awards considered participating securities because they entitle
holders the 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, stock appreciation rights 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, insurance, investment 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 the Financial
Accounting Standards Board ("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 September 2015, the FASB issued an accounting standards update 2015-16 - Business Combinations (Topic 805):
Simplifying the Accounting for Measurement-Period Adjustments. The simplification eliminates the requirement for an
acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers
must recognize measurement-period adjustments during the period in which they determine the amounts of such
adjustments, including the effect on earnings of any amounts they would have recorded in previous periods if the
accounting had been completed at the acquisition date. For public business entities (such as Peoples), the amendments are
effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The
amendments are to be applied prospectively to adjustments to provisional amounts that occur after the effective date of the
amendments with earlier application permitted for financial statements that have not been issued. Peoples elected to early
adopt as of July 1, 2015, and will recognize measurement-period adjustments during the period in which Peoples
determines the amounts of such adjustments, including the effect on earnings of any amounts that would have been
recorded in previous periods if the accounting had been completed at the acquisition date.
In May 2014, the FASB issued new accounting guidance that revises the criteria for determining when to recognize
revenue from contracts with customers and expands disclosure requirements. This accounting guidance can be
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implemented using either a retrospective method or a cumulative-effect approach. In August 2015, the FASB issued an
update that defers the effective date of the revenue recognition guidance by one year. This new guidance will be effective
for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018, for Peoples).
Early adoption is permitted but only for interim and annual reporting periods beginning after December 15, 2016. Peoples
has elected to implement this new accounting guidance using a cumulative-effect approach. Management's preliminary
analysis suggests that the adoption of this new accounting guidance is not expected to have a material effect on Peoples'
financial condition or results of operations. There are many aspects of this new accounting guidance that are still being
interpreted, and the FASB has recently issued and proposed updates to certain aspects of the guidance. Therefore, the
results of Peoples' preliminary analysis of the materiality of the adoption of this new accounting guidance may change
based on the conclusions reached as to the application of the new accounting guidance.
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)
2015
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
2014
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
$
$
$
$
— $
2,966
114,726
632,293
23,845
4,635
6,236
784,701 $
1 $
5,950
64,743
527,291
27,847
5,645
5,403
636,880 $
— $
—
—
—
—
—
6,024
6,024 $
— $
—
—
—
—
—
5,204
5,204 $
— $
2,966
114,726
632,293
23,845
4,635
212
778,677 $
1 $
5,950
64,743
527,291
27,847
5,645
199
631,676 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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Held-to-maturity securities reported at fair value comprised the following at December 31:
(Dollars in thousands)
2015
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
2014
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
$
$
$
$
4,221 $
35,196
6,436
45,853 $
4,282 $
36,740
7,420
48,442 $
— $
—
—
— $
— $
—
—
— $
4,221 $
35,196
6,436
45,853 $
4,282 $
36,740
7,420
48,442 $
—
—
—
—
—
—
—
—
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). Management reviews the valuation methodology and quality controls utilized by
the pricing services in management's overall assessment of the reasonableness of the fair values provided and challenges
prices when it believes a material discrepancy in pricing exists.
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 3 inputs). At December 31, 2015, impaired loans with an aggregate
outstanding principal balance of $51.8 million were measured and reported at a fair value of $43.7 million. For the
year ended December 31, 2015, Peoples recognized losses of $1.6 million on impaired loans through the allowance
for loan losses.
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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 at December 31:
(Dollars in thousands)
Financial assets:
Cash and cash equivalents
Investment securities
Loans
Financial liabilities:
Deposits
Short-term borrowings
Long-term borrowings
2015
2014
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
71,115 $
868,830
2,057,614
71,115
868,955
2,018,482
$
61,454 $
713,659
1,607,391
61,454
713,633
1,581,813
$ 2,535,944 $ 2,540,131
160,386
117,299
160,386
113,670
$ 1,933,074 $ 1,938,021
88,277
183,878
88,277
179,083
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 3 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 at December 31:
(Dollars in thousands)
2015
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
2014
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
$
— $
2,908
111,283
635,504
23,770
5,146
1,693
780,304 $
1 $
5,836
62,292
529,245
28,021
6,132
1,440
632,967 $
$
$
$
— $
58
3,487
4,905
119
—
4,627
13,196 $
— $
114
2,510
5,910
112
3
4,044
12,693 $
— $
—
(44)
(8,116)
(44)
(511)
(84)
(8,799) $
— $
—
(59)
(7,864)
(286)
(490)
(81)
(8,780) $
—
2,966
114,726
632,293
23,845
4,635
6,236
784,701
1
5,950
64,743
527,291
27,847
5,645
5,403
636,880
Peoples’ investment in equity securities was comprised entirely of common stocks issued by various unrelated bank
holding companies at both December 31, 2015 and 2014. At December 31, 2015, there were no securities of a single issuer
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
2015
2014
2013
$
$
795 $
66
729 $
1,136 $
738
398 $
3,358
2,869
489
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.
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The following table presents a summary of available-for-sale investment securities that had an unrealized loss at
December 31:
(Dollars in thousands)
2015
Obligations of:
Less than 12 Months
Unrealized
Loss
No. of
Securities
Fair
Value
12 Months or More
Unrealized
Loss
No. of
Securities
Fair
Value
Total
Fair
Value
Unrealized
Loss
States and political subdivisions $
7,662 $
38
8
$
213 $
6
1
$
7,875 $
44
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Bank-issued trust preferred
securities
Equity securities
Total
2014
Obligations of:
303,549
3,902
76
102,090
4,214
6,682
2,129
438
$ 320,460 $
44
19
15
4,018
3
1
2
90
—
2,506
106
$ 104,915 $
—
492
69
4,781
33
—
3
1
38
405,639
8,116
6,682
4,635
544
$ 425,375 $
44
511
84
8,799
States and political subdivisions $
2,602 $
12
4
$
5,788 $
47
8
$
8,390 $
59
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Bank-issued trust preferred
securities
Equity securities
Total
114,018
1,091
—
—
40
$ 116,660 $
—
—
2
1,105
21
—
—
2
27
216,224
6,773
57
330,242
7,864
19,404
2,509
96
$ 244,021 $
286
490
79
7,675
4
3
1
73
19,404
2,509
136
$ 360,681 $
286
490
81
8,780
Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair
value on a quarterly basis. At December 31, 2015, 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, 2015 and 2014 were attributable to changes in market interest rates and spreads since the securities were
purchased.
At December 31, 2015, approximately 97% of the fair value of 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 3%, or three
positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to
2004. Two of the three positions had a fair value of less than 90% of their book value, with an aggregate book and fair value
of $0.7 million and $0.5 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 unrealized losses with respect to the three bank-issued trust preferred securities that had been in an
unrealized loss position for twelve months or more at December 31, 2015 were primarily attributable to the floating nature of
those investments, the current interest rate environment and spreads within that sector.
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The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities
by contractual maturity at December 31, 2015. The weighted-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. 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. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity securities
Total available-for-sale securities
Total weighted-average yield
$
$
$
$
Within 1
Year
1 to 5
Years
5 to 10
Years
Over 10
Years
Total
— $
240
1
—
—
991
10,649
13,480
—
—
$
— $
32,475
50,013
19,994
—
1,917
67,919
572,010
3,776
5,146
241
$ 25,120
$ 102,482
$ 650,768
— $
247
1
—
—
1,000
10,972
13,269
—
—
$
— $
33,438
50,350
20,033
—
1,966
70,069
568,673
3,812
4,635
$
2,908
111,283
635,504
23,770
5,146
1,693
$ 780,304
$
2,966
114,726
632,293
23,845
4,635
6,236
$ 784,701
248
5.35%
$ 25,241
$ 103,821
$ 649,155
2.97%
2.98%
2.61%
2.68%
Held-to-Maturity
The following table summarizes Peoples’ held-to-maturity investment securities at December 31:
(Dollars in thousands)
2015
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
2014
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
$
$
$
$
3,831 $
35,367
6,530
45,728 $
3,841 $
36,945
7,682
48,468 $
394 $
363
—
757 $
448 $
189
9
646 $
(4) $
(534)
(94)
(632) $
4,221
35,196
6,436
45,853
(7) $
(394)
(271)
(672) $
4,282
36,740
7,420
48,442
There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for the years
ended December 31, 2015, 2014 and 2013.
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The following table presents a summary of held-to-maturity investment securities that had an unrealized loss at
December 31:
(Dollars in thousands)
2015
Obligations of:
Less than 12 Months
Unrealized
Loss
No. of
Securities
Fair
Value
12 Months or More
Unrealized
Loss
No. of
Securities
Fair
Value
Total
Fair
Value
Unrealized
Loss
States and political subdivisions $
— $
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
2014
Obligations of:
3,706
540
$
4,246 $
States and political subdivisions $
— $
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
—
—
$
— $
—
89
4
93
—
—
—
—
— $
319 $
2
1
3
10,040
5,895
$ 16,254 $
— $
323 $
—
—
18,242
6,356
— $ 24,921 $
4
445
90
539
7
394
271
672
1
2
1
4
1
5
1
7
$
319 $
13,746
6,435
$ 20,500 $
$
323 $
18,242
6,356
$ 24,921 $
4
534
94
632
7
394
271
672
The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by
contractual maturity at December 31, 2015. The weighted-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 weighted-average yield
Within 1
Year
1 to 5
Years
5 to 10
Years
Over 10
Years
Total
$
$
$
$
— $
—
—
— $
— $
—
—
— $
—%
$
$
$
$
324
—
—
324
319
—
—
319
3.14%
976
487
—
1,463
$
2,531
34,880
6,530
$ 43,941
$
3,831
35,367
6,530
$ 45,728
1,109
483
—
1,592
1.72%
$
2,793
34,713
6,436
$ 43,942
$
4,221
35,196
6,436
$ 45,853
2.60%
2.57%
Other Securities
Peoples' other investment securities on the Consolidated Balance Sheets consist largely of shares of the FHLB and the
FRB.
Pledged Securities
Peoples had pledged available-for-sale investment securities with a carrying value of $495.5 million and $352.8 million
at December 31, 2015 and 2014, respectively, and held-to-maturity investment securities with a carrying value of $21.4
million and $22.9 million at December 31, 2015 and 2014, 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 $11.1 million and $13.5 million at December 31, 2015 and 2014, respectively, and held-to-
maturity securities with carrying values of $23.3 million and $24.5 million at December 31, 2015 and 2014, respectively, to
secure additional borrowing capacity at the FHLB and the FRB.
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Note 4. Loans
Peoples' loan portfolio has consisted of various types of loans originated primarily as a result of lending opportunities within
Peoples' primary market areas of northeastern, central, southwestern and southeastern Ohio, west central West Virginia, and
northeastern Kentucky. Acquired loans consist of loans purchased in 2012 or thereafter in a business combination. The major
classifications of loan balances, excluding loans held for sale, were as follows at December 31:
(Dollars in thousands)
Originated 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 originated loans
$
Acquired 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 acquired loans
Total loans
$
$
2015
2014
63,785 $
471,184
534,969
288,130
288,783
74,176
227,133
1,448
1,414,639 $
12,114 $
265,092
277,206
63,589
276,772
32,253
7,981
—
657,801 $
2,072,440 $
37,901
434,660
472,561
249,975
254,169
62,463
169,913
2,933
1,212,014
1,051
121,475
122,526
30,056
225,274
18,232
12,796
—
408,884
1,620,898
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 "purchased credit impaired" loans. The carrying amounts of these loans included in the
loan balances above are summarized as follows at December 31:
(Dollars in thousands)
Commercial real estate
Commercial and industrial
Residential real estate
Consumer
Total outstanding balance
Net carrying amount
2015
2014
16,893 $
3,040
27,155
193
47,281 $
35,064 $
7,762
1,041
15,183
306
24,292
19,067
$
$
$
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Changes in the accretable yield for acquired purchased credit impaired loans the year ended December 31, 2015 were as
follows:
(Dollars in thousands)
Balance, December 31, 2014
Additions:
Reclassification from nonaccretable to accretable
NB&T Financial Group, Inc.
Accretion
Balance, December 31, 2015
$
$
Accretable
Yield
3,172
2,093
3,611
(1,834)
7,042
Cash flows expected to be collected on purchased credit impaired loans are estimated semi-annually by incorporating several
key assumptions similar to those used in the initial estimate of fair value. These key assumptions include probability of default,
and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could
change the amount of interest income, and possibly the amount of principal expected to be collected. In reforecasting future
estimated cash flows, credit loss expectations are adjusted as necessary.
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 $554.8 million and $457.1 million at
December 31, 2015 and 2014, respectively. Peoples also had pledged commercial loans to secure borrowings with the FRB. The
outstanding balances of these loans totaled $195.5 million and $150.7 million at December 31, 2015 and 2014, respectively.
Related Party Loans
In the normal course of its business, Peoples Bank has granted loans to certain directors and officers of Peoples Bancorp Inc.,
including their affiliates, families and entities in which they are principal owners. At December 31, 2015, no related party loan
was past due 90 or more days, renegotiated or on nonaccrual status. Activity in related party loans is presented in the table below.
Other changes primarily consist of changes in related party status and new directors elected during the year.
(Dollars in thousands)
Balance, December 31, 2014
New loans and disbursements
Repayments
Other changes
Balance, December 31, 2015
$
$
15,192
10,361
(6,915)
(538)
18,100
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Nonaccrual and Past Due Loans
A loan is considered past due if any required principal and interest payments have not been received as of the date such
payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless
of whether or not such loan is considered past due.
The recorded investments in loans on nonaccrual status and accruing loans delinquent for 90 days or more were as follows at
December 31:
(Dollars in thousands)
Originated loans:
Nonaccrual Loans
Accruing Loans
90+ Days Past Due
2015
2014
2015
2014
Commercial real estate, construction
$
921 $
— $
— $
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total originated loans
Acquired loans:
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total acquired loans
Total loans
$
$
$
$
7,041
7,962
480
3,057
321
92
11,912 $
— $
469
469
247
798
98
7
1,619 $
13,531 $
2,575
2,575
1,286
3,049
341
19
7,270
96
9
105
708
304
19
—
1,136
8,406
$
$
$
$
—
—
680
169
—
1
850 $
— $
2,425
2,425
1,306
1,353
35
—
5,119 $
5,969 $
—
—
—
—
818
20
2
840
—
567
567
301
1,083
—
8
1,959
2,799
88
Table of Contents
The following table presents the aging of the recorded investment in past due loans and leases at December 31:
(Dollars in thousands)
2015
Originated 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 originated loans
Acquired 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 acquired loans
Total loans
2014
Originated 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 originated loans
Acquired 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 acquired loans
Total loans
Loans Past Due
30 - 59 days 60 - 89 days
90 + Days
Total
Current
Loans
Total
Loans
$
$
$
$
$
$
$
$
$
$
913 $
7,260
8,173
1,437
3,124
161
1,387
—
14,282 $
— $
1,592
1,592
177
4,910
318
90
—
7,087 $
21,369 $
— $
565
565
17
4,502
344
1,136
65
6,629 $
— $
1,067
1,067
46
4,026
9
245
—
5,393 $
12,022 $
8 $
379
387
767
1,263
104
32
—
2,553 $
40 $
2,730
2,770
1,553
1,745
95
—
—
6,163 $
8,716 $
— $
1,220
1,220
1,245
1,902
129
2
—
4,498 $
96 $
567
663
815
1,179
—
8
—
2,665 $
7,163 $
— $
1,258
1,258
215
1,105
7
250
—
2,835 $
— $
352
352
232
2,480
20
31
—
3,115 $
5,950 $
— $
285
285
18
1,062
425
157
—
1,947 $
— $
143
143
6
1,331
19
27
—
1,526 $
3,473 $
89
921
8,897
9,818
2,419
5,492
272
1,669
—
19,670
40
4,674
4,714
1,962
9,135
433
121
—
16,365
36,035
$
62,864 $
462,287
525,151
285,711
283,291
73,904
225,464
1,448
63,785
471,184
534,969
288,130
288,783
74,176
227,133
1,448
$ 1,394,969 $ 1,414,639
$
12,074 $
260,418
272,492
61,627
267,637
31,820
7,860
—
12,114
265,092
277,206
63,589
276,772
32,253
7,981
—
657,801
$
$ 2,036,405 $ 2,072,440
641,436 $
— $
37,901 $
432,590
470,491
248,695
246,703
61,565
168,618
2,868
37,901
434,660
472,561
249,975
254,169
62,463
169,913
2,933
$ 1,198,940 $ 1,212,014
$
955 $
119,698
120,653
29,189
218,738
18,204
12,516
—
1,051
121,475
122,526
30,056
225,274
18,232
12,796
—
$
408,884
$ 1,598,240 $ 1,620,898
399,300 $
2,070
2,070
1,280
7,466
898
1,295
65
13,074
96
1,777
1,873
867
6,536
28
280
—
9,584
22,658
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 loan if required,
for any weakness that may exist.
“Watch” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially
Mentioned” classification. Loans in this category possess some credit deficiency or potential weakness, which requires a
high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows
and/or reliance on the secondary source of repayment. If left uncorrected, these potential weaknesses may result in
noticeable deterioration of the repayment prospects for the loan or in Peoples' credit position.
“Substandard” (grade 6): Loans in this risk grade are inadequately protected by the borrower's current financial
condition and payment capability or of the collateral pledged, if any. Loans so classified have one or more well-defined
weaknesses that jeopardize the orderly repayment of the loan. They are characterized by the distinct possibility that
Peoples will sustain some loss if the deficiencies are not corrected.
“Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with
the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing
facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of
certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its
classification as an 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 each such 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”.
90
Table of Contents
The following table summarizes the risk category of Peoples' loan portfolio based upon the most recent analysis performed at
December 31:
(Dollars in thousands)
2015
Originated 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 originated loans
Acquired 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 acquired loans
Total loans
2014
Originated 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 originated loans
Acquired 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 acquired loans
Total loans
Pass Rated
Watch
Substandard Doubtful
(Grades 1 - 4)
(Grade 5)
(Grade 6)
(Grade 7)
Not
Rated
Total
Loans
913 $
17,595
18,508
5,344
12,282
175
3
—
36,312 $
— $
17,521
17,521
4,238
1,786
—
—
—
23,545 $
59,857 $
— $
17,120
17,120
2,684
11,601
965
8
—
32,378 $
— $
8,260
8,260
2,294
1,540
—
—
—
12,094 $
44,472 $
$
$
$
$
$
$
$
$
62,225 $
434,868
497,093
259,183
21,903
785
208
—
779,172 $
12,114 $
233,630
245,744
56,077
18,027
316
256
—
320,420 $
1,099,592 $
37,637 $
405,224
442,861
239,168
21,296
767
60
—
704,152 $
955 $
106,115
107,070
27,313
13,458
98
279
—
$
$
148,218 $
852,370 $
— $
18,710
18,710
23,601
1,168
—
—
—
43,479 $
— $
13,866
13,866
3,078
1,409
—
—
—
18,353 $
61,832 $
— $
12,316
12,316
8,122
1,195
—
1
—
21,634 $
— $
7,100
7,100
255
833
—
—
—
8,188 $
29,822 $
91
— $
—
—
—
187
—
—
—
187 $
— $
75
75
196
—
—
—
—
271 $
458 $
— $
—
—
1
56
—
—
—
57 $
— $
—
—
194
—
—
—
—
194 $
251 $
647 $
11
658
2
253,243
73,216
226,922
1,448
63,785
471,184
534,969
288,130
288,783
74,176
227,133
1,448
555,489 $ 1,414,639
— $
—
—
—
255,550
31,937
7,725
—
12,114
265,092
277,206
63,589
276,772
32,253
7,981
—
295,212 $
657,801
850,701 $ 2,072,440
264 $
—
264
—
220,021
60,731
169,844
2,933
37,901
434,660
472,561
249,975
254,169
62,463
169,913
2,933
453,793 $ 1,212,014
96 $
—
96
—
209,443
18,134
12,517
—
1,051
121,475
122,526
30,056
225,274
18,232
12,796
—
240,190 $
408,884
693,983 $ 1,620,898
Table of Contents
Impaired Loans
The following tables summarize loans classified as impaired at December 31:
(Dollars in thousands)
2015
Commercial real estate,
construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total
2014
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
$
$
$
$
$
$
957 $
23,430
24,387 $
5,670
31,304
425
383
62,169 $
9,914 $
8,668
18,582 $
3,747
6,889
500
391
30,109 $
— $
957 $
6,396
6,396 $
1,224
370
—
—
7,990 $
— $
653
653 $
1,945
53
—
—
2,651 $
12,775
13,732 $
4,130
28,834
419
298
47,413 $
9,909
7,742
17,651 $
1,767
6,372
498
386
26,674 $
957 $
19,171
20,128 $
5,354
29,204
419
298
55,403 $
9,909 $
8,395
18,304 $
3,712
6,425
498
386
29,325 $
— $
1,363
1,363 $
351
106
—
—
1,820 $
— $
189
189 $
816
9
—
—
1,014 $
227 $
13,071
13,298 $
4,049
26,785
325
295
44,752 $
4,378 $
4,056
8,434 $
1,414
3,582
298
221
13,949 $
3
815
818
246
1,354
18
28
2,464
540
248
788
73
272
18
24
1,175
At December 31, 2015, Peoples' impaired loans shown in the table above included loans that were classified as troubled debt
restructurings.
In assessing whether or not a borrower is experiencing financial difficulties, Peoples considers information currently
available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the
borrower is currently in payment default on any of the borrower's debt; (ii) a payment default is probable in the foreseeable future
without the modification; (iii) the borrower has declared or is in the process of declaring bankruptcy; and (iv) the borrower's
projected cash flow is insufficient to satisfy contractual payments due under the original terms of the loan without a modification.
Peoples considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to
the borrower. Key factors considered by Peoples include the borrower's ability to access funds at a market rate for debt with
similar risk characteristics, the significance of the modification relative to the unpaid principal balance or collateral value of the
debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most
common concessions granted by Peoples generally include one or more modifications to the terms of the 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.
92
Table of Contents
The following table summarizes the loans that were modified as a TDR during the years ended December 31, 2015 and 2014.
(Dollars in thousands)
December 31,2015
Originated loans:
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Total
Acquired loans:
Residential real estate
Home equity lines of credit
Total
December 31,2014
Originated loans:
Residential real estate
Home equity lines of credit
Consumer
Total
Acquired loans:
Commercial real estate,
construction
Commercial and industrial
Residential real estate
Recorded Investment (1)
Number
of
Contracts
Pre-
Modification
Post-
Modification
Remaining
Recorded
Investment
5 $
900 $
900 $
4
4
11
12
36 $
4 $
1
5 $
834
207
402
834
207
402
95
2,438 $
95
2,438 $
246 $
8
254 $
246 $
8
254 $
22 $
996 $
997 $
12
10
238
108
238
108
44 $
1,342 $
1,343 $
1 $
3
4
96 $
96 $
605
235
605
235
881
834
115
389
94
2,313
246
7
253
967
232
102
1,301
96
594
234
Consumer
Total
13 $
(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.
945 $
945 $
5
9
9
6
930
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, 2015 and 2014:
Number
of
Contracts
2015
Recorded
Investment
(1)
Impact on the
Allowance for
Loan Losses
Number
of
Contracts
Recorded
Investment
(1)
Impact on the
Allowance for
Loan Losses
2014
1 $
—
1 $
151 $
—
151 $
—
—
—
1 $
2
3 $
33 $
28
61 $
(Dollars in thousands)
Originated loans:
Residential real estate
Home equity lines of credit
Total
Acquired loans:
Residential real estate
Total
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down,
charged-off or foreclosed upon by period end are not reported.
56 $
56 $
— $
— $
— $
— $
1 $
1 $
—
—
93
—
—
—
—
—
Table of Contents
Peoples had no commitments to lend additional funds to the related borrowers whose loan terms have been modified in a
TDR.
Allowance for Loan Losses
Changes in the allowance for loan losses in the periods ended December 31, were as follows:
(Dollars in thousands)
Balance, January 1, 2015
Charge-offs
Recoveries
Net (charge-offs) recoveries
(Recovery of) provision for loan losses
Balance, December 31, 2015
Period-end amount allocated to:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
Balance, December 31, 2015
Balance, January 1, 2014
Charge-offs
Recoveries
Net recoveries (charge-offs)
(Recovery of) provision for loan losses
Balance, December 31, 2014
Period-end amount allocated to:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
Balance, December 31, 2014
Commercial
Real Estate
Commercial
and
Industrial
Residential
Real Estate
Home
Equity
Lines of
Credit Consumer
Deposit
Account
Overdrafts
Total
$
9,825 $
4,036 $
1,627 $
694 $
1,587 $
112 $ 17,881
(242)
104
(138)
(2,611)
(13,576)
98
(13,478)
14,824
(628)
315
(313)
(57)
(125)
119
(6)
44
(1,353)
(774)
(16,698)
755
(598)
982
171
1,562
(603)
(15,136)
612
13,794
7,076 $
5,382 $
1,257 $
732 $
1,971 $
121 $ 16,539
1,363 $
351 $
106 $
— $
— $
— $ 1,820
5,713
7,076 $
5,031
1,151
732
1,971
121
14,719
5,382 $
1,257 $
732 $
1,971 $
121 $ 16,539
13,215 $
2,174 $
881 $
343 $
316 $
136 $ 17,065
(203)
2,060
1,857
(5,247)
(199)
77
(122)
1,984
(478)
169
(309)
1,055
(128)
36
(92)
443
(1,191)
697
(494)
1,765
(516)
(2,715)
153
3,192
(363)
339
477
339
9,825 $
4,036 $
1,627 $
694 $
1,587 $
112 $ 17,881
189 $
816 $
9 $
— $
— $
— $ 1,014
9,636
9,825 $
3,220
1,618
694
1,587
112
16,867
4,036 $
1,627 $
694 $
1,587 $
112 $ 17,881
$
$
$
$
$
$
$
The reduction in the allowance for originated loan losses allocated to commercial real estate was driven by decreased
historical loss rates. Historical loss rates are calculated using charge-offs and recoveries within each portfolio over the past five
years. The increase in provision for originated commercial and industrial loans during 2015 was primarily related to a specific
allowance for one relationship which was charged off in 2015. The reduction in the allowance for originated residential real
estate was driven by net recoveries in recent years reducing the historical loss rates. The changes in the home equity lines of
credit and consumer categories of the allowance for originated loan losses and the related provision for originated loan losses
recorded during 2015 were driven by net charge-off activity and increases in the size of the respective loan portfolios.
Allowance for Acquired Loan Losses
Acquired loans are recorded at their fair value as of the acquisition date with no valuation allowance, and monitored for
changes in credit quality and subsequent increases or decreases in expected cash flows. Decreases in expected cash flows of
acquired credit impaired loans are recognized as an impairment, with the amount of the expected loss included in management's
evaluation of the appropriateness of the allowance for loan losses. Management reforecasts the estimated cash flows expected to
be collected on acquired purchased credit impaired impaired loans semi-annually. The methods utilized to estimate the required
allowance for loan losses for nonimpaired acquired loans are similar to those utilized for originated loans; however, Peoples
records a provision for loan losses only when the computed allowance exceeds the remaining fair value adjustment.
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Table of Contents
The following table presents activity in the allowance for loan losses for acquired loans as of December 31:
(Dollars in thousands)
Purchased credit impaired loans:
Balance, January 1
Charge-offs
Recoveries
Net recoveries (charge-offs)
Provision for loan losses
Balance, December 31
$
$
2015
2014
2013
— $
(63)
—
(63)
303
240 $
— $
—
—
—
—
— $
—
—
—
—
—
—
As of December 31, 2015, the expected cash flows for acquired credit impaired loans had decreased from those as of the
respective acquisition dates, resulting in Peoples recording a provision for loan losses with respect to those acquired loans.
During 2014 and 2013, the discount recorded on acquired loans was in excess of the calculated allowance for loan losses for the
acquired portfolios.
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
2015
2014
$
11,976
$
58,607
25,487
96,070
(42,583)
53,487
$
$
7,612
48,402
22,323
78,337
(38,002)
40,335
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 $4.6 million, $3.0 million and $2.6
million, in 2015, 2014 and 2013, 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 on the leased properties and equipment was $988,000, $951,000, and
$950,000 in 2015, 2014 and 2013, respectively.
Peoples Insurance Agency, LLC ("Peoples Insurance") previously leased a property from certain of its managers;
however, in 2014 this lease expired and was not renewed. Payments related to this lease totaled $64,000 and $151,000 in
2014 and 2013, respectively. The terms of the lease were substantially the same as those offered for comparable transactions
with non-related parties at the time the lease transaction was consummated.
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Table of Contents
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, 2015:
(Dollars in thousands)
Payments
$
2016
2017
2018
2019
2020
Thereafter
Total future operating lease payments
$
916
612
486
224
58
272
2,568
Note 6. Goodwill and Other Intangible Assets
The following table details changes in the recorded amount of goodwill for the years ended December 31:
(Dollars in thousands)
Goodwill, beginning of year
Acquired goodwill
Goodwill, end of year
2015
2014
$
$
98,562 $
34,069
132,631 $
70,520
28,042
98,562
Peoples performed the required goodwill impairment tests and concluded there was no impairment in the recorded value
of goodwill in 2015, based upon the estimated fair value of the single reporting unit. At December 31, 2015, Peoples
completed the first step of the goodwill impairment test due to potential indicators impairment. Peoples utilized the Income
Approach and Market Approach analysis in determining that the fair value of the reporting unit exceeded the carrying amount
and that the goodwill of the reporting unit was not considered impaired.
Other intangible assets
Other intangible assets were comprised of the following at December 31:
(Dollars in thousands)
Core Deposits
Customer
Relationships
Total
2015
Gross intangibles
Acquired intangibles
Accumulated amortization
Total acquired intangibles
Servicing rights
Total other intangibles
2014
Gross intangibles
Acquired intangibles
Accumulated amortization
Total acquired intangibles
Servicing rights
Total other intangibles
7,013
$
8,858
$
8,623
(4,396)
11,240
2,226
4,787
(1,156)
5,857
$
$
$
1,695
(7,194)
3,359
8,646
212
(6,357)
2,501
$
$
$
$
$
15,871
10,318
(11,590)
14,599
2,387
16,986
10,872
4,999
(7,513)
8,358
2,238
10,596
$
$
$
$
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The following table details estimated aggregate future amortization expense of core deposit and customer relationship
intangible assets at December 31, 2015:
(Dollars in thousands)
2016
2017
2018
2019
2020
Thereafter
Total
Core
Deposits
Customer
Relationships
Total
$
3,114
$
2,608
2,098
1,586
1,071
$
833
722
606
482
352
763
11,240
$
$
364
3,359
$
3,947
3,330
2,704
2,068
1,423
1,127
14,599
For further information regarding Peoples' acquisitions, refer to Note 17.
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
2015
2014
2013
$
$
2,238
(662)
566
245
2,387
$
$
2,295
(597)
497
43
2,238
$
$
2,073
(652)
675
199
2,295
No valuation allowances were required at December 31, 2015, 2014 and 2013 for Peoples’ servicing rights since the fair
value equaled or exceeded the book value.
Note 7. Deposits
Peoples’ deposit balances were comprised of the following at December 31:
(Dollars in thousands)
Retail certificates of deposit:
$250,000 or more
Less than $250,000
Retail certificates of deposit
Savings accounts
Money market deposit accounts
Governmental deposit accounts
Interest-bearing transaction accounts
Brokered certificates of deposits
Total interest-bearing deposits
Non-interest-bearing deposits
Total deposits
2015
2014
$
62,541 $
59,031
386,451
448,992
414,375
394,119
276,639
250,023
33,857
373,532
432,563
295,307
337,387
161,305
173,659
39,691
1,818,005
1,439,912
717,939
493,162
$ 2,535,944 $ 1,933,074
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The contractual maturities of certificates of deposits for each of the next five years and thereafter are as follows:
(Dollars in thousands)
2016
Retail
Brokered
Total
$
261,907 $
18,187 $
280,094
2017
2018
2019
2020
84,230
46,106
28,614
26,773
—
1,147
14,523
—
84,230
47,253
43,137
26,773
Thereafter
Total deposits
$
1,362
448,992 $
—
33,857 $
1,362
482,849
Deposits from related parties approximated $43.0 million and $34.0 million at December 31, 2015 and 2014,
respectively.
Note 8. Short-Term Borrowings
Peoples utilizes various short-term borrowings as sources of funds, which are summarized as follows at December 31:
(Dollars in thousands)
2015
Ending balance
Average balance
Highest month-end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
2014
Ending balance
Average balance
Highest month-end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
2013
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
$
$
$
$
$
$
84,386
83,574
92,711
140
0.17%
0.17%
73,277
59,324
76,459
99
0.17%
0.17%
42,590
37,077
46,850
58
$
$
$
76,000
16,863
76,000
42
0.35%
0.25%
15,000
36,678
108,000
47
0.14%
0.13%
71,000
44,127
92,500
55
—
—
—
—
—%
—%
—
38
—
—
—%
0.75%
—
90
—
1
0.16%
0.16%
0.14%
0.12%
—%
0.74%
Peoples’ retail repurchase agreements consist of overnight agreements with Peoples’ commercial customers and serve as
a cash management tool.
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The FHLB advances consist of overnight borrowings and other advances with an original maturity of one year or
less. These advances, along with the long-term advances disclosed in Note 9, are collateralized by residential mortgage loans
and investment securities. Peoples’ borrowing capacity with the FHLB is based on the amount of collateral pledged and the
amount of FHLB common stock owned.
Other short-term borrowings consist of federal funds purchased and advances from the Federal Reserve Discount
Window. Federal funds purchased are short-term borrowings from correspondent banks that typically mature within one to
ninety days. Peoples had available federal funds of $25 million from certain of its correspondent banks at December,
31,2015 with $20 million set to expire in early 2016. 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. On
August 4, 2014, the revolving credit loan amount was increased to $10 million and on December 17, 2015, the revolving
credit loan amount increased to $15 million, with a maturity date of December 15, 2016. 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 9 for the term loan. At December 31, 2015 and 2014, this revolving credit loan had no
outstanding principal balance.
Note 9. Long-Term Borrowings
Long-term borrowings consisted of the following at December 31:
(Dollars in thousands)
FHLB putable non-amortizing, fixed-rate advances
$
FHLB amortizing, fixed-rate advances
Callable national market repurchase agreements
Junior subordinated debt securities
Term note payable (parent company)
Long-term borrowings
$
2015
2014
Weighted-
Average
Rate
Weighted-
Average
Rate
Balance
Balance
50,000
16,934
40,000
6,736
—
113,670
3.32 % $
2.69 %
3.63 %
1.83 %
— %
3.25% $
83,995
40,719
40,000
—
14,369
179,083
3.30 %
2.13 %
3.63 %
— %
3.50 %
3.12%
The putable, non-amortizing, fixed-rate FHLB advances have original maturities ranging from ten to twenty 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 three months to five 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 of either an option exercise by the FHLB or the stated maturity. During 2015, Peoples repaid several FHLB
advances including putable, non-amortizing, fixed-rate advances and amortizing, fixed-rate advances, totaling approximately
$52.1 million that resulted in early termination fees of $520,000, and had a weighted-average cost of 1.49%.
The amortizing, fixed-rate FHLB advances have a fixed rate for the term of the loan, with maturities ranging from ten to
twenty 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.
Peoples' callable national market repurchase agreements consist of agreements with unrelated financial service
companies and have original maturities ranging from five to ten 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
three months to five 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.
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On March 6, 2015, Peoples completed its acquisition of NB&T Financial Group, Inc. ("NB&T"), which included the
assumption of Fixed/Floating Rate Junior Subordinated Debt Securities due 2037 (the "junior subordinated debt securities")
at an acquisition-date fair value of $6.6 million held in a wholly-owned statutory trust whose common securities were
wholly-owned by NB&T. The sole assets of the statutory trust are the junior subordinated debt securities and related
payments. The junior subordinated debt securities and the back-up obligations, in the aggregate, constitute a full and
unconditional guarantee of the obligations of the statutory trust under the Capital Securities held by third-party investors.
Distributions on the Capital Securities are payable at the annual rate of 1.50% over the 3-month LIBOR. Distributions on the
Capital Securities are included in interest expense in the Consolidated Financial Statements. These securities are considered
Tier I capital (with certain limitations applicable) under current regulatory guidelines. The junior subordinated debt securities
are subject to mandatory redemption, in whole or in part, upon repayment of the Capital Securities at maturity or their earlier
redemption at the liquidation amount. Subject to prior approval of the Federal Reserve, the Capital Securities are redeemable
prior to the maturity date of September 6, 2037, and are redeemable at par. Since September 6, 2012, the Capital Securities
have been redeemable at par, subject to such approval. Distributions on the Capital Securities can be deferred from time to
time for a period not to exceed 20 consecutive semi-annual periods.
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 five years. On August 4, 2014, the
Loan Agreement was amended (as amended, the "Amended Loan Agreement"). Under the Amended Loan Agreement, the
interest rate on the term loan was reduced from 3.80% to 3.50%, and certain loan covenants related to the operations of
Peoples' business were modified under the Amended Loan Agreement. Peoples was required to make quarterly principal and
interest payments until the earlier of either full prepayment by Peoples or the stated maturity date. 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 Amended Loan Agreement, which include restrictions on ownership interests of its
subsidiaries; 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 must maintain a "Fixed Charge Coverage Ratio" (as defined in the Amended 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 trailing 12-month basis;
issuance of dividends from Peoples Bank may not exceed the amount permitted by law without requiring
regulatory approval;
• minimum liquidity position of $2 million at Peoples Bancorp Inc.; and
•
Peoples Bank must maintain a ratio of "Allowance for Loan Losses" to "Nonperforming Loans" (as each
term is defined in the Amended Loan Agreement) of not less than 70% measured as of the last day of each
fiscal quarter.
This note was prepaid on July 24, 2015 without penalties. As of December 31, 2015, Peoples was in compliance with
the applicable covenants imposed by the Amended Loan Agreement.
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At December 31, 2015, the aggregate minimum annual retirements of long-term borrowings in future periods were as
follows:
(Dollars in thousands)
Balance
Weighted-
Average Rate
2016
2017
2018
2019
2020
Thereafter
Long-term borrowings
$
$
2,945
2,330
82,390
1,426
3,901
20,678
113,670
2.38 %
2.45 %
3.47 %
2.60 %
3.36 %
2.59 %
3.25%
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Note 10. Stockholders’ Equity
The following table details the activity in Peoples’ common stock and treasury stock during the years ended
December 31:
Shares at December 31, 2012
Changes related to stock-based compensation awards:
Grant of restricted common shares
Release of restricted common shares
Cancellation of restricted common shares
Changes related to deferred compensation plan for Board of Directors:
Purchase of treasury stock
Reissuance of treasury stock
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for Board of Directors
Shares at December 31, 2013
Changes related to stock-based compensation awards:
Grant of restricted common shares
Release of restricted common shares
Cancellation of restricted common shares
Exercise of stock options for common shares
Reissuance of treasury stock for common stock awards
Grant of common shares
Changes related to deferred compensation plan for Board of Directors:
Purchase of treasury stock
Reissuance of treasury stock
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for Board of Directors
Issuance of common shares related to acquisitions:
Midwest Bancshares, Inc.
Ohio Heritage Bancorp, Inc.
North Akron Savings Bank
Common shares issued to institutional investors in private placement
Shares at December 31, 2014
Changes related to stock-based compensation awards:
Grant of restricted common shares
Release of restricted common shares
Cancellation of restricted common shares
Grant of common shares
Changes related to deferred compensation plan for Board of Directors:
Purchase of treasury stock
Reissuance of treasury stock
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for Board of Directors
Common shares issued under employee stock purchase plan
Issuance of common shares related to acquisition of NB&T Financial Group, Inc.
Shares at December 31, 2015
Common
Stock
11,252,244
Treasury
Stock
607,688
83,206
—
(3,096)
—
—
19,682
—
11,352,036
101,926
—
(6,062)
—
—
100
—
—
17,230
—
256,282
1,364,735
665,570
1,847,826
15,599,643
131,011
—
(28,219)
2,810
—
—
18,257
—
—
3,207,698
18,931,200
—
6,862
—
3,652
(9,147)
—
(8,261)
600,794
—
18,031
—
(2,792)
(12,030)
—
4,236
(9,390)
—
(8,603)
—
—
—
—
590,246
—
25,205
—
(100)
7,654
(9,642)
—
(10,231)
(16,446)
—
586,686
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On November 3, 2015, Peoples announced that its Board of Directors approved and adopted a share repurchase program
authorizing Peoples to purchase, from time to time, up to an aggregate of $20 million of its outstanding common shares. No
common shares were purchased in 2015. As of February 24, 2016, Peoples repurchased 253,870 common shares at a cost of
$4.5 million under the program.
On March 6, 2015, Peoples completed its acquisition of NB&T, and issued 3,207,698 common shares reflecting $76.0
million of consideration, with the remainder paid in cash. Additional information regarding the NB&T acquisition can be
found in Note 17.
On August 7, 2014, Peoples announced the completion of the sale of 1,847,826 common shares at $23.00 per share to
institutional investors through a private placement (the "Private Equity Issuance"). Peoples received net proceeds of $40.2
million from the sale, and used the proceeds, in part, to fund the cash consideration for the NB&T acquisition.
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 Peoples' Board of Directors. At December 31, 2015, Peoples had no preferred shares issued or outstanding.
Accumulated Other Comprehensive Income (Loss)
The following details the change in the components of Peoples’ accumulated other comprehensive income (loss) for the
years ended December 31:
(Dollars in thousands)
Balance, December 31, 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
Other comprehensive (loss), income net of reclassifications and tax
Balance, December 31, 2013
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax
Realized loss due to settlement and curtailment, net of tax
Other comprehensive income (loss), net of reclassifications and tax
Balance, December 31, 2014
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax
Realized loss due to settlement and curtailment, net of tax
Other comprehensive income, net of reclassifications and tax
Balance, December 31, 2015
Note 11. Employee Benefit Plans
Unrealized
Gain (Loss) on
Securities
Unrecognized
Net Pension and
Postretirement
Costs
Accumulated
Other
Comprehensive
Income (Loss)
$
$
$
$
6,892 $
(6,238) $
654
(318)
—
(16,335)
(9,761) $
(259)
—
12,562
2,542 $
(474)
—
801
2,869 $
—
175
2,580
(3,483) $
—
910
(1,270)
(3,843) $
—
298
317
(3,228) $
(318)
175
(13,755)
(13,244)
(259)
910
11,292
(1,301)
(474)
298
1,118
(359)
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.
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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. As of January 1, 2011, all retirees
who desire to participate in the Peoples Bank medical plan do so by electing COBRA, which provides up to 18 months of
coverage; retirees over the age of 65 also have the option to participate in a group Medicare supplemental plan. Peoples only
pays 100% of the cost for those individuals who retired before January 1, 1993. For all others, the retiree is responsible for
most, if not all, of the cost of health benefits. Peoples’ policy is to fund the cost of the benefits as they arise.
The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets over
the two-year period ended December 31, 2015, and a statement of the funded status as of December 31, 2015 and 2014:
(Dollars in thousands)
Change in benefit obligation:
Obligation at January 1
Interest cost
Plan participants’ contributions
Actuarial (gain) loss
Benefit payments
Settlements
Obligation at December 31
Pension Benefits
Postretirement Benefits
2015
2014
2015
2014
$ 13,695
$ 14,723
$
152
$
447
—
(948)
(148)
(1,081)
$ 11,965
509
—
2,060
(163)
(3,434)
$ 13,695
Accumulated benefit obligation at December 31
$ 11,965
$ 13,695
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:
$
8,259
(91)
185
$ 11,287
569
—
—
(148)
(1,081)
7,124
—
(163)
(3,434)
$
8,259
$ (4,841) $ (5,436)
$
Accrued benefit liability
Net amount recognized
(4,841)
(5,436)
$ (4,841) $ (5,436)
Amounts recognized in Accumulated Other Comprehensive Loss:
Unrecognized prior service cost
Unrecognized net loss
Total
Weighted-average assumptions at year-end:
$
$
— $
— $
3,275
3,275
$
3,886
3,886
$
$
$
$
$
$
$
4
65
(10)
(85)
—
126
$
— $
— $
—
20
65
(85)
—
— $
(126) $
(126)
(126) $
(2) $
(47)
(49) $
143
6
46
26
(69)
—
152
—
—
—
23
46
(69)
—
—
(152)
(152)
(152)
(2)
(43)
(45)
Discount rate
3.90%
3.50%
3.90%
3.50%
The estimated costs relating to Peoples’ pension benefits that will be amortized from accumulated other comprehensive
loss into net periodic cost over the next fiscal year are $99,000 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 at December 31:
(Dollars in thousands)
Interest cost
Expected return on plan assets
Amortization of net loss (gain)
Settlement of benefit obligation
Net periodic benefit cost
Weighted-average assumptions:
Discount rate
Expected return on plan assets
Rate of compensation increase
$
$
$
$
Pension Benefits
2014
509
(589)
137
1,400
$ 1,457
$
2015
447
(493)
117
459
530
2013
543
(659)
189
270
343
$
Postretirement Benefits
2013
5
—
(7)
—
(2)
2014
6
—
(8)
—
(2) $
2015
4
$
—
(5)
—
(1) $
$
$
3.80%
7.50%
n/a
3.70%
7.50%
n/a
3.75% 3.50%
n/a
7.50%
n/a
n/a
4.30%
n/a
n/a
3.30%
n/a
n/a
For measurement purposes, a 6.5% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost
trend rate) was assumed for 2015, grading down to an ultimate rate of 4% in 2064. 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.
During each quarter of 2015, the total lump-sum distributions made to participants caused the total settlements to exceed
the recognition threshold for settlement gains or losses. As a result, Peoples remeasured its pension obligation and plan
assets as of the beginning of each fiscal quarter of 2015 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 pension plan's total assets is based on the expected return of each category
of the pension plan's assets. Peoples' investment strategy for the pension 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.
Plan Assets
Peoples' investment strategy, as established by Peoples' Retirement Plan Committee, is to invest assets of the pension
plan based upon established target allocations, which include a target range of 60-75% allocation in equity securities, 20-43%
in debt securities and 0-15% 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)
2015
Equity securities:
Mutual funds - equity
Debt securities:
Mutual funds - taxable income
Total fair value of pension assets
2014
Equity securities:
Mutual funds - equity
Debt securities:
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
4,908
$
4,908
$
1,863
6,771
$
1,863
6,771
$
5,756
$
5,756
$
2,128
7,884
$
2,128
7,884
$
—
—
—
—
—
—
Pension plan assets also included cash and cash equivalents of $352,000 and accrued income of $1,000 at December 31,
2015. Cash and cash equivalents were $373,000 and accrued income was $2,000 at December 31, 2014. For further
information regarding levels of input used to measure fair value, refer to Note 2.
Equity securities of Peoples' pension plan did not include any securities of Peoples or related parties in 2015 or 2014.
Cash Flows
Peoples expects to make between $475,000 to $500,000 of contributions to its pension plan in 2016; 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
2016
2017
2018
2019
2020
2021 to 2025
Total
$
$
1,090
$
801
853
842
959
3,720
8,265
$
21
13
12
12
12
48
118
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. 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 $1,454,000, $1,048,000 and $924,000 in 2015, 2014 and 2013, respectively.
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Note 12. Income Taxes
The reported income tax expense and effective tax rate in the Consolidated Statements of Income differs from the
amounts computed by applying the statutory corporate tax rate as follows for the years ended December 31:
(Dollars in thousands)
Amount
Rate
Amount
Rate
Amount
Rate
Income tax computed at statutory federal tax rate
$
5,051
34.1 % $
8,462
35.0 % $ 10,179
35.0 %
2015
2014
2013
Differences in rate resulting from:
Tax-exempt interest income
Investments in tax credit funds
Bank owned life insurance
Other, net
Income tax expense
(1,109)
(7.5)%
(123)
(204)
(0.8)%
(1.4)%
260
3,875
$
1.8 %
26.2 % $
(3.0)%
(726)
(481)
(2.0)%
(37) — %
107
1.0 %
276
31.0 % $ 11,510
7,494
(645)
(314)
2,183
(2.2)%
(1.1)%
7.5 %
0.4 %
39.6 %
Peoples' reported income tax expense consisted of the following for the years ended December 31:
(Dollars in thousands)
Current income tax expense
Deferred income tax (benefit) expense
Income tax expense
2015
2014
2013
$
$
5,457
(1,582)
3,875
$
$
3,659
3,835
7,494
$
$
6,883
4,627
11,510
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
Bank premises and equipment
Available-for-sale securities
Investments
Accrued employee benefits
Other
Gross deferred tax assets
Valuation allowance
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
2015
2014
12,144
1,060
—
1,842
2,748
3,803
21,597
605
20,992
11,342
1,544
—
2,260
664
15,810
5,182
$
$
$
$
$
10,493
—
—
1,956
2,662
1,146
16,257
—
16,257
6,316
1,368
2,470
1,924
684
12,762
3,495
$
$
$
$
$
The tax loss carryforward, related to the NB&T acquisition at December 31, 2015 will be recognized in accordance with
26 U.S. Code §382 limitation of net operating loss carry forward guidance. As of December 31, 2015, the Company had a
net operating loss carryforward of approximately $5.8 million for tax purposes, which will be available to offset future
taxable income. If not used, this carryforward will expire in 2035.
A $0.6 million valuation allowance related to a partnership investment was recorded for deferred tax assets at
December 31, 2015, as it is more likely than not that the $1.7 million of gross deferred tax assets may not be realized in
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future periods. The related federal income tax expense on securities transactions approximated $255,000 in 2015, $139,000
in 2014 and $171,000 in 2013.
Income tax benefits are recognized in the Consolidated Financial Statements for a tax position only if it is considered
"more likely than not" of being sustained on audit, based solely on the technical merits of the income tax position. If the
recognition criteria are met, the amount of income tax benefits to be recognized are measured based on the largest income tax
benefit that is more than 50 percent likely to be realized on ultimate resolution of the tax position. The following table
provides a reconciliation of uncertain tax positions at December 31:
(Dollars in thousands)
Uncertain tax positions, beginning of year
Gross increase based on tax positions related to current year
Gross increase for tax position taken during prior years
Gross decrease for tax positions taken during prior years
Gross decrease due to the statute of limitations
Uncertain tax positions, end of year
2015
2014
$
$
240 $
182
—
(2)
(3)
417 $
30
178
33
—
(1)
240
Peoples' income tax returns are subject to review and examination by federal and state taxing authorities. Peoples is
currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended
December 31, 2012 through 2014. The years open to examination by state taxing authorities vary by jurisdiction.
Note 13. 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)
2015
2014
2013
Distributed earnings allocated to common shareholders
Undistributed earnings allocated to common shareholders
Net earnings allocated to common shareholders
$
$
10,426 $
7,095 $
404
9,472
10,830 $
16,567 $
5,749
11,685
17,434
Weighted-average common shares outstanding
17,555,140
12,183,352
10,581,222
Effect of potentially dilutive common shares
132,655
122,872
98,195
Total weighted-average diluted common shares outstanding 17,687,795
12,306,224
10,679,417
Earnings per common share:
Basic
Diluted
$
$
0.62 $
0.61 $
1.36 $
1.35 $
1.65
1.63
Anti-dilutive common shares excluded from calculation:
Stock options and stock appreciation rights
46,109
55,184
91,902
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Note 14. Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, Peoples is party to financial instruments with off-balance sheet risk necessary to meet
the financing needs of customers. These financial instruments include commitments to extend credit and standby letters of
credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the
Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in
these financial instruments.
Loan Commitments and Standby Letters of Credit
Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are
instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples
Bank's customer in the nonperformance of an obligation or service. Historically, most loan commitments and standby letters
of credit expire unused. Peoples' exposure to credit loss in the event of nonperformance by the counter-party to the financial
instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments.
Peoples uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance
sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral
held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing
commercial properties.
The total amounts of loan commitments and standby letters of credit at December 31 are summarized as follows:
(Dollars in thousands)
Home equity lines of credit
Unadvanced construction loans
Other loan commitments
Loan commitments
Standby letters of credit
2015
2014
84,148 $
77,479
233,689
395,316
22,970 $
62,704
46,781
173,746
283,231
30,837
$
$
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 $72.2 million and fair value of $3.1 million at December 31, 2015,
and a notional value of $44.0 million and fair value of $2.1 million at December 31, 2014. These interest rate swaps did not
have a material impact on Peoples' results of operation or financial condition.
Note 15. 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
$16.3 million and $12.2 million in 2015 and 2014, 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, 2015, Peoples Bank had approximately $2.6 million of net profits available for
distribution to Peoples as dividends without regulatory approval.
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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
Peoples Bank 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, and in effect at December 31, 2015, required
Peoples and Peoples Bank to maintain minimum amounts and ratios of Common Equity Tier 1 capital, Tier 1 capital and
Total 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, 2015.
As of December 31, 2015, 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 Common Equity Tier 1, Tier 1 risk-based, Total 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:
(Dollars in thousands)
PEOPLES
Common Equity Tier 1 (1)
Actual
For capital adequacy
To be well capitalized
Tier 1 (2)
Actual
For capital adequacy
To be well capitalized
Total Capital (3)
Actual
For capital adequacy
To be well capitalized
Tier 1 Leverage (4)
Actual
For capital adequacy
To be well capitalized
Net Risk-Weighted Assets
2015
2014
Amount
Ratio
Amount
Ratio
288,416
97,083
140,232
295,151
129,445
172,593
313,974
172,593
215,741
$
$
$
295,151
123,973
154,967
$ 2,157,410
13.4%
4.5%
6.5%
N/A
N/A
N/A
N/A
N/A
N/A
13.7% $
6.0%
8.0%
14.6% $
8.0%
10.0%
241,707
67,519
101,278
261,371
135,037
168,797
9.5% $
4.0%
5.0%
241,707
97,470
121,837
$ 1,687,968
$
257,045
96,916
139,989
277,045
129,221
172,295
PEOPLES BANK
Common Equity Tier 1 (1)
Actual
For capital adequacy
To be well capitalized
Tier 1 (2)
Actual
For capital adequacy
To be well capitalized
Total Capital (3)
Actual
For capital adequacy
To be well capitalized
Tier 1 Leverage (4)
Actual
For capital adequacy
To be well capitalized
Net Risk-Weighted Assets
(1) Ratio represents Common Equity Tier 1 capital to net risk-weighted assets
(2) Ratio represents Tier 1 capital to net risk-weighted assets
(3) Ratio represents total capital to net risk-weighted assets
(4) Ratio represents Tier 1 capital to average assets
277,045
123,742
154,677
$ 2,153,682
293,823
172,295
215,368
$
$
11.9%
4.5%
6.5%
12.9% $
6.0%
8.0%
13.6% $
8.0%
10.0%
N/A
N/A
N/A
205,710
67,464
101,196
223,591
134,928
168,660
9.0% $
4.0%
5.0%
205,710
97,333
121,666
$ 1,686,603
111
14.3%
4.0%
6.0%
15.5%
8.0%
10.0%
9.9%
4.0%
5.0%
N/A
N/A
N/A
12.9%
4.0%
6.0%
13.3%
8.0%
10.0%
8.5%
4.0%
5.0%
Table of Contents
Note 16. Stock-Based Compensation
Under the Peoples Bancorp Inc. Second 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 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 common shares that can be issued for incentive
stock options is 800,000 common 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. In
2007 and 2008, Peoples granted stock appreciation rights (“SARs”) to be settled in common shares. Since February 2007,
Peoples has granted restricted common shares to employees and 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' outstanding stock options for the year ended December 31, 2015:
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
38,577
18,267
20,310
20,310
$
$
$
28.09
27.27
28.83
28.83
0.3 years
0.3 years
$
$
—
—
The following table summarizes Peoples’ stock options outstanding at December 31, 2015:
Options Outstanding & Exercisable
Weighted-
Average
Remaining
Contractual
Life
0.1 years
0.4 years
0.3 years $
Common
Shares Subject
to Options
Outstanding
10,310
10,000
20,310
Weighted-
Average
Exercise Price
28.25
29.43
28.83
Range of Exercise Prices
$28.25
to
$30.00
$28.57
Total
Stock Appreciation Rights
SARs granted to employees have an exercise price equal to the fair market value of Peoples’ common shares on the date
of grant and will be settled using common shares of Peoples. Additionally, the SARs granted to employees vested three years
after the grant date and are to expire ten years from the date of grant. The most recent grant of SARs occurred in 2008.
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The following summarizes the changes to Peoples' outstanding SARs for the year ended December 31, 2015:
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
21,292
3,544
17,748
17,748
$
$
$
25.96
26.47
25.86
25.86
1.5 years
1.5 years
$
$
—
—
The following table summarizes Peoples’ SARs outstanding at December 31, 2015:
Number of Common
Shares Subject to
SARs Outstanding &
Exercisable
Weighted-
Average Remaining
Contractual
Life
2,000
8,782
6,966
17,748
1.6 years
1.9 years
1.0 year
1.5 years
Exercise
Price
$23.26
$23.77
$29.25
Total
Restricted Shares
Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-
employee directors. In general, the restrictions on common shares awarded to non-employee directors expire after six
months, while the restrictions on common shares awarded to employees expire after periods ranging from one to three years.
In 2015, Peoples granted an aggregate of 108,411 restricted common shares subject to performance-based vesting to officers
and key employees with restrictions that will lapse three years after the grant date provided that in order for the restricted
common shares to vest in full, Peoples must have reported positive net income and maintained a well capitalized status by
regulatory standards for each of the three fiscal years preceding the vesting date. Peoples also granted an aggregate of 5,600
restricted common shares to non-employee directors with a six-month time-based vesting period. In addition, Peoples
granted restricted common shares during 2015 to attract and/or retain key employees with vesting periods ranging from one
to three years.
The following summarizes the changes to Peoples’ outstanding restricted common shares for the year ended
December 31, 2015:
Time Vesting
Performance Vesting
Outstanding at January 1
Awarded
Released
Forfeited
Outstanding at December 31
Number of
Common
Shares
Weighted-
Average
Grant Date
Fair Value
19.48
21.13
18.21
24.94
21.76
47,591 $
22,600
36,907
2,550
30,734 $
Number of
Common
Shares
125,079 $
108,411
49,058
25,669
158,763 $
Weighted-
Average
Grant Date
Fair Value
21.73
23.62
21.74
22.70
22.86
The total intrinsic value of restricted common shares released was $2.0 million, $1.6 million and $654,000 in 2015, 2014
and 2013, 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 at December 31:
(Dollars in thousands)
Total stock-based compensation
Recognized tax benefit
Net expense recognized
2015
2014
2013
$
$
1,843 $
(645)
1,198 $
2,111 $
(739)
1,372 $
1,362
(477)
885
Restricted common shares were the only stock-based compensation awards granted by Peoples in 2015, 2014 and 2013.
The fair value of restricted common share awards on the grant date is the market price of Peoples' common shares. Total
unrecognized stock-based compensation expense related to unvested awards was $2.0 million at December 31, 2015, which
will be recognized over a weighted-average period of 1.9 years. In 2014, the Board of Directors granted 12,030 unrestricted
common shares to certain employees that did not already participate in the 2006 Equity Plan, which resulted in an additional
$298,000 of stock-based compensation expense being recognized.
Note 17. Acquisitions
During 2015, Peoples completed two acquisitions, which were accounted for as business combinations 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, and are detailed below. The balances and operations
related to these acquisitions are included in Peoples' consolidated financial statements from the respective dates of
acquisition.
On March 6, 2015, Peoples completed its acquisition of NB&T for total consideration of $102.7 million which reflected
the conversion of each of the 3,442,329 outstanding NB&T common shares into $7.75 in cash and 0.9319 in Peoples'
common shares. NB&T merged into Peoples and NB&T's wholly-owned subsidiary, The National Bank and Trust Company,
which operated 22 full-service branches in southwest Ohio, merged into Peoples Bank. Per the applicable accounting
guidance for business combinations, the acquisition date fair values of the assets purchased, liabilities assumed and related
identifiable intangible assets are preliminary and subject to refinement for up to one year after the closing date of the
acquisition as additional information relative to closing date fair values becomes available. The goodwill recognized will not
be deductible for income tax purposes.
On July 21, 2015, Peoples Insurance acquired an insurance agency and related customer accounts in the Lebanon, Ohio
area for total cash consideration of $0.9 million, and recorded $0.5 million of customer relationship intangibles and $0.4
million of goodwill.
On January 6, 2016, Peoples Bank acquired a small financial advisory book of business in Marietta, Ohio for cash
consideration of $0.5 million. This acquisition did not materially impact Peoples' financial position, results of operations or
cash flows.
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The following table provides the purchase price calculation as of the date of acquisition for the NB&T acquisition, and
the assets acquired and liabilities assumed at their estimated fair values.
(Dollars in thousands, except per share data)
Purchase Price
NB&T
Common shares outstanding at merger announcement
3,442,329
Cash purchase price per share
Cash consideration
Number of common shares of Peoples issued for each common share
of acquired company
Price per Peoples common share, based on closing date
Common share consideration
Cash in lieu of fractional common shares of Peoples
Total purchase price
Net Assets at Fair Value
Assets
Cash and cash equivalents
Investment securities
Loans, including loans held for sale, net of deferred fees and costs
Bank premises and equipment, net
Other intangible assets
Other assets
Total assets
Liabilities
Deposits
Borrowings
Accrued expenses and other liabilities
Total liabilities
Net assets
Goodwill
$
$
$
$
$
$
7.75
26,678
0.93
23.70
76,027
4
102,709
124,825
156,392
384,588
10,702
10,130
24,458
711,095
629,512
6,570
5,941
642,023
69,072
33,637
The estimated fair values presented in the above table reflect additional information that was obtained during the three
months ended December 31, 2015, which resulted in changes to certain fair value estimates made as of the date of
acquisition. Adjustments to acquisition date estimated fair values are recorded in the period in which the adjustment is
determined and, as a result, previously recorded results have changed. After considering the additional information obtained
during the three months ended December 31, 2015, the estimated fair value of other assets increased $0.6 million, the revised
fair value estimate resulted in a net decrease to goodwill of $0.6 million from the amount reported as of September 30, 2015,
to $33.6 million, which was recognized in the December 31, 2015 Consolidated Balance Sheet. Refer to Note 6 for details of
the changes in goodwill and intangible assets arising from the acquisitions.
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Acquired loans are reported net of the unamortized fair value adjustment. The following table details the fair value
adjustment for acquired loans as of the acquisition date:
(Dollars in thousands, except per share data)
Nonimpaired Loans
NB&T
Contractual cash flows
Nonaccretable difference
Expected cash flows
Accretable yield
Fair value
Purchase Credit Impaired Loans
Contractual cash flows
Nonaccretable difference
Expected cash flows
Accretable yield
Fair value
$
$
$
$
497,451
45,828
451,623
90,346
361,277
40,258
13,336
26,922
3,611
23,311
Peoples recorded non-interest expenses related to acquisitions of $10.7 million and net losses on asset disposals of $0.6
million in the Consolidated Statement of Income during 2015. The $10.7 million was included in the following line items on
the Consolidated Statement of Income for the year ended December 31, 2015: salaries and employee benefit costs contained
$4.4 million, professional fees contained $1.7 million, data processing and software expense contained $0.3 million and other
non-interest expenses contained $4.3 million.
The following table illustrates the unaudited pro forma information for the results of operations for periods ended
December 31, as if the NB&T acquisition had occurred on January 1 of each year. This information includes the impact of
certain purchase accounting adjustments, including the amortization/accretion related to loans, other intangible assets,
deposits and borrowings. This information is presented for illustrative purposes only, and is not necessarily indicative of the
results of operations had the acquisition been completed at the beginning of the earliest periods presented, and is not
necessarily indicative of future results of operations.
(Dollars in thousands)
For the Twelve Months
Ended
December 31
2015
2014
Total revenue (net interest income and non-interest income) $
149,965 $
141,221
Net income available to common shareholders
12,259
23,512
Peoples' total revenue for the year ended December 31, 2015 included $26.2 million provided by NB&T and $7.8 million
of net income.
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Note 18. Parent Company Only Financial Information
Condensed Balance Sheets
(Dollars in thousands)
Assets:
Cash and due from other banks
Interest-bearing deposits in subsidiary bank
Due from subsidiary bank
Available-for-sale investment securities, at fair value (amortized cost of $1,255 at December
31, 2015 and December 31, 2014)
Investments in subsidiaries:
Bank
Non-bank
Other assets
Total assets
Liabilities:
Accrued expenses and other liabilities
Dividends payable
Long-term borrowings
Mandatorily redeemable capital securities of subsidiary trust
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
Dividends from non-bank subsidiary
Interest and other income
Total income
Expenses:
Trust preferred securities expense
Intercompany management fees
Other expense
Total expenses
December 31,
2015
2014
$
50 $
4,437
3,875
5,813
385,258
29,155
1,070
429,658 $
3,030 $
103
—
6,736
9,869
419,789
419,789
429,658 $
$
$
$
50
41,666
1,015
5,214
281,360
30,693
878
360,876
6,365
24
14,369
—
20,758
340,118
340,118
360,876
Year Ended December 31,
2015
2014
2013
$
17,500 $
21,000 $
15,000
500
205
—
132
21,705
15,132
2,000
206
19,706
304
3,171
5,653
9,128
—
1,546
4,578
6,124
—
1,257
3,411
4,668
10,464
(1,510)
5,600
17,574
Income before federal income taxes and equity in (excess dividends from)
undistributed earnings of subsidiaries
Applicable income tax benefit
(Excess dividends from) equity in undistributed earnings of subsidiaries
Net income
10,578
(3,139)
(2,776)
10,941 $
15,581
(2,102)
(999)
16,684 $
$
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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:
Depreciation, amortization and accretion, net
Excess dividends from (equity in) undistributed earnings of subsidiaries
Other, net
Net cash provided by operating activities
Investing activities
Investment in subsidiaries
Change in receivable from subsidiary
Business combinations, net of cash received
Net cash used in investing activities
Financing activities
Payments on long-term borrowings
Purchase of treasury stock
Proceeds from issuance of common stock
Cash dividends paid
Excess tax benefit for share-based payments
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
Supplemental cash flow information:
Interest paid
Year Ended December 31,
2015
2014
2013
$
10,941 $
16,684 $
17,574
165
2,776
(1,903)
11,979
(104,584)
(2,860)
83,391
(24,053)
(14,400)
(741)
—
(10,065)
51
(25,155)
(37,229)
41,716
4,487 $
—
999
1,825
19,508
(65,822)
(187)
54,386
(11,623)
(4,800)
(520)
40,242
(6,767)
85
28,240
36,125
5,591
41,716 $
—
(5,600)
1,803
13,777
—
(619)
—
(619)
(4,800)
(228)
8
(5,419)
79
(10,360)
2,798
2,793
5,591
594 $
672 $
915
$
$
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Table of Contents
Note 19. Summarized Quarterly Information (Unaudited)
(Dollars in thousands, except per share data)
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net loss on asset disposals and other transactions
Net gain on investment securities
Other income
Amortization of other intangible assets
Acquisition-related expenses
Other expenses
Income tax (benefit) expense
Net (loss) income
Earnings (loss) per common share - Basic
Earnings (loss) per common share - Diluted
2015(a)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
24,159
$
27,566
$
28,178
$
2,740
21,419
350
(1,103)
600
11,508
673
9,043
23,198
(151)
(689) $
(0.04) $
(0.04) $
$
$
$
2,773
24,793
672
(136)
11
11,926
1,144
732
26,902
2,231
4,913
0.27
0.27
$
$
$
2,642
25,536
5,837
(51)
62
11,906
1,127
109
24,876
1,370
4,134
0.23
0.22
$
$
$
28,430
2,566
25,864
7,238
(498)
56
12,101
1,133
838
25,306
425
2,583
0.14
0.14
Weighted-average common shares outstanding - Basic
15,802,334
18,116,090
18,127,131
18,142,997
Weighted-average common shares outstanding - Diluted
15,930,235
18,253,918
18,271,979
18,278,272
(Dollars in thousands, except per share data)
Total interest income
Total interest expense
Net interest income
Provision for (recovery of) loan losses
Net gain (loss) on asset disposals and other transactions
Net (loss) gain on investment securities
Other income
Amortization of other intangible assets
Acquisition-related expenses
Other expenses
Income tax expense
Net income
Earnings per common share - Basic
Earnings per common share - Diluted
2014 (b)
First
Quarter
Second
Quarter (c)
Third
Quarter (c)
Fourth
Quarter
$
18,152
$
18,614
$
20,566
$
2,672
15,480
8
11
(30)
10,295
263
150
18,404
2,148
4,783
0.45
0.44
$
$
$
2,571
16,043
583
(187)
66
9,719
282
1,271
18,451
1,577
3,477
0.32
0.32
$
$
$
2,707
17,859
(380)
(109)
124
9,861
367
1,462
20,378
1,729
4,179
0.33
0.32
$
$
$
$
$
$
22,868
2,744
20,124
128
(146)
238
10,178
516
1,869
21,596
2,040
4,245
0.29
0.28
Weighted-average common shares outstanding - Basic
10,636,089
10,755,509
12,632,341
14,660,314
Weighted-average common shares outstanding - Diluted
10,740,884
10,880,090
12,765,880
14,809,289
(a) Reflects the impact of the acquisition of NB&T beginning March 6, 2015.
(b) Reflects the impact of the acquisitions of Midwest beginning May 30, 2014, Ohio Heritage beginning August 22, 2014, and North Akron
beginning October 24, 2014.
(c) Amounts adjusted for immaterial changes based on fair market value adjustments for acquired loan portfolios.
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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 28, 2016 (“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 2015
Annual Meeting of Shareholders held on April 23, 2015.
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,
the Executive Committee, the Risk 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, the Risk
Committee Charter, the Executive 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 2015”, “GRANTS OF PLAN-BASED AWARDS FOR
2015”, “OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2015”, “OPTION EXERCISES AND STOCK
VESTED FOR 2015”, “PENSION BENEFITS FOR 2015”, “NON-QUALIFIED DEFERRED COMPENSATION FOR
2015”, “OTHER POTENTIAL POST-EMPLOYMENT PAYMENTS”, “DIRECTOR COMPENSATION” and
“COMPENSATION COMMITTEE REPORT” of Peoples' Definitive Proxy Statement, which sections are incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item 12 regarding the security ownership of certain beneficial owners and management
will be included in the section captioned “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT” of Peoples' Definitive Proxy Statement, which section is incorporated herein by reference.
Equity Compensation Plan Information
The table below provides information as of December 31, 2015, 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. 1998 Stock Option Plan (the “1998 Plan”);
(i)
(ii) the Peoples Bancorp Inc. 2002 Stock Option Plan (the “2002 Plan”);
(iii) the Peoples Bancorp Inc. Second Amended and Restated 2006 Equity Plan (the “2006 Plan”);
(iv) the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for Directors of Peoples
Bancorp Inc. and Subsidiaries (the “Deferred Compensation Plan”); and
(v) the Peoples Bancorp Inc. Employee Stock Purchase Plan (the "ESPP").
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))
348,364 (1) $
27.45 (2)
568,479 (3)
—
348,364
$
—
27.45
—
568,479
Plan Category
Equity compensation plans
approved by shareholders
Equity compensation plans not
approved by shareholders
Total
(1) Includes an aggregate of 52,381 common shares issuable upon exercise of options granted under the 1998 Plan and
the 2002 Plan and options and stock appreciation rights granted under the 2006 Plan and 235,147 restricted common
shares subject to time-based or performance-based vesting restrictions granted under the 2006 Plan, and 60,836
common shares allocated to participants' bookkeeping accounts under the Deferred Compensation Plan.
(2) Represents weighted-average exercise price of outstanding options granted under 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
common share awards granted under the 2006 Plan or bookkeeping accounts under the Deferred Compensation
Plan.
(3) Includes 284,925 common shares remaining available for future grants under the 2006 Plan at December 31, 2015,
as well as 283,554 common shares remaining available for issuance and delivery under the ESPP. No common
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shares were available for future grants under the 1998 Plan and the 2002 Plan at December 31, 2015. 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 16 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 or of any of Peoples' subsidiaries the ability to defer all or part of the compensation (including compensation in the
form of common shares), 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 within their respective bookkeeping accounts, with respect to cash compensation, between a cash account and a
stock account. Deferrals with respect to compensation in the form of common shares are automatically allocated to the 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 the cash portion of amounts deferred during the previous calendar quarter and the 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 substantially equal annual installments over a period of up to five years. The stock account is distributed only in
common shares of Peoples and the cash account is distributed only in cash.
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 auditor's reports and 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, 2015 and 2014
Consolidated Statements of Income for each of the three years in the period ended December 31, 2015
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31,
2015
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2015
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2015
Notes to the Consolidated Financial Statements
Peoples Bancorp Inc. (Parent Company Only Financial Information is included in Note 18 of the Notes to the
Consolidated Financial Statements)
Page
65
66
67
68
69
70
71
72
73
117
(a)(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(a)(3) Exhibits
Exhibits filed 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 126. 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 126.
(c) Financial Statement Schedules
None.
123
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 25, 2016
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.
124
Table of Contents
Signatures
Title
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President, Chief Executive Officer and Director
/s/ JOHN C. ROGERS
John C. Rogers
/s/ TARA M. ABRAHAM*
Tara M. Abraham
/s/ CARL L. BAKER, JR.*
Carl L. Baker, Jr.
/s/ S. CRAIG BEAM*
S. Craig Beam
/s/ GEORGE W. BROUGHTON*
George W. Broughton
Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial and Accounting Officer)
Director
Director
Director
Director
/s/ DAVID F. DIERKER*
Director
David F. Dierker
/s/ RICHARD FERGUSON*
Chairman of the Board and Director
Richard Ferguson
/s/ JAMES S. HUGGINS*
James S. Huggins
Director
/s/ BROOKE W. JAMES*
Director
Brooke W. James
/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/ THOMAS J. WOLF*
Thomas J. Wolf
Director
Director
Director
Director
Date
2/25/2016
2/25/2016
2/25/2016
2/25/2016
2/25/2016
2/25/2016
2/25/2016
2/25/2016
2/25/2016
2/25/2016
2/25/2016
2/25/2016
2/25/2016
2/25/2016
* 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 25th day of February,
2016.
By:
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
Attorney-in-Fact
125
Table of Contents
EXHIBIT INDEX
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015
Exhibit
Number
2.1
Description
Agreement and Plan of Merger, dated as of January 21, 2014, between
Peoples Bancorp Inc. and Midwest Bancshares, Inc.+
2.2
2.3
2.4
Agreement and Plan of Merger, dated as of April 4, 2014, between
Peoples Bancorp Inc. and Ohio Heritage Bancorp, Inc.+
Agreement and Plan of Merger, dated as of April 21, 2014, as
amended, among Peoples Bancorp Inc., Peoples Bank, National
Association and North Akron Savings Bank.+
Agreement and Plan of Merger, dated as of August 4, 2014, as
amended, between Peoples Bancorp Inc. and NB&T Financial Group,
Inc.+
Exhibit Location
Included as Annex A to the proxy statement/
prospectus which forms a part of the Registration
Statement of Peoples Bancorp Inc. ("Peoples") on
Form S-4 (Registration No. 333-194626)
Included as Annex A to the proxy statement/
prospectus which forms a part of Peoples'
Registration Statement on Form S-4 (Registration
No. 333-196872)
Included as Annex A to the proxy statement/
prospectus which forms a part of Peoples'
Registration Statement on Form S-4 (Registration
No. 333-197736)
Included as Annex A to the proxy statement/
prospectus which forms a part of Peoples'
Registration Statement on Form S-4 (Registration
No. 333-199152)
3.1(a)
Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed
with the Ohio Secretary of State on May 3, 1993)
Incorporated herein by reference to Exhibit 3(a)
to Peoples' Registration Statement on Form 8-B
filed on July 20, 1993 (File No. 0-16772)
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)
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)
Certificate of Amendment to the Amended Articles of Incorporation of
Incorporated herein by reference to Exhibit 3(a)
Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on
April 9, 1996)
(3) to Peoples’ 1997 Form 10-K
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 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
all amendments) [For SEC reporting compliance purposes only – not
filed with Ohio Secretary of State]
3.2(a)
Code of Regulations of Peoples Bancorp Inc.
Incorporated herein by reference to Exhibit 3.1 to
Peoples’ Current Report on Form 8-K dated and
filed on February 2, 2009 (File No. 0-16772)
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)
+Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K. A copy of any omitted schedules or
exhibits will be furnished supplementally to the SEC upon request.
126
Table of Contents
Exhibit
Number
Description
Exhibit Location
3.2(b)
Certified Resolutions Regarding Adoption of Amendments to
Incorporated herein by reference to Exhibit 3(c) 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
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")
3.2(f)
Code of Regulations of Peoples Bancorp Inc. (reflecting all
amendments) [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
4.2(a)
4.2(b)
4.2(c)
4.2(d)
4.3
4.3(a)
4.3(b)
4.3(c)
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")
First Amendment to Loan Agreement executed by Peoples Bancorp
Inc., as Borrower, and accepted by U.S. Bank National Association,
as Lender, effective as of August 4, 2014
Incorporated herein by reference to Exhibit 4.3 to
Peoples' September 30, 2014 Form 10-Q
Second Amendment to Loan Agreement executed by Peoples
Bancorp Inc., as Borrower, and accepted by U.S. Bank National
Association, as Lender, Effective as of December 17, 2015
Filed herewith
Third Amendment to Loan Agreement executed by Peoples Bancorp
Inc., as Borrower, and accepted by U.S. Bank National Association,
as Lender, Effective as of January 12, 2016
Filed herewith
Fourth Amendment to Loan Agreement executed by Peoples Bancorp
Inc., as Borrower, and accepted by U.S. Bank National Association,
as Lender, Effective as of February 23, 2016
Filed herewith
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
First Amendment to Revolving Credit Note executed by Peoples
Bancorp Inc., as Borrower, and accepted by U.S. Bank National
Association, as Lender, effective as of December 17, 2013
Incorporated herein by reference to Exhibit 4.1 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2014 (File
No. 0-16772) ("Peoples' September 30, 2014 Form
10-Q")
Second Amendment to Revolving Credit Note executed by Peoples
Bancorp Inc., as Borrower, and accepted by U.S. Bank National
Association, as Lender, effective as of August 4, 2014
Incorporated herein by reference to Exhibit 4.2 to
Peoples' September 30, 2014 Form 10-Q
Third Amendment to Revolving Credit Note executed by Peoples
Bancorp Inc., as Borrower, and accepted by U.S. Bank National
Association, as Lender, effective December 18, 2014
Incorporated herein by reference to Exhibit 4.8 to
Peoples' Annual Report Form 10-K for the fiscal
year ended December 31, 2014 (File No. 0-16772)
("Peoples 2014 Form 10-K")
127
Table of Contents
Exhibit
Number
4.3(d)
Description
Exhibit Location
Fourth Amendment to Revolving Credit Note executed by Peoples
Bancorp Inc., as Borrower, and accepted by U.S. Bank National
Association, as Lender, Effective December 17, 2015
Filed herewith
4.4
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
4.6(a)
4.6(b)
4.7(a)
Indenture, dated as of June 25, 2007, between NB&T Financial
Group, Inc., as issuer, and Wilmington Trust Company, as trustee,
relating to Fixed/Floating Rate Junior Subordinated Debt Securities
due 2037
Incorporated herein by reference to Exhibit 4.1(a)
to Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2015 (File No.
0-16772) ("Peoples' June 30, 2015 Form 10-Q")
First Supplemental Indenture, dated June 5, 2015, and made to be
effective as of 6:00 p.m., Eastern Standard Time, on March 6, 2015,
between Wilmington Trust Company, as trustee, and Peoples Bancorp
Inc.
Amended and Restated Declaration of Trust of NB&T Statutory Trust
III, dated and effective as of June 25, 2007 NOTE: Pursuant to the
First Supplemental Indenture, dated June 5, 2015, and made to be
effective as of 6:00 p.m., Eastern Standard Time, on March 6, 2015,
between Wilmington Trust Company, as trustee, and Peoples Bancorp
Inc., Peoples Bancorp Inc. succeeded to and was substituted for
NB&T Financial Group, Inc. as "Sponsor"
Incorporated herein by reference to Exhibit 4.1(b)
to Peoples' June 30, 2015 Form 10-Q
Incorporated herein by reference to Exhibit 4.2(a)
to Peoples' June 30, 2015 Form 10-Q
4.7(b)
Notice of Removal of Administrators and Appointment of
Replacements, dated June 5, 2015, delivered to Wilmington Trust
Company by the Successor Administrators named therein and
Peoples Bancorp Inc.
Incorporated herein by reference to Exhibit 4.2(b)
to Peoples' June 30, 2015 Form 10-Q
4.8
4.9
Guarantee Agreement dated as of June 25, 2007, between NB&T
Financial Group, Inc. and Wilmington Trust Company, as guarantee
trustee, relating to the Capital Securities (as defined therein) NOTE:
Pursuant to the First Supplemental Indenture, dated June 5, 2015, and
made to be effective as of 6:00 p.m., Eastern Standard Time, on
March 6, 2015, between Wilmington Trust Company, as trustee, and
Peoples Bancorp Inc., Peoples Bancorp Inc. succeeded to and was
substituted for NB&T Financial Group, Inc. as "Guarantor"
Incorporated herein by reference to Exhibit 4.3 to
Peoples' June 30, 2015 Form 10-Q
Notice of Removal of Administrator and Appointment of
Replacement, dated February 24,2016, delivered to Wilmington Trust
Company by the continuing Administrators named therein and
Peoples Bancorp Inc.
Filed herewith
10.1(a)
Peoples Bancorp Inc. Third Amended and Restated Deferred
Compensation Plan for Directors of Peoples Bancorp Inc. and
Subsidiaries (Amended and Restated Effective June 26, 2014)*
Filed herewith
10.1(b)
Rabbi Trust Agreement, made January 6, 1998, between Peoples
Bancorp Inc. and The Peoples Banking and Trust Company
(predecessor to Peoples Bank, National Association and now known
as Peoples Bank following conversion to state-chartered bank) as
Trustee*
Incorporated herein by reference to Exhibit 10.1(c)
to Peoples’ Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 (File No.
0-16772)
10.2
Peoples Bancorp Inc. Amended and Restated Incentive Award Plan
(Amended and Restated Effective December 11, 2008) [Effective for
the fiscal year ended December 31, 2009]*
Incorporated herein by reference to Exhibit 10.2 of
Peoples’ 2008 Form 10-K
*Management Compensation Plan or Agreement
128
Table of Contents
Exhibit
Number
10.3
10.4
10.5
Description
Exhibit Location
Summary of Incentive Plan for Executive Officers and other
employees of Peoples Bancorp Inc. [Effective for the fiscal year
ended December 31, 2010]*
Summary of Peoples Bancorp Inc. Annual Incentive Program for
Executive Officers and other employees of Peoples Bancorp Inc.
[Effective beginning with 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 beginning with 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.*
10.7
Peoples Bancorp Inc. 1998 Stock Option Plan.*
Incorporated herein by reference to Exhibit 4 to
Peoples’ Registration Statement on Form S-8 filed
May 24, 1995 (Registration Statement No.
33-59569)
Incorporated herein by reference to Exhibit 10 to
Peoples’ Registration Statement on Form S-8 filed
September 4, 1998 (Registration Statement No.
333-62935)
10.8
10.9
10.10
Form of Stock Option Agreement used in connection with grant of
non-qualified stock options to non-employee directors of Peoples
Bancorp Inc. 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
Bancorp Inc. under Peoples Bancorp Inc. 1998 Stock Option Plan.*
Incorporated herein by reference to Exhibit 10(p)
to Peoples’ 1998 Form 10-K
Form of Stock Option Agreement used in connection with grant of
incentive stock options under Peoples Bancorp Inc. 1998 Stock
Option Plan.*
Incorporated herein by reference to Exhibit 10(o)
to Peoples’ 1999 Form 10-K
10.11
Peoples Bancorp Inc. 2002 Stock Option Plan.*
Form of Stock Option Agreement used in connection with grant of
non-qualified stock options to non-employee directors of Peoples
Bancorp Inc. 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 Bancorp Inc.'s
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 Bancorp Inc.
and its subsidiaries 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
10.16
Summary of Perquisites for Executive Officers of Peoples Bancorp
Inc.*
Incorporated herein by reference to Exhibit 10.16
to Peoples' 2014 Form 10-K
*Management Compensation Plan or Agreement
129
10.12
10.13
10.14
10.15
Table of Contents
Exhibit
Number
10.17
Description
Exhibit Location
Summary of Base Salaries for Executive Officers of Peoples Bancorp
Inc.*
Filed herewith
10.18
Summary of Compensation for Directors of Peoples Bancorp Inc.*
Filed herewith
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
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
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")
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' June 30, 2013 Form 10Q
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
Form of Peoples Bancorp Inc. 2006 Equity Plan Performance-Based
Restricted Stock Agreement for employees used and to be used to
evidence awards of performance-based restricted stock granted to
employees of Peoples Bancorp Inc. *
Incorporated herein by reference to Exhibit 10.8 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2011 (File No.
0-16772)
Form of Peoples Bancorp Inc. Amended and Restated 2006 Equity
Plan Performance-Based Restricted Stock Agreement for executives
used 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)*
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
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
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
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
*Management Compensation Plan or Agreement
130
Table of Contents
Exhibit
Number
10.31
Description
Exhibit Location
Change in Control Agreement between Peoples Bancorp Inc. and
Daniel K. McGill (adopted September 14, 2009)*
10.32
Change in Control Agreement between Peoples Bancorp Inc. and
Timothy H. Kirtley (adopted August 29, 2011).*
10.33
Change in Control Agreement between Peoples Bancorp Inc. and
Charles W. Sulerzyski (adopted April 4, 2011).*
10.34
Separation Agreement and General Release executed on November
21, 2015 by Edward G. Sloane and Peoples Bank, National
Association ( now known as Peoples Bank following conversion to
Ohio state-chartered bank)*
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)
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)
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Current Report on Form 8-K dated and
filed on November 24, 2015 (File No. 0-16772)
10.35
Change in Control Agreement between Peoples Bancorp Inc. and
John C. Rogers (adopted November 30, 2015)*
Filed herewith
10.36
Peoples Bancorp Inc. Employee Stock Purchase Plan*
Form of Securities Purchase Agreement, made as of August 4, 2014,
between Peoples Bancorp Inc. and each institutional investor
purchasing common shares of Peoples Bancorp Inc. in the private
placement that closed on August 7, 2014
10.37
10.38
Form of Peoples Bancorp Inc. Second Amended and Restated 2006
Equity Plan Performance Unit Award Agreement used and to be used
to evidence awards of performance units granted to executive officers
of Peoples Bancorp Inc.*
Incorporated herein by reference to Exhibit 10.2 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2015 (File No.
0-16772)
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Current Report on Form 8-K dated and
filed on April 28, 2014 (File No. 0-16772)
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Current Report on Form 8-K dated and
filed on August 4, 2014 (File No. 0-16772)
21
Subsidiaries of Peoples Bancorp Inc.
Filed herewith
23
24
Consent of Independent Registered Public Accounting Firm - Ernst &
Young LLP
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 #
*Management Compensation Plan or Agreement
131
Table of Contents
Exhibit
Number
Description
Exhibit Location
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 #
# Attached as Exhibit 101 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 of Peoples Bancorp Inc. are
the following documents formatted in XBRL (eXtensive Business Reporting Language): (i) Consolidated Balance Sheets at December
31, 2015 and December 31, 2014; (ii) Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013; (iii)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013; (iv) Consolidated
Statements of Stockholders' Equity for the years ended December 31, 2015, 2014 and 2013; (v) Consolidated Statements of Cash Flows
for the years ended December 31, 2015, 2014 and 2013 and (vi) Notes to the Consolidated Financial Statements.
132
Financial Highlights
Peoples Bancorp Inc. is a diversified financial holding company
headquartered in Marietta, Ohio, with $3.3 billion in total
assets, 82 offices and 81 ATMs in Ohio, West Virginia, and
Kentucky. Over 850 dedicated associates deliver Peoples’
complete line of banking, investment, insurance and trust
solutions through its subsidiaries – Peoples Bank and Peoples
Insurance Agency, LLC. Peoples has been in business since
1902 and has established a heritage of financial stability,
growth and community impact for 113 years.
Peoples’ common shares are traded on the NASDAQ Global
Select Market under the symbol PEBO.
Dollars in Thousands, except Per Share Data
2015
2014
2013
2015
2014
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)
$ 145,053
$ 115,081
10,941
$
11,017
$
$ 109,559
85,009
$
16,684
$
7,842
$
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
$
$
$
$
$
$
0.62
0.61
0.60
22.81
14.68
18.84
$ 3,258,970
$ 868,830
$ 2,072,440
$ 2,535,944
$ 419,789
$ 1,939,406
0.35%
2.69%
3.53%
75.50%
14.55%
8.69%
0.62%
$
$
$
$
$
$
$
$
$
$
92,605
68,265
17,574
6,161
1.65
1.63
0.57
20.89
13.57
22.51
$
$
$
$
$
$
1.36
1.35
0.60
22.92
15.57
25.93
$ 2,567,769
$ 713,659
$ 1,620,898
$ 1,933,074
$ 340,118
$ 1,612,278
$ 2,059,108
$ 680,526
$ 1,196,234
$ 1,580,758
$ 221,553
$ 1,539,555
0.74%
6.16%
3.45%
75.37%
15.48%
9.39%
0.47%
0.91%
7.92%
3.23%
71.90%
13.78%
7.26%
0.39%
32.4%
35.4%
-34.4%
40.5%
-54.4%
-54.8%
0.0%
-0.5%
-5.7%
-27.3%
26.9%
21.7%
27.9%
31.2%
23.4%
20.3%
18.3%
24.5%
-5.1%
27.3%
-17.6%
-17.2%
5.3%
9.7%
14.7%
15.2%
24.7%
4.9%
35.5%
22.3%
53.5%
4.7%
(1) Net interest income and non-interest income (which excludes 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.
Our Promise
We will work side by side to overcome
challenges and seize opportunities.
We listen and work with you. Together
we will build and execute thoughtful
plans and actions, blending our
experience and expertise, to move you
toward your goals. Our core difference is
providing you peace of mind, confidence,
and clarity in your financial life.
Our 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
15
2015
ANNUAL
REPORT
Building For The Future
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Call.
Call.
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800.374.6123
800.374.6123
800.374.6123
peoplesbancorp.com
peoplesbancorp.com
peoplesbancorp.com
Visit your local office
Visit your local office
Visit your local office
138 Putnam Street | PO Box 738 | Marietta, OH 45750
138 Putnam Street | PO Box 738 | Marietta, OH 45750
138 Putnam Street | PO Box 738 | Marietta, OH 45750