2016
ANNUAL REPORT
Year of Transformation
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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
Peoples Bank (w/logo)® and Working Together. Building Success.®,
individually are federally registered service mark of Peoples Bank.
Financial Highlights
Peoples Bancorp Inc. (“Peoples”) is a diversified financial services holding company with $3.4 billion in total
assets, 80 locations, including 71 full-service bank branches, and 78 ATMs in Ohio, West Virginia and Kentucky.
Peoples makes available a complete line of banking, investment, insurance and trust solutions through its sub-
sidiaries - 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 115 years.
Peoples’ common shares are traded on the NASDAQ Global Select Market® under the symbol PEBO.
Dollars in Thousands, except Per Share Data
Year-Over-Year Change
Earnings and Dividends
Total revenues (1)
Total operating expenses
Net income available to shareholders
Dividends declared on common shares (2)
Per Share Data
Earnings per common share – Basic
Earnings per common share – Diluted
Cash dividends paid on common shares (2)
Book value at end of period
Tangible book value at end of period (3)
Closing stock price
At Year End
Total assets
Total investment securities
Total loans
Total deposits
Common stockholders’ equity
Trust and brokerage assets under management
Financial Ratios
Return on average assets
Return on average common stockholders’ equity
Net interest margin
Efficiency ratio (4)
Total risk-based capital ratio
Tangible common equity to tangible assets (3)
Nonperforming assets to total assets
2016
2015
2014
2016
2015
$ 155,935
106,911
$
31,157
$
12,546
$
$ 145,053
$ 115,081
10,941
$
11,017
$
$
$
$
$
$
$
1.72
1.71
0.64
23.92
15.89
32.46
$
$
$
$
$
$
0.62
0.61
0.60
22.81
14.68
18.84
$
$
$
$
$
$
$
$
$
$
109,559
85,009
16,684
7,842
1.36
1.35
0.60
22.92
15.57
25.93
$ 3,432,348
859,455
$
$ 2,224,936
$ 2,509,722
$ 435,261
$ 2,079,280
$ 3,258,970
$ 868,830
$ 2,072,440
$ 2,535,944
$ 419,789
$ 1,939,406
$ 2,567,769
713,659
$
$ 1,620,898
$ 1,933,074
$ 340,118
$ 1,612,278
7.5 %
-7.1 %
184.8 %
13.9 %
177.4 %
180.3 %
6.7 %
4.9 %
8.2 %
72.3 %
5.3 %
-1.1 %
7.4 %
-1.0 %
3.7 %
7.2 %
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 %
0.94 %
7.20 %
3.54 %
65.13 %
14.11 %
8.80 %
0.75 %
0.35 %
2.69 %
3.53 %
75.50 %
14.54 %
8.69 %
0.62 %
0.74 %
6.16 %
3.45 %
75.37 %
15.48 %
9.39 %
0.47 %
(1) Net interest income and non-interest income excluding gains/losses.
(2) Reflects amounts declared with respect to the earnings for the period indicated.
(3) Excludes balance sheet impact of intangible assets acquired through acquisitions on both stockholders’ equity and total assets.
(4) Total operating expenses (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus non-interest income.
Our Brand Promise
We will work side by side to overcome challenges
and seize opportunities. We listen and work with
you. Together we will build and execute thoughtful
plans and actions, blending our experience and
expertise, to move you toward your goals. Our
core difference is providing you peace of mind,
confidence, and clarity in your financial life.
Our 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.
• Clients Are Our Focus
• Business With Integrity
• Trust Among Clients, Communities,
and Associates
• Commitment to Communities
• Continuous Will to Win
• Development of Associate Skills
A Message from the
President and CEO
Dear Fellow Shareholders,
2016 was a great year to be a Peoples Bancorp Inc. (Peoples)
shareholder! On January 27, 2017, our stock price rose 75% compared
to December 31, 2015, and the market capitalization of our company
reached approximately $600 million. The stock performance was
propelled by a return to solid operating performance and a positive
response to the U.S. presidential election, including:
• Return on average assets of 0.94% up from 0.35% in 2015
• Return on average equity of 7.20% in 2016 vs. 2.69% in 2015
• Average loan growth of 9.3%
• Revenue growth of 7.5%
• Net interest margin of 3.54% for the year, up from 3.53% in 2015
• Expenses reduced by 7.1% compared to 2015
• Net charge-offs of 9 basis points on loans
Peoples embarked on a unique transformation in 2016 that I am proud
to share with you. This year produced record-setting net income,
improved asset quality, and demonstrated a commitment to expense
management. These efforts and results will fuel our momentum in
2017 and beyond.
More exciting than the results are the investments we have made
for the future. During the year, we revamped our commercial loan
processes to improve controls. We have invested resources to improve
our ability to prevent, detect and mitigate future credit problems.
Equally important, we successfully converted our core banking system
in the fourth quarter. Our client base immediately experienced the
positive benefits of the new system. This new platform provides
exciting possibilities for the future.
With client preferences moving towards smartphones, tablets and
other mobile devices to conduct their banking, Peoples is now better
positioned to keep up with ever-evolving needs. Over the next 24
months, we will roll out additional capabilities to our clients, including,
but not limited to:
• Increased fraud protection for debit cards and deposit accounts,
• Broader digital banking services for business clients, and
• More electronic statement and notice options for consumer and
business clients.
Chuck Sulerzyski, President and CEO
Average
Loan Growth
9.3%
Revenue
Growth
7.5%
Expense
Reduction
7.1%
1
Yes, 2016 was a year of transformation!
Our future is bright. Peoples continues to aspire to enhance organic
growth through a renewed focus on small business banking and
Dealer Financial Services. We will pursue thoughtful acquisitions of
banks, as well as insurance and investment firms. Organic growth plus
acquisitions should give us greater efficiency and improved financial
returns in the future.
Peoples PRIDE
Sadly, much of the news in U.S. banking in 2016 was dominated by
headlines regarding unethical sales practices at a major financial
institution. At Peoples, we believe we have a noble purpose.
The single greatest cause of stress for American adults is their
financial wellness. We are given the opportunity to work side-by-side
with clients to understand their needs and concerns. We only offer
products and services that are in the client’s best interest because we
treat our clients like family. “Working Together. Building Success.”®
is more than a slogan to us. It is how we operate. We take pride in
our ability to make a difference with the individuals and businesses
that have chosen us as their partner. We are uniquely suited to do
this because our banking, investment and insurance professionals do
everything with the client’s need as their primary concern. That is the
noble purpose we pursue.
Since 1902, a commitment to communities has been one of our core
values. During 2016, we celebrated the Hometown Heroes who make
our communities great. You can read more about this on page 5.
Being a responsible corporate citizen is important to us. In 2016, we
were gratified to be able to assist the communities we serve in many
ways, including through our nonprofit charitable arm, Peoples Bank
Foundation, Inc. These include $73,000 towards fighting hunger,
$46,000 to various local United Way organizations, and additional
gifts and sponsorships throughout our markets. In our hometown of
Marietta, we are proud of the role we played in restoring a historic
theater. Peoples Bank Theatre brought over 30,000 people to
downtown Marietta in its first year.
Every CEO believes that his or her people are the best. So, I fear my
comments here may be discounted. Let me simply say how grateful
I am to the men and women of Peoples. During 2016, associates
completed thousands of hours of training to ensure that the transition
to our new core banking systems occurred with minimal adverse client
impact. In a year where many of our associates seemed to be working
the equivalent of two or three jobs, our turnover rate dropped.
Our go-to-market strategy of combining banking, investments and
insurance is more sophisticated than most banks. All of us want
to be more capable tomorrow than we are today. To obtain a level
of constant improvement, we generously coach one another and
graciously accept feedback. Our culture of continuous improvement
makes Peoples a great place to work, and ensures that we take great
care of our clients and stockholders.
In a year where
many of our
associates seemed
to be working the
equivalent of
two or three jobs,
our turnover
rate dropped.
2
2017 and BEYOND
We have restored the company to solid performance and have
invested appropriately in the future. For six quarters, Peoples has
grown revenue faster than expenses (year over year). We aspire to
further accelerate performance improvement. Notably, we are focused
on improving our return on average assets and have set a target of
1.15%-1.20% to be achieved over the next three years. This target does
not take into account any changes that may be anticipated by the
new leadership in Washington, D.C. Of course, none of this happens
without our continued focus on gathering clients, getting them to stay
longer, having them use more of the products and services we offer,
and referring prospects to us because we have served them well.
THANKS FOR YOUR SERVICE
The Peoples management team is fortunate to be lead by a diverse
and experienced Board of Directors steeped in business excellence.
During the past 12 months two of our directors retired from the Board
of Directors as they approached our age limits. We are grateful for our
former Chairman of the Board Richard Ferguson’s leadership and the
wisdom and guidance of Tom Wolf. Each served on the Board since
2004. Both will be missed.
Transformation also needs renewal. We are delighted that David Mead
has assumed the Chairman of the Board position. Lastly, we welcome
our newest director, Terry Sweet, who was elected to the Board of
Directors in January 2017. Terry brings us 30 years of accounting
experience and served as a financial services practice leader for
KPMG for years.
SUMMARY
2016 was good. 2017 will be even better. Peoples will continue to
provide better advice, products and services to our clients. We care
about our communities, and want them to be better places to live and
work, where businesses thrive because we are there. Our associates
make all the difference. Superior long-term shareholder performance
is our primary focus as an organization. We look forward to when our
goal of being recognized as the “Best Community Bank in America” is
realized. We believe we’re on the right path to get there.
All the best,
Chuck Sulerzyski, President and CEO
Chuck Sulerzyski, President and CEO
3
Transforming Communities
At Peoples Bank, we are committed to helping the individuals and
organizations in our region grow and thrive.
EMPOWERING WOMEN
SUPPORTING EDUCATION
Peoples Bank provided support to the
Women in Transition Program at Cuyahoga
Community College in Cleveland. The program
is designed to guide women through a period
of transformation and empower them with
education and training. The curriculum helps
develop confidence, build self-esteem, identify
marketable skills and research career options.
Financial literacy and other life skills are also
developed; all with the goal of helping build a
better future for themselves, their family and
their community.
RESTORING AN OPERA HOUSE
We believe that fostering creativity and
promoting the arts stimulates local economies
and cultivates vibrant communities. In 2016,
Peoples supported the Baltimore Downtown
Restoration Committee (BDRC), a group
dedicated to restoring and revitalizing the
Victoria Opera House, which is the last of
its kind in Fairfield County. Built in 1905 as a
performance venue and city hall, the building
had been closed for nearly 50 years. Now
completed, the Opera House is again a jewel
of the community.
In a unique public-private partnership,
Peoples Bank Foundation, Inc. pledged
funding to build the Center for Sport Sciences
(CSS) at Wilmington College. This new 41,000
square-foot facility is home to the nationally
recognized Wilmington College athletic
training program. Additionally, the CSS will
provide medical and other health-related
services for a significant portion of the
population of southwest Ohio.
DELIVERING HEALTHCARE
TO APPALACHIA
Peoples partnered with OhioHealth O’Bleness
Hospital in Athens, Ohio, to launch a mobile
mammography unit that will help remove
barriers to care for many underserved women
in our region. The mobile unit can screen more
than 1,500 women annually and hopes to help
identify breast cancer in its earliest stages —
with the ultimate goal of saving lives.
4
SALUTING HOMETOWN HEROES
The “Hometown Heroes” program was
designed to honor and give benefits to active
and retired members of the U.S. military, law
enforcement, firefighters, emergency medical
technicians and teachers. Pictures and bios of
local heroes were featured in our branches and
employees led “Pay It Forward” activities like
providing boxed lunches to veterans in Akron
and updating an elementary school teachers
lounge in Marietta, Ohio.
RENOVATING PEOPLES BANK THEATRE
Peoples Bank worked closely with Theatre
representatives and civic leaders to renovate
the historic theater for the region. To date,
Peoples invested $3.8 million in federal tax
credits to fund the renovation. Additionally,
the bank has contributed more than
$275,000 in other funds to the project. On
its way to becoming a major entertainment
venue for the region, Peoples Bank Theatre
attracts musicians and artists from around
the globe. In 2016, the Peoples Bank Theatre
was presented with the Historic Theater of the
Year award by Heritage Ohio.
5
Employees Transforming Communities
Peoples Bank empowers its employees to make a difference in their
communities through involvement in local charitable organizations,
civic and educational groups.
WEST VIRGINIA FLOOD RELIEF
We believe that it’s important to help our
neighbors in times of great need. In response
to severe storms that caused major flooding
throughout parts of West Virginia in late
June, Peoples Bank established the West
Virginia Flood Victims Fund. Monetary
donations were accepted at all offices and
Peoples Bank provided a matching gift for
donations up to $10,000. More than $15,000
was contributed to the West Virginia Region
of the American Red Cross and the West
Virginia Voluntary Organizations Active in
Disaster. Employees also collected donations
of clothing and food, which were delivered to
West Virginia families in need.
HABITAT FOR HUMANITY
Safe, affordable housing helps families
improve their quality of life and take a positive
step toward the future. In 2016, Peoples
supported community Habitat for Humanity
6
Athens Nails It fundraiser
organizations across our market. Many of our
employees volunteered their time alongside
partner families to help construct the homes.
This year, Athens associates competed
against other local businesses in the first
annual “Athens Nails It” fundraiser benefitting
Habitat for Humanity.
FIGHTING HUNGER
Hunger and poor nutrition are a growing
problem in our region, especially among
families with children.
In 2016, Peoples Bank Foundation, Inc.
contributed more than $73,000 to foodbanks,
food pantries and other hunger initiatives
across Ohio, West Virginia and Kentucky,
including funds raised by associates during
a “Hunger Awareness” campaign in July.
Peoples Bank associates spearheaded
the campaign, organizing more than 200
volunteers that packed 50,000 meals for
Washington County Food Pantries.
Additionally, Peoples Bank partnered with
Memorial Health System, Bricker & Eckler and
Marietta College through Hunger Solutions
of the Mid-Ohio Valley, a community-based,
collaborative task force founded to raise
awareness
and help
eliminate
hunger in our
region. The
task force has
concentrated
on children’s
education
and food
pantry assistance. In 2016, Hunger Solutions
held its first fundraising gala, “Bounty by the
River,” which raised more than $22,000.
7
Transforming the Customer Experience
In 2015, Peoples Bank made the decision
to update its core banking system, which is
the backbone for the delivery of all financial
products and services — and ultimately the
highly personalized customer experience that
sets us apart. Like many peers in the industry,
Peoples had outgrown its existing system. The
evolution of technologies was a crucial part
of a strategy to manage expenses, increase
operational efficiency, enhance reporting
capabilities and be well positioned to meet
ever-changing client needs.
Peoples partnered with FISTM to upgrade its
core banking system to provide the next level
of innovative products and services for
our clients.
Project teams from all areas of the bank
collaborated for more than a year to plan
and implement the new system — and
successfully met the November 2016
deadline — as planned. This essential
implementation involved nearly every
associate at Peoples Bank. More than 6,500
training hours were logged to seamlessly
transition customer accounts, as well as lay
the foundation for enhanced service delivery
in 2017 and beyond.
Now, customers can be assured of a more
modern, agile and flexible system to support
their needs. For example, the digital banking
system was enhanced to help manage
finances with simplified navigation, faster
transaction processing, enhanced mobile
technology and improved reporting. And, the
new platform will provide additional fraud
protection for consumer debit cards, broaden
account statement options and will bring
mobile banking to busy business clients.
8
Maps and
Locations
OHIO
Athens County
Athens
Nelsonville
Brown County
Georgetown
Mount Orab
Sardinia
Clermont County
Batavia
Milford
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
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
Worthington
Worthington
Columbus
Columbus
71
Newark
Newark
Heath
Heath
Baltimore
Baltimore
Lancaster
Lancaster
33
Nelsonville
Nelsonville
Coshocton
Coshocton
Cambridge
Cambridge
Zanesville
Zanesville
McConnelsville
McConnelsville
Lowell
Lowell
Belpre
Belpre
Athens
Athens
Jackson
Jackson
Wellston
Wellston
Pomeroy
Pomeroy
32
70
Centerville
Centerville
Waynesville
Waynesville
Carlisle
Carlisle
Franklin
Franklin
Springboro
Springboro
Lebanon
Lebanon
MasonMason
Cincinnati
Cincinnati
Sabina
Sabina
Wilmington
Wilmington
Maineville
Maineville
New Vienna
New Vienna
Blanchester
Blanchester
Milford
Milford
Hillsboro
Hillsboro
Batavia
Batavia
Williamsburg
Williamsburg
Sardinia
Sardinia
Mount Orab
Mount Orab
Byesville
Byesville
Caldwell
Caldwell
New Martinsville
New Martinsville
Sistersville
Sistersville
Marietta
Marietta
Reno
Reno
Vienna
Vienna
Parkersburg
Parkersburg
50
Morgantown
Morgantown
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
Knox County
Mount Vernon
Tuscarawas County
New Philadelphia
Licking County
Heath
Newark
Meigs County
Pomeroy
Montgomery County
Centerville
Morgan County
McConnelsville
Muskingum County
Zanesville
Noble County
Caldwell
Summit County
Akron
Cuyahoga Falls
Munroe Falls
Norton
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
Peoples Bancorp Inc.
and Peoples Bank Directors
TARA M. ABRAHAM
Chairman and Co-CEO
Accel, Inc.
S. CRAIG BEAM
Owner
Thorobeam Farm, LLC
GEORGE W. BROUGHTON
Vice Chairman, Peoples Bancorp Inc.
and Peoples Bank
Owner and President
Broughton Commercial Properties, LLC
GWB Specialty Foods, LLC
GWB Oil & Gas, LLC
DAVID F. DIERKER
Banking Executive (Retired)
SunTrust Banks, Inc.
JAMES S. HUGGINS
Attorney-At-Law
Theisen Brock, LPA
BROOKE W. JAMES
Partner
WMSALL Farms
BRENDA F. JONES, M.D.
Ophthalmologist (Retired)
Marietta Healthcare Physicians, Inc.
DAVID L. MEAD
Chairman, Peoples Bancorp Inc.
and Peoples Bank
Professor (Retired)
Marietta College
SUSAN D. RECTOR
Attorney-At-Law
Ice Miller LLP
CHUCK SULERZYSKI
President and Chief Executive Officer
Peoples Bancorp Inc. and Peoples Bank
TERRY T. SWEET
Partner (Retired)
KPMG, LLP
10
Officers and Directors Emeritus
Peoples Bancorp Inc. Officers
CHUCK SULERZYSKI
President and Chief Executive Officer
Peoples Bank
Director Emeritus
HAROLD D. LAUGHLIN
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
ROBYN A. STEVENS
Executive Vice President
Chief Credit Officer
M. RYAN KIRKHAM
General Counsel and Corporate Secretary
Peoples Bancorp Inc.
Directors Emeritus
DAVE M. ARCHER
CARL L. BAKER, JR.
FRANK L. CHRISTY
WILFORD D. DIMIT
RICHARD FERGUSON
FRED R. PRICE
ROBERT W. PRICE
T. PAT SAUBER
PAUL T. THEISEN
THOMAS J. WOLF
KATHRYN M. BAILEY
Controller
KRISTEN K. HAYNES-WICKLINE
Assistant Controller
AMY M. AUCH
Assistant Corporate Secretary
ANNE P. GILLILAND
Assistant Corporate Secretary
CATHY M. LAWRENCE
Assistant Corporate Secretary
11
Market Makers
Stockholder Information
Stock Listing
NASDAQ Symbol: PEBO
NASDAQ Global Select Market,
CUSIP 709789101
Alternate Newspaper Listings:
PEBOOH and PeBcOh
Corporate Offices
Peoples’ Headquarters:
138 Putnam Street, PO Box 738
Marietta, OH 45750-0738
Investor Relations Phone Number:
740.374.6136
peoplesbancorp.com
Stock Transfer Agent, Registrar
Shareowner Services
161 N. Concord Exchange
South St. Paul, MN 55075
800.468.9716 • shareowneronline.com
General Shareholder Inquiries
Peoples Bancorp Inc.
Attn: Investor Relations
138 Putnam Street, PO Box 738
Marietta, OH 45750-0738
Market Makers in Peoples Bancorp Inc. Stock
UBS Securities LLC
800-421-6172
Merrill Lynch
800-937-0516
Boenning &
Scattergood, Inc.
800-883-1212
Goldman Sachs & Co.
800-221-8320
Raymond James &
Associates
800-248-8863
Hovde Group, LLC
847-991-6622
Credit Suisse
212-325-2000
Sandler O’Neill and
Partners
800-635-6851
Keefe, Bruyette,
and Woods Inc.
212-887-7777
JP Morgan
212-270-6000
Citigroup Global Markets
Inc.
800-223-7743
Barclays Capital
212-412-4000
Cantor Fitzgerald, L.P.
212-938-5000
12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
o 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, P.O. 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
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 oNo x
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 oNo x
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 x
No
o
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
x
o
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. o
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 o
Accelerated filer x
Non-accelerated filer o
(Do not check if a smaller
reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o
No x
As of June 30, 2016, the aggregate market value of the registrant’s Common Shares (the only common equity of the registrant) held by
non-affiliates was $387,881,000 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:
18,262,634 common shares, without par value, at February 24, 2017.
1
Document Incorporated by Reference:
Portions of Registrant's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held April 27, 2017,
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
ITEM 6.
ITEM 7.
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
ITEM 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11.
Executive Compensation
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
ITEM 14.
Principal Accountant Fees and Services
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
3
16
23
23
24
24
25
27
28
65
65
65
65
66
124
125
125
126
126
127
128
130
2
As used in this Annual Report on Form 10-K ("Form 10-K"), "Peoples" refers to Peoples Bancorp Inc. and its
consolidated subsidiaries collectively, except where the context indicates the reference relates solely to the registrant, Peoples
Bancorp Inc. Unless otherwise indicated, all note references contained in this Form 10-K refer to the Notes to the
Consolidated Financial Statements included 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 were acquired in connection with the acquisition of NB&T Financial Group, Inc. ("NB&T") on March 6, 2015.
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 continues to operate under the trade name and federally registered service mark "Peoples Bank". 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
subsidiaries – 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;
◦
◦
◦ money orders and cashier's checks;
◦
◦
◦
corporate and personal trust services;
safe deposit rental facilities;
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.
3
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, 2016, 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 financial 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 November 7, 2016, Peoples converted its core banking system (including the related operating systems, data
systems and products). The conversion resulted in a pre-tax combined revenue and expense impact of $1.3 million, or
$0.05 earnings per diluted share, for the full year. The $1.3 million was primarily recorded in various expense categories,
including other non-interest expense, professional fees, and salaries and employee benefit costs. Also included in the $1.3
million was a reduction to deposit account service charge revenue, as Peoples granted waivers of $85,000 related to
account service charges in the month of the conversion.
Primary Market Area and Customers
Peoples Bank considers its primary market area to be comprised of those counties where it has a physical branch
presence and their contiguous counties. This includes northeastern, central, southwestern and southeastern Ohio, west
central West Virginia and northern Kentucky. Peoples currently operates 60 locations in Ohio, 15 locations in West
Virginia and 5 locations in Kentucky. Peoples' market area consists of rural, small urban and metropolitan markets and is
comprised of a diverse group of industries and employers. Principal industries served in Peoples' primary markets include
manufacturing; distribution; real estate; healthcare; education; municipal; agricultural; petrochemical; oil; gas and coal
production; wholesale and retail trade; tourism; and service-related industries. This broad-based economy provides
diversity which helps prevent Peoples' revenue and earnings from being too dependent upon any single industry segment.
Lending Activities
Peoples Bank originates various types of loans, including commercial real estate loans, real estate construction loans,
commercial and industrial loans, residential real estate loans, home equity lines of credit, and direct and indirect 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 loans 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, 2016, 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 52.1% and 52.5% of total loans at December 31, 2016 and December 31, 2015, 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, 2016, the commercial loan portfolio consisted of 75.2% variable interest rate loans
and 24.8% fixed interest rate loans. The primary analytical technique used in determining whether to grant a
4
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 $1.0 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. Peoples
Bank also completes evaluation procedures for a selection of larger loan relationships on a quarterly basis. Loan
relationships whose aggregate credit exposure to Peoples Bank is equal to or less than $1.0 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 similar events.
Construction Loans
Peoples Bank originates construction loans to provide temporary financing during the construction phase for
commercial and residential properties. At December 31, 2016, outstanding construction loans comprised 4.2% of
Peoples Bank's loan portfolio, compared to 3.7% at December 31, 2015. 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 the 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
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
24.1% of total loans at December 31, 2016, and 27.3% at December 31, 2015. Peoples Bank also had $4.0 million of
residential real estate loans held for sale and was servicing $398.1 million of loans, consisting primarily of one-to-
four family residential mortgages, previously sold into 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 Bank sells its
longer-term fixed-rate real estate loans into 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.
5
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, 2016, outstanding home equity lines of credit comprised 5.0% of Peoples
Bank's total loans, compared to 5.1% at December 31, 2015. 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 94.6% and 5.4% of variable interest rate loans and fixed interest rate loans, respectively. At
December 31, 2016, total outstanding principal balances and available credit amounts of the convertible rate home
equity lines of credit were $18.7 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, 2016.
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, motorcycles,
recreational vehicles and other personal property, as well as unsecured loans and personal lines of credit. At
December 31, 2016, consumer loans comprised 14.5% of Peoples Bank's loan portfolio compared to 11.3% at
December 31, 2015.
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.
6
Investment Activities
At December 31, 2016, investment securities comprised 25.0% of Peoples' total assets compared to 26.7% at
December 31, 2015. 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 Bancorp Inc. are comprised of common stocks issued by various unrelated
bank 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 OPERATIONS" of this Form 10-K.
Funding Sources
Peoples' primary sources of funds for lending and investing activities are interest-bearing and non-interest-bearing
deposits. Cash flows from both the loan and investment portfolios, which include scheduled payments, as well as
prepayments, calls and maturities, also provide a relatively stable source of funds. Peoples also utilizes a variety of short-
term and long-term borrowings to fund asset growth and satisfy liquidity needs. Peoples' funding sources are monitored
and managed through Peoples' asset-liability management process, which is discussed further in the "Interest Rate
Sensitivity and Liquidity" section of "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" 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
7
CONDITION AND RESULTS OF OPERATIONS" 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 OPERATIONS" 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, financial technology
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 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 plan,
brokerage and insurance services. However, some competitors may have greater resources, including additional
technology offerings and 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 is
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, 2016, Peoples had 782 full-time equivalent employees compared to 817 at December 31, 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 2017 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 proprietary interests in the internet domain names "pebo.com" and "peoplesbancorp.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.
8
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.
Subsidiary Bank
Peoples Bank is subject to regulation and examination primarily 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.
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 ("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
9
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. The general insurance limit is $250,000 per
separately insured depositor. This insurance is backed by the full faith and credit of the United States
government.
As insurer, the FDIC is authorized to conduct examinations of and to require reporting by insured
institutions, including Peoples Bank, to prohibit any insured institution from engaging in any activity the
FDIC determines to pose a threat to the Deposit Insurance Fund, and to take enforcement actions against
insured institutions. The FDIC may terminate insurance of deposits of any institution if the FDIC finds that
the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition, or has
violated any applicable law, regulation, rule, order or condition imposed by the FDIC or other regulatory
agency.
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.
Effective July 1, 2016, the FDIC revised 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. This revision
changed the assessment method to the financial ratios method which is based on a statistical model
estimating the probability of failure of a bank over three years. The FDIC also updated the financial
measures used in the financial ratios method consistent with the statistical model; eliminated risk categories
for established small banks; and used 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 assesses a quarterly deposit insurance premium on each insured institution based on risk
characteristics of the institution and may also impose special assessments in emergency situations. The
premiums fund the Deposit Insurance Fund. Pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the "Dodd-Frank Act"), the FDIC has established 2.0% as the designated reserve
ratio ("DRR"), which is the amount in the Deposit Insurance Fund as a percentage of all Deposit Insurance
Fund insured deposits. In March 2016, the FDIC adopted final rules designed to meet the statutory
minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-
Frank Act requires the FDIC to offset the effect on institutions with assets of less than $10 billion of the
increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. Although
the FDIC's new rules reduced assessment rates on all banks, they imposed a surcharge on banks with assets
of $10 billion or more to be paid until the DRR reaches 1.35%. The rules also provide assessment credits to
banks with assets of less than $1 billion for the portion of their assessments that contribute to the increase of
the DRR to 1.35%. The rules further changed the method of determining risk-based assessment rates for
established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay
more for deposit insurance than banks that take on less risk.
In addition, all FDIC-insured institutions are required to pay assessments to fund interest payments on
bonds issued by the Financing Corporation, which was established by the government to recapitalize a
predecessor to the Deposit Insurance Fund. These assessments will continue until the Financing
Corporation bonds mature in 2019.
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Bank Holding Company Regulation
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 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:
•
•
•
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.
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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 regulatory agencies to
implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum
capital requirements within such categories. The regulatory agencies, including the Federal Reserve Board, the
ODFI, and the Office of Comptroller of the Currency ("OCC"), have adopted substantially similar regulatory capital
guidelines and regulations consistent with the requirements of FDICIA, as well as established a system of prompt
corrective action to resolve certain problems of undercapitalized institutions. This system is based on five capital
level categories for insured depository institutions: "well capitalized"; "adequately capitalized"; "undercapitalized";
"significantly undercapitalized", and "critically undercapitalized".
The regulatory 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 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 (the “Basel III Capital Rules”) applicable to smaller
banking organizations which also implement certain of the provisions of the Dodd-Frank Act. 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.
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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.
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 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. Additional information regarding Peoples' regulatory matters can be found in 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, 2016, 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, which
was conducted in 2015, resulted in an overall rating of "Satisfactory".
Dividend Restrictions
Current 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 and the
amount of the capital conservation buffer. 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
13
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 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 banking regulatory agencies 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.
In 2011, federal banking regulatory agencies jointly issued proposed rules on incentive-based compensation
arrangements (the "First Proposed Joint Rules"). The First 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.
In May 2016, the federal banking regulatory agencies approved a second joint notice proposed rules (the
"Second Proposed Joint Rules") designed to prohibit incentive-based compensation arrangements that encourage
inappropriate risks at financial institutions. The Second Proposed Joint Rules would apply to covered financial
institutions with total assets of $1.0 billion or more, and are still in proposed rules status.
14
The requirements of the Second Proposed Joint Rules would differ for each of three categories of financial
institutions:
•
•
•
Level 1 consisting of institutions with assets of $250 billion or more;
Level 2 consisting of institutions with assets of at least $50 billion and less than $250 billion; and
Level 3 consisting of institutions with assets of at least $1 billion and less than $50 billion.
Some of the requirements would apply only to Level 1 and Level 2 institutions. For all covered institutions,
including Level 3 institutions like Peoples Bank, the Second Proposed Joint Rules would:
•
•
•
prohibit incentive-based compensation arrangements that are "excessive" or "could lead to material
financial loss;"
require incentive-based compensation that is consistent with a balance of risk and reward, effective
management and control of risk, and effective governance; and
require board oversight, recordkeeping and disclosure to the appropriate regulatory agency.
Level 1 and Level 2 institutions would have additional requirements, including deferrals of awards to certain covered
persons; potential downward adjustments, forfeitures or clawbacks; and additional risk-management and control
standards, policies and procedures. In addition, certain practices and types of incentive compensation would be
prohibited.
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.
Many of the regulations mentioned above were adopted or amended pursuant to the Dodd-Frank Act. Such
legislation may continue to change banking statutes and regulations, 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, as
well as political changes, the nature and extent of future legislative and regulatory changes affecting financial
institutions remains very unpredictable.
15
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, amendment or proxy statement 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
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. The recent election of a new United States President may result in substantial, unpredictable changes in
economic and political conditions for the United States and the remainder of the world. Economic turmoil in Europe,
including the exit of Britain from the European Union ("Brexit"), 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 financial 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
16
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, Peoples may issue equity securities in connection with acquisitions which
could dilute the economic and voting interests of its shareholders. Recent increases in the stock price of financial
institutions could impact the valuation of potential target companies, and therefore, Peoples' ability to compete for
acquisitions.
• 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, the FDIC and the CFPB. 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
devote significant time and resources to defending its business and may lead to penalties that materially affect Peoples
and its shareholders. Even the reduction of regulatory restrictions could have an adverse effect on Peoples and its
shareholders if such lessening of restrictions increases competition within the financial services industry or Peoples'
market area.
In light of conditions in the global financial markets and the global economy that occurred in the last decade,
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.
17
• 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 impairment losses on
its investment in bank-issued trust preferred securities in future periods.
• Peoples' failure to be in compliance with any material provision or covenant of its 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. As of December 31, 2016, Peoples was in compliance with the applicable covenants.
• 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 increased for a period of time 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 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.
The FDIC has recently adopted rules revising its assessments in a manner benefiting banks with assets totaling less
than $10 billion. Effective July 1, 2016, the FDIC changed 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. This revision changed the
assessment method to the financial ratios method so that it is based on a statistical model estimating the probability of
failure of a bank over three years. The FDIC also updated the financial measures used in the financial ratios method
consistent with the statistical model; eliminated risk categories for established small banks; and used 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). This change to the assessment decreased Peoples' premiums beginning in
late 2016. However, there can be no assurance that the assessment will continue to be at the lower rate indefinitely.
• 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. For the year ended December 31, 2016, Peoples' net interest income
was 67.2% of total revenue. 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
18
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
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 regulations and interest rates, which may be beyond Peoples' control, and the 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") has changed its requirements for establishing the
allowance for loan losses.
On June 16, 2016, the FASB issued Accounting Standard Update ("ASU") 2016-13 "Financial Instruments - Credit
Losses", which replaces the incurred loss model with an expected loss model, and is referred to as the current expected
credit loss ("CECL") model. Under the incurred loss model, loans are recognized as impaired when there is no longer an
assumption that future cash flows will be collected in full under the originally contracted terms. The new accounting
guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning
after December 15, 2019. Under the CECL model, financial institutions will be required to use historical information,
current conditions and reasonable forecasts to estimate the expected loss over the life of the loan. The transition to the
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CECL model will bring with it significantly greater data requirements and changes to methodologies to accurately
account for expected losses under the new parameters.
Any significant increase in the allowance for loan losses or loan charge-offs, as required by these regulatory
authorities, might have a material adverse effect on Peoples' financial condition and results of operations.
• 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 losses, additional capital may be needed. In addition,
Peoples and Peoples Bank may elect to raise additional capital to support their businesses or to finance acquisitions, if
any, or for other unanticipated reasons. Their ability to raise additional capital, if needed, will depend on financial
performance, conditions in the capital markets, economic conditions and a number of other factors, many of which are
outside their control. Therefore, there can be no assurance additional capital can be raised when needed or that capital
can be raised on acceptable terms. The inability to raise capital may have a material adverse effect on Peoples' financial
condition, results of operations 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
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"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.
• 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. Peoples could be adversely affected by
operating systems disruptions if new or upgraded business management systems are defective, not installed properly or
not properly integrated into existing operations. 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
21
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 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.
• 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 Bank 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, fair values of net deferred tax assets and obligations of states and political subdivisions held in Peoples'
investment securities portfolio. 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.
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• 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.
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 (2 offices), 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 (2 offices),
Lowell, Maineville, Marietta (4 offices), Mason, McConnelsville, Milford, Mount Orab, Mount Vernon, Munroe Falls,
Nelsonville, New Philadelphia, New Vienna, Newark, Norton, Piketon, Pomeroy (2 offices), Sabina, Sardina, Springboro,
Waynesville, Wellston, Williamsburg, Wilmington (3 offices), Worthington and Zanesville. In West Virginia, Peoples Bank
operates offices in Charleston, Huntington (2 offices), Milton, 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, Pikeville and Russell. Of these 80 offices, 20 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, Lebanon and Piketon, Ohio, and in Pikeville, Kentucky.
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Rent expense on the leased properties totaled $1.0 million in both 2016 and 2015, which excludes intercompany rent
expense. The following are the only properties that have a lease term expiring on or before June 2018:
Location
Pikeville Insurance Office
Milton Office
New Philadelphia Office
Lancaster Fair Avenue Office
Athens Mall Office
Worthington Office
Address
Lease Expiration Date (a)
108 Trivette Dr
Pikeville, Kentucky
1763 Suite A Route 60
Milton, West Virginia
136A Second St NE
New Philadelphia, Ohio
2211 West Fair Ave
Lancaster, Ohio
801 East State Street
Athens, Ohio
130 East Wilson Bride Rd, Suite 327
Worthington, Ohio
September 2017
November 2017
January 2018
March 2018
June 2018
June 2018
(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.
24
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,
2016, Peoples had 2,284 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.
2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Sales
Low
Sales
Dividends
Declared
$
$
32.82 $
24.82
24.13 $
21.40
22.14
19.55
19.13
16.50
22.00 $
24.33
18.12 $
20.63
24.74
26.01
22.65
22.63
0.17
0.16
0.16
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, 2016:
(a)
Total
Number of
Common
Shares
Purchased
(b)
Average Price
Paid per
Common Share
1,688 (2)(3) $
1,147 (2)(3) $
2,107 (2)(3) $
4,942
$
24.63 (2)(3)
25.16 (2)(3)
30.47 (2)(3)
27.24
(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)
— $
— $
— $
— $
15,049,184
15,049,184
15,049,184
15,049,184
Period
October 1 - 31, 2016
November 1 - 30, 2016
December 1 - 31, 2016
Total
(2)
(1) On November 3, 2015, Peoples announced that on that same date, 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 the three months ended December 31, 2016. Additional information regarding the share repurchase program can be found in Note 10 of the
Notes to the Consolidated Financial Statements.
Information includes 1,314 common shares, 15 common shares, and 285 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 374 common shares, 1,132 common shares, and 1,822 common shares withheld during October, November, and December, respectively,
to pay income tax or other tax liabilities associated with vested restricted common shares.
(3)
25
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, 2011, 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 SHAREHOLDER 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
2011
$ 100.00 $
$ 100.00 $
$ 100.00 $
2012
140.94 $
117.63 $
118.58 $
At December 31,
2014
2013
159.18 $ 187.97 $
164.88 $ 189.33 $
168.05 $ 176.32 $
2015
140.34 $
202.80 $
191.91 $
2016
248.73
220.95
264.66
26
ITEM 6. SELECTED FINANCIAL DATA
The information below has been derived from Peoples' Consolidated Financial Statements.
At or For the Year Ended December 31,
2016
2015
2014
2013
2012
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
Net income available to common shareholders
Balance Sheet Data (a)
Total investment securities
$
$
$
115,444 $
10,579
108,333 $
10,721
80,200 $
10,694
67,071 $
11,686
104,865
3,539
(203)
51,070
1,899
97,612
14,097
(1,059)
47,441
2,084
69,506
339
(33)
40,053
1,260
55,385
(4,410)
334
37,220
1,036
105,012
31,157 $
112,997
10,941 $
83,749
16,684 $
67,229
17,574 $
69,470
14,995
54,475
(4,716)
(778)
34,971
1,002
62,472
20,385
859,455 $
868,830 $
713,659 $
680,526 $
709,085
Loans, net of deferred fees and costs
2,224,936
2,072,440
1,620,898
1,196,234
985,172
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 (b)
Tangible equity (b)
Per Common Share Data (a)
Earnings per common share – basic
Earnings per common share – diluted
Cash dividends declared per common share
Book value per common share (c)
Tangible book value per common share (b)(c)
Weighted-average number of common shares
outstanding – basic
Weighted-average number of common shares
outstanding – diluted
18,429
146,018
16,779
149,617
17,881
109,158
17,065
77,603
17,811
68,525
3,432,348
3,258,970
2,567,769
2,059,108
1,918,050
734,421
15,696
717,939
33,857
493,162
39,691
409,891
49,041
317,071
55,599
1,759,605
1,784,148
1,400,221
1,121,826
1,119,633
305,607
160,386
88,277
113,590
47,769
6,924
138,231
435,261
6,736
106,934
419,789
—
179,083
340,118
—
121,826
221,553
—
128,823
221,728
3,286,330
3,109,353
2,458,611
1,981,505
1,849,525
289,243
270,172
230,960
143,950
153,203
$
$
1.72 $
1.71
0.64
23.92
15.89 $
0.62 $
0.61
0.60
22.81
14.68 $
1.36 $
1.35
0.60
22.92
15.57 $
1.65 $
1.63
0.54
20.89
13.57 $
1.92
1.92
0.45
21.02
14.52
18,013,693 17,555,140 12,183,352 10,581,222 10,527,885
18,155,463 17,687,795 12,306,224 10,679,417 10,528,286
Common shares outstanding at end of period
18,200,067 18,404,864 14,836,727 10,605,782 10,547,960
Closing stock price at end of period
$
32.46 $
18.84 $
25.93 $
22.51 $
20.43
27
Significant Ratios (a)
Return on average stockholders' equity
Return on average assets
Average stockholders' equity to average assets
Average loans to average deposits
Net interest margin
Efficiency ratio (c)(d)
Pre-provision net revenue to total average assets (e)
Dividend payout ratio
Asset Quality Ratios (a)
Nonperforming loans as a percent of total loans (c)(f)
Nonperforming assets as a percent of total assets (c)(f)
Nonperforming assets as a percent of total loans and other real estate
owned ("OREO") (c)(f)
Criticized loans as a percent of total loans (c)(g)
Classified loans as a percent of total loans (c)(h)
Allowance for loan losses as a percent of originated loans, net of
deferred fees and costs (c)(i)
Allowance for loan losses as a percent of nonperforming loans (c)(f)(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 (j)
Capital Ratios (a)
Common Equity Tier 1 (k)
Tier 1
Total (Tier 1 and Tier 2)
Tier 1 leverage
Tangible equity to tangible assets (b)
At or For the Year Ended December 31,
2016
2015
2014
2013
2012
7.20%
0.94
13.03
83.22
3.54
65.13
1.48
37.40% 96.35% 43.10 % 33.20 % 23.58%
2.69% 6.16 %
0.35
13.09
80.08
3.53
75.50
0.96
7.92 %
0.91
11.48
70.79
3.23
71.90
1.26
9.52%
1.11
11.63
68.23
3.36
69.55
1.41
0.74
12.08
79.58
3.45
75.37
1.10
1.13%
0.75
0.94% 0.69 %
0.62
0.47
0.60 %
0.39
1.43%
0.78
1.16
4.46
2.59
1.08
0.98
5.89
2.91
1.19
0.75
4.60
2.76
1.48
0.67
4.94
3.07
1.58
1.52
9.01
4.72
1.86
73.43
86.05
159.58
237.87
125.34
0.17
0.72
0.02
(0.42)
(0.49)
0.09%
0.78% (0.03)% (0.35)%
0.12%
12.91% 13.36%
13.67
13.21
14.54
14.11
9.52
9.66
8.69
8.80
N/A
14.32
15.48
9.92
9.39
N/A
12.42
13.78
8.52
7.26
N/A
14.06
15.43
8.83
8.28
(a) Reflects the impact of the acquisition of NB&T beginning March 6, 2015, of Midwest Bancshares, Inc. ("Midwest") beginning May 30, 2014, of
Ohio Heritage Bancorp, Inc. ("Ohio Heritage") beginning August 22, 2014 and of North Akron Savings Bank ("North Akron") beginning October
24, 2014.
(b) This amount represents a non-GAAP financial measure since it excludes the balance sheet impact of intangible assets acquired through
acquisitions on total stockholders’ equity and total assets. Additional information regarding the calculation of this amount can be found in "ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K
under the caption “Capital/Stockholders’ Equity”.
(c) Data presented as of the end of the year indicated.
(d) Total other expenses (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest
income. This amount represents a non-GAAP financial measure since it excludes amortization of other intangible assets, and all gains and/or
losses included in earnings, and uses fully tax-equivalent net interest income. Additional information regarding the calculation of this amount 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”.
(e) This ratio represents a non-GAAP financial measure since it excludes the provision for loan losses and all gains and/or losses included in
earnings. Additional information regarding the calculation of this ratio can be found in "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K under the caption “Pre-Provision Net
Revenue”.
(f) Nonperforming loans include loans 90+ days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include
(g)
(h)
(i)
nonperforming loans and other real estate owned.
Includes loans categorized as watch, substandard or doubtful.
Includes loans categorized as substandard or doubtful.
The decreases since 2013 were 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".
(j) 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%.
(k) Peoples' capital conservation buffer was 6.11% at December 31, 2016, compared to 2.50% for the fully phased-in capital conservation buffer
required by January 1, 2019.
28
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)
(14)
Peoples' ability to leverage the system conversion (including the related core operating systems, data
systems and products) without complications or difficulties that may otherwise result in the loss of
customers, operational problems or one-time costs currently not anticipated to arise in connection with such
conversion;
the success, impact, and timing of the implementation of Peoples' business strategies, including the
successful integration of acquisitions and the expansion of consumer lending activity;
Peoples' ability to integrate future acquisitions which 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, changes to 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, loan
demand 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 (including the uncertainty created by the June 23, 2016
referendum by British voters to exit the European Union), Asia, and other areas, which could decrease sales
volumes and increase loan delinquencies and defaults;
uncertainty regarding the nature, timing and effect of legislative or regulatory changes or actions,
promulgated and to be promulgated by governmental and regulatory agencies including the ODFI, the
FDIC, 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 Wall Street Reform and Consumer Protection Act
of 2010, and the Basel III regulatory capital reform;
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
29
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment
activities;
Peoples' ability to receive dividends from its subsidiaries;
Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;
the impact of new minimum capital thresholds established as a part of the implementation of Basel III;
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;
changes in consumer spending, borrowing and saving habits, whether due to changes in business and
economic conditions, legislative or regulatory initiatives, or other factors, which may be different than
anticipated;
the overall adequacy of Peoples' risk management program;
the impact on Peoples' businesses, as well as on the risks described above, of various domestic or
international military or terrorist activities or conflicts;
significant changes in the tax laws, which may adversely affect the fair values of net deferred tax assets and
obligations of states and political subdivisions held in Peoples' investment securities portfolio; 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 position and results of operations 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 31, 2017, Peoples Insurance acquired a third-party insurance administration company with annual net
revenue of $0.4 million. This acquisition did not materially impact Peoples' financial position, results of operations
or cash flows.
On November 7, 2016, Peoples converted its core banking system (including the related operating systems, data
systems and products). The conversion resulted in a pre-tax combined revenue and expense impact of $1.3 million,
or $0.05 in earnings per diluted share, for the full year. Deposit account service charges were impacted by the system
conversion as Peoples granted waivers of $85,000 related to account services charges in the month of the conversion.
The remainder of the $1.3 million was recorded in various expense categories, primarily in other non-interest
expense, professional fees, and salaries and employee benefit costs.
30
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
In 2016, Peoples closed three Ohio branches that were located in Owensville, Marietta and The Plains. Additional
branches to close in 2017 include two Ohio offices located in Belpre and Wilmington, and two West Virginia offices
located in Huntington and Point Pleasant. These four branches will remain open through March 31, 2017.
Peoples continually evaluates the overall balance sheet position given the interest rate environment. During 2016,
Peoples executed transactions to take advantage of the low interest rates, which included:
▪
▪
▪
Peoples restructured $20.0 million of FHLB long-term advance borrowings that had a weighted-average rate
of 2.97%, resulting in a $700,000 loss. Peoples replaced these borrowings with a long-term FHLB advance,
which has an interest rate of 2.17% and matures in 2026.
Peoples borrowed an additional $35.0 million of long-term FHLB amortizing advances, which had interest
rates ranging from 1.08% to 1.40%, and mature between 2019 and 2031.
Peoples entered into five forward starting interest rate swaps to obtain short-term borrowings at fixed rates,
with interest rates ranging from 1.49% to 1.83%, which become effective in 2018 and mature between 2022
and 2026. These swaps locked in funding rates for $40.0 million in FHLB advances that mature in 2018,
which have interest rates ranging from 3.57% to 3.92%.
On June 8, 2016, Peoples purchased an additional $35.0 million in bank owned life insurance ("BOLI").
During the second quarter of 2016, Peoples sold $28.9 million of available-for-sale securities with a weighted
average yield of 2.14%, for a gain of $767,000.
Effective March 2, 2016, Peoples terminated the loan agreement with U.S. Bank National Association dated as of
December 18, 2012, as amended (the "U.S. Bank Loan Agreement"). As of the termination date, Peoples had no
outstanding borrowings under the U.S. Bank Loan Agreement. Peoples paid an immaterial non-usage fee in
connection with the termination of the U.S. Bank Loan Agreement.
On March 4, 2016, Peoples entered into a Credit Agreement (the "RJB Credit Agreement") with Raymond James
Bank, N.A. ("Raymond James Bank"), which provides Peoples with a revolving line of credit in the maximum
aggregate principal amount of $15 million, for the purpose of: (i) to the extent that any amounts remained
outstanding, paying off the then outstanding $15 million revolving line of credit to Peoples pursuant to the U.S. Bank
Loan Agreement; (ii) making acquisitions; (iii) making stock repurchases; (iv) working capital needs; and (v) other
general corporate purposes. On March 4, 2016, Peoples paid upfront fees for the establishment of a revolving line of
credit agreement of $70,600, representing 0.47% of the loan commitment under the RJB Credit Agreement.
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 operates under the trade name and federally registered service
mark "Peoples Bank." Additionally, Peoples' banking subsidiary saw 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 December 31, 2016, Peoples had repurchased an aggregate of 279,770 common shares with a
total cost of $5.0 million. All of these common shares were purchased in the first half of 2016 with none being
purchased in 2015.
On July 24, 2015, Peoples repaid the principal balance of the $12.0 million term loan then outstanding under the U.S.
Bank Loan Agreement. There were no early termination fees associated with the repayment. The revolving credit
loan commitment available under the U.S. Bank Loan Agreement remained outstanding until the termination of the
U.S. Bank Loan Agreement effective March 2, 2016, as described above.
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.
31
◦
In December 2016, the Federal Reserve Board raised short-term rates, including the Federal Funds Rate and the
Discount Rate by 0.25%, to a range of 0.50% to 0.75% for the Federal Funds Rate and to 1.25% for the Discount
Rate. The Federal Reserve Board had previously maintained its target Federal Funds Rate at a level of 0.25% to
0.50% since December 2015 and had maintained the Discount Rate at 1.00% since December 2015. The Federal
Reserve Board has indicated the possibility that these short-term rates could again be raised in 2017.
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.
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, 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
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, the loan quality ratings, the value of collateral,
the 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,
32
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 that the allowance for loan losses will be adequate to cover all losses, but management
believes the allowance for loan losses at December 31, 2016 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 25.0% and 26.7% of total assets at December 31, 2016, and December
31, 2015 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 investment
security; (2) it is more likely than not that Peoples will be required to sell the investment security before recovery of its
amortized cost basis; or (3) Peoples does not expect to recover the entire amortized cost basis of the investment security.
In situations where Peoples intends to sell, or when it is more likely than not that Peoples will be required to sell the
investment 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,
2016, and concluded no individual securities were other-than-temporarily impaired. Peoples has not recognized an
impairment loss in 2016, 2015 or 2014.
Goodwill and Other Intangible Assets
Prior to 2016, Peoples performed its annual goodwill impairment test as of June 30. During 2016, Peoples
changed its method in applying the accounting principle and completed the annual goodwill impairment test as of October
1, and will do so annually on that date hereafter. This voluntary change was considered preferable by Peoples as it aligns
the goodwill impairment testing with the preparation of the underlying data used in the annual test, including financial
and strategic information that is prepared late in the year. This change was not intended to delay, accelerate or avoid any
impairment charges. This change was not applied retrospectively as it was impracticable to do so because retrospective
application would have required application of significant estimates and assumptions with the use of hindsight.
Accordingly the change was applied prospectively.
Peoples records 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 consideration paid for an
acquired company to the assets acquired, including identified intangible assets, and liabilities assumed based on their
estimated fair values at the date of acquisition. Goodwill represents the excess cost over the fair value of net assets
acquired and is not amortized but is tested for impairment when indicators of impairment exist, or at least annually.
Peoples' other intangible assets consist of customer relationship intangible assets, including core deposit intangibles,
representing the present value of future net income to be earned from acquired customer relationships with definite useful
lives, which are required to be amortized over their estimated useful lives.
The value of recorded goodwill is supported ultimately by revenue that is driven by the volume of business transacted
and Peoples' ability to provide quality, cost-effective services in a competitive market place. A decline in earnings as a
result of a lack of growth or the inability to deliver cost-effective services over sustained periods can lead to impairment
33
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 October 1st each year, beginning in 2016. Peoples first
assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less
than its carrying amount, including goodwill. In this evaluation, Peoples assesses relevant events and circumstances,
which may include macroeconomic conditions, industry and market conditions, cost factors, overall financial
performance, events specific to Peoples, significant changes in the reporting unit, or a sustained decrease in stock price.
If Peoples determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying
amount, then performing the two-step impairment test is unnecessary. However, if there are indicators of impairment,
Peoples must complete a two-step process that includes (1) determining if potential goodwill impairment exists and (2)
measuring the impairment loss, if any. At October 1, 2016, management's qualitative analysis concluded that the
estimated fair value of Peoples' single reporting unit exceeded its carrying value.
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. 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, 2016, 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 when, based upon available information, it is
more-likely-than-not all, or any portion, of the deferred tax asset will not be realized. Assessing the need for, and amount
of, a valuation allowance for deferred tax assets requires significant judgment and analysis of evidence regarding
realization of the deferred tax assets. In most cases, the realization of deferred tax assets is dependent upon Peoples
generating a sufficient level of taxable income in future periods, which can be difficult to predict. Peoples' largest
deferred tax assets involve differences related to Peoples' allowance for loan losses and accrued employee benefits. At
December 31, 2016 and 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
recorded at either December 31, 2016 or 2015.
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.
34
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, 2016 and 2015.
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, 2016, all of Peoples'
available-for-sale investment securities were measured using observable market data.
At December 31, 2016, 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 were 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
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.
35
To determine the fair value of its SRs each reporting quarter, Peoples provides information representing loan
information accompanied by escrow amounts to a third-party valuation firm. The third-party valuation firm 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 3, 2017, 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 3, 2017, 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.
Cash flow hedges
Cash flow hedges are carried at fair value on Peoples' Consolidated Balance Sheets. Cash flow hedges do not trade in
an active market with readily observable prices. Management determines the fair value of cash flow hedges based on
third-party pricing, which is driven by changes in market interest rates. As of December 31, 2016, the fair value of the
cash flow hedges, based on market interest rates, resulted in an asset of $1.8 million.
EXECUTIVE SUMMARY
Net income for the year ended December 31, 2016 was $31.2 million, compared to $10.9 million in 2015 and $16.7
million in 2014, representing earnings per diluted common share of $1.71, $0.61 and $1.35, respectively. The increase in
earnings during 2016 was driven by a decrease in the provision for loan losses of $10.6 million, primarily due to the control
of credit quality and associated credit costs. In 2016, earnings also benefited from a decrease in acquisition-related charges
of $10.7 million compared to 2015, which was partially offset by costs related to the conversion of Peoples' core banking
system of $1.3 million. The increase in the provision for loan losses and acquisition-related charges in 2015 were the primary
reasons for the decrease in net income for the year ended December 31, 2015 compared to 2014.
In 2016, Peoples had a provision for loan losses of $3.5 million, a decrease of $10.6 million compared to the $14.1
million that was recorded in 2015. The decrease in 2016 from 2015 was primarily related to Peoples recording net charge-
offs of $1.9 million compared to $15.2 million for 2016 and 2015, respectively. The charge-off in 2015 was primarily due to
the charge-off of one large commercial loan relationship. The provision for loan losses represented amounts needed, in
management's opinion, to maintain the appropriate level of the allowance for loan losses.
Net interest income grew 7% to $104.9 million in 2016 mostly due to higher loan balances. In 2015, net interest income
grew 40% to $97.6 million, primarily due to acquisitions. Net interest margin was 3.54% in 2016, higher than the 3.53% in
2015 and 3.45% in 2014. Accretion income from acquisitions added approximately 11 basis points to net interest margin in
2016 compared to 17 basis points in 2015 and 13 basis points in 2014. The increase in net interest margin in 2015 compared
to 2014 was mostly due to higher loan balances in connection with acquisitions and organic loan growth.
Total non-interest income, which excludes gains and losses on investment securities, asset disposals and other
transactions, increased 8% in 2016 compared to 2015 and 18% in 2015 compared to 2014. The increase in 2016 compared to
2015 was due to increases in electronic banking income, trust and investment income, bank owned life insurance income and
commercial loan swap fee income, with a portion of the growth attributable to the NB&T acquisition. The increase in
electronic banking income was the result of the increased usage of debit cards by more customers. The increase in trust and
investment income was due largely to growth in assets under management and the full year effect of NB&T operations. The
increase in bank owned life insurance income was the result of the additional $35.0 million of bank owned life insurance
policies that were purchased late in the second quarter of 2016. Commercial loan swap fee income is dependent upon
customers' preference for fixed versus variable interest rate loans, and the ability of the customers seeking the swap product
to satisfy the financially sophisticated criteria to be eligible, which leads to variability in this income stream.
36
Total non-interest income increased 18% in 2015 and was primarily due to increases in trust and investment income,
deposit account service charges and electronic banking income. 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 decreased 7%, or $8.2 million, for the year ended December 31, 2016, due largely to acquisition-
related expenses of $10.7 million in 2015, partially offset by a full-year effect of operating expenses associated with the
NB&T acquisition, and increased sales-based and incentive compensation earned under the corporate incentive plan.
At December 31, 2016, total assets were up 5%, or $173.4 million, to $3.43 billion versus $3.26 billion at year-end 2015.
The increase was primarily related to an increase of 7% in loan growth coupled with the additional $35.0 million of bank
owned life insurance policies that were purchased late in the second quarter of 2016. The allowance for loan losses increased
$1.7 million to $18.4 million, or 1.08% of originated loans, net of deferred fees and costs, compared to $16.8 million and
1.19% at December 31, 2015.
Total liabilities were $3.00 billion at December 31, 2016, up $157.9 million since December 31, 2015. At December 31,
2016, total borrowed funds were $450.8 million, up $176.7 million compared to the prior year-end, which was largely used to
fund loan growth. Non-interest-bearing deposits were up $16.5 million, or 2%, and comprised 29% of total deposits at
December 31, 2016, versus 28% at year-end 2015.
At December 31, 2016, total stockholders' equity was $435.3 million, up $15.5 million from December 31, 2015. The
increase was primarily due to the increase in retained earnings as the $31.2 million of earnings in 2016 was only partially
offset by dividends of $11.7 million. Peoples' regulatory capital ratios remained significantly higher than "well capitalized"
minimums. Peoples' Tier 1 Capital ratio decreased to 13.21% at December 31, 2016, versus 13.67% at December 31, 2015,
while the Total Capital ratio was 14.11% versus 14.54% at December 31, 2015. In addition, Peoples' book value per share
was $23.92 at December 31, 2016. Peoples' tangible book value per share was $15.89 at December 31, 2016, and its tangible
equity to tangible assets ratio was 8.80%, versus $14.68 and 9.39% at December 31, 2015, 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.
37
The following table details Peoples’ average balance sheets for the years ended December 31:
2016
2015
2014
(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
Average
Balance
Income/
Expense
Yield/
Cost
50 0.52 % $
— — %
50,858 $
1,261
Yield/
Cost
123 0.24 % $
12 0.95 %
15,394 $
1,913
Yield/
Cost
1 0.01 %
8 0.42 %
$
9,667 $
—
753,213
112,808
866,021
18,606 2.47 %
4,810 4.26 %
23,416 2.70 %
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 %
88,559
721,535
376,881
557,537
109,164
279,499
2,133,175
(17,564)
64,421
3,455 3.84 %
692,773
33,651 4.59 %
329,030
15,769 4.12 %
554,909
24,279 4.35 %
99,984
4,853 4.45 %
211,124
11,998 4.29 %
94,005 4.41 % 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)
2,115,611
2,991,299
147,981
181,167
$3,320,447
94,005 4.40 % 1,933,067
117,471 3.90 % 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
$ 434,140 $
296,590
231 0.05 % $ 388,802 $
570 0.19 %
276,367
209 0.05 % $ 247,419 $
597 0.22 %
165,622
217 0.08 %
702 0.17 %
846 3.49 %
222,868
384,258
36,303
178 0.08 %
614 0.16 %
1,352 3.72 %
148,687
293,214
42,598
3,376 0.80 %
465,861
5,942 0.32 % 1,774,459
3,256 0.70 %
383,574
6,206 0.35 % 1,281,114
384 0.45 %
124 0.17 %
508 0.32 %
2,238 2.65 %
1,475 3.69 %
416 6.13 %
16,863
83,574
100,437
82,184
40,000
13,064
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
1,808 4.09 %
22,724 4.60 %
11,079 4.43 %
16,051 4.65 %
2,398 3.59 %
7,658 4.68 %
61,718 4.52 %
61,718 4.58 %
81,535 3.97 %
135 0.05 %
470 0.28 %
124 0.08 %
472 0.16 %
1,568 3.68 %
3,337 0.87 %
6,106 0.48 %
47 0.13 %
99 0.17 %
146 0.15 %
2,299 2.84 %
1,471 3.68 %
672 3.88 %
135,248
4,129 3.14 %
4,637 1.60 %
235,685
10,579 0.50 % 2,010,144
138,171
4,333 3.20 %
4,515 1.92 %
234,211
10,721 0.53 % 1,515,325
4,442 3.21 %
4,588 1.96 %
10,694 0.71 %
663,395
31,018
2,704,557
407,296
$3,111,853
433,798
20,722
1,969,845
270,689
$2,240,534
260,788
401,693
24,231
423,680
1,841,122
86,260
72,909
159,169
84,605
40,000
6,781
131,386
290,555
2,131,677
722,291
33,813
2,887,781
432,666
Total liabilities and stockholders’
equity
$3,320,447
Interest rate spread
Net interest margin
$106,892 3.40 %
3.54%
$ 99,590 3.38 %
3.53%
$ 70,841 3.26 %
3.45%
(1) Average balances are based on carrying value.
38
(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 and received 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 2015 to 2016
Volume
Rate
Total (1)
Changes from 2014 to 2015
Volume
Rate
Total (1)
$
74 $
(6)
(147) $
(6)
(73) $
(12)
123 $
8
(1) $
(4)
122
4
(274)
(62)
(336)
(232)
468
(267)
(391)
(133)
(666)
(1,221)
(1,489)
(2)
(69)
8
59
(80)
431
347
19
81
100
447
645
269
914
957
1,402
2,033
116
411
2,969
7,888
8,649
24
42
31
29
(426)
(311)
(611)
307
(285)
22
(589)
371
207
578
725
1,870
1,766
(275)
278
2,303
6,667
7,160
22
(27)
39
88
(506)
120
(264)
326
(204)
122
(142)
(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)
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
26,207
30,733
25,620
28,776
76
259
59
145
(234)
643
948
(3)
(140)
(143)
805
74
127
54
142
(216)
(81)
100
36
(109)
(73)
27
Net interest income
$
(1,936) $
9,238 $
7,302
$
(1,179) $
29,928 $
28,749
(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.
Interest income and yields are presented on a fully tax-equivalent basis using a 35% federal statutory tax rate.
(2)
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
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
2016
104,865 $
2,027
106,892 $
$
$
2015
2014
97,612 $
1,978
99,590 $
69,506
1,335
70,841
The comparison of the income statement and average balance sheet results between the full year of 2015 and the full year
of 2016 was affected by the NB&T acquisition, which closed March 6, 2015.
During 2016, Peoples recognized accretion income, net of amortization expense, from acquisitions of $3.5 million,
which added approximately 11 basis points to net interest margin, compared to $4.8 million and 17 basis points and $2.6
million and 13 basis points in 2015 and 2014, respectively. Also during 2016, additional interest income from prepayment
fees and interest recovered on nonaccrual loans was $964,000 compared to $591,000 in 2015 and $240,000 in 2014. 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 2016 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 2016, the average
monthly principal cashflow was approximately $10.6 million compared to $10.1 million in 2015 and $6.0 million in 2014.
Funding costs have declined since 2013 as Peoples has continued to execute a strategy of replacing higher-cost funding
with low-cost deposits. In 2016, funding costs decreased 3 basis points, compared to 18 basis points in 2015 and 15 basis
points in 2014. In 2015, the improvement included deploying excess cash on the balance sheet by buying securities in the
investment portfolio and paying off a $12.0 million term loan.
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 Loan Losses
The following table details Peoples’ provision for loan losses recognized for the years ended December 31:
(Dollars in thousands)
Loan losses
Checking account overdrafts
Provision for loan losses
As a percent of average total loans
$
$
2016
$
$
2,890
649
3,539
0.17%
2015
13,485
612
14,097
$
$
0.72%
2014
—
339
339
0.02%
The provision for 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 2016 was
primarily due to loan growth and stable asset quality trends. 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 increases 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.
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”.
40
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 debt extinguishment
Net loss on bank premises and equipment
Net loss on OREO
Net loss on other assets
$
Net loss on asset disposals and other transactions $
2016
2015
2014
(707) $
(188)
(34)
(204)
(1,133) $
(520) $
(696)
(529)
(43)
(1,788) $
67
(430)
(68)
—
(431)
The net loss on debt extinguishment in 2016 was due to the prepayment of $20.0 million of long-term FHLB advances.
The net loss on bank premises and equipment during 2016 was due mainly to the closing of a leased office and related
disposal of leasehold improvements. The net loss on other assets during 2016 was related to the write-down of an investment
made in an asset that had a corresponding tax benefit to Peoples. 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. The losses on bank
premises and equipment in 2015 and 2014 of $575,000, and $380,000, respectively, were 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 four
primary sources: insurance sales revenues; deposit account service charges; trust and investment activities; and electronic
banking (“e-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 32.8% of Peoples' total revenues in 2016 compared to 32.7% in 2015 and 36.6% in 2014. The decline in Peoples' total
non-interest income as a percent of total revenue during 2015 from 2014 was primarily due to increased net interest income
from recent acquisitions and organic growth.
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
$
2016
2015
2014
10,064 $
1,742
1,733
35
272
13,846 $
10,097 $
1,625
1,756
50
255
13,783 $
9,981
1,722
1,630
38
233
13,604
Insurance income in 2016 was relatively flat compared to 2015 due to a soft commercial insurance market, resulting in
reduced commercial insurance premiums. 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
2016
2015
2014
$
$
7,849 $
2,260
553
10,662 $
8,276 $
2,126
443
10,845 $
7,177
1,690
306
9,173
41
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. 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 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
2016
2015
2014
$
$
7,418 $
3,171
10,589 $
6,950 $
2,627
9,577 $
5,567
2,118
7,685
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
2016
2014
2015
$ 1,301,509 $ 1,275,253 $ 1,022,189
590,089
$ 2,079,280 $ 1,939,406 $ 1,612,278
$ 2,002,537 $ 1,859,336 $ 1,576,656
777,771
664,153
During 2016, the increase in fiduciary and brokerage revenues was primarily due to the increase in average managed
assets which included a full year of the impact related to the acquisition of NB&T, coupled with a fee increase implemented
during 2016. Additionally, during 2015 and 2014, 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 2016, electronic banking
income grew $1.4 million, or 16%, compared to 2015. During 2015, electronic banking income increased $2.3 million, or
35%, compared to 2014. The increase in electronic banking income in 2016 was the result of the increased usage of debit
cards by more customers. The increase in 2015 was due to acquisitions and an increase in the volume of debit card
transactions. In 2016, Peoples' customers used their debit cards to complete $728 million of transactions, versus $591 million
in 2015 and $467 million in 2014.
During 2016, bank owned life insurance income increased to $1.4 million, compared to $598,000 million in 2015. The
increase in bank owned life insurance income was the result of the additional $35.0 million of bank owned life insurance
policies that were purchased late in the second quarter of 2016.
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 decreased 1% in 2016, while increasing 6% in 2015 due to refinancing activity. In 2016, Peoples sold
approximately $67.1 million of loans to the secondary market compared to $56.0 million in 2015 and $48.8 million in 2014.
42
Non-Interest Expense
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
2016
2015
2014
$
$
39,422 $
8,752
5,742
1,332
(1,779)
3,964
57,433 $
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
782
804
817
799
699
602
Base salaries and wages, employee benefits, and payroll taxes and other employment costs decreased in 2016, primarily
due to severance payments of $4.3 million related to the NB&T acquisition in 2015, which were offset partially by yearly
merit increases and costs associated with the system conversion. The increase in 2015 from 2014 was 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 increased in 2016, due primarily to
corporate goals and incentives being attained. Peoples' sales-based and incentive compensation plans are designed to grow
core earnings while managing risk, and do not encourage unnecessary and excessive risk-taking that could threaten the value
of Peoples. The sales-based and incentive compensation plans reward employees for appropriate behaviors and include
provisions for inappropriate practices with respect to Peoples and its customers.
The decrease in employee benefits in 2016 was partially due to no pension settlement charges in 2016, compared to $0.5
million and $1.4 million in 2015 and 2014, 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 2016, Peoples granted restricted shares to officers and key employees with performance-based vesting
periods and time-based vesting periods. Stock-based compensation expense recorded in 2016 related to the awards granted in
2016, for 2015 performance, was $209,000, compared to $792,000 recorded in 2015 related to awards granted for 2014
performance. The decrease in expense in 2016 compared to 2015 was primarily due to the difference in Peoples' results
between the years which resulted in fewer awards granted and expensed.
The remaining expense was recognized 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 2016, 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
43
loan originations. Additional information regarding Peoples' loan activity can be found later in this discussion under the
caption “Loans”.
Peoples’ net occupancy and equipment expense for the years ended December 31 was comprised of the following:
(Dollars in thousands)
Depreciation
Repairs and maintenance costs
Net rent expense
Property taxes, utilities and other costs
Net occupancy and equipment expense
2016
2015
2014
$
$
5,079 $
2,345
901
2,410
10,735 $
4,639 $
2,908
844
2,816
11,207 $
2,986
2,057
931
1,865
7,839
During 2016, depreciation increased as a full year of depreciation was recognized on the acquired NB&T offices, and
office renovations that were completed in 2015. Repairs and maintenance costs, coupled with property taxes, utilities and
other costs, declined during 2016, compared to 2015, as expenses recognized on the acquired offices decreased. Management
continues to monitor capital expenditures and explore opportunities to enhance Peoples' operating efficiency.
During 2015, Peoples acquired 22 offices which resulted in higher depreciation, repairs and maintenance costs, and
property taxes, utilities and other costs compared to 2014. In addition, in 2015, Peoples completed renovations on the 22
acquired offices and several operations areas to accommodate recent growth.
Peoples' e-banking expense, which is comprised of bankcard, internet and mobile banking costs, increased in 2016, 2015
and 2014 due to the addition of 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.
Peoples' intangible asset amortization expense is driven by acquisition-related activity. Amortization expense was $4.0
million in 2016, compared to $4.1 million and $1.4 million in 2015 and 2014, respectively. The increase in 2015 related 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 2016 due to increased software support. The increase from 2014 to 2015 was due to the recent acquisitions
and new software projects completed.
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 2016 due to an increase in equity and
revenues. In 2015, the increase was from the issuance of common shares related to acquisitions in 2014 and 2015. 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' FDIC insurance costs decreased in 2016 as a result of the FDIC Insurance Fund’s reserve ratio reaching 1.15%
effective June 30. The increases during 2015 and 2014 were the 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".
In 2016, marketing expense, which includes advertising, donation and other public relations costs, decreased $1.2
million. The marketing expense in 2015 and 2014 was higher due to the timing of acquisitions and the additional marketing
associated with acquired branches and additional community donations in those markets. Peoples contributed $225,000 in
2016, $350,000 in 2015 and $300,000 in 2014 to Peoples Bank Foundation, Inc. Peoples formed this private foundation in
2004 to make charitable contributions to organizations within Peoples' primary market area. Future contributions to Peoples
Bank 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.
Other non-interest expense decreased $5.1 million in 2016 compared to 2015. The decrease was primarily driven by
$3.7 million of acquisition-related expenses incurred in other expenses during 2015, which was partially offset by $0.7
million of system conversion costs. The acquisition-related expenses incurred in 2015 was the primary increase compared to
2014.
44
Peoples' efficiency ratio, calculated as total other expenses less amortization of other intangible assets divided by FTE
net interest income plus non-interest income, was 65.13% for 2016, compared to 75.50% for 2015 and 75.37% for 2014. The
increases in 2015 and 2014 were largely the result of one-time costs for acquisitions plus higher salaries and employee
benefit costs. For the full year of 2016, the efficiency ratio, when adjusted for non-core items, was 64.3% compared to
67.5% in 2015. The decrease in the adjusted efficiency ratio in 2016 compared to 2015 was due primarily to 8% revenue
growth between 2016 and 2015.
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. 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 total other expenses 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 of income before
income taxes reported in Peoples' Consolidated Financial Statements for the periods presented:
(Dollars in thousands)
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 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
Pre-provision net revenue
Total average assets
Pre-provision net revenue to total average
assets
$
2016
45,282
3,539
707
34
392
—
—
—
930
$
49,024
$ 3,320,447
$
2015
14,816
14,097
520
529
739
—
—
—
729
$
29,972
$ 3,111,853
$
2014
24,178
339
—
68
430
—
67
—
398
$
24,550
$ 2,240,534
$
2013
29,084
—
—
—
241
4,410
—
86
489
$
24,340
$ 1,932,367
2012
$
29,910
—
4,144
—
248
4,716
—
66
3,548
$
25,972
$ 1,841,289
1.48%
0.96%
1.10%
1.26%
1.41%
During 2016, PPNR and the pre-provision net revenue to total average assets ratio increased compared to previous years
due largely to the increase in revenue as a result of increased net interest income growth coupled with a decrease in non-
interest expenses. The increase in the PPNR in 2015 was primarily due to the completion of the NB&T acquisition and
recognition of a full year of revenue for acquisitions completed during 2014 with the decrease in the pre-provision net
revenue to total average assets ratio reflecting the increase in PPNR being offset by the increase of average assets, which also
was reflective of the NB&T acquisition.
Core Non-Interest Income and Expense
Core non-interest income and expense are financial measures used to evaluate Peoples' recurring revenue and
expense streams. These measures are non-GAAP since they exclude the impact of system conversion revenue and costs,
acquisition-related costs, pension settlement charges, search firm fees and legal settlement charges.
45
The following tables provide reconciliations of these non-GAAP measures to the amounts reported in Peoples'
Consolidated Financial Statements for the periods presented:
(Dollars in thousands)
2016
2015
2014
2013
2012
Core non-interest income:
Total non-interest income
Plus: system conversion revenue waived
Core non-interest income
$
$
51,070 $
85
51,155 $
47,441 $
—
47,441 $
40,053 $
—
40,053 $
37,220 $
—
37,220 $
34,971
—
34,971
(Dollars in thousands)
2016
2015
2014
2013
2012
Core non-interest expenses:
Total non-interest expense
Less: system conversion costs
Less: acquisition-related costs
Less: pension settlement charges
Less: other non-core charges
Core non-interest expenses
$ 106,911 $ 115,081 $
1,259
—
—
—
—
10,722
459
592
$ 105,652 $ 103,308 $
85,009 $
—
4,752
1,400
298
78,559 $
68,265 $
—
1,412
270
—
66,583 $
63,474
—
569
835
—
62,070
Efficiency Ratio
The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total
other expenses (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus
non-interest income. This measure is non-GAAP since it excludes amortization of other intangible assets and all gains and/or
losses included in earnings, and uses fully tax-equivalent net interest income.
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)
2016
2015
2014
2013
2012
Efficiency ratio:
Total other expenses
Less: Amortization of other intangible assets
Adjusted total other expenses
$ 106,911
4,030
$ 102,881
$ 115,081
4,077
$ 111,004
$ 85,009
1,428
$ 83,581
$ 68,265
807
$ 67,458
$ 63,474
509
$ 62,965
Total non-interest income
51,070
47,441
40,053
37,220
34,971
$ 104,865
Net interest income
Add: Fully tax-equivalent adjustment
2,027
Net interest income on a fully taxable-equivalent basis $ 106,892
$ 97,612
1,978
$ 99,590
$ 69,506
1,335
$ 70,841
$ 55,385
1,211
$ 56,596
$ 54,475
1,087
$ 55,562
Adjusted revenue
Efficiency ratio
$ 157,962
$ 147,031
$ 110,894
$ 93,816
$ 90,533
65.13%
75.50%
75.37%
71.90%
69.55%
Core non-interest expenses
Less: Amortization of other intangible assets
Adjusted non-interest expense
$ 105,652
4,030
$ 101,622
$ 103,308
4,077
$ 99,231
$ 78,559
1,428
$ 77,131
$ 66,583
807
$ 65,776
$ 62,070
509
$ 61,561
$ 51,155
Core non-interest income
Net interest income on a fully taxable-equivalent basis $ 106,892
$ 47,441
$ 99,590
$ 40,053
$ 70,841
$ 37,220
$ 56,585
$ 34,971
$ 55,562
Adjusted core revenue
$ 158,047
$ 147,031
$ 110,894
$ 93,805
$ 90,533
Efficiency ratio adjusted for non-core items
64.30%
67.49%
69.55%
70.12%
68.00%
46
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, 2016, excess
cash reserves at the Federal Reserve Bank were $4.4 million, compared to $8.7 million at December 31, 2015. 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 2016, Peoples' total cash and cash equivalents decreased $5.0 million, as $198.4 million of cash was used in investing
activities which were offset partially by operating activities of $60.3 million and $133.1 million of financing activities. Cash
used in investing activities was primarily due to funded loan growth of $149.0 million. The loan growth was partially funded
by the increase of Peoples' financing activities of short and long-term borrowings of $175.9 million, and the increase in
operating activities of $31.2 million of net income.
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 of $125.4 million 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.
Further information regarding the management of Peoples' liquidity position can be found later in this discussion under
“Interest Rate Sensitivity and Liquidity.”
47
Investment Securities
The following table provides information regarding Peoples’ investment portfolio at December 31:
2016
2015
2014
2013
2012
(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
$
$
$
$
$
$
$
$
$
— $
1,000
117,230
626,567
19,291
4,899
8,953
777,940 $
777,017 $
923 $
— $
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) $
3,820 $
33,858
5,466
43,144 $
3,831 $
35,367
6,530
45,728 $
3,841 $
36,945
7,682
48,468 $
3,850 $
37,536
7,836
49,222 $
38,371 $
38,401 $
28,311 $
25,196 $
26
516
45,668
514,096
64,416
10,357
4,106
639,185
628,584
10,601
3,860
33,494
7,921
45,275
24,625
858,532 $
859,455 $
864,433 $
868,830 $
709,746 $
713,659 $
695,544 $
680,526 $
698,484
709,085
At December 31, 2016, Peoples' investment securities were approximately 25.0% of total assets compared to 26.7% at
December 31, 2015. The decline in available-for-sale investment securities during 2016, compared to 2015, was due to
principal paydowns and declines in market values outpacing the reinvestment of cash into the portfolio.
In 2015, 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 2014, Peoples acquired $69.7 million of available-for-sale investment securities, and retained approximately $11.9
million, with the remainder being sold.
In 2013 and 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. The unrealized gain or loss related to held-to-maturity securities does not directly impact total 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.
The amount of these “non-agency” securities included in the residential mortgage-backed securities totals above was as
follows at December 31:
(Dollars in thousands)
Fair Value
Amortized cost
Net unrealized (loss) gain
2016
2015
2014
2013
2012
$
$
2,991 $
3,206
(215) $
4,201 $
4,331
(130) $
14,058 $
13,604
454 $
23,446 $
22,926
520 $
37,267
36,395
872
48
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, 2016, 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.
Loans
The following table provides information regarding outstanding loan balances at December 31:
(Dollars in thousands)
Gross originated loans:
2016
2015
2014
2013
2012
Commercial real estate, construction
$
84,626
$
63,785
$
37,901
$
44,703
$
32,000
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
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, indirect
Consumer, other
Consumer
Total acquired loans (a)
Total loans
531,557
616,183
378,131
307,490
85,617
252,024
67,579
319,603
471,184
534,969
288,130
288,783
74,176
165,320
61,813
227,133
434,660
472,561
249,975
254,169
62,463
112,563
57,350
169,913
394,532
439,235
206,276
248,883
55,178
76,619
57,245
133,864
378,073
410,073
180,131
211,404
49,691
48,851
50,160
99,011
1,080
$1,708,104
1,448
$1,414,639
2,933
$ 1,212,014
2,060
$1,085,496
6,563
$ 956,873
$
10,100
$
12,114
$
1,051
$
2,836
$
2,265
204,466
214,566
44,208
228,435
25,875
808
2,940
265,092
277,206
63,589
276,772
32,253
1,776
6,205
121,475
122,526
30,056
225,274
18,232
2,445
10,351
55,638
58,474
26,478
19,734
4,898
—
1,154
—
2,265
—
22,437
1,362
—
2,235
3,748
$ 516,832
$2,224,936
7,981
$ 657,801
$2,072,440
12,796
$ 408,884
$ 1,620,898
1,154
$ 110,738
$1,196,234
2,235
$
28,299
$ 985,172
49
(Dollars in thousands)
Average total loans
Average allowance for loan losses
Average loans, net of average allowance for loan
losses
Percent of loans to total loans:
Commercial real estate, construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
Consumer
Deposit account overdrafts
Total percentage
2016
2015
2014
2013
2,133,175
(17,564)
1,952,241
(19,174)
1,364,808
(17,362)
1,046,371
(17,935)
2012
967,166
(21,473)
$2,115,611
$1,933,067
$ 1,347,446
$1,028,436
$ 945,693
4.3 %
33.0 %
37.3 %
19.0 %
24.1 %
5.0 %
11.4 %
3.2 %
14.6 %
— %
100.0%
3.7 %
35.5 %
39.2 %
17.0 %
27.3 %
5.1 %
8.0 %
3.3 %
11.3 %
0.1 %
100.0%
2.4 %
34.2 %
36.6 %
17.3 %
29.6 %
5.0 %
7.1 %
4.2 %
11.3 %
0.2 %
100.0%
4.0 %
37.6 %
41.6 %
19.5 %
22.5 %
5.0 %
6.4 %
4.9 %
11.3 %
0.1 %
100.0%
3.5 %
38.4 %
41.9 %
18.3 %
23.7 %
5.2 %
5.0 %
5.3 %
10.3 %
0.6 %
100.0%
Residential real estate loans being serviced for
others
$ 398,134
$ 390,398
$ 352,779
$ 341,183
$ 330,721
(a)
Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 and thereafter.
During 2016, total loans grew 7%, or $152.5 million, with growth of 8% in commercial loan balances and 7% in
consumer loan balances. Indirect lending experienced the largest growth across all loan categories for the year, increasing by
$85.7 million, or 51%. Commercial and industrial loan growth was $70.6 million, or 20%, for the year.
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 the Midwest, Ohio
Heritage and North Akron acquisitions were approximately $52.5 million, $166.6 million and $108.8 million, respectively.
During 2013, total 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.
50
The following table details the maturities of Peoples' commercial real estate and commercial and industrial loans at
December 31, 2016:
(Dollars in thousands)
Commercial real estate, construction:
Fixed
Variable
Total
Commercial real estate, other:
Fixed
Variable
Total
Commercial and industrial:
Fixed
Variable
Total
Total commercial loans:
Fixed
Variable
Total
Due in One
Year or Less
Due in One
to Five Years
Due After
Five Years
Total
% of Total
$
$
$
$
$
$
$
$
908 $
12,907
13,815 $
4,117 $
32,354
36,471 $
6,302 $
38,138
44,440 $
15,959 $
20,783
36,742 $
98,807 $
99,904
198,711 $
81,539 $
419,031
500,570 $
5,224 $
162,383
167,607 $
73,372 $
75,518
148,890 $
18,636 $
87,206
105,842 $
11,327
83,399
94,726
196,305
539,718
736,023
97,232
325,107
422,339
22,091 $
196,073
218,164 $
176,296 $
207,776
384,072 $
106,477 $
544,375
650,852 $
304,864
948,224
1,253,088
12.0%
88.0%
100.0%
26.7%
73.3%
100.0%
23.0%
77.0%
100.0%
24.3%
75.7%
100.0%
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, 2016:
(Dollars in thousands)
Commercial real estate, construction:
Apartment complexes
Mixed commercial use facilities
Assisted living facilities and nursing homes
Land development
Residential property
Lodging and lodging related
School
Light industrial facilities
Childcare facilities
Other
Commercial real estate, construction
Outstanding
Balance
Available
Loan
Commitments
Total
Exposure % of Total
39,892 $
12,080
6,316
2,533
1,904
4,004
2,224
796
2,424
22,553
94,726 $
33,641 $
28,616
6,247
6,585
4,534
—
544
1,772
—
26,258
108,197 $
73,533
40,696
12,563
9,118
6,438
4,004
2,768
2,568
2,424
48,811
202,923
36.2 %
20.1 %
6.2 %
4.5 %
3.2 %
2.0 %
1.4 %
1.3 %
1.2 %
23.9 %
100.0%
$
$
51
(Dollars in thousands)
Commercial real estate, other:
Office buildings and complexes:
Owner occupied
Non-owner occupied
Total office buildings and complexes
Apartment complexes
Light industrial facilities:
Owner occupied
Non-owner occupied
Total light industrial facilities
Retail facilities:
Owner occupied
Non-owner occupied
Total retail facilities
Mixed commercial use facilities:
Owner occupied
Non-owner occupied
Total mixed commercial use facilities
Lodging and lodging related
Warehouse facilities
Assisted living facilities and nursing homes
Restaurants:
Owner occupied
Non-owner occupied
Total restaurants
Residential property:
Owner occupied
Non-owner occupied
Total residential property
Other
Outstanding
Balance
Available
Loan
Commitments
Total
Exposure % of Total
$
36,071 $
42,856
78,927
65,392
896 $
909
1,805
1,301
47,873
7,556
55,429
20,833
32,942
53,775
24,631
22,985
47,616
40,505
19,332
18,775
15,072
1,223
16,295
38
—
38
163
1,327
1,490
729
249
978
1,881
603
250
213
—
213
36,967
43,765
80,732
66,693
47,911
7,556
55,467
20,996
34,269
55,265
25,360
23,234
48,594
42,386
19,935
19,025
15,285
1,223
16,508
4.8 %
5.7 %
10.5 %
8.7 %
6.3 %
1.0 %
7.3 %
2.7 %
4.5 %
7.2 %
3.3 %
3.0 %
6.3 %
5.5 %
2.6 %
2.5 %
2.0 %
0.2 %
2.2 %
1,307
7,895
9,202
330,775
736,023 $
1,732
2,120
3,852
16,080
28,491 $
3,039
10,015
13,054
346,855
764,514
0.4 %
1.3 %
1.7 %
45.5 %
100.0%
Commercial real estate, other
$
Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary
market areas within Ohio, West Virginia and Kentucky. In all other states, the aggregate outstanding balances of commercial
loans in each state were less than $4.0 million at both December 31, 2016 and December 31, 2015.
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.
52
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
2016
2015
2014
2013
2012
7,172
6,353
13,525
982
688
2,830
171
18,196
233
233
18,429
$
$
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
$
2,174
15,389
881
343
316
136
17,065
—
—
17,065
$
$
14,215
1,733
15,948
801
479
438
145
17,811
—
—
17,811
1.08%
1.19%
1.48%
1.58%
1.86%
The allowance for loan losses as a percent of originated loans decreased in 2016 from previous years as a result of the
continuation of the reduction in historic loss rates, coupled with the current stable credit quality trends. 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 fluctuating oil and gas prices.
Peoples believes the reserves remain appropriate to cover probable losses that exist in the current portfolio.
The allowance for loan losses 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. The increase
in the allowance for loan losses for consumer loans has been mostly driven by loan growth in indirect lending in recent
periods.
The increase of 9% in the allowance for loan losses related to total commercial loans in 2016 was in relation to the
commercial loan balance growth of 8%.
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. During 2015, 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 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. Criticized loans, which are those classified as
watch, substandard or doubtful, decreased by $23.0 million during 2016, compared to an increase of $47.6 million in 2015.
Net charge-offs were elevated during 2015 as a result of the full charge-off of one large commercial loan relationship.
53
The following table summarizes the changes in the allowance for loan losses for the years ended December 31:
(Dollars in thousands)
Allowance for loan losses, January 1
Gross charge-offs:
2016
16,779
2015
17,881
$
2014
17,065
2013
17,811
$
$
2012
23,717
$
$
Commercial real estate (a)
Commercial and industrial
Residential real estate (b)
Home equity lines of credit
Consumer
Deposit account overdrafts
Total gross charge-offs
Recoveries:
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
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
Total net charge-offs (recoveries)
Provision for (recoveries of) loan losses,
December 31 (c)
$
Allowance for loan losses, December 31 $
68
1,017
611
73
2,655
774
5,198
1,209
306
278
56
1,285
175
3,309
(1,141)
711
333
17
1,370
599
1,889
3,539
18,429
$
$
302
13,576
631
125
1,353
774
16,761
104
98
315
119
755
171
1,562
198
13,478
316
6
598
603
15,199
14,097
16,779
203
199
478
128
1,191
516
2,715
2,060
77
169
36
697
153
3,192
1,053
44
621
162
1,084
527
3,491
5,839
40
536
26
552
162
7,155
(1,857)
122
309
92
494
363
(477)
339
17,881
$
$
(4,786)
4
85
136
532
365
(3,664)
(4,410)
17,065
$
$
$
$
5,146
34
1,091
94
572
574
7,511
4,399
358
773
32
561
198
6,321
747
(324)
318
62
11
376
1,190
(4,716)
17,811
Net charge-offs (recoveries) as a percent of average total loans:
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer
Deposit account overdrafts
(0.05)%
0.03 %
0.02 %
— %
0.06 %
0.03 %
0.09 %
0.01 %
0.69 %
0.02 %
— %
0.03 %
0.03 %
0.78%
(0.14 )%
0.01 %
0.02 %
0.01 %
0.04 %
0.03 %
(0.03)%
(0.46 )%
— %
0.01 %
0.01 %
0.05 %
0.04 %
(0.35)%
0.08 %
(0.03)%
0.03 %
— %
— %
0.04 %
0.12 %
Total
(a) Includes purchase credit impaired loan charge-offs of $44,000 in 2016 and $60,000 in 2015.
(b) Includes purchase credit impaired loan charge-offs of $23,000 in 2016 and $3,000 in 2015.
(c) Includes purchase credit impaired loan provision for loan losses of $66,000 in 2016 and $303,000 in 2015.
During 2016, net charge-offs were nominal at 0.09% of average total loans and were positively impacted by a $1.0
million recovery of a prior period commercial real estate charge-off. Gross charge-offs totaled $5.2 million in 2016, and
were largely associated with the consumer loan portfolio.
In 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.
54
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, indirect
Consumer, other
Total loans 90+ days past due and accruing
Nonaccrual loans:
$
Commercial real estate, construction
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
Total nonaccrual loans
Nonaccrual troubled debt restructurings (TDRs):
Commercial real estate, construction
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
Total nonaccrual TDRs
Total nonperforming loans (NPLs)
Other real estate owned (OREO):
Commercial
Residential
Total OREO
Total nonperforming assets (NPAs)
$
Criticized loans (a)
Classified loans (b)
Asset Quality Ratios:
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
Criticized loans as a percent of total loans
Classified loans as a percent of total loans
(a) Includes loans categorized as watch, substandard or doubtful.
(b) Includes loans categorized as substandard or doubtful.
2016
2015
2014
2013
2012
1,506
387
1,855
—
—
23
3,771
826
10,792
1,620
4,481
554
9
81
18,363
—
751
482
1,614
60
6
49
2,962
25,096
594
67
661
25,757
99,182
57,736
$
$
2,425
1,986
1,522
35
1
—
5,969
921
7,357
350
2,991
340
31
—
11,990
—
153
377
864
79
34
34
1,541
19,500
644
89
733
20,233
122,147
60,315
$
$
$
$
567
301
1,901
20
2
8
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
74,545
44,723
1.13%
0.75%
1.16%
73.43%
4.46%
2.59%
0.94%
0.62%
0.98%
86.05%
5.89%
2.91%
0.69%
0.47%
0.75%
159.58%
4.60%
2.76%
— $
78
289
873
—
—
1,240
96
1,882
630
1,615
81
—
58
4,362
—
916
—
650
6
—
—
1,572
7,174
465
428
893
8,067
59,059
36,673
$
0.60%
0.39%
0.67%
237.87%
4.94%
3.07%
—
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
88,744
46,470
1.43%
0.78%
1.52%
125.34%
9.01%
4.72%
Nonperforming loans increased in 2016, largely due to the increase in nonaccrual loans, which was partially offset by a
decrease in loans 90+ days past due and accruing. The increase in nonaccrual loans was driven by several relatively smaller
relationships that were placed on nonaccrual status during 2016.
55
At December 31, 2015, loans 90+ days past due and accruing included $2.3 million of acquired loans that were purchase
credit impaired loans, as they had evidence of credit quality deterioration since acquisition. Interest income on these 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 increase in nonaccrual commercial real estate loans during 2016
was a result of three commercial loans moving to nonaccrual status, while the increase in 2015 was a result of one
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 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.
Interest income on loans classified as nonaccrual and renegotiated at each year-end that would have been recorded under
the original terms of the loans was $1.9 million for 2016, $2.1 million for 2015 and $1.4 million for 2014. No portion of
these amounts was recorded during 2016, 2015 or 2014, 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, 2016, 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
$
2016
2015
2014
2013
2012
$
734,421 $
717,939 $
493,162 $
409,891 $
317,071
384,861
436,344
407,754
251,671
278,975
15,696
1,775,301
2,509,722 $
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
In 2016, deposits decreased primarily due to decreases in retail and brokered certificates of deposits ("CDs") and
governmental deposit accounts. Peoples continued 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 over the last year.
In 2015, the increase in deposits included increases in governmental deposit accounts which were 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 a portion 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 million, 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.
56
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. In 2016, governmental deposit accounts decreased due primarily to the loss of one relationship.
Additionally, 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. 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 $100,000 or more at December 31 were as follows:
(Dollars in thousands)
3 months or less
Over 3 to 6 months
Over 6 to 12 months
Over 12 months
Total
2016
2015
2014
2013
2012
$
$
27,780 $
20,102
25,028
75,860
148,770 $
36,597 $
24,401
32,227
72,115
165,340 $
29,110 $
19,551
31,356
84,591
164,608 $
44,476 $
16,435
24,118
90,801
175,830 $
55,579
18,592
26,749
83,638
184,558
Borrowed Funds
The following table details Peoples’ short-term and long-term borrowings at December 31:
15,000
32,769
47,769
64,904
40,000
23,919
—
(Dollars in thousands)
Short-term borrowings:
FHLB advances
Retail repurchase agreements
Short-term borrowings
Long-term borrowings:
2016
2015
2014
2013
2012
$
231,000 $
74,607
305,607
76,000 $
84,386
160,386
15,000 $
73,277
88,277
71,000 $
42,590
113,590
FHLB advances
Callable national market repurchase agreements
Term note payable (parent company)
Subordinated debentures held by subsidiary trust
98,282
40,000
—
6,873
66,934
40,000
—
6,736
124,714
40,000
14,369
—
62,679
40,000
19,147
—
Long-term borrowings
Total borrowed funds
145,155
450,762 $
113,670
274,056 $
179,083
267,360 $
121,826
235,416 $
128,823
176,592
$
Peoples' short-term FHLB advances generally consist of overnight borrowings being maintained in connection with the
management of Peoples' daily liquidity position. Peoples continually evaluates the overall balance sheet position given the
interest rate environment.
During 2016, Peoples executed transactions to take advantage of the low interest rates, which included:
▪
▪
▪
Peoples restructured $20.0 million of long-term FHLB advances that had a weighted-average rate of 2.97%,
resulting in a $700,000 loss. Peoples replaced these borrowings with a long-term FHLB advance, which
has an interest rate of 2.17% and matures in 2026.
Peoples borrowed an additional $35.0 million of long-term FHLB amortizing advances, which had interest
rates ranging from 1.08% to 1.40%, and mature between 2019 and 2031.
Peoples entered into five forward starting interest rate swaps to obtain short-term borrowings at fixed rates,
with interest rates ranging from 1.49% to 1.83%, which become effective in 2018 and mature between 2022
and 2026. These swaps locked in funding rates for $40.0 million in FHLB advances that mature in 2018,
which have interest rates ranging from 3.57% to 3.92%.
Peoples repaid approximately $52.1 million of long-term FHLB advances during 2015 and recorded a loss on debt
extinguishment of $520,000. Peoples increased its usage of short-term FHLB advances due to the decrease and pre-payment
57
of long-term FHLB advances. 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.
On March 4, 2016, Peoples entered into the RJB Credit Agreement, with Raymond James Bank, which provides Peoples
with a revolving line of credit in the maximum aggregate principal amount of $15 million (the "RJB Loan Commitment").
Peoples is subject to certain covenants imposed by the RJB Credit Agreement and was in compliance as of December 31,
2016.
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 2016, Peoples' total stockholders' equity increased due to higher retained earnings, which were offset slightly by
the repurchase of 279,770 treasury shares and the slight decline in the market value of investments. At December 31, 2016,
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 a
strong capital position. During the first quarter of 2015, Peoples adopted the new Basel III regulatory capital framework, as
approved by the federal banking agencies. The adoption of this new framework modified the calculations and well
capitalized thresholds of the existing risk-based capital ratios and added the Common Equity Tier 1 risk-based capital ratio.
Additionally, under the new rules, in order to avoid limitations on dividends, equity repurchases and compensation, Peoples
must exceed the three minimum required ratios by at least the capital conservation buffer. The capital conservation buffer is
being phased in from 0.625% beginning January 1, 2016 to 2.50% by January 1, 2019, and applies to the Common Equity
Tier 1 ("CET1") ratio, tier 1 capital ratio and total risk-based capital ratio. At December 31, 2016, Peoples' had a capital
buffer of 6.11% compared to 2.50% for the fully phased-in capital conservation buffer required by January 1, 2019. As such,
Peoples exceeded the minimum ratios including the capital conservation buffer at December 31, 2016.
In 2015, Peoples' total stockholders' equity increased primarily due to $76.0 million of common equity issued in
connection with the NB&T acquisition.
The following table details Peoples' actual risk-based capital levels and corresponding ratios at December 31:
(Dollars in thousands)
Capital Amounts:
2016
2015
2014
2013
2012
Common Equity Tier 1
Tier 1
Total (Tier 1 and Tier 2)
Net risk-weighted assets
$
$
306,506
313,430
334,957
2,373,359
$
$
288,416
295,151
313,974
2,158,713
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
$
$
$
Capital Ratios:
Common Equity Tier 1
Tier 1
Total (Tier 1 and Tier 2)
Tier 1 leverage
12.91%
13.21%
14.11%
9.66%
13.36%
13.67%
14.54%
9.52%
N/A
N/A
N/A
14.32%
15.48%
9.92%
12.42%
13.78%
8.52%
14.06%
15.43%
8.83%
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 on the Consolidated Balance Sheets of intangible assets acquired through acquisitions. 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 Peoples to incur losses but remain solvent.
58
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 equity
Common shares outstanding
Tangible book value per share
$
$
$
$
$
$
2016
2015
2014
2013
2012
435,261
146,018
289,243
$
$
419,789
149,617
270,172
$
$
340,118
109,158
230,960
3,432,348
146,018
3,286,330
$ 3,258,970
149,617
$ 3,109,353
$ 2,567,769
109,158
$ 2,458,611
289,243
18,200,067
$
270,172
18,404,864
$
230,960
14,836,727
$
$
$
$
$
221,553
77,603
143,950
2,059,108
77,603
1,981,505
143,950
10,605,782
$
$
$
$
$
221,728
68,525
153,203
1,918,050
68,525
1,849,525
153,203
10,547,960
15.89
$
14.68
$
15.57
$
13.57
$
14.52
Tangible Equity to Tangible Assets Ratio:
Tangible equity
Tangible assets
$
$
289,243
3,286,330
270,172
$
$ 3,109,353
230,960
$
$ 2,458,611
$
$
143,950
1,981,505
$
$
153,203
1,849,525
Tangible equity to tangible assets
8.80%
8.69%
9.39%
7.26%
8.28%
The increase in tangible equity for 2016, and tangible equity to tangible assets ratio, compared to 2015, was due mainly
to the increase in retained earnings, offset slightly by the repurchase of 279,770 treasury shares and the decline in the market
value of investment securities.
In 2015, the decrease in the tangible equity to tangible assets ratio compared to the ratio in 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.
Future Outlook
Peoples achieved success in several major areas in 2016, which included generating quality loan growth, increasing net
interest margin, effectively managing credit costs, growing fee income and successfully controlling expenses. Success in
these areas resulted in positive operating leverage for the year, an efficiency ratio below 65% and record net income for
Peoples. The achievements of 2016 were all done while executing a system conversion of Peoples' core banking systems,
which was a time consuming endeavor but one that was critical to the future success of Peoples.
For 2017, Peoples expects to leverage the new core banking systems and build off the momentum that was gained in
2016 related to loan growth, fee income 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 Peoples' Proxy Statement, and providing returns for its
shareholders superior to those of its peers, regardless of operating conditions.
In 2016, net interest income made up 67% of Peoples' revenue, and therefore, remained a major source of revenue.
Thus, Peoples' ability to grow revenue in 2017 will be impacted by the amount of net interest income generated. The Federal
Reserve Board is expected to raise interest rates throughout 2017. 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 2017.
59
Net interest margin for 2017 is expected to be in the range of 3.45% and 3.50% 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 2016.
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 seeks to maintain a diversified revenue stream though its strong fee-based businesses, such as insurance and
wealth management. However, in 2016, Peoples' fee revenue comprised 33% of its total revenue, consistent with 2015 but
down from the high of 40% in 2013. The decline in recent years was due primarily to the bank acquisitions completed since
2013, only one of which had a wealth management practice. In addition, only two relatively small insurance agencies and
one small financial advisory book of business 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 2017, management expects fee-based revenue growth of between 4% and
6%.
While the primary focus will be on revenue growth, management remains disciplined with operating expenses. 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 2017, management anticipates a higher volume of settlement
charges to that incurred in 2016, during which time there were no settlement charges. This expectation is based on normal
retirement activity within the defined benefit plan, but assumes all potential distributions are lump-sum payouts. For total
expenses, management expects growth in the low single digits.
Management expects 4% to 6% growth in total revenue in 2017, and low-single digit percentage expense growth, which
would result in positive operating leverage. Peoples' efficiency ratio is expected to be between 62% and 64% for 2017.
The expected revenue growth goal for 2017 is largely dependent upon achieving meaningful loan growth. Management
believes period-end loan balances could increase by 5% to 7% in 2017. 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. Consumer lending activity grew significantly during 2016 and is
expected to remain a large contributor to overall loan growth in 2017, primarily indirect lending.
At December 31, 2016, the investment portfolio comprised 25% of total assets. In 2017, the investment portfolio is
anticipated to continue to comprise approximately 25% 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. 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 continue the declining trend experienced in recent years. Given the
expected increase in earning assets, borrowed funds are expected to increase in 2017 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 any 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
2017 as the prospects of large charge-offs and recoveries diminish. Management anticipates Peoples' provision for loan
losses and the net charge-off rate for 2017 will 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 2017, 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.
60
Peoples' capital position remains strong. Given the excess capital position and the increase in Peoples' stock price,
Peoples will continue to look for ways to effectively manage its capital, including, but not limited to, bank acquisitions and
dividends. Late in 2015, Peoples approved a share repurchase program of up to $20 million, under which Peoples purchased
$5.0 million in 2016. Given the activity in the stock market in late 2016 and early 2017, specifically as it related to the price
of Peoples' common shares, Peoples' appetite to repurchase common shares has diminished. However, given that there is a
share repurchase program still in place, with capacity of $15.0 million remaining, Peoples will continue to evaluate additional
purchase opportunities throughout 2017.
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.
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 Board of Directors of Peoples Bank, who 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.
61
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 (Decrease) Increase in
Net Interest Income
Estimated Decrease in Economic Value of
Equity
(in Basis Points) December 31, 2016
$
300
200
100
(1,100)
83
603
(1.0)% $
0.1 %
0.6 %
1,477
1,943
1,823
1.5% $ (88,004)
(57,925)
1.9%
(27,441)
1.8%
December 31, 2015
December 31, 2016
(15.0)% $ (88,774)
(57,205)
(9.9)%
(27,036)
(4.7)%
December 31, 2015
(15.3)%
(9.9)%
(4.7)%
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
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.
During 2016, Peoples' Consolidated Balance Sheet remained positioned for a relatively neutral interest rate
environment as illustrated by the overall small changes in net interest income shown in the above table. The largest
factors affecting Peoples' interest rate sensitivity were the amount of cash on the balance sheet and the asset/liability mix
in the balance sheet. This positioning was appropriate given the Federal Reserve Board's stated goal of potentially
raising interest rates at a slow and measured pace. In fact, the Federal funds rate was raised only one time in 2016 by 25
basis points in December.
An asset/liability model, used to produce the analysis above, requires assumptions to be made such as prepayment
rates on interest-earning assets and repricing impact on non-maturity deposits. These business assumptions are based on
business plans, economic and market trends, and available industry data. Management believes that its methodology for
developing such assumptions is reasonable; however, there can be no assurance that modeled results will be achieved.
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
62
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. Peoples remained within these two
parameters throughout the year.
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, 2016, 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
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, 2016, 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
63
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 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
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.
64
The following table details the aggregate amount of future payments Peoples is required to make under certain
contractual obligations as of December 31, 2016:
(Dollars in thousands)
Time deposits
Long-term debt (a)
Operating leases
Contingent consideration related to acquisitions (b)
Pension benefits
$
Total
$
(a) Amounts reflect solely the minimum required principal payments.
(b) Amounts assume projected revenue metrics are achieved.
Payments due by period
Total
400,557 $
145,155
2,685
85
318
548,800 $
Less than 1
year
194,394 $
5,545
745
85
318
201,087 $
1-3 years
3-5 years
More than
5 years
136,026 $
78,479
1,162
—
—
215,667 $
70,025 $
17,543
424
—
—
87,992 $
112
43,588
354
—
—
44,054
Management does not anticipate that 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
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, 2016. 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)
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
65
(c)
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 67 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 68 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, 2016, that have materially affected, or are
reasonably likely to materially affect, Peoples’ internal control over financial reporting. On November 7, 2016, Peoples
converted its core banking system (including the related operating systems, data systems and products). Peoples does not
believe the conversion of these systems materially changed its internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
66
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, 2016, 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 financial reporting.
Management assessed the effectiveness of Peoples' internal control over financial reporting as of December 31, 2016,
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
67
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,
2016, 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 its subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2016, 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, 2016 and 2015, 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, 2016 of Peoples Bancorp Inc. and subsidiaries and our report dated
February 27, 2017 expressed an unqualified opinion thereon.
Charleston, West Virginia
February 27, 2017
68
Report of Ernst & 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, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Peoples Bancorp Inc. and subsidiaries' internal control over financial reporting as of December 31, 2016, 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 27, 2017 expressed an unqualified
opinion thereon.
Charleston, West Virginia
February 27, 2017
69
$
$
$
December 31,
2016
2015
58,129 $
8,017
66,146
53,663
17,452
71,115
777,940
784,701
43,144
45,728
38,371
859,455
2,224,936
(18,429)
2,206,507
4,022
53,616
60,225
132,631
13,387
36,359
3,432,348 $
734,421 $
1,775,301
2,509,722
305,607
145,155
36,603
2,997,087
38,401
868,830
2,072,440
(16,779)
2,055,661
1,953
53,487
23,811
132,631
16,986
34,496
3,258,970
717,939
1,818,005
2,535,944
160,386
113,670
29,181
2,839,181
—
—
344,404
343,948
110,294
(1,554)
(17,883)
90,790
(359)
(14,590)
435,261
3,432,348 $
419,789
3,258,970
$
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
$777,017 at December 31, 2016 and $780,304 at December 31, 2015)
Held-to-maturity investment securities, at amortized cost (fair value of $43,227
at December 31, 2016 and $45,853 at December 31, 2015)
Other investment securities, at cost
Total investment securities
Loans, net of deferred fees and costs
Allowance for loan losses
Net loans
Loans held for sale
Bank premises and equipment, net
Bank owned life insurance
Goodwill
Other intangible assets
Other assets
Total assets
Liabilities
Deposits:
Non-interest-bearing
Interest-bearing
Total deposits
Short-term borrowings
Long-term borrowings
Accrued expenses and other liabilities
Total liabilities
Stockholders’ Equity
Preferred stock, no par value, 50,000 shares authorized, no shares issued at
December 31, 2016 and December 31, 2015
Common stock, no par value, 24,000,000 shares authorized, 18,939,091 shares
issued at December 31, 2016 and 18,931,200 shares issued at December 31,
2015, including shares in treasury
Retained earnings
Accumulated other comprehensive loss, net of deferred income taxes
Treasury stock, at cost, 795,758 shares at December 31, 2016 and 586,686
shares at December 31, 2015
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to the Consolidated Financial Statements
70
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 loan losses
Net interest income after provision for loan losses
Other Income:
Insurance income
Deposit account service charges
Trust and investment income
Electronic banking income
Bank owned life insurance income
Mortgage banking income
Commercial loan swap fee 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
Communication expense
Franchise tax expense
FDIC insurance expense
Marketing 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
71
2016
2015
2014
$
93,845 $
18,423
3,126
50
115,444
87,155 $
18,051
2,992
135
108,333
61,541
16,840
1,810
9
80,200
6,106
146
4,442
10,694
69,506
339
69,167
13,604
9,173
7,685
6,642
106
1,237
450
398
(431)
1,156
40,020
46,593
7,839
5,649
4,529
1,428
2,424
1,642
1,392
1,260
2,299
789
9,165
85,009
24,178
7,494
16,684
1.36
1.35
12,183,352
12,306,224
5,942
508
4,129
10,579
104,865
3,539
101,326
13,846
10,662
10,589
10,353
1,414
1,304
1,076
930
(1,133)
1,826
50,867
57,433
10,735
7,436
5,992
4,030
3,763
2,261
2,192
1,899
1,594
859
8,717
106,911
45,282
14,125
31,157 $
1.72 $
1.71 $
6,206
182
4,333
10,721
97,612
14,097
83,515
13,783
10,845
9,577
8,958
598
1,317
565
729
(1,788)
1,798
46,382
59,216
11,207
7,295
5,300
4,077
3,671
2,286
1,968
2,084
2,838
1,276
13,863
115,081
14,816
3,875
10,941 $
0.62 $
0.61 $
18,013,693
18,155,463
17,555,140
17,687,795
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income
Other comprehensive (loss) income:
Available-for-sale investment securities:
Gross unrealized holding (loss) gain arising in the period
Related tax benefit (expense)
Less: reclassification adjustment for net gain included in net income
Related tax expense
Net effect on other comprehensive (loss) income
Defined benefit plans:
Net (loss) gain arising during the period
Related tax benefit (expense)
Amortization of unrecognized loss and service cost on benefit plans
Related tax expense
Recognition of loss due to settlement and curtailment
Related tax expense
Net effect on other comprehensive (loss) income
Cash flow hedges:
Net gain arising during the period
Related tax expense
Net effect on other comprehensive income
Total other comprehensive (loss) income, net of tax
Total comprehensive income
See Notes to the Consolidated Financial Statements
2016
2015
2014
$
31,157 $
10,941 $
16,684
(2,590)
906
930
(326)
(2,288)
(232)
81
89
(31)
—
—
(93)
1,232
(431)
729
(255)
327
373
(130)
112
(38)
459
(161)
615
1,824
(638)
1,186
(1,195)
29,962 $
—
—
—
942
11,883 $
$
19,326
(6,764)
398
(139)
12,303
(2,083)
729
129
(45)
1,400
(490)
(360)
—
—
—
11,943
28,627
72
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Balance, December 31, 2013
Net income
Other comprehensive income, net of tax
Cash dividends declared
Reissuance of treasury stock for 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
Tax benefit from exercise of stock options
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.
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
(14,970) $
(13,244) $
Total
Stockholders'
Equity
$ 168,869 $
80,898 $
—
—
—
—
85
—
(10)
—
409
(14)
1,813
6,305
32,017
16,106
40,162
16,684
—
(7,191)
—
—
—
—
—
—
—
—
—
—
—
—
—
11,943
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
72
—
175
10
(520)
—
221
298
—
—
—
—
$ 265,742 $
90,391 $
(1,301) $
(14,714) $
—
—
10,941
—
— (10,542)
51
—
—
397
(43)
1,843
(69)
76,027
—
—
—
—
—
—
—
—
—
942
—
—
—
—
—
—
—
—
—
—
—
—
—
184
(741)
—
177
—
504
—
221,553
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
Balance, December 31, 2015
$ 343,948 $
90,790 $
(359) $
(14,590) $
419,789
73
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(Dollars in thousands)
Net income
Other comprehensive loss, net of tax
Cash dividends declared
Exercise of stock options
Reissuance of treasury stock for common stock awards
Tax benefit from exercise of stock options
Reissuance of treasury stock for deferred compensation plan for
Boards of Directors
Purchase of treasury stock
Common shares repurchased under share repurchase program
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
Common
Stock
Retained
Earnings
—
—
31,157
—
— (11,653)
(40)
(1,297)
26
—
—
—
437
(18)
1,332
16
—
—
—
—
—
—
—
—
—
—
Accumulated
Other
Comprehensive
Income (Loss)
—
(1,195)
—
—
—
—
—
—
—
—
—
—
—
Treasury
Stock
Total
Stockholders'
Equity
—
—
—
40
1,297
—
232
(515)
(4,965)
—
263
—
355
31,157
(1,195)
(11,653)
—
—
26
232
(515)
(4,965)
437
245
1,332
371
Balance, December 31, 2016
$ 344,404 $ 110,294 $
(1,554) $
(17,883) $
435,261
See Notes to the Consolidated Financial Statements
74
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:
2016
2015
2014
$
31,157 $
10,941 $
16,684
Depreciation, amortization and accretion, net
Provision for 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
Increase (decrease) in accrued expenses
(Increase) 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:
19,169
3,539
(1,414)
(930)
707
(69,123)
67,421
(1,047)
(2,462)
3,972
(1,278)
(26)
6,974
3,652
60,311
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
Purchases
Proceeds from sales
Proceeds from principal payments, calls and prepayments
(166,241)
30,734
127,824
(196,599)
57,415
126,401
(143,184)
108,092
79,830
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
Investment in bank owned life insurance
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 under share repurchase program
Repurchase of common shares in connection with employee incentive and
director compensation plans to be held as treasury stock
Proceeds from issuance of common shares
Excess tax benefit from share-based payments
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest paid
Income taxes paid
See Notes to the Consolidated Financial Statements
75
—
2,167
(148,951)
(5,436)
240
(35,000)
—
(244)
(3,451)
(198,358)
16,482
(42,655)
145,221
55,000
(24,361)
(11,173)
(4,965)
—
2,261
(77,893)
(9,429)
971
—
—
97,277
(1,514)
(1,110)
99,341
(125,360)
72,109
—
(72,446)
(10,065)
—
(1,017)
1,325
(76,100)
(7,105)
219
—
6,322
17,081
374
(14,163)
18,367
(26,713)
(29,373)
5,269
(10,288)
(6,767)
—
(515)
(741)
(520)
18
26
133,078
(4,969)
71,115
66,146 $
—
51
(37,111)
9,661
61,454
71,115 $
40,242
85
(9,698)
7,634
53,820
61,454
11,773 $
11,890 $
11,541 $
672 $
10,766
6,726
$
$
$
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 80 financial service locations, including 71 full-service bank branches and 78 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 $1.0 million and $5.0 million in funds at
December 31, 2016 and 2015, 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
when it is more likely than not that Peoples will be required to sell the security, the entire impairment loss must be
76
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,
as appropriate. 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 origination costs were $5.4 million and $3.3 million at December 31, 2016 and 2015, 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 collectively 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 with opportunities to identify potential problem loans and take proactive actions to
assure repayment of the loan or minimize Peoples' 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 is equal to or less than $1 million are reviewed on an event driven basis. Peoples also
completes evaluation procedures for a selection of larger loan relationships on a quarterly 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
acquired purchased credit impaired loan portfolio for changes in credit quality. Increases in expected cash flows
77
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)
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.
78
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. Loan relationships whose aggregate credit exposure to Peoples 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 similar events. 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 operating cash flow of the business 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 includes consideration of 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 loans with similar risk characteristics, the significance of the modification relative to the unpaid principal loan balance
or collateral value underlying the loan, and the significance of a delay in the timing of payments relative to the original
contractual terms of the loan. The most common concessions granted by Peoples generally include one or more
modifications to the terms of the loan, such as (1) a reduction in the interest rate for the remaining life of the loan, (2) an
extension of the maturity date at an interest rate lower than the current market rate for a new loan 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 $5.0
million and $3,000 at December 31, 2016 and 2015, respectively.
Other Real Estate Owned: Other real estate owned (“OREO”), included in other assets on the Consolidated Balance
Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a
79
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 both December 31, 2016 and December 31, 2015.
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 October 1. Based upon the most recently completed goodwill
impairment test, Peoples concluded the recorded value of goodwill was not impaired as of December 31, 2016, 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 manages certain assets held in a fiduciary or agency capacity for customers.
These assets under management, other than cash on deposit at Peoples, are not included in the Consolidated Balance
Sheets since they are not assets of Peoples.
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, 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 can 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 reduces Peoples' net interest
income. Interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured.
Other Income Recognition: Service charges on deposits include cost recovery fees associated with services provided,
such as overdraft and non-sufficient funds. Trust and investment income consists of revenue from fiduciary activities,
which include fees for services such as asset management, recordkeeping, retirement services and estate management, and
investment commissions and fees related to the sale of investments. Income from these activities is recognized at the time
the related services are performed.
Insurance income consists of commissions and fees from the sales of insurance policies and related insurance
services. Insurance 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.
80
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 May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09 -Revenue from Contracts with
Customers (Topic 606). There are many aspects of this new accounting guidance that are still being interpreted and the
FASB has issued updates to certain aspects of the guidance to address implementation issues. The FASB issued updates
in March, April, May and December of 2016 clarifying several areas of the guidance. These clarifications included:
• Principal versus agent considerations,
• Collectibility, sales tax and non-cash consideration, practical expedients for contract modifications and
completed contracts,
• Identification of performance obligations, and
• Licensing implementation guidance.
This accounting guidance can be implemented using either a full retrospective method or a modified retrospective
approach. This new accounting 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 will adopt this new accounting guidance in 2018, as
required, and anticipates implementing the new accounting guidance using the modified retrospective approach. The
modified retrospective approach uses a cumulative-effect adjustment to retained earnings to reflect uncompleted contracts
in the initial application of the guidance. Peoples is currently evaluating revenue streams and contracts to determine the
81
impact of the new guidance. Based on Peoples’ evaluation to date, it does not expect the adoption of this guidance to have
a significant impact on Peoples’ financial condition or quarterly or annual results of operations; however, the review is
ongoing. Peoples will continue to evaluate the impact of the guidance, including any additional guidance issued, during
the completion of this internal assessment.
In November 2016, the FASB issued ASU 2016-18 - Statement of Cash Flows (Topic 230): Restricted Cash (a
consensus of the FASB Emerging Issues Task Force). The amendments in this update apply to all entities that have
restricted cash or restricted cash equivalents and are required to present a statement of cash flows. The amendments in
this update require that a statement of cash flows explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts
generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents
when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The
amendments in this update do not provide a definition of restricted cash or restricted cash equivalents. This new
accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2017
(effective January 1, 2018, for Peoples). The adoption of the new accounting guidance is not expected to have a material
effect on Peoples' statement of cash flow.
In August 2016, the FASB issued ASU 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments. The update addresses eight specific cash flow issues with the objective of reducing the
existing diversity in practice. This new accounting guidance will be effective for interim and annual reporting periods
beginning after December 15, 2019 (effective January 1, 2020, for Peoples). The adoption of the new accounting guidance
is not expected to have a material effect on Peoples' statement of cash flow.
In March 2016, the FASB issued ASU 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting. The objective of the simplification initiative is to identify, evaluate, and
improve areas of US GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness
of the information provided to users of financial statements. The areas for simplification involve several aspects of the
accounting for share-based payment transactions, including the income tax consequences, classification of awards as
either equity or liabilities, and classification on the statement of cash flows. Amendments related to the timing of when
excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value are to be
applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the
beginning of the period in which the accounting guidance is adopted. For public entities, the amendments are effective for
annual periods beginning after December 15, 2016, and interim periods within those annual periods. Peoples will adopt
this new accounting guidance as required, and it is not expected to have a material impact on Peoples' results of
operations.
In March 2016, the FASB issued ASU 2016-06 - Derivatives and Hedging (Topic 815): Contingent Put and Call
Options in Debt Instruments. The amendment is intended to resolve the diversity in practice by assessing whether
contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely
related to the debt instrument hosts, which is one of the criteria for bifurcating an embedded derivative. When a call (put)
option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise
the call (put) option is related to interest rates or credit risks. For public entities, the amendments are effective for annual
periods beginning after December 15, 2016, and interim periods within those annual periods. Peoples is currently
evaluating the impact of adopting the new accounting guidance on Peoples' consolidated financial statements, but it is not
expected to have a material impact.
In February 2016, the FASB issued ASU 2016-02 - Leases (Topic 842). The amendment was issued to improve the
financial reporting of leasing activities and provide a faithful representation of leasing transactions and improve
understanding and comparability of a lessee's financial statements. Under the new accounting guidance, a lessee will be
required to recognize assets and liabilities for leases with lease terms of more than 12 months. The ASU will require both
finance and operating leases to be recognized on the balance sheet. The ASU will affect all companies and organizations
that lease real estate. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018 (effective January 1, 2019, for Peoples). As of December 31, 2016, Peoples' leasing exposure was
limited to operating leases as disclosed in Note 5. Peoples will adopt this new accounting guidance as required, but it is
not expected to have a material impact on Peoples' consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities. The amendment is intended to enhance the reporting
model for financial instruments to provide users of financial statements with more useful information. The new ASU
requires equity investments to be measured at fair value with changes in fair value recognized in net income. However, a
reporting organization may choose to measure equity investments that do not have readily determinable fair values at cost
minus impairment (if any), from observable price changes in orderly transactions for similar investments of the same
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issuer. The ASU is effective for fiscal years beginning after December 15, 2019 (effective January 1, 2020, for Peoples).
Peoples is currently evaluating the impact of adopting the new accounting guidance on Peoples' consolidated financial
statements which may result in an impact to the income statement on a quarterly and annual basis, as market rates
fluctuate. Peoples will adopt this accounting guidance as required.
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)
2016
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
2015
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 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
$
$
$
$
1,000 $
117,230
626,567
19,291
4,899
8,953
777,940 $
2,966 $
114,726
632,293
23,845
4,635
6,236
784,701 $
— $
—
—
—
—
8,734
8,734 $
— $
—
—
—
—
6,024
6,024 $
1,000 $
117,230
626,567
19,291
4,899
219
769,206 $
2,966 $
114,726
632,293
23,845
4,635
212
778,677 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
83
Held-to-maturity securities reported at fair value comprised the following at December 31:
(Dollars in thousands)
2016
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
2015
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
$
$
$
$
4,041 $
33,762
5,424
43,227 $
4,221 $
35,196
6,436
45,853 $
— $
—
—
— $
— $
—
—
— $
4,041 $
33,762
5,424
43,227 $
4,221 $
35,196
6,436
45,853 $
—
—
—
—
—
—
—
—
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, 2016, impaired loans with an aggregate
outstanding principal balance of $41.9 million were measured and reported at a fair value of $34.7 million. For the
year ended December 31, 2016, Peoples recognized gains of $0.2 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 (1)
Financial liabilities:
Deposits
Short-term borrowings
Long-term borrowings
Cash flow hedges (2)
2016
2015
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
66,146 $
859,455
2,210,529
66,146
859,538
2,152,544
$
71,115 $
868,830
2,057,614
71,115
868,955
2,018,482
$ 2,509,722 $ 2,512,647
305,607
145,106
1,779
305,607
145,155
1,779
$ 2,535,944 $ 2,540,131
160,386
117,299
—
160,386
113,670
—
(1) Includes loans held for sale.
(2) For additional information, see Note 14, Financial Instruments with Off-Balance Sheet Risk.
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).
Cash flow hedges: The fair value of cash flow hedges is recognized in the Consolidated Balance Sheets at their fair
value. The fair value for derivative instruments is determined based on market prices, broker-dealer quotations on
similar products, or other related input parameters (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)
2016
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
2015
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
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
1,000 $
115,657
633,802
19,337
5,169
2,052
777,017 $
2,908 $
111,283
635,504
23,770
5,146
1,693
780,304 $
$
$
$
— $
1,836
3,758
41
91
6,969
12,695 $
— $
(263)
(10,993)
(87)
(361)
(68)
(11,772) $
58 $
3,487
4,905
119
—
4,627
13,196 $
— $
(44)
(8,116)
(44)
(511)
(84)
(8,799) $
1,000
117,230
626,567
19,291
4,899
8,953
777,940
2,966
114,726
632,293
23,845
4,635
6,236
784,701
At both December 31, 2016 and 2015, Peoples’ investment in equity securities was comprised entirely of common stocks
issued by various unrelated bank holding companies. At December 31, 2016, 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
2016
2015
2014
$
$
933 $
3
930 $
795 $
66
729 $
1,136
738
398
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.
86
The following table presents a summary of available-for-sale investment securities that had an unrealized loss at
December 31:
(Dollars in thousands)
2016
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 $ 23,501 $
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Bank-issued trust preferred
securities
Equity securities
Total
2015
Obligations of:
427,088
7,770
—
263
$ 458,622 $
263
8,495
87
—
3
8,848
28
$
— $
—
— $ 23,501 $
263
108
46,631
2,498
4
—
1
141
—
2,637
110
$ 49,378 $
—
361
65
2,924
22
—
3
1
26
473,719
10,993
7,770
2,637
373
$ 508,000 $
87
361
68
11,772
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
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
Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair
value on a quarterly basis. At December 31, 2016, 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, 2016 and 2015 were attributable to changes in market interest rates and spreads since the securities were
purchased.
At December 31, 2016, approximately 99% 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 1%, or two
positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to
2004. Both of these two 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, 2016 were primarily attributable to the floating nature of
those investments, the current interest rate environment and spreads within that sector.
87
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, 2016. 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
$
$
$
$
1,000
435
2
—
—
—
1,437
1,000
438
2
—
—
—
1,440
2.23%
$
— $
— $
— $
14,354
14,225
3,246
—
—
$ 31,825
28,903
33,180
14,267
—
—
$ 76,350
71,965
586,395
1,824
5,169
—
$ 665,353
$
— $
— $
— $
14,484
14,020
3,287
—
—
$ 31,791
29,250
33,389
14,185
—
—
$ 76,824
73,058
579,156
1,819
4,899
—
$ 658,932
1,000
115,657
633,802
19,337
5,169
2,052
$ 777,017
1,000
117,230
626,567
19,291
4,899
8,953
$ 777,940
4.11%
3.57%
3.29%
3.36%
Held-to-Maturity
The following table summarizes Peoples’ held-to-maturity investment securities at December 31:
(Dollars in thousands)
2016
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
2015
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
$
$
$
$
3,820 $
33,858
5,466
43,144 $
3,831 $
35,367
6,530
45,728 $
221 $
432
—
653 $
394 $
363
—
757 $
— $
(528)
(42)
(570) $
4,041
33,762
5,424
43,227
(4) $
(534)
(94)
(632) $
4,221
35,196
6,436
45,853
There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for the years
ended December 31, 2016, 2015 and 2014.
88
The following table presents a summary of held-to-maturity investment securities that had an unrealized loss at
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
December 31:
(Dollars in thousands)
2016
Obligations of:
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
2015
Obligations of:
$ 12,139 $
5,424
$ 17,563 $
States and political subdivisions $
— $
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
3,706
540
$
4,246 $
476
42
518
—
89
4
93
3
1
4
$
$
963 $
—
963 $
— $
319 $
2
1
3
10,040
5,895
$ 16,254 $
52
—
52
4
445
90
539
1
$ 13,102 $
—
5,424
1
$ 18,526 $
1
2
1
4
$
319 $
13,746
6,435
$ 20,500 $
528
42
570
4
534
94
632
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, 2016. 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
$
$
$
$
— $
—
—
— $
— $
—
—
— $
—%
$
$
$
$
318
—
—
318
320
—
—
320
6.16%
978
4,623
—
5,601
$
2,524
29,235
5,466
$ 37,225
$
3,820
33,858
5,466
$ 43,144
1,058
4,643
—
5,701
3.03%
$
2,663
29,119
5,424
$ 37,206
$
4,041
33,762
5,424
$ 43,227
3.66%
3.60%
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 $517.9 million and $495.5 million
at December 31, 2016 and 2015, respectively, and held-to-maturity investment securities with a carrying value of $20.0
million and $21.4 million at December 31, 2016 and 2015, 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 $9.2 million and $11.1 million at December 31, 2016 and 2015, respectively, and held-to-
maturity securities with carrying values of $22.2 million and $23.3 million at December 31, 2016 and 2015, respectively, to
secure additional borrowing capacity at the FHLB and the FRB.
89
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, indirect
Consumer, other
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, indirect
Consumer, other
Consumer
Total acquired loans
Total loans
$
$
2016
2015
84,626 $
531,557
616,183
378,131
307,490
85,617
252,024
67,579
319,603
1,080
1,708,104 $
10,100 $
204,466
214,566
44,208
228,435
25,875
808
2,940
3,748
516,832 $
2,224,936 $
63,785
471,184
534,969
288,130
288,783
74,176
165,320
61,813
227,133
1,448
1,414,639
12,114
265,092
277,206
63,589
276,772
32,253
1,776
6,205
7,981
657,801
2,072,440
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
2016
2015
11,476 $
1,573
23,306
76
36,431 $
26,524 $
16,893
3,040
27,155
193
47,281
35,064
$
$
$
90
Changes in the accretable yield for acquired purchased credit impaired loans during the year ended December 31, 2016 were
as follows:
(Dollars in thousands)
Balance, December 31, 2015
Additions:
Reclassification from nonaccretable to accretable
Accretion
Balance, December 31, 2016
$
$
Accretable
Yield
7,042
2,014
(1,924)
7,132
Peoples completed semi-annual re-estimations of cash flows on purchase credit impaired loans in February and August of
2016. The above reclassification from nonaccretable to accretable was related to the re-estimation of cash flows on the purchase
credit impaired loan portfolios, coupled with the loans performing better than expected. The majority of the reclassification
related to prepayment speeds decreasing in the residential loan portfolio, resulting in higher total expected cash flows. In 2017,
Peoples will complete the re-estimation of cash flows on purchase credit impaired loans on an as needed basis and, in any event,
at least annually in August.
Cash flows expected to be collected on purchase credit impaired loans are estimated 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 $542.5 million and $554.8 million at
December 31, 2016 and 2015, respectively. Peoples also had pledged commercial loans to secure borrowings with the FRB. The
outstanding balances of these loans totaled $152.0 million and $195.5 million at December 31, 2016 and 2015, 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, 2016, 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.
$
19,221
5,702
(7,330)
—
17,593
(Dollars in thousands)
Balance, December 31, 2015
New loans and disbursements
Repayments
Other changes
Balance, December 31, 2016
$
91
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)
2016
2015
2016
2015
Nonaccrual Loans
Accruing Loans
90+ Days Past Due
Originated loans:
Commercial real estate, construction
$
826 $
921
$
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
Consumer
Total originated loans
Acquired loans:
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
Consumer
Total acquired loans
Total loans
9,934
10,760
1,712
3,778
383
130
11
141
16,774 $
1,609 $
390
2,317
231
—
4
4
4,551 $
21,325 $
7,041
7,962
480
3,057
321
34
58
92
11,912
469
247
798
98
—
7
7
$
$
1,619
13,531
$
$
$
$
$
$
— $
—
—
—
183
—
10
—
10
193 $
1,506 $
387
1,672
—
13
—
13
3,578 $
3,771 $
—
—
—
680
169
—
—
1
1
850
2,425
1,306
1,353
35
—
—
—
5,119
5,969
92
The following table presents the aging of the recorded investment in past due loans at December 31:
(Dollars in thousands)
2016
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, indirect
Consumer, other
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, indirect
Consumer, other
Consumer
Total acquired loans
Total loans
Loans Past Due
30 - 59 days 60 - 89 days
90 + Days
Total
Current
Loans
Total
Loans
$
83,800 $
520,607
604,407
374,661
297,288
85,008
249,594
67,195
316,789
1,080
84,626
531,557
616,183
378,131
307,490
85,617
252,024
67,579
319,603
1,080
$ 1,679,233 $ 1,708,104
$
10,060 $
200,767
210,827
43,280
217,047
25,424
804
2,876
3,680
500,258 $
10,100
204,466
214,566
44,208
228,435
25,875
808
2,940
3,748
$
516,832
$ 2,179,491 $ 2,224,936
$
$
$
$
$
— $
1,420
1,420
1,305
7,288
316
2,080
346
2,426
—
12,755 $
— $
1,220
1,220
148
5,918
208
4
51
55
7,549 $
20,304 $
— $
225
225
700
1,019
45
273
38
311
—
2,300 $
— $
208
208
3
2,496
65
—
—
—
2,772 $
5,072 $
826 $
9,305
10,131
1,465
1,895
248
77
—
77
—
13,816 $
40 $
2,271
2,311
777
2,974
178
—
13
13
6,253 $
20,069 $
826
10,950
11,776
3,470
10,202
609
2,430
384
2,814
—
28,871
40
3,699
3,739
928
11,388
451
4
64
68
16,574
45,445
93
(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, indirect
Consumer, other
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, indirect
Consumer, other
Consumer
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
790
597
1,387
—
14,282 $
— $
1,592
1,592
177
4,910
318
23
67
90
7,087 $
21,369 $
— $
1,258
1,258
215
1,105
7
168
82
250
—
2,835 $
— $
352
352
232
2,480
20
—
31
31
3,115 $
5,950 $
8 $
379
387
767
1,263
104
—
32
32
—
2,553 $
40 $
2,730
2,770
1,553
1,745
95
—
—
—
6,163 $
8,716 $
921
8,897
9,818
2,419
5,492
272
958
711
1,669
—
19,670
40
4,674
4,714
1,962
9,135
433
23
98
121
16,365
36,035
$
62,864 $
462,287
525,151
285,711
283,291
73,904
164,362
61,102
225,464
1,448
63,785
471,184
534,969
288,130
288,783
74,176
165,320
61,813
227,133
1,448
$ 1,394,969 $ 1,414,639
$
12,074 $
260,418
272,492
61,627
267,637
31,820
1,753
6,107
7,860
641,436 $
12,114
265,092
277,206
63,589
276,772
32,253
1,776
6,205
7,981
$
657,801
$ 2,036,405 $ 2,072,440
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 category 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 category are the equivalent of the regulatory “Other Assets Especially Mentioned”
classification. Loans in this risk category possess some credit deficiency or potential weakness, which requires a high
level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and/
or reliance on 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 category are inadequately protected by the borrower's current financial
condition and payment capability, or by the collateral pledged, if any. Loans so classified have one or more well-defined
weaknesses that jeopardize the orderly repayment of 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 category have all the weaknesses inherent in those classified as substandard,
with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current
existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but
because of certain important and reasonably specific factors that may work to the advantage and strengthening of the
exposure, classification of these loans as an estimate loss is deferred until their more exact status may be determined.
“Loss” (grade 8): Loans in this risk category 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,
94
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 risk
category.
Consumer loans and other smaller-balance loans are evaluated and categorized as “substandard”, “doubtful” or “loss” based
upon the regulatory definition of these classes and consistent with regulatory requirements. All other loans not evaluated
individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as being “not
rated”.
The following table summarizes the risk category of Peoples' loan portfolio based upon the most recent analysis performed at
December 31:
(Dollars in thousands)
2016
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, indirect
Consumer, other
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, indirect
Consumer, other
Consumer
Total acquired loans
Total loans
Pass Rated
Watch
Substandard Doubtful
(Grades 1 - 4)
(Grade 5)
(Grade 6)
(Grade 7)
Not
Rated
Total
Loans
$
$
$
$
$
73,423 $
505,029
578,452
346,791
47,336
465
15
50
65
—
973,109 $
10,046 $
181,781
191,827
42,809
17,170
202
51
53
104
252,112 $
1,225,221 $
— $
11,855
11,855
15,210
957
—
13
—
13
—
28,035 $
— $
12,475
12,475
227
709
—
—
—
—
13,411 $
41,446 $
826 $
14,673
15,499
16,130
12,828
135
—
—
—
—
44,592 $
54 $
10,210
10,264
978
1,404
—
—
—
—
12,646 $
57,238 $
— $
—
—
—
304
—
—
—
—
—
304 $
— $
—
—
194
—
—
—
—
—
194 $
498 $
10,377 $
—
10,377
—
246,065
85,017
251,996
67,529
319,525
1,080
84,626
531,557
616,183
378,131
307,490
85,617
252,024
67,579
319,603
1,080
662,064 $ 1,708,104
10,100
— $
204,466
—
214,566
—
44,208
—
228,435
209,152
25,875
25,673
808
757
2,940
2,887
3,748
3,644
238,469 $
516,832
900,533 $ 2,224,936
95
(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, indirect
Consumer, other
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, indirect
Consumer, other
Consumer
Total acquired loans
Total loans
Pass Rated
Watch
Substandard Doubtful
(Grades 1 - 4)
(Grade 5)
(Grade 6)
(Grade 7)
Not
Rated
Total
Loans
$
$
$
$
$
62,225 $
434,868
497,093
259,183
21,903
785
114
94
208
—
779,172 $
12,114 $
233,630
245,744
56,077
18,027
316
126
130
256
320,420 $
1,099,592 $
— $
18,710
18,710
23,601
1,168
—
—
—
—
—
43,479 $
— $
13,866
13,866
3,078
1,409
—
—
—
—
18,353 $
61,832 $
913 $
17,595
18,508
5,344
12,282
175
—
3
3
—
36,312 $
— $
17,521
17,521
4,238
1,786
—
—
—
—
23,545 $
59,857 $
— $
—
—
—
187
—
—
—
—
—
187 $
— $
75
75
196
—
—
—
—
—
271 $
458 $
647 $
11
658
2
253,243
73,216
165,206
61,716
226,922
1,448
63,785
471,184
534,969
288,130
288,783
74,176
165,320
61,813
227,133
1,448
555,489 $ 1,414,639
12,114
— $
265,092
—
277,206
—
63,589
—
276,772
255,550
32,253
31,937
1,776
1,650
6,205
6,075
7,981
7,725
295,212 $
657,801
850,701 $ 2,072,440
96
Impaired Loans
The following tables summarize loans classified as impaired at December 31:
(Dollars in thousands)
2016
Commercial real estate, construction $
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
Consumer
Total
2015
Commercial real estate, construction $
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
Consumer
Total
$
$
Unpaid
Principal
Balance
Recorded Investment
Without
Allowance Allowance
With
Total
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
894 $
20,029
20,923
7,289
27,703
908
220
130
350
57,173 $
957 $
23,430
24,387
5,670
31,304
425
118
265
383
62,169 $
— $
866 $
7,474
7,474
2,732
138
—
—
—
—
10,344 $
— $
6,396
6,396
1,224
370
—
—
—
—
7,990 $
12,227
13,093
1,003
27,393
908
224
130
354
42,751 $
957
12,772
13,729
4,130
28,834
419
103
195
298
47,410 $
866 $
19,701
20,567
3,735
27,531
908
224
130
354
53,095 $
957 $
19,168
20,125
5,354
29,204
419
103
195
298
55,400 $
— $
803
803
585
24
—
—
—
—
1,412 $
— $
1,363
1,363
351
106
—
—
—
—
1,820 $
913 $
18,710
19,623
3,386
27,455
717
136
138
274
51,455 $
227 $
13,070
13,297
4,049
26,785
325
84
210
294
44,750 $
3
700
703
125
1,419
44
16
13
29
2,320
3
815
818
246
1,354
18
—
28
28
2,464
At December 31, 2016, Peoples' impaired loans shown in the table above included loans that were classified as troubled debt
restructurings ("TDRs").
In assessing whether or not a borrower is experiencing financial difficulties, Peoples considers information currently
available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the
borrower is currently in payment default on any of the borrower's debt; (ii) a payment default is probable in the foreseeable future
without the modification; (iii) the borrower has declared or is in the process of declaring bankruptcy; and (iv) the borrower's
projected cash flow is insufficient to satisfy contractual payments due under the original terms of the loan without a modification.
Peoples considers all aspects of the modification to loan terms to determine whether 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 loans with
similar risk characteristics, the significance of the modification relative to the unpaid principal loan balance or collateral value
underlying the loan, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan.
The most common concessions granted by Peoples generally include one or more modifications to the terms of the loan, such as
(i) a reduction in the interest rate for the remaining life of the loan, (ii) an extension of the maturity date at an interest rate lower
than the current market rate for new 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.
97
The following table summarizes the loans that were modified as TDRs during the years ended December 31, 2016 and 2015.
Recorded Investment (1)
Number
of
Contracts
Pre-
Modification
Post-
Modification
Remaining
Recorded
Investment
3 $
7
8
5
14
3
17
40 $
2 $
14
4
2
3
5
25 $
5 $
4
4
11
5
7
12
36 $
109 $
828
266
81
164
24
109 $
836
266
81
164
24
188
1,472 $
188
1,480 $
237 $
237 $
1,080
260
7
15
22
1,599 $
900 $
834
207
402
51
44
95
2,438 $
1,082
260
7
15
22
1,601 $
900 $
834
207
402
51
44
95
2,438 $
107
750
266
81
164
23
187
1,391
237
1,076
250
7
15
22
1,585
881
834
115
389
50
44
94
2,313
(Dollars in thousands)
2016
Originated loans:
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
Consumer
Total
Acquired loans:
Commercial real estate, construction
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
Consumer
Total
2015
Originated loans:
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
Consumer
Total
Acquired loans:
Residential real estate
Home equity lines of credit
Total
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that
were fully paid down, charged-off or foreclosed upon by period end are not reported.
4 $
1
5 $
246 $
8
254 $
246 $
8
254 $
246
7
253
98
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, 2016 and 2015:
2016
2015
Number
of
Contracts
Recorded
Investment
(1)
Impact on the
Allowance for
Loan Losses
Number
of
Contracts
Recorded
Investment
(1)
Impact on the
Allowance for
Loan Losses
(Dollars in thousands)
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.
—
— $
— $
— $
— $
—
1 $
1 $
151 $
151 $
—
—
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, 2016
Charge-offs
Recoveries
Net recoveries (charge-offs)
(Recovery of) provision for loan losses
Balance, December 31, 2016
Period-end amount allocated to:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
Balance, December 31, 2016
Balance, January 1, 2015
Charge-offs
Recoveries
Net charge-offs
(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
Commercial
Real Estate
Commercial
and
Industrial
Residential
Real Estate
Home
Equity
Lines of
Credit Consumer
Deposit
Account
Overdrafts
Total
$
7,076 $
5,382 $
1,257 $
732 $
1,971 $
121 $ 16,539
(24)
1,209
1,185
(1,089)
(1,017)
306
(711)
1,682
(588)
278
(310)
35
(73)
56
(17)
(27)
(2,655)
1,285
(1,370)
2,229
(774)
(5,131)
175
3,309
(599)
(1,822)
649
3,479
7,172 $
6,353 $
982 $
688 $
2,830 $
171 $ 18,196
803 $
585 $
24 $
— $
— $
— $ 1,412
6,369
7,172 $
5,768
6,353 $
958
688
2,830
171
16,784
982 $
688 $
2,830 $
171 $ 18,196
9,825 $
4,036 $
1,627 $
694 $
1,587 $
112 $ 17,881
(242)
104
(138)
(2,611)
7,076 $
(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
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
$
$
$
$
$
$
$
The increase in the total allowance for loan losses in 2016, was primarily due to total loan growth of 7%, or $152.5 million,
with growth of 8% in commercial loan balances and 7% in consumer loan balances. Indirect lending experienced the largest
growth across all loan categories for the year, increasing by $85.7 million, or 51%. Commercial and industrial loan growth was
$70.6 million, or 20%, for 2016.
99
Historical loss rates are calculated using charge-offs and recoveries within each portfolio over the past five years. The large
provision for 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
purchase 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 purchase credit 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.
The following table presents activity in the allowance for loan losses for acquired loans as of December 31:
(Dollars in thousands)
Purchase credit impaired loans:
Balance, January 1
Charge-offs
Recoveries
Net (charge-offs) recoveries
Provision for loan losses
Balance, December 31
$
$
2016
2015
240 $
(67)
—
(67)
60
233 $
—
(63)
—
(63)
303
240
As of December 31, 2016 and 2015, the expected cash flows for purchase credit impaired loans had decreased from those
estimated as of the respective acquisition dates, resulting in Peoples recording a provision for loan losses with respect to those
acquired loans.
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
2016
2015
$
12,085
$
61,451
26,078
99,614
(45,998)
53,616
$
$
11,976
58,607
25,487
96,070
(42,583)
53,487
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 $5.1 million, $4.6 million and $3.0
million, in 2016, 2015 and 2014, 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 $1,073,000, $988,000, and
$951,000 in 2016, 2015 and 2014, respectively.
100
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 in 2014. 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.
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, 2016:
(Dollars in thousands)
2017
$
2018
2019
2020
2021
Thereafter
Total future operating lease payments
$
Payments
745
731
431
217
207
354
2,685
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
2016
2015
$
$
132,631 $
—
132,631 $
98,562
34,069
132,631
Peoples performed the required goodwill impairment test and concluded there was no impairment in the recorded value
of goodwill in 2016, based upon the estimated fair value of the single reporting unit. During the annual goodwill impairment
test, Peoples assessed qualitative factors, including relevant events and circumstances, to determine that it was more likely
than not that the fair value of the reporting unit exceeded the carrying value.
101
Other intangible assets
Other intangible assets were comprised of the following at December 31:
(Dollars in thousands)
Core Deposits
Customer
Relationships
Total
2016
Gross intangibles
Acquired intangibles
Accumulated amortization
Total acquired intangibles
Servicing rights
Total other intangibles
2015
Gross intangibles
Acquired intangibles
Accumulated amortization
Total acquired intangibles
Servicing rights
Total other intangibles
$
$
$
$
16,150
$
4,859
$
—
(7,594)
8,556
7,013
8,623
(4,396)
11,240
$
$
$
514
(2,847)
2,526
8,858
1,695
(7,194)
3,359
$
$
$
$
$
21,009
514
(10,441)
11,082
2,305
13,387
15,871
10,318
(11,590)
14,599
2,387
16,986
The following table details estimated aggregate future amortization expense of core deposit and customer relationship
intangible assets at December 31, 2016:
(Dollars in thousands)
2017
2018
2019
2020
2021
Thereafter
Total
Core
Deposits
$
$
2,688
2,175
1,658
1,138
648
249
8,556
Customer
Relationships
722
$
$
606
482
352
217
147
2,526
$
$
Total
3,410
2,781
2,140
1,490
865
396
11,082
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
2016
2015
2014
$
$
2,387
(762)
680
—
2,305
$
$
2,238
(662)
566
245
2,387
$
$
2,295
(597)
497
43
2,238
No valuation allowances were required at December 31, 2016, 2015 and 2014 for Peoples’ servicing rights since the fair
value equaled or exceeded the book value.
102
Note 7. Deposits
Peoples’ deposit balances were comprised of the following at December 31:
(Dollars in thousands)
Retail certificates of deposit:
$100,000 or more
Less than $100,000
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
2016
2015
$
173,499 $
189,583
211,362
384,861
436,344
407,754
251,671
278,975
15,696
259,409
448,992
414,375
394,119
276,639
250,023
33,857
1,775,301
1,818,005
734,421
717,939
$ 2,509,722 $ 2,535,944
The contractual maturities of certificates of deposits for each of the next five years and thereafter are as follows:
(Dollars in thousands)
2017
$
2018
2019
2020
2021
Retail
Brokered
Total
194,394 $
76,308
44,022
30,282
39,743
— $
194,394
1,147
14,549
—
—
77,455
58,571
30,282
39,743
Thereafter
Total deposits
$
112
384,861 $
—
15,696 $
112
400,557
Deposits from related parties approximated $42.0 million and $43.0 million at December 31, 2016 and 2015,
respectively.
103
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)
2016
Ending balance
Average balance
Highest month-end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
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
Retail
Repurchase
Agreements
FHLB
Advances
Other
Short-Term
Borrowings
$
$
$
$
$
$
74,607
72,886
81,353
123
0.17%
0.17%
84,386
83,574
92,711
140
0.17%
0.17%
73,277
59,324
76,459
99
$
$
$
231,000
86,260
231,000
384
0.64%
0.44%
76,000
16,863
76,000
42
0.35%
0.25%
15,000
36,678
108,000
47
—
23
—
—
—%
1.11%
—
—
—
—
—%
—%
—
38
—
—
0.17%
0.17%
0.14%
0.13%
—%
0.75%
Peoples’ retail repurchase agreements consist of overnight agreements with Peoples’ commercial customers and serve as
a cash management tool.
The FHLB advances consist of overnight borrowings and other advances with an original maturity of one year or
less. These advances, along with the long-term advances disclosed in Note 9, are collateralized by residential mortgage loans
and investment securities. Peoples’ borrowing capacity with the FHLB is based on the amount of collateral pledged and the
amount of FHLB common stock owned.
Other short-term borrowings consist of federal funds purchased and advances from the Federal Reserve Discount
Window. Federal funds purchased are short-term borrowings from correspondent banks that typically mature within one to
ninety days. Peoples had available federal funds of $5 million from certain of its correspondent banks at December 31,
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.
Peoples had a $15 million revolving credit loan which was to bear interest at a fixed per annum rate equal to 3% plus the
one-month LIBOR rate, to be reset monthly. This revolving credit loan was subject to the same covenants as detailed in Note
9 for the term loan. At December 31, 2015, this revolving credit loan had no outstanding principal balance and Peoples
terminated the revolving credit loan on March 2, 2016. This revolving credit loan was replaced on March 4, 2016, when
Peoples secured a revolving line of credit in the maximum aggregate principal amount of $15 million. Additional
information regarding the revolving line of credit can be found in Note 9.
104
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
Unamortized debt issuance cost
Long-term borrowings
2016
2015
Weighted-
Average
Rate
Weighted-
Average
Rate
Balance
Balance
$
$
70,000
28,282
40,000
6,924
(51)
145,155
2.49 % $
2.01 %
3.63 %
2.45 %
— %
2.71% $
50,000
16,934
40,000
6,736
—
113,670
3.32 %
2.69 %
3.63 %
1.83 %
— %
3.25%
The putable, non-amortizing, fixed-rate FHLB advances have original maturities ranging from two to eleven years that
may be repaid prior to maturity, subject to termination fees. The FHLB has the option, at its sole discretion, to terminate each
advance after the initial fixed rate period 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 to terminate exercised by the FHLB or the stated maturity.
The amortizing, fixed-rate FHLB advances have a fixed rate for the term of each advance, with maturities ranging from
two to fifteen 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 continually evaluates the overall balance sheet position given the interest rate environment. During 2016,
Peoples executed transactions to take advantage of the low interest rates, which included:
▪
▪
▪
Peoples restructured $20 million of long-term FHLB advances that had a weighted-average rate of 2.97%,
resulting in a $700,000 loss. Peoples replaced these borrowings with a long-term FHLB advance, which
has an interest rate of 2.17% and matures in 2026.
Peoples borrowed an additional $35 million of long-term FHLB amortizing advances, which had interest
rates ranging from 1.08% to 1.40%, and mature between 2019 and 2031.
Peoples entered into five forward starting interest rate swaps to obtain short-term borrowings at fixed rates,
with interest rates ranging from 1.49% to 1.83%, which become effective in 2018 and mature between 2022
and 2026. These swaps locked in funding rates for $40 million in FHLB advances that mature in 2018,
which have interest rates ranging from 3.57% to 3.92%.
Additional information regarding Peoples' interest rate swaps can be found in Note 14.
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 national market repurchase 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
repurchase agreement. If the buyer exercises its option, Peoples would be required to repay the repurchase agreement in
whole at the quarterly date. Peoples is required to make quarterly interest payments.
On March 4, 2016, Peoples entered into a Credit Agreement (the "RJB Credit Agreement"), with Raymond James Bank,
N.A. ("Raymond James Bank") which provides Peoples with a revolving line of credit in the maximum aggregate principal
amount of $15 million (the "RJB Loan Commitment") for the purpose of: (i) to the extent that any amounts remained
outstanding, paying off the then outstanding $15 million revolving credit loan of Peoples; (ii) making acquisitions; (iii)
making stock repurchases; (iv) working capital needs; and (v) other general corporate purposes. On March 4, 2016, Peoples
paid fees of $70,600, representing 0.47% of the RJB Loan Commitment.
105
The RJB Credit Agreement is unsecured. However, the RJB Credit Agreement contains negative covenants which
preclude Peoples from: (i) taking any action which could, directly or indirectly, decrease Peoples' ownership (alone or
together with any of Peoples' subsidiaries) interest in Peoples Bank (Peoples' Ohio state-chartered subsidiary bank) or any of
Peoples Bank's subsidiaries to a level below the percentage of equity interests held as of March 4, 2016; (ii) taking any action
to or allowing Peoples Bank or any of Peoples Bank's subsidiaries to take any action to directly or indirectly create, assume,
incur, suffer or permit to exist any pledge, encumbrance, security interest, assignment, lien or charge of any kind or character
on the equity interests of Peoples Bank or any of Peoples Bank's subsidiaries; or (iii) taking any action to or allow Peoples
Bank or any of Peoples Bank's subsidiaries to sell, transfer, issue, reissue or exchange, or grant any option with respect to,
any equity interest of Peoples Bank or any of Peoples Bank's subsidiaries. There are also negative covenants limiting the
actions which may be taken with respect to the authorization or issuance of additional shares of any class of equity interests
of Peoples Bank or any of Peoples Bank's subsidiaries or the grant to any person other than Raymond James Bank of any
proxy for existing equity interests of Peoples Bank or any of Peoples Bank's subsidiaries.
The RJB Credit Agreement contains covenants which are usual and customary for comparable transactions. In addition
to the negative covenants affecting the equity interests of Peoples Bank and Peoples Bank's subsidiaries discussed above,
under the RJB Credit Agreement, the following covenants must be complied with:
(a) neither Peoples nor any of its subsidiaries may create, incur or suffer to exist additional indebtedness with
an aggregate principal amount which exceeds $10 million at any time outstanding, subject to specific
negotiated carve-outs;
(b) neither Peoples nor any of its subsidiaries may be a party to certain material transactions (such as mergers
or consolidations with third parties, liquidations or dissolutions, sales of assets, acquisitions, investments
and sale/leaseback transactions), subject to transactions in the ordinary course of the banking business of
Peoples Bank and new investments in an aggregate amount not exceeding $10 million being permitted as
well as specific negotiated carve-outs;
(c) neither Peoples nor any of its subsidiaries may voluntarily prepay, defease, purchase, redeem, retire or
otherwise acquire any subordinated indebtedness issued by them; subject to specific negotiated carve-outs
and the consent of Raymond James Bank; and
(d) neither Peoples nor any of its subsidiaries may make any Restricted Payments (as defined in the RJB Credit
Agreement), except that, to the extent legally permissible, (i) any subsidiary may declare and pay dividends
to Peoples or a wholly-owned subsidiary of Peoples and (ii) Peoples may declare and pay dividends on its
common shares provided that no event of default exists before or after giving effect to the dividend and
Peoples is in compliance (on a pro forma basis) with the financial covenants specified in the RJB Credit
Agreement, after giving effect to the dividend.
Peoples and Peoples Bank are also required to satisfy certain financial covenants including:
(i) Peoples (on a consolidated basis) and Peoples Bank must be “well capitalized” at all times, as defined and
determined by the applicable governmental authority having jurisdiction over Peoples or Peoples Bank;
(ii) Peoples (on a consolidated basis) and Peoples Bank must maintain a Total risk-based capital ratio (as
defined by the applicable governmental authority having regulatory authority over Peoples or Peoples
Bank) of at least 12.50% as of the last day of any fiscal quarter;
(iii) Peoples Bank must maintain a ratio of “Non-Performing Assets” to “Tangible Primary Capital” of not
more than 20% as of the last day of any fiscal quarter;
(iv) Peoples Bank must maintain a ratio of “Loan Loss Reserves” to “Non-Performing Loans” of not less than
70% at all times; and
(v) Peoples (on a consolidated basis) must maintain a “Fixed Charge Coverage Ratio” that equals or exceeds
1.25 to 1.00 as of the end of each fiscal quarter, with the items used in this ratio being determined on a
trailing four-fiscal quarter basis.
As of December 31, 2016, Peoples was in compliance with the applicable covenants imposed by the RJB Credit
Agreement.
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
106
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.
At December 31, 2016, the aggregate minimum annual retirements of long-term borrowings in future periods were as
follows:
(Dollars in thousands)
2017
2018
2019
2020
2021
Thereafter
Long-term borrowings
Balance
Weighted-
Average Rate
$
$
5,545
64,971
13,508
10,564
6,979
43,588
145,155
1.76 %
3.54 %
1.27 %
2.03 %
1.47 %
2.4 %
2.71%
107
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, 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 of common stock awards
Grant of common shares
Changes related to deferred compensation plan for Boards 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 Boards 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
11,352,036
Treasury
Stock
600,794
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
—
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
108
Changes related to stock-based compensation awards:
Grant of restricted common shares
Grant of common shares
Release of restricted common shares
Cancellation of restricted common shares
Exercise of stock options for common shares
Changes related to deferred compensation plan for Boards of Directors:
Purchase of treasury stock
Reissuance of treasury stock
Common shares purchased under repurchase program
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
Shares at December 31, 2016
Common
Stock
Treasury
Stock
—
—
(11,820)
—
—
—
—
19,711
—
—
18,939,091
(56,000)
(350)
17,220
1,000
(1,775)
8,396
(12,012)
279,770
—
(11,450)
(15,727)
795,758
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. During 2016, Peoples repurchased 279,770 common shares at a cost of $5.0 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.
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, 2016, Peoples had no preferred shares issued or outstanding.
109
Accumulated Other Comprehensive (Loss) Income
The following details the change in the components of Peoples’ accumulated other comprehensive (loss) income for the
years ended December 31:
(Dollars in thousands)
Balance, December 31, 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
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax
Other comprehensive (loss) income, net of reclassifications
and tax
Balance, December 31, 2016
Note 11. Employee Benefit Plans
Unrealized
(Loss)
Gain on
Securities
$
(9,761) $
Unrecognized
Net Pension
and
Postretirement
Costs
Unrealized
Gain on
Cash Flow
Hedge
Accumulated
Other
Comprehensive
(Loss) Income
(3,483) $
— $
(13,244)
(259)
—
—
910
12,562
(1,270)
$
2,542 $
(3,483) $
(474)
—
801
2,869 $
(604)
(1,684)
—
298
317
(3,228) $
(93)
581 $
(3,321) $
$
$
—
—
—
— $
—
—
—
— $
—
1,186
1,186 $
(259)
910
11,292
(1,301)
(474)
298
1,118
(359)
(604)
(1,777)
(1,554)
Peoples sponsors a noncontributory defined benefit pension plan that covers substantially all employees hired before
January 1, 2010. The plan provides retirement benefits based on an employee’s years of service and compensation. For
employees hired before January 1, 2003, the amount of postretirement benefit is based on the employee’s average monthly
compensation pay over the highest five consecutive years out of the employee’s last ten years with Peoples while an eligible
employee. For employees hired on or after January 1, 2003, the amount of postretirement benefit is based on 2% of the
employee’s annual compensation plus accrued interest. Effective January 1, 2010, the pension plan was closed to new
entrants. Effective March 1, 2011, the accrual of pension plan benefits for all participants was frozen. Peoples recognized
this freeze as a curtailment as of December 31, 2010 and March 1, 2011, under the terms of the pension plan. Effective July
1, 2013, a participant in the pension plan who is employed by Peoples may elect to receive or to commence receiving such
person's retirement benefits as of the later of such person's normal retirement date or the first day of the month first following
the date such person makes an election to receive his or her retirement benefits.
Peoples also provides post-retirement health and life insurance benefits to former employees and directors. Only those
individuals who retired before January 27, 2012 were eligible for life insurance benefits. 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 the health benefits. Peoples’ policy is to fund the cost of the benefits as they arise.
110
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, 2016, and a statement of the funded status as of December 31, 2016 and 2015:
(Dollars in thousands)
Change in benefit obligation:
Obligation at January 1
Interest cost
Plan participants’ contributions
Actuarial loss (gain)
Benefit payments
Settlements
Obligation at December 31
Accumulated benefit obligation at December 31
Change in plan assets:
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefit payments
Settlements
Fair value of plan assets at December 31
Funded status at December 31
Amounts recognized in Consolidated Balance Sheets:
Accrued benefit liability
Net amount recognized
Unrecognized net loss (gain)
Total
Weighted-average assumptions at year-end:
Discount rate
Pension Benefits
Post-retirement Benefits
2016
2015
2016
2015
$
126
$
$ 11,965
438
$ 13,695
447
—
151
(427)
—
$ 12,127
$ 12,127
—
(948)
(148)
(1,081)
$ 11,965
$ 11,965
$
7,124
$
405
480
8,259
(91)
185
—
(427)
—
—
(148)
(1,081)
7,124
$
$ (4,545) $ (4,841)
7,582
$
(4,545)
(4,841)
$ (4,545) $ (4,841)
$
$
$
$
$
$
3,368
3,368
$
3,275
3,275
$
$
4
49
(7)
(69)
—
103
$
— $
— $
—
20
49
(69)
—
— $
(103) $
(103)
(103) $
(1) $
(48)
(49) $
152
4
65
(10)
(85)
—
126
—
—
—
20
65
(85)
—
—
(126)
(126)
(126)
(2)
(47)
(49)
3.80%
3.90%
3.80%
3.90%
Amounts recognized in Accumulated Other Comprehensive Loss:
Unrecognized prior service cost
$
— $
— $
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 $97,000.
111
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
2015
447
(493)
117
459
530
$
$
2016
438
(492)
95
—
41
2014
509
(589)
137
1,400
1,457
$
Post-retirement Benefits
2014
2016
6
4
$
—
—
(8)
(6)
—
—
(2)
(2) $
2015
4
—
(5)
—
(1) $
$
$
3.90%
7.50%
n/a
3.80%
7.50%
n/a
3.70% 3.90%
n/a
7.50%
n/a
n/a
3.50%
n/a
n/a
4.30%
n/a
n/a
For measurement purposes, a 5.5% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost
trend rate) was assumed for 2016, 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.
No settlement charges were recorded during 2016, compared to $0.5 million in 2015 and $1.4 million in 2014.
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, 20-40%
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.
112
The following table provides the fair values of investments held in Peoples' pension plan at December 31, by major asset
category:
(Dollars in thousands)
2016
Equity securities:
Mutual funds - equity
Debt securities:
Mutual funds - taxable income
Total fair value of pension assets
2015
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
5,241
$
5,241
$
2,107
7,348
$
2,107
7,348
$
4,908
$
4,908
$
1,863
6,771
$
1,863
6,771
$
—
—
—
—
—
—
Pension plan assets also included cash and cash equivalents of $221,000 and accrued income of $12,000 at December 31,
2016. Cash and cash equivalents were $352,000 and accrued income was $1,000 at December 31, 2015. For further
information regarding levels of input used to measure fair value, refer to Note 2.
Equity securities held as investments in Peoples' pension plan did not include any securities of Peoples or related parties
in 2016 or 2015.
Cash Flows
Peoples expects to make between $315,000 to $340,000 of contributions to its pension plan in 2017; 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)
2017
Pension Benefits
1,001
$
2018
2019
2020
2021
2022 to 2026
Total
$
897
935
1,000
1,067
3,325
8,225
Post-retirement
Benefits
$
$
12
12
12
11
10
41
98
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 $1,549,000, $1,454,000 and $1,048,000 in 2016, 2015 and 2014, respectively.
113
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)
Income tax computed at statutory federal tax rate
Amount
$ 15,785
Rate
35.0 % $
Amount
5,051
Rate
34.1 % $
Amount
8,462
Rate
35.0 %
2016
2015
2014
Differences in rate resulting from:
Tax-exempt interest income
Investments in tax credit funds
Bank owned life insurance
Other, net
Income tax expense
(1,170)
(164)
(495)
169
$ 14,125
(2.6)%
(0.4)%
(1.1)%
0.4 %
31.3 % $
(1,109)
(123)
(204)
260
3,875
(7.5)%
(0.8)%
(1.4)%
1.8 %
26.2 % $
(3.0)%
(726)
(481)
(2.0)%
(37) — %
1.0 %
276
31.0 %
7,494
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
2016
2015
2014
$
$
16,587
(2,462)
14,125
$
$
5,457
(1,582)
3,875
$
$
3,659
3,835
7,494
The significant components of Peoples' deferred tax assets and liabilities consisted of the following at December 31:
(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses
Accrued employee benefits
Investments
Bank premises and equipment
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Purchase accounting adjustments
Deferred loan income
Available-for-sale securities
Other
Total deferred tax liabilities
Net deferred tax asset
2016
2015
12,578
3,826
2,884
349
1,190
20,827
1,341
19,486
10,845
3,181
312
1,305
15,643
3,843
$
$
$
$
$
$
12,144
3,763
2,447
1,060
2,183
21,597
605
20,992
11,342
2,260
1,544
664
15,810
5,182
$
$
$
$
$
$
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, 2016, Peoples had a net
operating loss carryforward of approximately $3.1 million for tax purposes, which will be available to offset future taxable
income. If not used, this carryforward will expire in 2035.
The $1.3 million valuation allowance was related to a partnership investment and was recorded for deferred tax assets at
December 31, 2016, as it was and remains more likely than not that the $3.8 million of gross deferred tax assets may not be
realized in future periods.
The federal income tax expense on securities transactions approximated $326,000 in 2016, $255,000 in 2015 and
$139,000 in 2014.
114
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)
2016
2015
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
$
$
417 $
113
45
—
(53)
522 $
240
182
—
(2)
(3)
417
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, 2013 through 2015. 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)
Distributed earnings allocated to common shareholders
Undistributed earnings allocated to common shareholders
Net earnings allocated to common shareholders
2016
2015
2014
$
$
11,532 $
19,483
31,015 $
10,426 $
404
10,830 $
7,095
9,472
16,567
Weighted-average common shares outstanding
18,013,693
17,555,140
12,183,352
Effect of potentially dilutive common shares
141,770
132,655
122,872
Total weighted-average diluted common shares outstanding
18,155,463
17,687,795
12,306,224
Earnings per common share:
Basic
Diluted
$
$
1.72 $
1.71 $
0.62 $
0.61 $
1.36
1.35
Anti-dilutive common shares excluded from calculation:
Stock options and stock appreciation rights
20,769
46,109
55,184
115
Note 14. Financial Instruments with Off-Balance Sheet Risk
Derivatives and Hedging Activities - Risk Management Objective of Using Derivatives
Peoples is exposed to certain risks arising from both its business operations and economic conditions. Peoples
principally manages its exposures to a wide variety of business and operational risks through management of its core business
activities. Peoples manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the
amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically,
Peoples enters into derivative financial instruments to manage exposures that arise from business activities that result in the
receipt or payment of future known or expected cash amounts, the value of which is determined by interest rates. Peoples’
derivative financial instruments are used to manage differences in the amount, timing, and duration of Peoples' known or
expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings.
Peoples also has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are
not used to manage interest rate risk in Peoples' assets or liabilities. Peoples manages a matched book with respect to its
derivative instruments in order to minimize its net risk exposure resulting from such transactions.
Fair Values of Derivative Instruments on the Balance Sheet
The fair value of Peoples' derivative financial instruments was $5.0 million in an asset position and $3.2 million in a liability
position at December 31, 2016, and the fair value of Peoples' derivative financial instruments was $3.1 million in an asset position
and $3.1 million in a liability position at December 31, 2015.
Cash Flow Hedges of Interest Rate Risk
Peoples' objectives in using interest rate derivatives are to add stability to interest income and expense, and to manage its
exposure to interest rate movements. To accomplish these objectives, during 2016, Peoples entered into interest rate swaps as
part of its interest rate risk management strategy. These interest rate swaps were designated as cash flow hedges and involved
the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of
December 31, 2016, Peoples had five interest rate swaps with a notional value of $40 million associated with Peoples' cash
outflows for various FHLB advances.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is
initially reported in accumulated other comprehensive income ("AOCI") (outside of earnings), net of tax, and subsequently
reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value
of the derivative is recognized directly in earnings. Peoples assesses the effectiveness of each hedging relationship by
comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated
hedged transaction.
Peoples hedged its exposure to the variability in future cash flows for forecasted transactions over a maximum period of
25 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).
Peoples entered into five interest rate swap contracts whereby Peoples will pay a fixed rate of interest for up to seven years
while receiving a floating rate component of interest equal to the three-month LIBOR rate. The floating rate component to be
received is intended to offset the rate on the rolling three-month FHLB advances that will be used to fund the transaction.
Amounts reported in AOCI related to derivatives will be reclassified to interest income or expense as interest payments
are made or received on Peoples' variable-rate assets or liabilities. During the year ended December 31, 2016, Peoples had
no reclassifications to interest expense. During the next twelve months, Peoples estimates that no amount of interest expense
will be reclassified.
The amount of accumulated other comprehensive pre-tax income for Peoples' cash flow hedges was $1.8 million for the
year ended December 31, 2016. Additionally, Peoples had no reclassifications to earnings for the year ended December 31,
2016.
Non-Designated Hedges
Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010.
Under this program, Peoples provides a 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 $247.3 million and fair value of $3.2 million of equally offsetting
assets and liabilities at December 31, 2016 and a notional value of $144.4 million and fair value of $3.1 million of equally
116
offsetting assets and liabilities at December 31, 2015. These interest rate swaps did not have a material impact on Peoples'
results of operation or financial condition.
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
2016
2015
$
$
85,024 $
119,075
269,669
473,768
25,651 $
84,148
77,479
233,689
395,316
22,970
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
$17.0 million and $16.3 million in 2016 and 2015, 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, 2016, Peoples Bank had approximately $10.5 million of net profits available for
distribution to Peoples as dividends without regulatory approval.
Capital Requirements
Peoples and Peoples Bank are subject to various regulatory capital guidelines administered by the banking regulatory
agencies. Under capital adequacy requirements and the regulatory framework for prompt corrective action, Peoples and
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, 2016, 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, 2016.
As of December 31, 2016, 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
117
and Tier I leverage ratios as set forth in the table below. There are no conditions or events since these notifications that
management believes have changed Peoples or Peoples Bank's category.
Peoples' and Peoples Bank's actual capital amounts and ratios as of December 31 are also presented in the following
table:
2016
2015
Amount
Ratio
Amount
Ratio
(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
$
$
$
306,506
106,801
154,268
313,430
142,402
189,869
334,957
189,869
237,336
12.9% $
4.5%
6.5%
13.2% $
6.0%
8.0%
14.1% $
8.0%
10.0%
288,416
97,142
140,316
295,151
129,523
172,697
313,974
172,697
215,871
$
313,430
129,803
162,254
$ 2,373,359
9.7% $
4.0%
5.0%
295,151
123,973
154,967
$ 2,158,713
$
$
291,319
141,965
189,287
271,319
106,474
153,795
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
291,319
129,633
162,041
$ 2,366,082
309,749
189,287
236,608
$
$
11.5% $
4.5%
6.5%
12.3% $
6.0%
8.0%
13.1% $
8.0%
10.0%
257,045
96,974
140,074
277,045
129,299
172,399
293,823
172,399
215,499
9.0% $
4.0%
5.0%
277,045
123,742
154,677
$ 2,154,985
118
13.4%
4.5%
6.5%
13.7%
6.0%
8.0%
14.5%
8.0%
10.0%
9.5%
4.0%
5.0%
11.9%
4.5%
6.5%
12.9%
6.0%
8.0%
13.6%
8.0%
10.0%
9.0%
4.0%
5.0%
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, 2016:
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
$
20,310
20,310
— $
— $
28.83
28.84
—
—
— $
— $
—
—
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.
The following summarizes the changes to Peoples' outstanding SARs for the year ended December 31, 2016:
Number of
Common
Shares
Subject to
SARs
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Outstanding at January 1
Exercised
Forfeited
Outstanding at December 31
Exercisable at December 31
17,748
$
9,902
5,508
2,338
2,338
$
$
25.86
25.03
26.72
27.37
27.37
0.5 years
0.5 years
$
$
11.905
11.905
119
The following table summarizes Peoples’ SARs outstanding at December 31, 2016:
Number of Common
Shares Subject to
SARs Outstanding &
Exercisable
Weighted-
Average Remaining
Contractual
Life
803
1,535
2,338
1.1 years
0.1 years
0.5 years
Exercise
Price
$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 2016, Peoples granted an aggregate of 35,500 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. In addition, Peoples granted restricted
common shares during 2016 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, 2016:
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
21.76
21.88
21.63
21.92
21.85
30,734 $
20,500
8,918
2,000
40,316 $
Number of
Common
Shares
158,763 $
35,500
41,028
10,820
142,415 $
Weighted-
Average
Grant Date
Fair Value
22.86
17.86
21.74
22.72
21.95
The total intrinsic value of restricted common shares released was $1.0 million, $2.0 million and $1.6 million in 2016,
2015 and 2014, respectively.
Stock-Based Compensation
Peoples recognized stock-based compensation expense, which is included as a component of Peoples’ salaries and
employee benefit costs, based on the estimated fair value of the awards on the grant date. The following summarizes the
amount of stock-based compensation expense and related tax benefit recognized at December 31:
(Dollars in thousands)
Total stock-based compensation
Recognized tax benefit
Net expense recognized
2016
2015
2014
$
$
1,332 $
(466)
866 $
1,843 $
(645)
1,198 $
2,111
(739)
1,372
Restricted common shares were the only stock-based compensation awards granted by Peoples in 2016, 2015 and 2014.
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 $1.5 million at December 31, 2016, which
will be recognized over a weighted-average period of 1.6 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.
120
Note 17. Acquisitions
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 was accounted for as a business combination under the acquisition method of
accounting under US GAAP, and did not materially impact Peoples' financial position, results of operations or cash flows.
On January 31, 2017, Peoples Insurance acquired a third-party insurance administration company with annual net
revenue of $0.4 million. This acquisition did not materially impact Peoples' financial position, results of operations or cash
flows.
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, 2016 and December 31, 2015)
Investments in subsidiaries:
Bank
Non-bank
Other assets
Total assets
Liabilities:
Accrued expenses and other liabilities
Dividends payable
Mandatorily redeemable capital securities of subsidiary trust
Total liabilities
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2016
2015
$
50 $
7,988
3,255
8,109
50
4,437
3,875
5,813
395,468
28,730
1,649
445,249 $
385,258
29,155
1,070
429,658
2,589 $
165
7,234
9,988
3,030
103
6,736
9,869
435,261
445,249 $
419,789
429,658
$
$
$
121
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
Income before federal income taxes and equity in (excess dividends from)
undistributed earnings of subsidiaries
Applicable income tax benefit
Equity in (excess dividends from) undistributed earnings of subsidiaries
Net income
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
(Equity in) excess dividends from undistributed earnings of subsidiaries
Other, net
Net cash provided by operating activities
Investing activities
Investment in subsidiaries
Decrease (increase) in receivable from subsidiary
Business combinations, net of cash received
Net cash provided by (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 increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
Supplemental cash flow information:
Interest paid
122
Year Ended December 31,
2016
2015
2014
$
$
20,500 $
1,250
209
21,959
17,500 $
2,000
206
19,706
397
1,131
3,154
4,682
304
3,171
5,653
9,128
17,277
(1,718)
12,162
31,157 $
10,578
(3,139)
(2,776)
10,941 $
21,000
500
205
21,705
—
1,546
4,578
6,124
15,581
(2,102)
(999)
16,684
Year Ended December 31,
2016
2015
2014
$
31,157 $
10,941 $
16,684
190
(12,162)
355
19,540
(22,769)
23,389
—
620
—
(5,480)
18
(11,173)
26
(16,609)
3,551
4,487
8,038 $
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
433 $
594 $
672
$
$
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 (loss) on investment securities
Other income
Amortization of other intangible assets
System conversion expenses
Other expenses
Income tax expense
Net income
Earnings per common share - Basic
Earnings per common share - Diluted
2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
28,443
$
28,921
$
28,730
$
2,676
25,767
955
(31)
96
13,054
1,008
—
25,274
3,654
7,995
0.44
0.44
$
$
$
2,613
26,308
727
(769)
767
12,367
1,007
90
25,408
3,479
7,962
0.44
0.44
$
$
$
2,607
26,123
1,146
(224)
(1)
13,538
1,008
423
25,411
3,656
7,792
0.43
0.43
$
$
$
$
$
$
29,350
2,683
26,667
711
(109)
68
12,111
1,007
746
25,529
3,336
7,408
0.41
0.41
Weighted-average common shares outstanding - Basic
18,071,746
17,980,797
17,993,443
18,009,056
Weighted-average common shares outstanding - Diluted
18,194,990
18,113,812
18,110,710
18,172,030
(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
(Loss) earnings per common share - Basic
(Loss) earnings 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
(a) Reflects the impact of the acquisition of NB&T beginning March 6, 2015.
123
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 27, 2017 (“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 2016
Annual Meeting of Shareholders held on April 28, 2016.
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 Governance and Nominating Committee and the Risk 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, the principal
accounting officer and the controller of Peoples. Peoples intends to disclose the following events, if they occur, in a Current
Report on Form 8-K and on the “Investor Relations" page and 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 Regulation S‑K, 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 Compensation Committee Charter, the Executive
Committee Charter, the Governance and Nominating Committee Charter and the Risk Committee Charter is posted under the
“Governance Documents” tab on the “Investor Relations” page and 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.
124
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 2016”, “GRANTS OF PLAN-BASED AWARDS FOR
2016”, “OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2016”, “OPTION EXERCISES AND STOCK
VESTED FOR 2016”, “PENSION BENEFITS FOR 2016”, “NON-QUALIFIED DEFERRED COMPENSATION FOR
2016”, “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, 2016, 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. Second Amended and Restated 2006 Equity Plan (the “2006 Plan”);
(i)
(ii) the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for Directors of Peoples
Bancorp Inc. and Subsidiaries (the “Directors' Deferred Compensation Plan”); and
(iii) 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))
313,394 (1) $
27.37 (2)
509,594 (3)
—
313,394
$
—
27.37
—
509,594
Plan Category
Equity compensation plans
approved by shareholders
Equity compensation plans not
approved by shareholders
Total
(1) Includes an aggregate of 16,661 common shares issuable upon exercise of options and stock appreciation rights
granted under the 2006 Plan and 241,369 restricted common shares subject to time-based or performance-based
vesting restrictions granted under the 2006 Plan, and 55,364 common shares allocated to participants' bookkeeping
accounts under the Deferred Compensation Plan.
(2) Represents weighted-average exercise price of outstanding 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 Directors' Deferred Compensation Plan.
(3) Includes 241,767 common shares remaining available for future grants under the 2006 Plan at December 31, 2016,
as well as 267,827 common shares remaining available for issuance and delivery under the ESPP. No amount is
included for potential future allocations to participants' bookkeeping accounts under the Directors' Deferred
Compensation Plan since the terms of the Directors' Deferred Compensation Plan do not provide for a specified
limit on the number of common shares which may be allocated to participants' bookkeeping accounts.
125
Additional information regarding Peoples' stock-based compensation plans can be found in Note 16 of the Notes to the
Consolidated Financial Statements.
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.
126
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
PART IV
The following auditor's reports and consolidated financial statements of Peoples Bancorp Inc. and subsidiaries are
filed as required by Item 8 and set forth immediately following "ITEM 9B. OTHER INFORMATION" of the Form
10-K:
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, 2016 and 2015
Consolidated Statements of Income for each of the fiscal years in the three-year period ended December 31, 2016
Consolidated Statements of Comprehensive Income for each of the fiscal years in the three-year period ended
December 31, 2016
Consolidated Statements of Stockholders’ Equity for each of the fiscal years in the three-year period ended
December 31, 2016
Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended December 31,
2016
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
67
68
69
70
71
72
73
75
76
121
(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 132. 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 132.
(c)
Financial Statement Schedules
None.
127
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 27, 2017
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.
128
Signatures
Title
President, Chief Executive Officer and Director
Executive Vice President, Chief Financial Officer
2/27/2017
and Treasurer (Principal Financial and Accounting Officer)
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
/s/ JOHN C. ROGERS
John C. Rogers
/s/ TARA M. ABRAHAM*
Tara M. Abraham
/s/ S. CRAIG BEAM*
S. Craig Beam
/s/ GEORGE W. BROUGHTON*
George W. Broughton
Director
Director
Director
/s/ DAVID F. DIERKER*
Director
David F. Dierker
/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.
Director
/s/ DAVID L. MEAD*
David L. Mead
/s/ SUSAN D. RECTOR*
Susan D. Rector
/s/ TERRY T. SWEET*
Terry T. Sweet
Chairman of the Board and Director
Director
Director
Date
2/27/2017
2/27/2017
2/27/2017
2/27/2017
2/27/2017
2/27/2017
2/27/2017
2/27/2017
2/27/2017
2/27/2017
2/27/2017
* The above-named directors of the Registrant sign this Annual Report on Form 10-K by Charles W. Sulerzyski, their
attorney-in-fact, pursuant to Powers of Attorney signed by the above-named directors, which Powers of Attorney are
filed with this Annual Report on Form 10-K as exhibits, in the capacities indicated and on the 27th day of February,
2017.
By:
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
Attorney-in-Fact
129
EXHIBIT INDEX
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
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.+
3.1(a)
Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed
with the Ohio Secretary of State on May 3, 1993)
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)
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)
3.1(c)
3.1(d)
3.1(e)
3.1(f)
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”)
Certificate of Amendment to the Amended Articles of Incorporation of
Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on
April 9, 1996)
Incorporated herein by reference to Exhibit 3(a)
(3) to Peoples’ 1997 Form 10-K
Certificate of Amendment to the Amended Articles of Incorporation of
Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on
April 23, 2003)
Incorporated herein by reference to Exhibit 3(a)
to Peoples’ Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2003 (File
No. 0-16772) (“Peoples’ March 31, 2003 Form
10-Q”)
Certificate of Amendment by Shareholders to the Amended Articles of
Incorporation of Peoples Bancorp Inc. (as filed with the Ohio
Secretary of State on January 22, 2009)
Incorporated herein by reference to Exhibit 3.1 to
Peoples’ Current Report on Form 8-K dated and
filed on January 23, 2009 (File No. 0-16772)
Certificate of Amendment by Directors to Articles filed with the
Secretary of State of the State of Ohio on January 28, 2009,
evidencing adoption of amendments by the Board of Directors of
Peoples Bancorp Inc. to Article FOURTH of Amended Articles of
Incorporation to establish express terms of Fixed Rate Cumulative
Perpetual Preferred Shares, Series A, each without par value, of
Peoples Bancorp Inc.
Incorporated herein by reference to Exhibit 3.1 to
Peoples’ Current Report on Form 8-K dated and
filed on February 2, 2009 (File No. 0-16772)
3.1(g)
Amended Articles of Incorporation of Peoples Bancorp Inc. (reflecting
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(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.
130
Exhibit
Number
3.2(b)
3.2(c)
3.2(d)
3.2(e)
3.2(f)
4.1
4.2(a)
4.2(b)
4.3(a)
4.3(b)
4.3(c)
4.4
Description
Exhibit Location
Certified Resolutions Regarding Adoption of Amendments to
Sections 1.03, 1.04, 1.05, 1.06, 1.08, 1.10, 2.03(C), 2.07, 2.08, 2.10
and 6.02 of the Code of Regulations of Peoples Bancorp Inc. by
shareholders on April 10, 2003
Incorporated herein by reference to Exhibit 3(c) to
Peoples’ March 31, 2003 Form 10-Q
Certificate regarding adoption of amendments to Sections 3.01, 3.03,
3.04, 3.05, 3.06, 3.07, 3.08 and 3.11 of the Code of Regulations of
Peoples Bancorp Inc. by shareholders on April 8, 2004
Incorporated herein by reference to Exhibit 3(a) to
Peoples’ Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2004 (File No.
0-16772)
Certificate regarding adoption of amendments to Sections 2.06, 2.07,
3.01 and 3.04 of Peoples Bancorp Inc.’s Code of Regulations by the
shareholders on April 13, 2006
Incorporated herein by reference to Exhibit 3.1 to
Peoples’ Current Report on Form 8-K dated and
filed on April 14, 2006 (File No. 0-16772)
Certificate regarding adoption of an amendment to Section 2.01 of
Peoples Bancorp Inc.'s Code of Regulations by shareholders on April
22, 2010
Incorporated herein by reference to Exhibit 3.2(e)
to Peoples' Quarterly Report on Form 10-Q/A
(Amendment No. 1) for the quarterly period ended
June 30, 2010 (File No. 0-16772) ("Peoples' June
30, 2010 Form 10-Q/A")
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
Agreement to furnish instruments and agreements defining rights of
holders of long-term debt
Filed herewith
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., as successor to NB&T Financial Group, 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"
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 4.1(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
Incorporated herein by reference to Exhibit 4.2(b)
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 and the Successor
Administrator named therein and Peoples Bancorp Inc.
Incorporated herein by reference to Exhibit 4.9 to
Peoples' Annual Report on Form 10-K for the
fiscal year ended December 31, 2015 (File No.
0-16772) ("Peoples' 2015 Form 10-K")
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
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)*
Incorporated herein by reference to Exhibit 10.1(a)
to Peoples' 2015 Form 10-K
*Management Compensation Plan or Agreement
131
Exhibit
Number
10.1(b)
10.2
10.3
10.4
10.5
10.6
10.7
Description
Exhibit Location
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)
Peoples Bancorp Inc. Amended and Restated Incentive Award Plan
(Amended and Restated Effective December 11, 2008) [Effective for
the fiscal year ended December 31, 2009]*
Incorporated herein by reference to Exhibit 10.2 of
Peoples’ 2008 Form 10-K
Summary of Incentive Plan for Executive Officers and other
employees of Peoples Bancorp Inc. [Effective for the fiscal year
ended December 31, 2010]*
Summary of Peoples Bancorp Inc. Annual Incentive Program for
Executive Officers and other employees of Peoples Bancorp Inc.
[Effective 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
Summary of Perquisites for Executive Officers of Peoples Bancorp
Inc.*
Filed herewith
Summary of Base Salaries for Executive Officers of Peoples Bancorp
Inc.*
Filed herewith
10.8
Summary of Compensation for Directors of Peoples Bancorp Inc.*
Filed herewith
10.9
10.10
10.11
10.12
10.13
10.14
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 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)
used for grants on and after June 27, 2013*
Incorporated herein by reference to Exhibit 10.2 to
Peoples' June 30, 2013 Form 10-Q
Peoples Bancorp Inc. Second Amended and Restated 2006 Equity
Plan Time-Based Restricted Stock Award Agreement (for Non-
Employee Directors) 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 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 executive officers of Peoples Bancorp Inc. (from January
1, 2012 to July 24, 2013)*
Incorporated herein by reference to Exhibit 10.41
to Peoples’ 2011 Form 10-K
*Management Compensation Plan or Agreement
132
Exhibit
Number
10.15
10.16
10.17
10.18
Description
Exhibit Location
Form of Peoples Bancorp Inc. Amended and Restated 2006 Equity
Plan Time-Based Restricted Stock Agreement for executive officers
used to evidence awards of time-based restricted stock granted to
executive officers of Peoples Bancorp Inc. (from January 1, 2012 to
June 26, 2013)*
Peoples Bancorp Inc. Second Amended and Restated 2006 Equity
Plan Performance-Based Restricted Stock Award Agreement (for
Executives) used to evidence awards of performance-based restricted
stock granted to executive officers of Peoples Bancorp Inc. on and
after July 25, 2013*
Incorporated herein by reference to Exhibit 10.43
to Peoples’ 2011 Form 10-K
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
10.19
Change in Control Agreement between Peoples Bancorp Inc. and
Daniel K. McGill (adopted September 14, 2009)*
10.20
Change in Control Agreement between Peoples Bancorp Inc. and
Charles W. Sulerzyski (adopted April 4, 2011)*
Incorporated herein by reference to Exhibit 10.1 to
Peoples’ Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2009 (File
No. 0-16722)
Incorporated herein by reference to Exhibit 10.2 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2011 (File No.
0-16772)
10.21
Change in Control Agreement between Peoples Bancorp Inc. and
John C. Rogers (adopted November 30, 2015)*
Incorporated herein by reference to Exhibit 10.35
to Peoples' 2015 Form 10-K
10.22
Peoples Bancorp Inc. Employee Stock Purchase Plan*
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)
10.23
10.24
Form of 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
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)
Form of Peoples Bancorp Inc. Second Amended and Restated 2006
Equity Plan Performance Unit Award Agreement used to evidence
awards of performance units granted to executive officers of Peoples
Bancorp Inc. on and after March 26, 2015*
Incorporated herein by reference to Exhibit 10.2 to
Peoples' March 31, 2015 Form 10-Q
10.25
Change in Control Agreement between Peoples Bancorp Inc. and
Robyn Stevens (adopted June 17, 2016)*
10.26
10.27
10.28
Form of Change in Control Agreement to be adopted by Peoples
Bancorp Inc. and individuals who are first elected as executive
officers of Peoples Bancorp Inc. after March 24, 2016*
Credit Agreement, dated as of March 4, 2016, between Peoples
Bancorp Inc., as Borrower, and Raymond James Bank, N.A., as
Lender
Revolving Note issued by Peoples Bancorp Inc. on March 4, 2016 to
Raymond James Bank, N.A., in the maximum aggregate principal
amount of $15,000,000
*Management Compensation Plan or Agreement
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2016 (File No.
0-16772)
Incorporated herein by reference to Exhibit 10.3 to
Peoples' Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2016 (File No.
0-16772) ("Peoples' March 31, 2016 Form 10-Q")
Incorporated herein by reference to Exhibit 10.1 to
Peoples' Current Report on Form 8-K dated and
filed on March 8, 2016 (File No. 0-16772)
("Peoples' March 8, 2016 Form 8-K")
Incorporated herein by reference to Exhibit 10.2 to
Peoples' March 8, 2016 Form 8-K
133
Exhibit
Number
21
23
24
31.1
31.2
32
Description
Exhibit Location
Subsidiaries of Peoples Bancorp Inc.
Consent of Independent Registered Public Accounting Firm - Ernst &
Young LLP
Filed herewith
Filed herewith
Powers of Attorney of Directors and Executive Officers of Peoples
Bancorp Inc.
Filed herewith
Rule 13a-14(a)/15d-14(a) Certifications [President and Chief
Executive Officer]
Filed herewith
Rule 13a-14(a)/15d-14(a) Certifications [Executive Vice President,
Chief Financial Officer and Treasurer]
Filed herewith
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of
the United States Code [President and Chief Executive Officer; and
Executive Vice President, Chief Financial Officer and Treasurer]
Furnished herewith
101.INS
XBRL Instance Document
Submitted electronically herewith #
101.SCH XBRL Taxonomy Extension Schema Document
Submitted electronically herewith #
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
Submitted electronically herewith #
101.LAB XBRL Taxonomy Extension Label Linkbase Document
Submitted electronically herewith #
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Submitted electronically herewith #
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
Submitted electronically herewith #
*Management Compensation Plan or Agreement
# Attached as Exhibit 101 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 of Peoples Bancorp Inc. are
the following documents formatted in XBRL (eXtensive Business Reporting Language): (i) Consolidated Balance Sheets at December
31, 2016 and December 31, 2015; (ii) Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014; (iii)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014; (iv) Consolidated
Statements of Stockholders' Equity for the years ended December 31, 2016, 2015 and 2014; (v) Consolidated Statements of Cash Flows
for the years ended December 31, 2016, 2015, and 2014 and (vi) Notes to the Consolidated Financial Statements.
134
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135
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136
Financial Highlights
Peoples Bancorp Inc. (“Peoples”) is a diversified financial services holding company with $3.4 billion in total
assets, 79 locations, including 71 full-service bank branches, and 78 ATMs in Ohio, West Virginia and Kentucky.
Peoples makes available a complete line of banking, investment, insurance and trust solutions through its sub-
sidiaries - 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 115 years.
Peoples’ common shares are traded on the NASDAQ Global Select Market® under the symbol PEBO.
Dollars in Thousands, except Per Share Data
Year-Over-Year Change
Earnings and Dividends
Total revenues (1)
Total operating expenses
Net income available to shareholders
Dividends declared on common shares (2)
Per Share Data
Earnings per common share – Basic
Earnings per common share – Diluted
Cash dividends paid on common shares (2)
Book value at end of period
Tangible book value at end of period (3)
Closing stock price
At Year End
Total assets
Total investment securities
Total loans
Total deposits
Common stockholders’ equity
Trust and brokerage assets under management
Financial Ratios
Return on average assets
Return on average common stockholders’ equity
Net interest margin
Efficiency ratio (4)
Total risk-based capital ratio
Tangible common equity to tangible assets (3)
Nonperforming assets to total assets
2016
2015
2014
2016
2015
$ 155,935
106,911
$
31,157
$
12,546
$
$ 145,053
$ 115,081
10,941
$
11,017
$
$
$
$
$
$
$
1.72
1.71
0.64
23.92
15.89
32.46
$
$
$
$
$
$
0.62
0.61
0.60
22.81
14.68
18.84
$
$
$
$
$
$
$
$
$
$
109,559
85,009
16,684
7,842
1.36
1.35
0.60
22.92
15.57
25.93
$ 3,432,348
859,455
$
$ 2,224,936
$ 2,509,722
$ 435,261
$ 2,079,280
$ 3,258,970
$ 868,830
$ 2,072,440
$ 2,535,944
$ 419,789
$ 1,939,406
$ 2,567,769
713,659
$
$ 1,620,898
$ 1,933,074
$ 340,118
$ 1,612,278
7.5 %
-7.1 %
184.8 %
13.9 %
177.4 %
180.3 %
6.7 %
4.9 %
8.2 %
72.3 %
5.3 %
-1.1 %
7.4 %
-1.0 %
3.7 %
7.2 %
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 %
0.94 %
7.20 %
3.54 %
65.13 %
14.11 %
8.80 %
0.75 %
0.35 %
2.69 %
3.53 %
75.50 %
14.54 %
8.69 %
0.62 %
0.74 %
6.16 %
3.45 %
75.37 %
15.48 %
9.39 %
0.47 %
(1) Net interest income and non-interest income excluding gains/losses.
(2) Reflects amounts declared with respect to the earnings for the period indicated.
(3) Excludes balance sheet impact of intangible assets acquired through acquisitions on both stockholders’ equity and total assets.
(4) Total operating expenses (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus non-interest income.
Our Brand Promise
We will work side by side to overcome challenges
and seize opportunities. We listen and work with
you. Together we will build and execute thoughtful
plans and actions, blending our experience and
expertise, to move you toward your goals. Our
core difference is providing you peace of mind,
confidence, and clarity in your financial life.
Our 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.
• Clients Are Our Focus
• Business With Integrity
• Trust Among Clients, Communities,
and Associates
• Commitment to Communities
• Continuous Will to Win
• Development of Associate Skills
2016
ANNUAL REPORT
Year of Transformation
Call.
Call.
Call.
Click.
Click.
Click.
Come In.
Come In.
Come In.
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
Peoples Bank (w/logo)® and Working Together. Building Success.®,
individually are federally registered service mark of Peoples Bank.