2017
ANNUAL
REPORT
Call.
Click.
Come In.
800.374.6123
peoplesbancorp.com
Visit your local office
138 Putnam Street | PO Box 738 | Marietta, OH 45750
Financial Highlights
Peoples Bancorp Inc. (Peoples) is a diversified financial services holding company with $3.6 billion in total
assets; 74 locations (including 65 full-service bank branches); and 71 ATMs in Ohio, West Virginia and
Kentucky. Peoples makes available a complete line of banking, investment, insurance and trust solutions
through its subsidiaries - Peoples Bank and Peoples Insurance Agency, LLC. Peoples has been in business
since 1902 and has established a heritage of financial stability, growth and community impact for 116 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 equity to tangible assets (3)
Nonperforming assets to total assets
2017
2016
2015
2017
2016
$ 166,030
$ 107,975
38,471
$
16,455
$
$ 155,935
$ 106,911
31,157
$
12,540
$
$
$
$
$
$
$
2.12
2.10
0.90
25.08
17.17
32.62
$
$
$
$
$
$
1.72
1.71
0.69
23.92
15.89
32.46
$
$
$
$
$
$
$
$
$
$
145,053
115,081
10,941
11,017
0.62
0.61
0.60
22.81
14.68
18.84
$ 3,581,686
$ 874,486
$ 2,357,137
$ 2,730,330
$ 458,592
$ 2,340,262
$ 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
6.5 %
1.0 %
23.5 %
31.2 %
23.3 %
22.8 %
30.4 %
4.8 %
8.1 %
0.5 %
4.4 %
1.7 %
5.9 %
8.8 %
5.4 %
12.6 %
7.5 %
-7.1 %
184.8 %
13.8 %
177.4 %
180.3 %
15.0 %
4.9 %
8.2 %
72.3 %
5.3 %
-1.1 %
7.4 %
-1.0 %
3.7 %
7.2 %
1.10 %
8.54 %
3.62 %
62.20 %
14.62 %
9.14 %
0.49 %
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 %
(1) Net interest income and total fee-based income excluding gains/losses.
(2) Reflects amounts declared with respect to the earnings for the period indicated.
(3) Excludes balance sheet impact of goodwill and other intangible assets acquired through acquisitions on both total stockholders’ equity and total assets.
(4) Total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total fee-based income.
A Message from the President and CEO
Dear Fellow Shareholders,
2017 was another great year to be a Peoples Bancorp Inc.
(Peoples) shareholder. For the second straight year our stock
outperformed our proxy peer group. In the first quarter of
2018, our dividend increased to $0.26 from the $0.17 that
our shareholders received in the fourth quarter of 2016. This
represents an increase of more than 50% between the two time
periods and is the highest quarterly dividend paid in our 116 year
history. Some notable accomplishments in 2017 include:
• Achieving a 1.10% return on average assets
• Improving our efficiency ratio by almost 300 basis points to
62.20% in 2017
• Controlling expenses, with only 1% growth in non-interest
expenses compared to 2016
• Expanding our net interest margin to 3.62% from 3.54% in 2016
• Growing loan balances 8% on a full year average basis
• Reducing non-performing assets by 32% compared to
December 31, 2016
Chuck Sulerzyski, President and CEO
• Growing checking account balances by 13% and total deposit balances
by 9%
• Realizing a return on average equity of 8.54% versus 7.20%
in 2016
• Completing two insurance agency acquisitions and entering
into an agreement for our first bank acquisition since 2015
“ We work side by side with clients to
understand their needs and concerns, and
develop plans and strategies that increase
their likelihood of success.”
1
$0.90
2017
CASH DIVIDENDS
(Paid on Common Shares1)
$3.6
$3.4
$3.3
2015
2016
2017
TOTAL ASSETS
($ Billions)
1.10%
0.94%
0.35%
2015
2016
2017
RETURN ON ASSETS
75.50%
65.13%
62.20%
2015
2016
2017
EFFICIENCY RATIO2
1Reflects amounts declared with respect to the earnings
for the period indicated. Since Q2 2011, quarterly dividends
are considered and declared during the first month
following quarter-end.
2Total non-interest expense (less amortization of other
intangible amortization) as a percentage of fully tax-
equivalent net interest income plus non-interest income.
2
As I write this letter, our stock is hitting record-
setting levels and there are high expectations for the
banking sector in 2018. We share in the enthusiasm
and applaud recent tax reform changes. In 2018, we
expect our effective tax rate to drop to approximately
19%, compared to our rate that was in the low 30s
in 2017. We know that a lower tax rate will provide
us with opportunities. We have already announced
a meaningful dividend increase for our shareholders
and believe there is additional potential for future
dividend increases. We have also provided additional
compensation and benefits for our employees, and
have increased our contributions to the Peoples Bank
Foundation, Inc. for the benefit of our communities.
The unknown is what effect the tax law changes will
have on the economy in the short and long term. Also
unknown is the impact of regulatory reform on the
banking industry. Regardless of how the regulatory
landscape may change, we will remain focused on
responsible risk management.
Industry analysts believe that banks will see
increasing loan demand as businesses look to invest
new profits. We hope that is true, but note that
business loan demand slowed throughout 2017. As
the current period of benign credit performance
continues, we know that at some point in the future,
this period of high credit quality will reverse course.
When that course changes, we are optimistic that we
will do relatively well compared to our peers. Our
commercial real estate portfolio is well managed,
well diversified and contains no concentrations
that concern management. From a bank regulatory
perspective, non-owner-occupied commercial real
estate loan balances as of December 31, 2017,
remained well below the banking regulatory guidance
of 300% of total risk-based capital. Our ratio at
December 31, 2017, was 159% compared to 155% at
December 31, 2016. Our percentage of non-performing
$0.692016$0.602015
assets to total assets was 0.49% at December 31, 2017, which speaks
for itself.
For Peoples, we will continue to stick to our core beliefs. Growth in
shareholder value is created by a compelling client proposition, profitable
revenue growth, a continuous focus on managing expenses and superior asset
quality. We accomplish this through thoughtful acquisitions, prudent expense
decisions, healthy revenue growth and an engaged workforce.
In addition to our focus on expense management, we have made a number of
investments in our infrastructure to ensure a proper foundation to continue
to grow in future years. Examples include recent investments in a new core
operating system, cyber security, floor plan lending and mortgage lending
platforms, and facility enhancements to better serve our customers and
provide employees with a comfortable work environment.
Our success is dependent on gathering more clients, having them stay
longer, use more of our products and services, and refer new customers to
us because we have served them well. Peoples will continue to deliver the
best insurance, investment and banking solutions to our clients whether
they prefer banking in a branch or on a mobile device. We work side by side
with clients to understand their needs and concerns, and develop plans and
strategies that increase their likelihood of success.
Each new year brings changes, and, in 2017, two long-term directors retired
from our Board of Directors. We are grateful for the service of Carl Baker and
Brenda Jones, and we wish them the best in their retirement.
Thank you for your continued support of Peoples. I am delighted to partner
with a dedicated group of banking professionals who work to create better
client experiences and meaningful contributions to the communities where
we live and work. Great associates successfully working with clients is the key
to improving our shareholders’ return.
All the best,
Chuck Sulerzyski, President and CEO
Chuck Sulerzyski, President and CEO
3
Our Commitment
to Our Communities
Reflects Teamwork
and Togetherness
Our communities and our active
involvement are vital to our success.
Teamwork
Unity
Peoples PRIDE
4
Community
Market Makers
Stockholder Information
Stock Listing
NASDAQ Symbol: PEBO
Stock Transfer Agent, Registrar
Shareowner Services
NASDAQ Global Select Market, CUSIP 709789101
161 N. Concord Exchange
Alternate Newspaper Listings: PEBOOH and PeBcOh
South St. Paul, MN 55075
Corporate Offices
Peoples’ Headquarters:
138 Putnam Street, PO Box 738
Marietta, OH 45750-0738
Investor Relations: 740.374.6136
peoplesbancorp.com
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
Boenning &
Scattergood, Inc.
800-883-1212
Goldman Sachs & Co.
800-221-8320
Merrill Lynch
800-937-0516
Hovde Group, LLC
847-991-6622
Credit Suisse
212-325-2000
Raymond James & Associates
800-248-8863
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
5
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
DAVID L. MEAD
Chairman, Peoples Bancorp Inc. and Peoples Bank
Professor (Retired)
Marietta College
SUSAN D. RECTOR
Attorney-At-Law
Peterson Conners LLP
CHUCK SULERZYSKI
President and Chief Executive Officer
Peoples Bancorp Inc. and Peoples Bank
TERRY T. SWEET
Partner (Retired)
KPMG, LLP
6
Officers and Directors Emeritus
Peoples Bank
Director Emeritus
HAROLD D. LAUGHLIN
Peoples Bancorp Inc.
Directors Emeritus
DAVE M. ARCHER
CARL L. BAKER, JR.
FRANK L. CHRISTY
WILFORD D. DIMIT
RICHARD FERGUSON
BRENDA F. JONES, M.D.
FRED R. PRICE
ROBERT W. PRICE
T. PAT SAUBER
PAUL T. THEISEN
THOMAS J. WOLF
Peoples Bancorp Inc. Officers
CHUCK SULERZYSKI
President and Chief Executive 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
DOUGLAS V. WYATT
Executive Vice President
Chief Commercial Banking Officer
M. RYAN KIRKHAM
General Counsel and Corporate Secretary
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
7
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
Lyndhurst
Lyndhurst
Beachwood
Beachwood
Cleveland
Cleveland
Munroe Falls
Munroe Falls
CuyaHoga Falls
Cuyahoga Falls
Akron
Akron
Norton
Norton
77
Worthington
Worthington
70
Columbus
Columbus
71
Waynesville
Waynesville
Carlisle
Carlisle
Franklin
Franklin
Springboro
Springboro
Lebanon
Lebanon
MasonMason
Cincinnati
Cincinnati
Sabina
Sabina
Wilmington
Wilmington
New Vienna
New Vienna
Blanchester
Blanchester
Hillsboro
Hillsboro
Hamilton
Hamilton
Township
Township
Milford
Milford
Batavia
Batavia
Williamsburg
Williamsburg
Sardinia
Sardinia
Piketon
Piketon
32
Mount Orab
Mount Orab
Mount Vernon
Mount Vernon
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
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
MiltonMilton
Charleston
Charleston
64
Louisa
Paintsville
Prestonsburg
Pikeville
Pikeville
77
Lexington
Coshocton County
Coshocton
Knox County
Mount Vernon
Cuyahoga County
Beachwood
Lyndhurst
Licking County
Heath
Newark
Fairfield County
Baltimore
Lancaster
Franklin County
Worthington
Gallia County
Gallipolis
Guernsey County
Byesville
Cambridge
Highland County
Hillsboro
Jackson County
Jackson
Wellston
Meigs County
Pomeroy
Morgan County
McConnelsville
Muskingum County
Zanesville
Noble County
Caldwell
Pike County
Piketon
Summit County
Akron
Cuyahoga Falls
Munroe Falls
Norton
Warren County
Carlisle
Franklin
Hamilton Township
Lebanon
Mason
Springboro
Waynesville
Washington County
Belpre
Lowell
Marietta
Reno
KENTUCKY
Boyd County
Ashland
Summit
Greenup County
Greenup
Russell
Pike County
Pikeville
WEST
VIRGINIA
Cabell County
Huntington
Milton
Kanawha County
Charleston
Mason County
Point Pleasant
Tyler County
Sistersville
Wetzel County
New Martinsville
Wood County
Parkersburg
Vienna
8
10K Begins
THIS PAGE INTENTIONALLY
LEFT BLANK
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, 2017
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. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and "emerging growth 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
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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
1
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day
of the registrant's most recently completed second fiscal quarter:
As of June 30, 2017, the aggregate market value of the registrant’s Common Shares (the only common equity of the registrant) held by
non-affiliates was $578,028,000 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:
18,354,584 common shares, without par value, at February 26, 2018.
2
Document Incorporated by Reference:
Portions of Registrant's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held April 26, 2018,
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
ITEM 16
Form 10-K Summary (not applicable)
SIGNATURES
3
17
26
26
27
27
27
30
32
71
71
71
71
72
132
133
133
134
134
134
140
141
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, an Ohio state-chartered bank. As of the date of this Form 10-K,
Peoples' other wholly-owned subsidiary was Peoples Investment Company ("PIC"), 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 an asset management company, Peoples Tax Credit Equity, LLC. Effective December 29,
2017, PBNA, L.L.C., a Delaware limited liability company whose common interest was held by Peoples Bank and whose
preferred interest was held by PIC, was dissolved. On that same date, Peoples Capital Corporation, a wholly-owned
subsidiary of PIC, merged into PIC and PIC was converted from a Delaware corporation into an Ohio 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 is an Ohio limited liability company that operates as a subsidiary of Peoples Bank.
PIC was originally formed in 2001 as a Delaware corporation, and Peoples Tax Credit Equity, LLC was formed in
2014, in each case to provide new investment opportunities as a means of enhancing profitability.
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, 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 and administration 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. Indirect consumer lending is offered through dealerships and Peoples Bank credit card and merchant
processing services are provided through joint marketing arrangements with third parties.
Peoples' business activities are currently limited to one reporting unit and reportable operating segment, which is
community banking. For a discussion of Peoples' financial performance for the fiscal year ended December 31, 2017, 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
3
banking and loan production offices located in or near Peoples' existing market area. Acquisitions have consisted of
traditional banking offices and loan production 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 October 23, 2017, Peoples entered into a merger agreement with ASB Financial Corp. (“ASB”) that calls for ASB
to merge into Peoples and for ASB’s wholly-owned subsidiary, American Savings Bank, fsb, which operates six branches
located in southern Ohio and northern Kentucky, to merge into Peoples Bank. This transaction is expected to close during
the second quarter of 2018, subject to the satisfaction of customary closing conditions, including regulatory approvals and
the approval of the shareholders of ASB. As of December 31, 2017, ASB had approximately $288.3 million in total
assets, which included approximately $247.2 million in net loans, and approximately $203.2 million in total deposits.
Under the terms of the ASB agreement, shareholders of ASB can elect to receive either 0.592 common share of Peoples
for each share of ASB common stock or $20.00 cash per share, with a limit of 15% of the merger consideration being paid
in cash. Additional information can be found in Note 17 of the Notes to the Consolidated Financial Statements.
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 55 locations in Ohio, 14 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, health care, 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 construction loans, other
commercial real estate loans, commercial and industrial loans, residential real estate loans, home equity lines of credit,
and indirect and other 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 or to other financial institutions.
Peoples Bank's loans consist of credit extensions to borrowers spread over a broad range of industrial classifications.
At December 31, 2017, 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 loans include commercial real estate construction loans, other commercial real estate loans, and
commercial and industrial loans, and represented the largest portion of Peoples Bank's total loan portfolio,
comprising approximately 57.2% and 56.3% of total loans at December 31, 2017 and December 31, 2016,
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.
Commercial 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 three to ten years. At December 31,
2017, the commercial loan portfolio consisted of 75.0% of variable interest rate loans and 25.0% of fixed interest rate
loans. The primary analytical technique used in determining whether to grant a commercial loan is the review of a
schedule of cash flows to evaluate whether the borrower's anticipated future cash flows will be adequate to service
both interest and principal due.
Peoples also originates loans with interest rate swaps. Peoples may provide 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
4
unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is
accounted for as a standalone derivative.
Peoples Bank evaluates all commercial 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 in the loan quality rating 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 a borrower's request to renew a maturing loan or line of credit,
knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating
credit quality, or other similar events.
Commercial Real Estate Construction Loans
Peoples Bank originates construction loans to provide temporary financing during the construction phase for
commercial and residential properties. 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.
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 repay the loan if the property is not
sold upon completion.
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.
Other Commercial Real Estate Loans
Peoples Bank originates other commercial real estate loans which are typically secured by real estate, can be
owner occupied or non-owner occupied, and primarily refers to investment or income producing property. This
generally includes office buildings and complexes, retail facilities, multifamily complexes, land development,
industrial properties, as well as other commercial loans secured by real estate. The primary source of income for
repayment of this type of loan is from rental fees or the approximate sale of the real estate once developed.
Commercial and Industrial Loans
Commercial and industrial loans are loans to operating companies for purposes of working capital, fixed asset
acquisition or lines of credit. These loans are typically secured with business assets, but are collateralized by owner
occupied real estate in some cases. The primary source of repayment of this type of loan is generally cash flows
generated from operations of the business, which can be susceptible to adverse changes in economic conditions of the
general economy as a whole or within a specific industry.
5
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 residential real estate loans originated by Peoples Bank may
either be retained in its loan portfolio, or sold into the secondary market. Peoples Bank's portfolio of residential real
estate loans comprised 20.8% of total loans at December 31, 2017, and 24.1% at December 31, 2016. Peoples Bank
also had $2.5 million of residential real estate loans held for sale and was servicing $413.0 million of loans,
consisting primarily of one-to-four family residential mortgages, previously sold into the secondary market as of
December 31, 2017. 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 also originates and retains jumbo residential mortgage loans for primary and secondary residences, which are
nonconforming loans that are higher than the loan amounts acceptable for sale to the government-sponsored
enterprises to which Peoples Bank typically sells residential mortgage loans.
Peoples Bank originates both fixed rate and variable rate residential 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.
Peoples Bank typically requires residential real estate loan amounts to be no more than 80% of the purchase
price or the appraised value of the real estate securing the loan, whichever is lower, unless private mortgage insurance
is obtained by the borrower for the percentage exceeding 80%. In limited circumstances, Peoples Bank may lend up
to 100% of the appraised value of the real estate, although such lending currently is limited to loans that qualify under
established federally-backed rural housing programs. Numerous risk factors attributable to real estate lending are
considered during underwriting for the purposes of establishing an interest rate commensurate with the inherent risks
of the loan.
Real estate loans are typically secured by first mortgages with evidence of title in favor of Peoples Bank in the
form of an attorney's opinion of the title or a title insurance policy. Peoples Bank requires insurance, with Peoples
Bank named as the mortgagee and loss payee. Licensed appraisals are required for all real estate loans, and are
completed by an independent third party.
Home Equity Lines of Credit
Peoples Bank originates home equity lines of credit that provide consumers with greater flexibility in financing
personal expenditures. At December 31, 2017, outstanding home equity lines of credit comprised 4.6% of Peoples
Bank's total loans, compared to 5.0% at December 31, 2016. 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. At December 31, 2017, Peoples'
home equity loan portfolio consisted of 94.2% of variable interest rate loans and 5.8% in fixed interest rate loans. At
December 31, 2017, total outstanding principal balances and available credit amounts of the convertible rate home
equity lines of credit were $19.5 million and $20.9 million, respectively, and the weighted-average remaining
maturity was 6.8 years. The average original loan amount for these convertible rate home equity lines of credit was
approximately $34,000 at December 31, 2017.
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 underwriting review upon
request for renewal.
Consumer Lending
Peoples Bank's consumer lending activities include consumer indirect loans and other consumer loans, which
primarily involve loans secured by automobiles, motorcycles, recreational vehicles and other personal property, as
well as unsecured loans and personal lines of credit. 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
6
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 the risk of loss when a borrower's income is terminated or interrupted due to an accident,
disability or death.
Consumer Indirect Loans
Peoples Bank originates consumer indirect loans through select dealerships, which generally includes loans
secured by automobiles, motorcycles and recreational vehicles. At December 31, 2017, consumer indirect loans
comprised 14.5% of Peoples Bank's total loan portfolio compared to 11.4% at December 31, 2016.
Consumer indirect loans are originated at the point of sale, or dealership, and are subject to the same pricing
structure and underwriting process as other consumer loans. Consumer indirect lending offers Peoples Bank the
opportunity to access additional customers outside of its primary office locations. Peoples Bank offers consumer
indirect lending through approved dealerships, including franchise dealerships or independent dealerships, which
specialize in new or late-model vehicles. These dealerships undergo an approval process whereby Peoples Bank
reviews the dealership licensing, evaluates the standing of the dealership within the community and completes an
inspection of the showroom and facilities. On an ongoing basis, the dealerships are monitored based on monthly
volume, approval ratings and delinquency rates.
Other Consumer Loans
Peoples Bank originates other consumer loans, primarily through its office locations, which generally includes
loans secured by automobiles, motorcycles, recreational vehicles and other personal property, as well as unsecured
loans and personal lines of credit. Other consumer loans differ from consumer indirect loans as they include
expanded products, such as loans secured by stock or deposits, or loans that can be unsecured. At December 31,
2017, other consumer loans comprised 2.9% of Peoples Bank's total loan portfolio compared to 3.2% at December
31, 2016.
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, or $1,000 based on the type of account and
other parameters such as previous charge-off history or loan loss. Once established, customers are permitted to
overdraw their checking account at Peoples Bank's discretion, up to their Overdraft Privilege limit, with each item
being charged Peoples Bank's regular overdraft fee, with a maximum of seven charges per day when the customer's
account is overdrawn more than $5. Customers repay the overdraft with their next deposit. Overdraft Privilege is
designed to allow Peoples Bank to fill the void between traditional overdraft protection, such as a line of credit, and
"check cashing stores." Under federal banking regulations, Peoples Bank is required to obtain the consent of its
customers in order to apply Overdraft Privilege to ATM and one-time debit card transactions. While Overdraft
Privilege generates fee income, these fees may be offset by loan loss provisioning necessary to ensure the
maintenance of an appropriate allowance for losses against overdrafts deemed uncollectable. This allowance, along
with the related provision and net charge-offs, is included in Peoples Bank's allowance for loan losses.
Investment Activities
At December 31, 2017, investment securities comprised 24.4% of Peoples' total assets, compared to 25.0% at
December 31, 2016. The majority of Peoples' investment activities are conducted through Peoples Bank, although
Peoples and its non-banking subsidiary 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 at December 31, 2017 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 subsidiary, 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 policy approved by the Board of Directors, 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
7
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 managed
through Peoples' asset-liability management process and monitored by the Asset and Liability Committee ("ALCO")
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 cost, relative to wholesale funding alternatives, 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 classifies CDARS deposits as brokered certificates of deposit in Note 7 of the
Notes to the Consolidated Financial Statements.
Peoples Bank occasionally obtains deposits from clients outside its primary market area, generally in the form of
CDs, and has the ability, if needed, to obtain deposits from deposit brokers. These deposits are used to supplement
Peoples Bank's retail deposits to fund loans originated to customers located outside its primary market area, as well as
provide diversity in funding sources. While these deposits may carry slightly higher interest costs than other
wholesale funds, they do not require Peoples Bank to secure the funds with collateral, unlike most other borrowed
funds.
Additional information regarding the amounts and composition of Peoples Bank's deposits can be found in the
"Deposits" section of "ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF 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. In addition, Peoples 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.
8
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
Regulation") 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, 2017, Peoples had 774 full-time equivalent employees compared to 782 at December 31, 2016.
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.", "Peoples Insurance (with logo)"
and "peoplesbancorp.com" with the U.S. Patent and Trademark Office. These service marks currently have expiration
dates ranging from 2018 to 2027. 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 intends to continue to use its registered service marks
and to timely renew the registration of each of them.
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.
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.
9
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
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
10
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 insured institution if the FDIC
finds that the insured 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
any 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.
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.
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, the financial holding company must be "well
managed" and "well capitalized," and each insured depository institution subsidiary of the financial holding company
must be well capitalized under the prompt corrective action provisions, be well managed and have received a rating
of at least “satisfactory” in its most recent examination under the CRA. The CRA 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
11
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.
A financial holding company is required by law and Federal Reserve Board policy to act as a source of financial
strength to each subsidiary bank and to commit resources to support each subsidiary bank. 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 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 such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated under the Federal Reserve Act by the Federal Reserve Board. Among other things, these loans must be
made on terms (including interest rates charged and collateral required) substantially the same as those offered to
unaffiliated individuals, or be made as part of a benefit or compensation program and on terms widely available to
employees, and must not involve a greater than normal risk of repayment. In addition, the amount of loans a bank
may make to these persons is based, in part, on the bank's capital position, and specified approval procedures must be
followed in making loans which exceed specified amounts.
Capital Adequacy and Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), among other things,
identifies five capital categories for insured depository institutions and requires the respective 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.
12
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 July 2013, the U.S. banking regulators issued 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, the 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 phase in from January 1, 2015
through January 1, 2019.
The rules include (a) a minimum common equity tier 1 capital ratio of 4.5%, (b) a minimum tier 1 capital ratio of
6.0%, (c) a minimum total capital ratio of 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, trust preferred
securities that have been grandfathered (but which are not permitted going forward), and limited amounts of minority
interests in the form of additional tier 1 capital instruments, less certain deductions.
Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as
subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to new eligibility criteria,
less applicable deductions.
The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax
assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments
in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial
institutions (above certain levels). The deductions phased in beginning in 2015 and will continue through 2019.
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% composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if
its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at
the beginning of the quarter. The capital conservation buffer phased in January 1, 2016, at 0.625%, was increased to
1.25% as of January 1, 2017 and was increased to 1.875% on January 1, 2018.
In September 2017, the Federal Reserve Board, along with other bank regulatory agencies, proposed
amendments to its capital requirements to simplify aspects of the capital rules for community banks, including
Peoples Bank, in an attempt to reduce the regulatory burden for such smaller financial institutions. Because the
amendments were proposed with a request for comments and have not been finalized, Peoples does not yet know
what effect the final rules will have on Peoples Bank's capital calculations. In November 2017, the federal banking
agencies extended for community banks the existing capital requirements for certain items that were scheduled to
change effective January 1, 2018, in light of the simplification amendments being considered, including extending the
existing capital requirements for mortgage servicing assets and certain other items. The intent is to prevent different
rules from taking effect while the bank regulatory agencies consider a broader simplification of the capital rules.
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 Bank meets 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
13
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, 2017, the most recent performance evaluation by the FRB (which
was Peoples Bank's primary federal banking regulator at the time of the examination) of Peoples Bank, which was
conducted in 2017, 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 may not
declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed
dividend, exceeds the sum of the bank's net income during the current calendar year and the retained net income of
the prior two calendar years, unless the dividend has been approved by the ODFI and the Federal Reserve. Peoples
Bank's regulators may prohibit the payment of dividends at any time if the regulators determine the dividends
represent unsafe and/or unsound banking practices, or reduce Peoples Bank's total capital below adequate levels. For
further discussion regarding regulatory restrictions on dividends, refer to Note 15 of the Notes to the Consolidated
Financial Statements.
Peoples' ability to pay dividends to its shareholders may also be restricted. Current Federal Reserve Board
policy requires a financial holding company to act as a source of financial strength to each of its banking subsidiaries.
Under this policy, the Federal Reserve Board may require Peoples to commit resources or contribute additional
capital to Peoples Bank, which could restrict the amount of cash available for dividends.
The Federal Reserve Board has also issued a policy statement with regard to the payment of cash dividends by
financial holding companies and other bank holding companies. The policy statement provides that, as a matter of
prudent banking, a financial holding company or bank holding company should not maintain a rate of cash dividends
unless its net income available to common shareholders has been sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears to be consistent with the financial holding company's or bank holding
company's capital needs, asset quality and overall financial condition. Accordingly, a financial holding company or
bank holding company should not pay cash dividends that exceed its net income or can only be funded in ways that
weaken the financial holding company's or bank holding company's financial health, such as by borrowing.
Peoples also has entered into certain agreements that place restrictions on dividends. Specifically, Peoples Bank
is prohibited from paying dividends in an amount greater than permitted by law without requiring prior Federal
Reserve Board or other regulatory approval. In addition, if Peoples were to elect to defer payments of interest on the
junior subordinated debt securities held by the NB&T Statutory Trust III, 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 Fair Credit Reporting Act and the authority
granted to banking regulators under the Federal Trade Commission Act with respect to unfair, deceptive, or abusive
acts or practices ("UDAAP").
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.
14
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 deposits of depository institutions.
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 would have applied 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.
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
15
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. Peoples has implemented a clawback policy and it is
posted under the “Governance Documents” tab on each of the “Investor Relations” page and the “Corporate
Governance” page of Peoples' Internet website.
SEC regulations require public companies such as Peoples to provide various disclosures about executive
compensation in annual reports and proxy statements, and to present to their shareholders a non-binding vote on the
approval of executive compensation.
Volcker Rule
In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision of
the Dodd-Frank Act (the "Volcker Rule"). The Volcker Rule places limits on the trading activity of insured
depository institutions and entities affiliated with a depository institution, subject to certain exceptions. The trading
activity includes a purchase or sale as principal of a security, derivative, commodity future or option on any such
instruments in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule
exempts specified U.S. Government, agency and/or municipal obligations, and it excepts trading conducted in certain
capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on
behalf of customers, to satisfy a debt previously contracted, repurchase and securities lending agreements and risk-
mitigating hedging activities.
The Volcker Rule also prohibits a banking entity from having an ownership interest in, or substantial
relationships with, a hedge fund or private equity fund, with a number of exceptions. To the extent that Peoples Bank
engages in any of the trading activities or has any ownership interest in or relationship with any of the types of funds
regulated by the Volcker Rule, Peoples Bank believes that its activities and relationships fall within the scope of one
or more of the exceptions provided in the Volcker Rule.
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.
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.
16
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 election of a new U.S. President in 2016 has resulted in substantial changes in economic and political
conditions for the United States and the remainder of the world. Disruptions in U.S. and global financial markets, and
changes in oil production in the Middle East also affect the economy and stock prices in the United States, which can
affect Peoples' earnings and Peoples' capital as well as the ability of Peoples' 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.
• Completion of the merger contemplated by the agreement with ASB is subject to many conditions and if these
conditions are not satisfied or waived, the merger between Peoples and ASB will not be completed.
The respective obligations of Peoples and ASB to complete the merger contemplated by the agreement between
Peoples and ASB are subject to the fulfillment or written waiver of many conditions, including the approval by the
requisite vote of the ASB shareholders, receipt of the requisite regulatory approvals, absence of orders prohibiting
completion of the merger, the continued accuracy of the representations and warranties by both parties, and the
performance by both parties of their respective covenants and agreements. These conditions to the consummation of the
Peoples-ASB merger may not be fulfilled and, accordingly, the merger may not be completed. In addition, if the merger is
not completed by September 30, 2018, either Peoples or ASB, by a vote of a majority of the members of its entire board,
may choose not to proceed with the merger, or the parties can mutually decide to terminate the merger agreement at any
time, before or after the approvals by the requisite vote of the ASB shareholders. In addition, Peoples or ASB may elect
to terminate the merger agreement in certain other circumstances.
• 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.
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
17
anticipated in the acquisitions it completes. Future acquisitions may also result in other unforeseen difficulties, including
integration of the combined companies. Further, benefits such as enhanced earnings anticipated from the acquisitions
may not develop and future results of the combined companies may be materially below those estimated. In addition,
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 current U.S. President and certain legislators have taken steps to make
extensive changes to regulations affecting financial institutions. While such changes are generally intended to lessen the
regulatory burden on financial institutions, 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, the appropriateness of an institution's allowance for loan
losses and the ability to complete acquisitions. 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.
• Adverse changes in the financial markets may adversely impact Peoples' results of operations.
While Peoples generally invests in securities issued by U.S. government agencies and sponsored entities, and U.S.
state and local governments with limited credit risk, certain investment securities Peoples holds possess higher credit risk
since they represent beneficial interests in structured investments collateralized by residential mortgages, debt obligations
18
and similar asset-backed assets. Even securities issued by governmental agencies and entities may entail risk depending
on political and economic changes. Regardless of the level of credit risk, all investment securities are subject to changes
in market value due to changing interest rates, implied credit spreads and credit ratings.
• 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, 2017, 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, 2017, Peoples' net interest income was
67.1% 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
19
Peoples receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes
could also affect (1) Peoples' ability to originate loans and obtain deposits, (2) the fair value of Peoples' financial assets
and liabilities, and (3) the average duration of Peoples' mortgage-backed securities portfolio. If the interest rates paid on
deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments,
Peoples' net interest income and, therefore, earnings, could be adversely affected. Earnings could also be adversely
affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on
deposits and other borrowings.
Management uses various measures to monitor interest rate risk and believes it has implemented effective asset and
liability management strategies to reduce the potential effects of changes in interest rates on Peoples' results of operations.
Management also periodically adjusts the mix of assets and liabilities to manage interest rate risk. However, any
substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on Peoples'
financial condition and results of operations. See the sections captioned "Interest Income and Expense" and "Interest Rate
Sensitivity and Liquidity" in "ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K for further discussion related to Peoples' interest
rate risk.
• Peoples' exposure to credit risk could adversely affect Peoples' earnings and financial condition.
There are certain risks inherent in making loans. These risks include interest rate changes over the time period in
which loans may be repaid, risks resulting from changes in the economy, risks that Peoples will have inaccurate or
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
20
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, credit unions, fintechs and online service providers. Several of Peoples' competitors have greater resources,
larger branch systems and a wider array of banking services. This competition could reduce Peoples' net income by
decreasing the number and size of loans that Peoples originates and the interest rates it may charge on these loans.
Moreover, technology and other changes are allowing businesses and individuals to utilize alternative methods to
complete financial transactions that historically have involved banks. For example, consumers can now maintain funds in
brokerage accounts or mutual funds that in the past had been held as bank deposits. Consumers can also complete
transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of
eliminating the use of banks to complete financial transactions could result in the loss of fee income, as well as the loss of
customer deposits and the related income generated from those deposits. The loss of these revenue streams and lower cost
deposits as a source of funding could have a material adverse effect on Peoples' financial condition and results of
operations. If Peoples is unable to compete effectively, Peoples would lose market share, which could reduce income
generated from deposits, loans and other products. For a more complete discussion of Peoples' competitive environment,
see "Competition" in "ITEM 1 BUSINESS" of this Form 10-K.
• Peoples' ability to pay dividends is limited, and Peoples may not be in the position to pay dividends in the future.
Although Peoples has paid dividends on its common shares in the past, Peoples may reduce or eliminate dividends in
the future, in the discretion of the Board of Directors, for any reason, including a determination to use funds for other
purposes, or due to regulatory constraints. Peoples is a separate and distinct legal entity from Peoples' subsidiaries.
Peoples receives nearly all of its liquidity from dividends from Peoples Bank, which are limited by federal and state
banking laws and regulations. These dividends also serve as the primary source of funds to pay dividends on Peoples'
common shares. The inability of Peoples Bank to pay sufficient dividends to Peoples could have a material, adverse
effect on its business. Further discussion of Peoples' ability to pay dividends can be found under the caption "Supervision
and Regulation - Dividend Restrictions" in "ITEM 1 BUSINESS" of this Form 10-K and Note 15 of the Notes to the
Consolidated Financial Statements.
21
• Failures or material breaches in security of Peoples’ systems and telecommunications networks, or those of a third-
party service provider may have a material adverse effect on Peoples’ results of operations and financial condition
and the price of Peoples’ common shares.
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' necessary dependence upon automated
systems to record and process Peoples' transactions poses the risk that technical system flaws, employee errors, tampering
or manipulation of those systems, or attacks by third parties will result in losses and may be difficult to detect. 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. Peoples' inability to use or access those information
systems at critical points in time could unfavorably impact the timeliness and efficiency of Peoples' business operations.
Risks to Peoples' 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. Other businesses have been victims of ransomware
attacks in which the business becomes unable to access its own information and is presented with a demand to pay a
ransom in order to once again have access to its information. Peoples is also at risk from the impact of natural disasters,
terrorism and international 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 could be adversely affected if one of its employees causes a significant operational break-down or failure,
either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates Peoples’
operations or systems. Peoples is further exposed to the risk that the third-party service providers may be unable to fulfill
their contractual obligations (or will be subject to the same risks as Peoples). These disruptions may interfere with service
to Peoples’ customers, cause additional regulatory scrutiny and result in a financial loss or liability.
Misconduct by employees could include fraudulent, improper or unauthorized activities on behalf of clients or
improper use of confidential information. Peoples may not be able to prevent employee errors or misconduct, and the
precautions Peoples takes to detect this type of activity might not be effective in all cases. Employee errors or misconduct
could subject Peoples to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on
Peoples’ business.
In addition, there have been instances where financial institutions have been victims of fraudulent activity in which
criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. The
recent massive breach of the systems of a credit bureau presents additional threats as criminals now have more
information about a larger portion of the population of the United States than past breaches have involved, which could be
used by criminals to pose as customers initiating transfers of money from customer accounts. Although Peoples has
policies and procedures in place to verify the authenticity of its customers, Peoples cannot assure that such policies and
procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to Peoples’
reputation.
Peoples has implemented security controls to prevent unauthorized access to the computer systems and requires its
third-party service providers to maintain similar controls. However, management cannot be certain that these measures
will be successful. A security breach of the computer systems and loss of confidential information, such as customer
account numbers and related information, could result in a loss of customers’ confidence and, thus, loss of business.
Peoples could also lose revenue if competitors gain access to confidential information about Peoples’ business operations
and use it to compete with Peoples. In addition, unauthorized access to or use of sensitive data could subject Peoples to
litigation and liability, and costs to prevent further such occurrences.
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 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 capabilities 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.
22
Peoples’ assets at risk for cyber-attacks include financial assets and non-public information belonging to customers.
Peoples uses 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.
All of the types of cyber incidents discussed above could result in damage to Peoples’ reputation, loss of customer
business, costs of incentives to customers or business partners in order to maintain their relationships, litigation, increased
regulatory scrutiny and potential enforcement actions, repairs of system damage, increased investments in cybersecurity
(such as obtaining additional technology, making organizational changes, deploying additional personnel, training
personnel and engaging consultants), increased insurance premiums, and loss of investor confidence and a reduction in the
price of Peoples’ common shares, all of which could result in financial loss and material adverse effects on Peoples’
results of operations and financial condition.
• 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 those discussed in
more detail in this Risk Factors section, such as 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 and which may give rise to disruption of service to customers
and to financial loss or liability. Peoples is further exposed to the risk that its external vendors may be unable to fulfill
their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective
employees as Peoples is) and to the risk that Peoples' (or its vendors’) business continuity and data security systems prove
to be inadequate.
• Peoples may not be able to attract and retain skilled people.
Peoples' success depends, in large part, on its ability to attract, retain, motivate and develop key employees.
Competition for key employees is ongoing and intense, and Peoples may not be able to attract, retain or hire the key
employees that are wanted or needed, which may also negatively impact Peoples' ability to execute identified business
strategies. Many of Peoples’ offices are located in rural areas, resulting in the possible need for Peoples to offer higher
compensation than normal to attract or retain key employees, which may adversely affect salaries and benefits costs.
Various restrictions on the compensation which may be paid to certain executive officers were imposed under the
Dodd-Frank Act and other legislation and regulations. In addition, Peoples' incentive compensation structure is subject to
review by regulators, who may identify deficiencies in the structure or issue additional guidance on Peoples'
23
compensation practices, causing Peoples to make changes that may affect its ability to offer competitive compensation to
these individuals or that place it at a disadvantage to non-financial service competitors. Peoples' ability to attract and
retain talented employees may be affected by these developments, or any new executive compensation limits and
regulations.
• Peoples is at risk of increased losses from fraud.
Criminals are committing fraud at an increasing rate and are using more sophisticated techniques. In some cases,
these individuals are part of larger criminal rings, which allow them to be more effective. The fraudulent activity has
taken many forms, ranging from debit card fraud, check fraud, mechanical devices attached to ATM machines, social
engineering and phishing attacks to obtain personal information, or impersonation of clients through the use of falsified or
stolen credentials. Additionally, an individual or business entity may properly identify itself, yet seek to establish a
business relationship for the purpose of perpetrating fraud. An emerging type of fraud even involves the creation of
synthetic identification in which fraudsters “create” individuals for the purpose of perpetrating fraud. Further, in addition
to fraud committed directly against Peoples, Peoples may suffer losses as a result of fraudulent activity committed against
third parties. Increased deployment of technologies, such as chip card technology, defray and reduce aspects of fraud;
however, criminals are turning to other sources to steal personally identifiable information, such as unaffiliated healthcare
providers and government entities, in order to impersonate the consumer in order to commit fraud.
• Third parties perform significant operational services on behalf of Peoples.
The third parties performing operational services for Peoples are subject to risks similar to those faced by Peoples
relating to cybersecurity, breakdowns or failures of their own systems, or misconduct of their employees. Like many
other community banks, Peoples also relies, in significant part, on a single vendor for the systems which allow Peoples to
provide banking services to Peoples’ customers, for which the systems are maintained on Peoples' behalf by this single
vendor.
One or more of the third parties utilized by Peoples may experience a cybersecurity event or operational disruption
and, if any such event does occur, it may not be adequately addressed, either operationally or financially, by such third
party. Certain of these third parties may have limited indemnification obligations to Peoples in the event of a
cybersecurity event or operational disruption, or may not have the financial capacity to satisfy their indemnification
obligations.
Financial or operational difficulties of a third party provider could also impair Peoples' operations if those difficulties
interfere with such third party’s ability to serve Peoples. If a critical third-party provider is unable to meet the needs of
Peoples in a timely manner, or if the services or products provided by such third party are terminated or otherwise delayed
and if Peoples is not able to develop alternative sources for these services and products quickly and cost-effectively,
Peoples’ business could be materially adversely effected.
Additionally, regulatory guidance adopted by federal banking regulators addressing how banks select, engage and
manage their third-party relationships, affects the circumstances and conditions under which Peoples works with third
parties and the cost of managing such relationships.
• Climate change, severe weather, natural disasters, acts of war or terrorism and other external events could
significantly impact Peoples' business.
Natural disasters, including severe weather events of increasing strength and frequency due to climate change, acts of
war or terrorism, and other adverse external events could have a significant impact on Peoples' ability to conduct business
or upon third parties who perform operational services for Peoples or its customers. Such events could affect the stability
of Peoples' deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing
loans, cause significant property damage, result in lost revenue or cause Peoples to incur additional expenses.
• 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.
24
• 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, including the recently enacted Tax Cuts and Jobs
Act, and uncertainty or speculation pending the enactment of such changes.
Peoples is subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise
and withholding 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.
On December 22, 2017, H.R.1, formally known as the "Tax Cuts and Jobs Act," was enacted into law. The Tax Cuts
and Jobs Act, among other changes, imposes additional limitations on the federal income tax deductions individual
taxpayers may take for mortgage loan interest payments and for state and local taxes, including real estate taxes. The Tax
Cuts and Jobs Act also imposes additional limitations on the deductibility of business interest expense, and eliminates
other deductions in their entirety, including deductions for certain home equity loan interest payments. Such limits and
eliminations may result in customer defaults on loans Peoples Bank has made and decrease the value of mortgage-backed
securities in which Peoples has invested. Peoples' tax benefit for certain tax advantaged assets, including obligations of
state and political subdivisions held in People's investment securities portfolio and investments in affordable housing
limited partnerships, could be negatively impacted as the tax benefit rate has been reduced from 35% to 21%, and the
market value of such assets could be negatively impacted.
• Changes in market rates and economical conditions could cause the interest rate swaps Peoples Bank has entered
into to become ineffective.
The accounting treatment of the interest rate swaps entered into by Peoples as part of its interest rate management
strategy, may change if the hedging relationship is not as effective as currently anticipated. These interest rate swaps are
designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for fixed
payments from Peoples. As of December 31, 2017, Peoples had 7 interest rate swaps with a notional value of $60.0
million. The swaps become effective in 2018, which roughly coincide with the maturity of existing FHLB advances.
Although Peoples expects that the hedging relationship will be highly effective as described above, it has not assumed
that there will be no ineffectiveness in the hedging relationship. As of December 31, 2017, the termination value of
derivatives in a net asset position of $0.9 million, which includes accrued interest but excludes any adjustment for
nonperformance risk, related to these agreements. As of December 31, 2017, Peoples had no minimum collateral posting
thresholds with certain of its derivative counterparties and had posted collateral of $6.0 million against its obligations
under these agreements. If Peoples had breached any of these provisions at December 31, 2017, it could have been
required to settle its obligations under the agreements at the termination value.
• 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.
25
• 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, Blanchester, Byesville, Caldwell, Cambridge (2 offices), Carlisle, Coshocton, Cuyahoga Falls, Franklin, Gallipolis,
Georgetown, Heath, Hillsboro, Jackson, Lancaster (2 offices), Lebanon, Lowell, Maineville, Marietta (3 offices), Mason,
McConnelsville, Milford, Mount Orab, Mount Vernon, Munroe Falls, Nelsonville, New Vienna, Newark, Norton, Pomeroy (2
offices), Reno, Sabina, Sardinia, Springboro, Waynesville, Wellston, Williamsburg, Wilmington (2 offices), Worthington and
Zanesville. In West Virginia, Peoples Bank operates offices in Charleston, Huntington, Milton, New Martinsville (2 offices),
Parkersburg (4 offices), Point Pleasant, Sistersville and Vienna (2 offices). In Kentucky, Peoples Bank's office locations
include Ashland (2 offices), Greenup, and Russell. Of these 70 offices, 16 are leased and the rest are owned by Peoples
Bank.
Peoples Insurance rents office space in various Peoples Bank offices, and also leases office space from third parties in
Lyndhurst and Piketon, Ohio, and in Pikeville, Kentucky. Peoples Insurance owns an office in Huntington West Virginia.
Rent expense on the leased properties totaled $1.1 million in 2017 and $1.0 million in 2016, which excludes
intercompany rent expense. The following are the only properties that have a lease term expiring on or before June 2019:
Location
Piketon Insurance Office
Milton Office
Lancaster Fair Avenue Office
Athens Mall Office
Athens Court Street Office
Pikeville Insurance Office
Nelsonville Office
New Martinsville Walmart Office
Akron Business Office
Charleston Office
Vienna Walmart Office
Address
727 East 2nd Street
Piketon, Ohio
1763 Suite A Route 60
Milton, West Virginia
2211 West Fair Avenue
Lancaster, Ohio
801 East State Street
Athens, Ohio
1 N Court Street
Athens, Ohio
108 Trivette Drive
Pikeville, Kentucky
951 Canal Street
Nelsonville, Ohio
1142 S Bridge Street
New Martinsville, West Virginia
348 South Main Street Suite 200
Akron, Ohio
135-161 Summers Street Suite 300
Charleston, West Virginia
701 Grand Central Avenue
Vienna, West Virginia
Lease Expiration Date
January 2018 (a)
February 2018 (b)
March 2018 (c)
June 2018 (d)
September 2018 (d)
September 2018 (c)
January 2019 (e)
March 2019 (f)
June 2019 (f)
June 2019 (e)
June 2019 (f)
(a) Current lease agreement has two additional one-year extensions remaining. In January of 2018, this lease was renewed and now has one remaining
one-year extension.
(b) Current lease agreement will change to a month-to-month lease upon expiration.
26
(c) Current lease agreement has one remaining one-year extension.
(d) Current lease agreement is in final extension.
(e) Current lease agreement has one five-year extension remaining.
(f) Current lease agreement has no remaining extensions available.
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.
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,
2017, Peoples had 2,150 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.
2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Sales
Low
Sales
Dividends
Declared
$
$
34.62 $
34.60
30.84 $
29.55
35.43
33.56
29.71
29.81
32.98 $
24.98
24.02 $
19.55
22.20
19.99
18.43
16.34
0.22
0.22
0.20
0.20
0.17
0.16
0.16
0.15
On January 22, 2018, Peoples declared a quarterly dividend of $0.26 per common share, which was an increase of 18%
compared to the dividend paid in the fourth quarter of 2017. This dividend represented the payout related to the fourth
quarter of 2017 earnings.
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.
27
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, 2017:
(a)
Total
Number of
Common
Shares
Purchased
(b)
Average Price
Paid per
Common Share
$
520 (2)
327 (3)
$
1,665 (2)(3) $
2,512
$
33.84 (2)
33.27 (3)
33.77 (2)(3)
33.72
(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, 2017
November 1 - 30, 2017
December 1 - 31, 2017
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, 2017. Additional information regarding the share repurchase program can be found in Note 10 of the
Notes to the Consolidated Financial Statements.
Information includes 520 common shares and 259 common shares purchased in open market transactions during October 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 327 common shares and 1,406 common shares withheld during November and December, respectively, to pay income tax or other tax
liabilities associated with vested restricted common shares.
(3)
28
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, 2012, 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
2012
$ 100.00 $
$ 100.00 $
$ 100.00 $
2013
112.94 $
140.17 $
141.72 $
At December 31,
2014
2015
133.37 $
99.57 $
160.96 $ 172.40 $
148.69 $ 161.84 $
2016
176.48 $
187.83 $
223.19 $
2017
181.96
243.84
235.40
29
ITEM 6 SELECTED FINANCIAL DATA
The information below has been derived from Peoples' Consolidated Financial Statements.
At or For the Year Ended December 31,
2017
2016
2015
2014
2013
Operating Data (a)
Total interest income
Total interest expense
Net interest income
Provision for (recovery of) loan losses
Net gain on investment securities
Net loss on asset disposals and other transactions
Total fee-based income
Total non-interest expense
Net income
Balance Sheet Data (a)
Total investment securities
Loans, net of deferred fees and costs
Allowance for loan losses
Goodwill and other intangible assets
Total assets
Non-interest-bearing deposits
Other interest-bearing deposits
Brokered certificates of 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
$
$
$
$
$
$
126,525 $
13,148
115,444 $
10,579
108,333 $
10,721
80,200 $
10,694
113,377
104,865
3,772
2,983
(63)
52,653
3,539
930
(1,133)
51,070
97,612
14,097
729
(1,788)
47,441
69,506
339
398
(431)
40,053
107,975
38,471 $
106,911
31,157 $
115,081
10,941 $
83,875
16,684 $
67,071
11,686
55,385
(4,410)
489
(155)
37,220
68,265
17,574
874,486 $
859,455 $
868,830 $
713,659 $
680,526
2,357,137
2,224,936
2,072,440
1,620,898
1,196,234
18,793
144,576
18,429
146,018
16,779
149,617
17,881
109,158
17,065
77,603
3,581,686
3,432,348
3,258,970
2,567,769
2,059,108
556,010
734,421
717,939
493,162
409,891
2,014,702
1,759,605
1,784,148
1,400,221
1,121,826
159,618
209,491
7,107
136,912
458,592
38,832
305,607
6,924
138,231
435,261
47,635
160,386
6,736
106,934
419,789
53,904
88,277
—
179,083
340,118
67,706
113,590
—
121,826
221,553
3,437,110
3,286,330
3,109,353
2,458,611
1,981,505
314,016 $
289,243 $
270,172 $
230,960 $
143,950
2.12 $
2.10
0.84
25.08
17.17 $
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
18,050,189 18,013,693 17,555,140 12,183,352 10,581,222
18,208,684 18,155,463 17,687,795 12,306,224 10,679,417
Common shares outstanding at end of period
18,287,449 18,200,067 18,404,864 14,836,727 10,605,782
Closing stock price at end of period
$
32.62 $
32.46 $
18.84 $
25.93 $
22.51
30
Significant Ratios (a)
Return on average stockholders' equity
Return on average tangible stockholders' equity (b)
Return on average assets
Average stockholders' equity to average assets
Average total loans to average deposits
Net interest margin
Efficiency ratio (c)(d)
Pre-provision net revenue to total average assets (e)
Dividend payout ratio
Total investment securities as percentage of total assets (c)
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 total loans (c)(i)
Allowance for loan losses as a percent of nonperforming
loans (c)(f)
Provision for (recovery of) loan losses as a percent of
average total loans
Net charge-offs (recoveries) as a percent of average total
loans (i)
Capital Information (c)
Common equity tier 1 capital ratio (j)
Tier 1 risk-based capital ratio
Total risk-based capital ratio (tier 1 and tier 2)
Leverage ratio
Common equity tier 1 capital
Tier 1 capital
Total capital (tier 1 and tier 2)
Total risk-weighted assets
At or For the Year Ended December 31,
2017
2016
2015
2014
2013
8.54%
13.33
7.20%
11.86
2.69%
5.16
6.16 %
9.63
7.92 %
12.11
1.10
12.83
86.10
3.62
62.20
1.65
39.86
24.42%
0.73%
0.49
0.74
3.84
1.97
0.80
0.94
13.03
83.22
3.54
65.13
1.48
37.40
25.04%
1.13%
0.75
1.16
4.46
2.59
0.83
0.35
13.09
80.08
3.53
75.50
0.96
0.74
12.08
79.58
3.45
75.37
1.10
0.91
11.48
70.79
3.23
71.90
1.26
96.35
26.67%
43.10
27.80 %
33.20
26.50 %
0.94%
0.62
0.69 %
0.47
0.60 %
0.39
0.98
5.89
2.91
0.81
0.75
4.60
2.76
1.10
0.67
4.94
3.07
1.43
108.52
73.43
86.05
159.58
237.87
0.16
0.17
0.72
0.02
(0.42)
0.15%
0.09%
0.78%
(0.03)%
(0.35)%
13.45%
13.74
14.62
9.90%
12.91% 13.36%
13.21
13.67
14.11
9.66%
14.54
9.52%
N/A
14.32
15.48
9.92 %
N/A
12.42
13.78
8.52 %
$
332,774
$
306,506
$
288,416
N/A
N/A
339,881
313,430
295,151
241,707
166,217
361,579
$ 2,473,329
334,957
$ 2,373,359
313,974
$ 2,158,713
261,371
$1,687,968
184,457
$1,338,811
Tangible equity to tangible assets (b)
9.14%
8.80%
8.69%
9.39 %
7.26 %
(a) Reflects the impact of the acquisition of Midwest Bancshares, Inc. ("Midwest") beginning May 30, 2014, of Ohio Heritage Bancorp, Inc. ("Ohio
Heritage") beginning August 22, 2014, of North Akron Savings Bank ("North Akron") beginning October 24, 2014 and of NB&T beginning March
6, 2015.
(b) This amount represents a non-GAAP financial measure since it excludes the balance sheet impact of goodwill and other 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 non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total fee-
based 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 (recovery of) 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
31
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K under the caption “Pre-Provision Net
Revenue.”
(f) Nonperforming loans include loans 90+ days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include
nonperforming loans and other real estate owned.
(g)
(h)
"Criticized loans" include loans categorized as special mention, substandard or doubtful.
"Classified loans" include loans categorized as substandard or doubtful.
(i) 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%.
(j)
Peoples' capital conservation buffer was 6.62% at December 31, 2017 and 6.11% at December 31, 2016, compared to 2.50% for the fully phased-in
capital conservation buffer required by January 1, 2019.
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,” “estimate,” “may,” “feel,” “expect,” “believe,” “plan,” “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)
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 any future acquisitions, including the pending merger with ASB, which may be
unsuccessful, or may be more difficult, time-consuming or costly than expected;
Peoples' ability to obtain regulatory approvals of the proposed merger of Peoples with ASB on the proposed
terms and schedule, and approval of the merger by the shareholders of ASB on March 9, 2018 may be
unsuccessful;
competitive pressures among financial institutions or from non-financial institutions which 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 United
States ("U.S.") government and the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which may adversely impact interest rates, interest margins, loan demand and interest rate
sensitivity;
uncertainty regarding the nature, timing and effect of legislative or regulatory changes or actions,
promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the
Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection
Bureau, 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;
changes in policy and other regulatory and legal developments accompanying the current presidential
administration, including the recently-enacted Tax Cuts and Jobs Act, and uncertainty or speculation pending
the enactment of such changes;
uncertainties in Peoples' preliminary review of, and additional analysis of, the Tax Cuts and Jobs Act;
local, regional, national and international economic conditions and the impact these conditions may have on
Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different
than anticipated;
(10)
Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and
economic dilution to Peoples' current shareholders;
32
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
changes in prepayment speeds, loan originations, levels of nonperforming 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 the economic conditions and/or activities, including, but not limited to, continued
economic uncertainty in the U.S., the European Union (including uncertainty surrounding the actions to be
taken to implement the referendum by British voters to exit the European Union), Asia and other areas,
which could decrease sales volumes, add volatility to the global stock markets and increase loan
delinquencies and defaults;
deterioration in the credit quality of Peoples' loan portfolio, which may adversely impact the provision for
loan losses;
changes in accounting standards, policies, estimates or procedures which may adversely affect Peoples'
reported financial condition or results of operations;
Peoples' assumptions and estimates used in applying critical accounting policies, which may prove
unreliable, inaccurate or not predictive of actual results;
adverse changes in the conditions and trends in the financial markets, including political developments,
which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate
sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment
activities;
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 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;
Peoples' reliance on, and the potential failure of, a number of third party vendors to perform as expected,
including its primary core banking system provider;
ability to anticipate and respond to technological changes which can impact Peoples' ability to respond to
customer needs and meet competitive demands;
changes in consumer spending, borrowing and saving habits, whether due to the newly-enacted tax
legislation, 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 widespread natural or other disasters, pandemics, cyber attacks, civil unrest, military or
terrorist activities or international conflicts;
significant changes in the tax laws, which may adversely affect the fair values of 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
33
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:
◦
◦
◦
◦
◦
◦
◦
◦
◦
As of December 31, 2017, Peoples recorded a revaluation of its deferred tax assets and liabilities in light of the
applicable provisions of the recently-enacted Tax Cuts and Jobs Act. Previously, Peoples had recognized its deferred
tax assets and deferred tax liabilities at a federal income tax rate of 35%, and the new law required the use of a 21%
federal income tax rate. As a result, Peoples wrote down its net deferred tax assets by $0.9 million, which had a
direct impact on income tax expense recorded during 2017.
During 2017, Peoples sold $5.0 million of available-for-sale equity securities, resulting in a gain of $3.0 million. The
sales were not a normal occurrence for Peoples' business. Beginning in 2018, fluctuations in the market value of
equity investment securities will be recognized on the income statement. Peoples' remaining positions in equity
investment securities could pose some volatility in future quarters, depending on their respective market values at the
end of future reporting periods.
During 2017, Peoples closed six full-service bank branches, four located in Ohio, and two located in West Virginia.
Peoples continues to evaluate its bank branch network in an effort to optimize efficiency. In 2016, Peoples closed
three Ohio branches.
During 2017, Peoples recorded non-core expense items of $341,000 in acquisition-related costs and $242,000 in
pension settlement costs, compared to no acquisition-related costs or pension settlement costs being recorded in 2016.
During 2017, Peoples entered into two forward starting interest rate swaps to obtain fixed rate borrowings with
interest rates of 2.47% and 2.53%, which become effective in January and April of 2018 and mature in 2025 and
2027. These swaps locked in funding rates for $20.0 million in repurchase agreements that mature in 2018 and have
interest rates of 3.61% and 3.55%.
On October 23, 2017, Peoples entered into a merger agreement with ASB that calls for ASB to merge into Peoples
and for ASB’s wholly-owned subsidiary, American Savings Bank, fsb, which operates six branches located in
southern Ohio and northern Kentucky, to merge into Peoples Bank. This transaction is expected to close during the
second quarter of 2018, subject to the satisfaction of customary closing conditions, including regulatory approvals
and the approval of the shareholders of ASB. As of December 31, 2017, ASB had approximately $288.3 million in
total assets, which included approximately $247.2 million in net loans, and approximately $203.2 million in total
deposits. Under the terms of the ASB agreement, shareholders of ASB can elect to receive either 0.592 common
share of Peoples for each share of ASB common stock or $20.00 cash per share, with a limit of 15% of the merger
consideration being paid in cash. ASB is soliciting proxies for use at its special meeting of shareholders to be held on
March 9, 2018, to vote on the adoption and approval of the Merger Agreement.
On October 2, 2017, Peoples Insurance acquired a property and casualty focused independent insurance agency for
total cash consideration of $1.7 million, and recorded $1.1 million of customer relationship intangibles and $100,000
of fixed assets, resulting in $480,000 of goodwill. The acquisition 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 for total cash
consideration of $450,000, and recorded $450,000 of customer relationship intangibles resulting in no goodwill. This
acquisition did not materially impact Peoples' financial position, results of operations or cash flows.
On November 7, 2016, Peoples converted to an upgraded 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 of 2016. 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.
34
◦
◦
◦
◦
◦
◦
◦
◦
◦
During 2017, Peoples borrowed an additional $75.0 million of long-term FHLB non-amortizing advances, which
have interest rates ranging from 1.20% to 2.03% and mature between 2018 and 2022.
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 investment 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.
Peoples' net interest income and net interest margin are impacted by changes in market interest rates based upon
actions taken by the Federal Reserve Board (the "Fed"), either directly or through its Open Market Committee. These
actions include changing its target Federal Funds Rate (the interest rate at which banks lend money to each other),
Discount Rate (the interest rate charged to banks for money borrowed from a Federal Reserve Bank) and longer-term
market interest rates (primarily through transactions in U.S. Treasury securities). Interest rates also are affected by
investor demand for U.S. Treasury securities. The resulting changes in the yield curve slope have a direct impact on
reinvestment rates for Peoples' earning assets.
The Fed has raised the benchmark Federal Funds Target Rate by 25 basis points in each of December of 2016 and
March, June and December of 2017. The Fed has also begun to reduce the size of its $4.5 trillion dollar balance
sheet, which could result in higher interest rates as well. However, there was no indication that the Fed would alter
its current posture of tightening monetary policy at future meetings. Peoples is closely monitoring interest rates, both
foreign and domestic, and potential impacts of changes in interest rates to Peoples Bank’s operations.
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.
35
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.
Revenue Recognition
Peoples recognizes revenues as they are 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. As of
January 1, 2018, Accounting Standards Update ("ASU") 2014-09 - Revenue from Contracts with Customers (Topic 606)
updates the guidance for revenue recognition as it relates to uncompleted contracts. For further information on this
updated guidance, refer to Note 1 of the Notes to the Consolidated Financial Statements.
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
provision for or recovery of 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 provision or recovery 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 pool based upon historical loss experience, adjusted for
qualitative factors. 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,
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, 2017 was adequate to provide for probable losses from existing
36
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 24.4% and 25.0% of total assets at December 31, 2017, and December
31, 2016, respectively, of which approximately 90.9% of the securities were classified as available-for-sale as of
December 31, 2017. 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.
Per ASU 2016-01, beginning in 2018, fluctuations in the market value of equity investment securities will be
recognized in the income statement. Peoples' remaining positions in equity investment securities could pose some
volatility in future quarters, depending on their respective market values at the end of future reporting periods.
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,
2017, and concluded no individual securities were other-than-temporarily impaired. Peoples has not recognized an OTTI
loss in 2017, 2016 or 2015.
Goodwill and Other Intangible Assets
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, and, in any case, at least
annually. Peoples' other intangible assets consist of customer relationship intangible assets, including core deposit
intangibles, representing the present value of future net income to be earned from acquired customer relationships with
definite useful lives, which are required to be amortized over their estimated useful lives.
The value of recorded goodwill is supported ultimately by revenue that is driven by the volume of business transacted
and Peoples' ability to provide quality, cost-effective services in a competitive market place. A decline in earnings as a
result of a lack of growth or the inability to deliver cost-effective services over sustained periods can lead to impairment
of goodwill that could adversely impact earnings in future periods. Potential goodwill impairment exists when the fair
value of the reporting unit (as defined by US GAAP) is less than its carrying value. An impairment loss is recognized in
earnings only when the carrying amount of goodwill is less than its implied fair value.
The process of evaluating goodwill for impairment involves highly subjective and 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 maintains 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.
37
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. 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. Under ASU 2017-04, step (2) of the current impairment test will be eliminated effective January 1, 2020. Under the
amendment, the annual or interim goodwill impairment test will compare the fair value of a reporting unit with its
carrying amount. An impairment charge would be recorded if the carrying amount exceeds the reporting unit’s fair value,
but the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.
At October 1, 2017, 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, small business and agricultural
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, 2017, 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.
Management determined a valuation allowance of $805,000 at December 31, 2017, and $1.3 million at December 31,
2016, to be recorded against the deferred tax assets associated with its investment in a partnership investment. The
decrease in the valuation from the previous year was due to the recently-enacted Tax Cuts and Jobs Act which reduced the
tax rate from 35% to 21%. No other valuation allowances were recorded at either December 31, 2017 or 2016.
The calculation of tax liabilities is complex and requires the use of estimates and judgment since it involves the
application of complex tax laws that are subject to different interpretations by Peoples and the various tax authorities.
Peoples' interpretations are subject to challenge by the tax authorities upon audit or to reinterpretation based on
management's ongoing assessment of facts and evolving case law.
From time-to-time and in the ordinary course of business, Peoples is involved in inquiries and reviews by tax
authorities that normally require management to provide supplemental information to support certain tax positions taken
by Peoples in its tax returns. Uncertain tax positions are initially recognized in the Consolidated Financial Statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions
are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being
38
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, 2017 and 2016.
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 and 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, 2017, all of
Peoples' available-for-sale investment securities were measured using observable market data.
At December 31, 2017, 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.
To determine the fair value of its SRs each reporting quarter, Peoples provides 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
39
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, 2018, 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, 2018, 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, 2017, the fair value of the
cash flow hedges, based on market interest rates, resulted in an asset of $1.4 million.
EXECUTIVE SUMMARY
Net income for the year ended December 31, 2017 was $38.5 million, compared to $31.2 million in 2016 and $10.9
million in 2015, representing earnings per diluted common share of $2.10, $1.71 and $0.61, respectively. The increase in
earnings during 2017 was driven by an increase of $8.5 million in net interest income, coupled with investment security gains
of $3.0 million. These increases were partially offset by an $0.9 million write-down of net deferred tax assets in connection
with the recently-enacted Tax Cuts and Jobs Act, $0.3 million of acquisition-related costs and $0.2 million of pension
settlement charges. In 2016, earnings benefited from a $10.7 million decrease in acquisition-related costs and a $10.6 million
decrease in provision for loan losses compared to 2015, which was partially offset by costs related to the conversion of
Peoples' core banking system of $1.3 million.
In 2017, Peoples recorded provision for loan losses of $3.8 million, an increase of $0.2 million compared to the $3.5
million that was recorded in 2016. The increase in 2017 from 2016 was driven primarily by loan growth. Peoples recorded
net charge-offs of $3.4 million compared to $1.9 million for 2017 and 2016, respectively. The increase in net charge-offs
during 2017 was primarily related to commercial real estate loans, indirect consumer loans and deposit account overdrafts.
The provision for loan losses represented amounts needed, in management's opinion, to maintain the appropriate level of the
allowance for loan losses. Net charge-offs as a percent of annualized average total loans were 0.15% during 2017, compared
to 0.09% in 2016.
Net interest income grew 8% to $113.4 million in 2017, and 7% to $104.9 million in 2016, mostly due to loan growth
and the increase in current rates on variable interest rate loans. Net interest margin was 3.62% in 2017, an increase from
3.54% in 2016 and 3.53% in 2015. Accretion income, net of amortization expense, from acquisitions added approximately
10 basis points to net interest margin in 2017 compared to 11 basis points in 2016 and 17 basis points in 2015. In 2017,
proceeds of $0.8 million received on an investment security that had been previously written down due to an other-than-
temporary impairment, added 3 basis points to the net interest margin. The increase in net interest margin in 2017 compared
to 2016 was mostly due to the increase in loan yields associated with increasing interest rates.
Total non-interest income increased 9% in 2017 compared to 2016. The increase in 2017 compared to 2016 was
primarily due to the gain on investment securities, coupled with increases in trust and investment income, mortgage banking
income, and bank owned life insurance income. These increases were partially offset by a decrease in deposit account
service charges. The increase in trust and investment income was due largely to the growth in the value of assets under
administration and management. Mortgage banking income increased due to customer demand. 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, for which a full year of income was recognized in 2017.
Total non-interest income increased 10% in 2016 compared to 2015, and 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
40
assets under administration and management, and the full year effect of the NB&T acquisition. 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, which leads to variability in this income stream.
Total non-interest expense increased 1% during 2017, largely due to higher salaries and benefit costs, driven by increased
incentive compensation which was tied to corporate performance for 2017. These increases were coupled with increased
medical insurance costs and pension settlement charges recognized in 2017. These increases were partially offset by declines
in professional fees, communications expense, amortization of other intangible assets and the $1.3 million of core banking
system conversion costs that were incurred in 2016. In 2016, total non-interest expense decreased 7%, or $8.2 million,
compared to 2015 due largely to no acquisition-related expenses recorded in 2016 compared to $10.7 million in 2015. The
decrease was partially offset by the full-year effect of operating expenses associated with the NB&T acquisition, and
increased salaries and employee benefits due to higher incentive compensation earned under the corporate incentive plan.
At December 31, 2017, total assets were up 4%, or $149.3 million, to $3.58 billion versus $3.43 billion at year-end 2016.
The increase was primarily related to an increase of 6% in loan balances. The allowance for loan losses increased slightly to
$18.8 million, or 0.80% of total loans, net of deferred fees and costs, compared to $18.4 million and 0.83% at December 31,
2016.
Total liabilities were $3.12 billion at December 31, 2017, up $126.0 million since December 31, 2016. At December 31,
2017, total borrowed funds were $353.5 million, down $97.3 million compared to the prior year-end. Total demand deposits
increased $136.0 million, or 13%, and were 42% of total deposits at December 31, 2017 compared to 40% at December 31,
2016. Shifts in balances occurred between non-interest-bearing deposits and interest-bearing demand account balances as
consumers were migrated to new products during the second half of 2017. This migration resulted in interest bearing demand
deposits increasing $314.4 million, or 113%, and non-interest-bearing deposits decreasing $178.4 million, or 24% . Total
certificates of deposit ("CDs") at December 31, 2017 increased $97.7 million, or 24%, compared to December 31, 2016. The
increases in total deposits were used to reduce borrowings, and fund loan growth and investment purchases.
At December 31, 2017, total stockholders' equity was $458.6 million, up 5%, or $23.3 million, from December 31, 2016.
The increase was primarily due to 2017 earnings of $38.5 million, which were partially offset by dividends of $15.3 million
and the reductions in the market value of investment securities.
Peoples' regulatory capital ratios remained significantly higher than "well capitalized" minimums, and were positively
impacted during 2017 from earnings exceeding dividends paid. Peoples' tier 1 capital ratio increased to 13.74% at
December 31, 2017, versus 13.21% at December 31, 2016, while the total capital ratio was 14.62% versus 14.11% at
December 31, 2016. The common equity tier 1 risk-based capital ratio was 13.45% at December 31, 2017 compared to
12.91% at December 31, 2016. In addition, Peoples' book value per share was $25.08 at December 31, 2017. Peoples'
tangible book value per share was $17.17 at December 31, 2017, and its tangible equity to tangible assets ratio was 9.14%,
versus $15.89 and 8.80% at December 31, 2016, 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.
41
The following table details Peoples’ average balance sheets for the years ended December 31:
2017
2016
2015
Average
Balance
$
12,616 $
—
Income/
Expense
144
—
Yield/
Cost
1.14 % $
— %
Average
Balance
Income/
Expense
50
—
Yield/
Cost
0.52 % $
— %
9,667 $
—
Average
Balance
Income/
Expense
123
12
50,858 $
1,261
(Dollars in thousands)
Short-term investments
Other long-term investments
Investment Securities (a)(b):
Taxable (c)
Nontaxable
Total investment securities
Loans (b)(d):
Commercial real estate, construction
Commercial real estate, other
Commercial and industrial
Residential real estate (e)
Home equity lines of credit
Consumer, indirect
Consumer, other
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
Retail certificates of deposit
Brokered deposits
110,124
743,517
439,178
514,024
110,910
306,338
69,889
2,293,980
(18,713)
2,275,267
3,163,823
144,696
201,769
$ 3,510,288
$ 442,684 $
294,053
367,699
389,885
358,307
98,793
Total interest-bearing deposits
1,951,421
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
100,205
82,042
182,247
136,799
33,315
6,977
177,091
359,338
2,310,759
713,027
36,123
3,059,909
450,379
Total liabilities and stockholders’
equity
$ 3,510,288
768,336
107,604
875,940
20,598
4,497
25,095
2.68 %
4.18 %
2.86 %
753,213
112,808
866,021
18,606
4,810
23,416
3,455
33,651
15,769
24,279
4,853
7,432
4,566
94,005
94,005
117,471
2.47 %
4.26 %
2.70 %
727,239
106,518
833,757
64,421
3.84 %
692,773
4.59 %
329,030
4.12 %
554,909
4.35 %
99,984
4.45 %
139,832
3.59 %
6.29 %
71,292
4.41 % 1,952,241
(19,174)
4.40 % 1,933,067
3.90 % 2,818,943
144,013
148,897
$3,111,853
4,800
35,240
19,944
22,256
4,965
10,975
5,018
103,198
103,198
128,437
88,559
4.30 %
721,535
4.67 %
376,881
4.48 %
557,537
4.33 %
109,164
4.48 %
207,095
3.58 %
7.18 %
72,404
4.50 % 2,133,175
(17,564)
4.50 % 2,115,611
4.03 % 2,991,299
147,981
181,167
$ 3,320,447
Yield/
Cost
0.24 %
0.95 %
2.51 %
4.32 %
2.74 %
4.24 %
4.59 %
4.26 %
4.42 %
4.58 %
3.76 %
6.23 %
4.47 %
18,235
4,603
22,838
2,730
31,781
14,003
24,554
4,575
5,257
4,438
87,338
87,338
110,311
4.52 %
3.91 %
249
704
543
877
2,997
1,784
7,154
1,160
374
1,534
2,794
1,225
441
0.06 % $ 434,140 $
0.24 %
296,590
0.15 %
0.22 %
0.84 %
1.81 %
260,788
401,693
406,298
41,613
0.37 % 1,841,122
1.16 %
0.46 %
0.84 %
2.04 %
3.68 %
6.34 %
86,260
72,909
159,169
84,605
40,000
6,781
231
570
217
702
3,181
1,041
5,942
384
124
508
2,238
1,475
416
0.05 % $ 388,802 $
0.19 %
276,367
0.08 %
0.17 %
0.78 %
2.50 %
222,868
384,258
452,083
50,081
0.32 % 1,774,459
0.45 %
0.17 %
0.32 %
2.65 %
3.69 %
6.13 %
16,863
83,574
100,437
82,184
40,000
13,064
209
597
178
614
3,087
1,521
6,206
42
140
182
2,256
1,471
606
4,460
5,994
13,148
131,386
2.52 %
1.67 %
290,555
0.57 % 2,131,677
4,129
4,637
10,579
135,248
3.14 %
1.60 %
235,685
0.50 % 2,010,144
4,333
4,515
10,721
0.05 %
0.22 %
0.08 %
0.16 %
0.68 %
3.04 %
0.35 %
0.25 %
0.17 %
0.18 %
2.75 %
3.68 %
4.58 %
3.20 %
1.92 %
0.53 %
722,291
33,813
2,887,781
432,666
$ 3,320,447
663,395
31,018
2,704,557
407,296
$3,111,853
Interest rate spread (b)
Net interest margin (b)
$ 115,289
3.46 %
3.62%
$ 106,892
3.40 %
3.54%
$ 99,590
3.38 %
3.53%
42
(a) Average balances are based on carrying value.
(b) Interest income and yields are presented on a fully tax-equivalent basis using a 35% federal tax rate.
(c) Interest income and yield presented for 2017 include $0.8 million of proceeds on an investment security for which an other-than-
temporary-impairment had previously been recorded.
(d) Average balances include nonaccrual, impaired loans, and loans held for sale. 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.
(e) 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, indirect
Consumer, other
Total loan income
Total interest income
INTEREST EXPENSE:
Deposits:
Savings accounts
Government deposit accounts
Interest-bearing demand accounts
Money market accounts
Retail certificates of deposit
Brokered certificates of deposit
Total deposit cost
Borrowed funds:
Short-term borrowings
Long-term borrowings
Total borrowed funds cost
Total interest expense
Changes from 2016 to 2017
Volume
Rate
Total (1)
Changes from 2015 to 2016
Volume
Rate
Total (1)
$
75 $
—
19 $
—
$
94
—
74 $
(6)
(147) $
(6)
1,612
(94)
1,518
445
611
1,454
(138)
34
(147)
740
2,999
4,592
13
139
214
197
208
(357)
414
343
(586)
(243)
171
380
(219)
161
900
978
2,721
(1,885)
78
3,559
(157)
6,194
6,374
5
(5)
112
(22)
(392)
1,100
798
683
917
1,600
2,398
1,992
(313)
1,679
1,345
1,589
4,175
(2,023)
112
3,412
583
9,193
(274)
(62)
(336)
(232)
468
(267)
(391)
(133)
(249)
58
(746)
10,966
(1,014)
18
134
326
175
(184)
743
1,212
1,026
331
1,357
2,569
(2)
(69)
8
59
425
(245)
176
19
81
100
276
645
269
914
957
1,402
2,033
116
411
2,424
70
7,413
8,174
24
42
31
29
(331)
(235)
(440)
307
(285)
22
(418)
(73)
(12)
371
207
578
725
1,870
1,766
(275)
278
2,175
128
6,667
7,160
22
(27)
39
88
94
(480)
(264)
326
(204)
122
(142)
Net interest income
$
4,421 $
3,976 $
8,397
$
(1,290) $
8,592 $
7,302
(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 tax rate.
(2)
43
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 a federal income tax rate of 35%. Management
believes the resulting FTE net interest income allows for a more meaningful comparison of tax-exempt income and yields to
their taxable equivalents. Net interest margin, which is calculated by dividing FTE net interest income by average interest-
earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of
earning assets and interest-bearing liabilities. As of January 1, 2018, the Tax Cuts and Jobs Act was enacted and as a result,
beginning on January 1, 2018, Peoples will use a federal income tax rate of 21%.
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
2017
113,377 $
1,912
115,289 $
2016
104,865 $
2,027
106,892 $
2015
97,612
1,978
99,590
$
$
During 2017, Peoples recognized accretion income, net of amortization expense, from acquisitions of $3.1 million,
which added approximately 10 basis points to net interest margin, compared to $3.5 million and 11 basis points in 2016, and
$4.8 million and 17 basis points in 2015. During 2017, proceeds of $814,000 were received on an investment security that
had been previously written down due to an other-than-temporary impairment, which added three basis points to the net
interest margin. Additional interest income in 2017 from prepayment fees and interest recovered on nonaccrual loans was
$826,000, compared to $964,000 in 2016 and $591,000 in 2015. The primary driver of the increase in net interest income
during the past two years has been the higher loan balances resulting from organic growth. During 2017, net interest income
also benefited from increases in interest rates. The comparison of the income statement and average balance sheet results
between 2015 and 2016 was affected by the NB&T acquisition, which closed on March 6, 2015.
Funding costs increased in 2017 as the Federal Reserve raised the benchmark Federal Funds Target Rate by 25 basis
points in each of December of 2016 and March, June and December of 2017. These rate increases drove higher loan yields
which outpaced increases in deposit and short-term funding costs in 2017. In 2016, funding costs decreased three basis
points due to the deployment of excess cash on the balance sheet to interest bearing investment portfolio and paying off debt.
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
2017
2016
$
$
$
$
3,050
722
3,772
0.16%
$
$
2,890
649
3,539
0.17%
2015
13,485
612
14,097
0.72%
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 2017 and 2016
was driven by 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.
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.”
44
Net Loss on Asset Disposals and Other Transactions
The following table details the net loss on asset disposals and other transactions for the years ended December 31
recognized by Peoples:
(Dollars in thousands)
Net gain (loss) on bank premises and equipment
Net loss on debt extinguishment
Net loss on other real estate owned ("OREO")
Net gain (loss) on other assets
$
Net loss on asset disposals and other transactions $
2017
2016
2015
28 $
—
(116)
25
(63) $
(188) $
(707)
(34)
(204)
(1,133) $
(696)
(520)
(529)
(43)
(1,788)
The net gain on bank premises and equipment during 2017 was due to the sale of a previously closed branch which was
offset partially by a loss on the sale of a parking lot that was no longer being utilized. The net loss on OREO was a result of
the sale of two commercial properties during 2017. The net gain on other assets was primarily due to a net gain on
repossessed assets.
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 were primarily 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.
Non-Interest Income
Peoples generates non-interest income, excluding gains and losses on investments and other assets, from four primary
sources: insurance income; deposit account service charges; trust and investment income; and electronic banking income (“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 31.7% of
Peoples' total revenues in 2017 compared to 32.8% in 2016. The slight decline in Peoples' total non-interest income as a
percent of total revenue during 2017 from 2016 was primarily due to increased net interest income resulting from loan
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 $
Life and health insurance commissions
Performance-based commissions
2017
2016
2015
10,298 $
1,759
10,064 $
1,733
1,457
1,742
Credit life and A&H insurance commissions
Other fees and charges
Insurance income
$
31
659
14,204 $
35
272
13,846 $
10,097
1,756
1,625
50
255
13,783
The majority of performance-based commissions typically are recorded annually in the first quarter and are based on a
combination of factors, such as loss experience of insurance policies sold, production volumes, and overall financial
performance of the individual insurance carriers. The increase in other fees and charges was due to the acquisition of a third-
party insurance administration company that occurred in January 2017.
45
Peoples' fiduciary and brokerage revenues continue to be based primarily upon the value of assets under administration
and 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
2017
2016
2015
$
$
8,020 $
3,538
11,558 $
7,418 $
3,171
10,589 $
6,950
2,627
9,577
The following table details Peoples’ assets under administration and management at year-end December 31:
(Dollars in thousands)
Trust assets under administration and management
Brokerage assets under administration and management
2016
$ 1,452,959 $ 1,301,509 $ 1,275,253
664,153
Total assets under administration and management $ 2,340,262 $ 2,079,280 $ 1,939,406
$ 2,221,747 $ 2,002,537 $ 1,859,336
Annual average
887,303
777,771
2015
2017
During 2017 and 2016, the increases in fiduciary and brokerage revenues were primarily due to the increase in assets
under administration and management and retirement benefits plans, which includes the impact related to the acquisition of
NB&T in 2015, coupled with a fee increase implemented during 2016. The U.S. financial markets have also had a positive
impact on assets under administration and management. 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.
Deposit account service charges, 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
2017
2016
2015
$
$
6,720 $
2,276
618
9,614 $
7,849 $
2,260
553
10,662 $
8,276
2,126
443
10,845
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 and consumer checking
accounts.
The following table details the other items included within Peoples' total non-interest income for the years ended
December 31:
(Dollars in thousands)
E-banking income
Bank owned life insurance income
Mortgage banking income
Commercial loan swap fee income
Other non-interest income
2017
2016
2015
$
10,358 $
1,950
1,872
1,232
1,865
10,353 $
1,414
1,304
1,076
1,826
8,958
598
1,317
565
1,798
Peoples' e-banking services include ATM and debit cards, direct deposit services, internet and mobile banking, and
remote deposit capture, and serve as alternative delivery channels to traditional sales offices for providing services to clients.
The amount of e-banking is largely dependent on the timing and volume of customer activity. During 2017, e-banking
income was essentially unchanged compared to 2016 and increased $1.4 million, or 16%, in 2016 compared to 2015. The
increase in e-banking income in 2016 was the result of the increased usage of debit cards by more customers. In 2017,
Peoples' customers used their debit cards to complete $729 million of transactions, versus $728 million in 2016 and $591
46
million in 2015. E-banking income during 2016 also benefited from the impact of additional customers and accounts related
to the acquisition of NB&T.
During 2017, bank owned life insurance income increased to $2.0 million, compared to $1.4 million in 2016. 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, for which a full year was recognized in 2017.
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 well as servicing income for sold loans. As a result, the amount of income
recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans
offered in the secondary market. Mortgage banking income increased 43.6% in 2017, while decreasing 1% in 2016 due to
customer demand and increased gain on sale of loans. In 2017, Peoples sold approximately $65.2 million of loans to the
secondary market compared to $67.1 million in 2016 and $56.0 million in 2015.
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
2017
2016
2015
$
$
39,669 $
10,223
6,542
1,747
(1,835)
3,930
60,276 $
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
774
778
782
804
817
799
Sales-based and incentive compensation increased in 2017 largely due to higher incentive compensation, which was tied
to corporate performance for 2017. 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.
Employee benefits also increased during 2017 from higher medical insurance costs and pension settlement charges
recognized. The decrease in 2016 compared to 2015 was 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 core banking
system conversion. The decrease in employee benefits in 2016 was partially due to no pension settlement charges being
recognized in 2016, compared to $0.5 million in 2015. 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, which can range from immediate vesting to
three year vesting. 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 2017, Peoples granted restricted common shares to officers and key employees with
performance-based vesting periods and time-based vesting periods. Stock-based compensation expense recorded in 2017
related to the awards granted in 2017, for 2016 performance, was $993,000, compared to $209,000 recorded in 2016 related
to awards granted for 2015 performance. The increase in expense in 2017 compared to 2016 was primarily due to the
47
difference in Peoples' results between the years which resulted in more 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 2017, as
required by US GAAP. Additional information regarding Peoples' stock-based compensation plans and awards can be found
in Note 16 of the Notes to the Consolidated Financial Statements.
Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be
direct loan origination costs. These costs are capitalized and recognized over the life of the loan as a yield adjustment to
interest income. As a result, the amount of deferred personnel costs for each year corresponds directly with the level of new
loan originations. Additional information regarding Peoples' loan activity can be found later in this discussion under the
caption “Loans.”
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
2017
2016
2015
4,850 $
2,573
931
2,279
10,633 $
5,079 $
2,345
901
2,410
10,735 $
4,639
2,908
844
2,816
11,207
$
$
During 2017, depreciation decreased as assets became fully depreciated, branches were closed and new fixed asset
purchases decreased.
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.
The following table details the other items included within Peoples' total non-interest expense for the years ended
December 31:
$
(Dollars in thousands)
Professional fees
E-banking expense
Data processing and software expense
Amortization of other intangible assets
Franchise tax expense
FDIC insurance expense
Communication expense
Marketing expense
Foreclosed real estate and other loan expenses
Other non-interest expense
2017
2016
2015
6,575 $
5,874
4,441
3,516
2,246
1,816
1,475
1,714
873
8,536
7,436 $
5,992
3,763
4,030
2,192
1,899
2,261
1,594
859
8,717
7,295
5,300
3,671
4,077
1,968
2,084
2,286
2,838
1,276
13,863
Peoples' e-banking expense, which is comprised of bankcard, internet and mobile banking costs, increased in 2016 and
2015 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.
Data processing and software expense includes software support, maintenance and depreciation expense. These costs
increased during 2017 due to the increase of software support and higher depreciation related to software and the core
banking system conversion in late 2016, which provides additional customer services and capabilities.
Peoples' amortization of other intangible assets is driven by acquisition-related activity. Amortization expense was $3.5
million in 2017, compared to $4.0 million and $4.1 million in 2016 and 2015, respectively.
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 2017 and 2016 due to increases in equity and
revenues. Peoples is subject to the Ohio Financial Institution Tax ("FIT") which is a business privilege tax that is imposed on
48
financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in
proportion to the taxpayer's gross receipts in Ohio.
Peoples' 2017 FDIC insurance costs decreased slightly from 2016 as assessment changes became effective July 1, 2016.
The FDIC quarterly assessment rate is applied to average total assets less average tangible equity, and is based on leverage
ratio, net income before taxes, nonperforming loans, OREO, loan mix and asset growth. Peoples experienced improvements
in each of these categories during 2016 and 2017, leading to a reduction in the quarterly FDIC assessment rate, which offset
increases in the expense that are attributable to the asset growth experienced during the last two years. 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."
The decrease in communication expense during 2017 compared to 2016 and 2015, resulted from the consolidation of
traditional phone lines to a method of transmitting all voice traffic over the internet and the discontinuation of overlapping
traditional phone line contracts that occurred during the transition.
In 2017, marketing expense, which includes advertising, donation and other public relations costs, increased $120,000
from 2016. The increase was primarily due to increased donations 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 an annual 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 $181,000 in 2017 compared to 2016 and decreased $5.1 million in 2016 compared
to 2015. During 2016, Peoples recorded $0.7 million of expense related to the core system conversion costs. Included in
2015 were $3.7 million of acquisition-related expenses.
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. During the fourth quarter of 2017, income tax expense was impacted by the net deferred tax asset write-down as a
result of recently-enacted Tax Cuts and Jobs Act. In addition to the expense recognized, Peoples receives tax benefits from
municipal investments, bank owned life insurance and 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.
In 2017, Peoples recorded a tax benefit of $154,000 as the result of the adoption of ASU 2016-09, which became
effective January 1, 2017. The tax benefit related to stock awards that settled or vested during the year, with the majority
recorded in the first quarter of 2017.
As of December 31, 2017, Peoples recorded a revaluation of its deferred tax assets and liabilities in light of the
applicable provisions of the recently-enacted Tax Cuts and Jobs Act. Previously, Peoples had recognized its deferred tax
assets and deferred tax liabilities at a federal income tax rate of 35%, and the new law required the use of a 21% federal
income tax rate. As a result, Peoples wrote down its net deferred tax assets by $0.9 million, which had a direct impact on
income tax expense recorded during 2017. Additionally, as of December 31, 2017, Peoples early adopted ASU 2018-02
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income and elected to reclassify from accumulated other comprehensive income to
retained earnings the stranded income tax effects in accumulated other comprehensive loss resulting from the Tax Cuts and
Jobs Act.
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 total fee-based income
minus total non-interest expense and, therefore, excludes the provision for (recovery of) loan losses and all gains and/or
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.
49
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 OREO
Add: net loss on other transactions
Less: recovery of loan losses
Less: net gain on debt extinguishment
Less: net gain on OREO
Less: net gain on investment securities
Less: net gain on other assets
Pre-provision net revenue
Total average assets
Pre-provision net revenue to total average
assets
$
2017
57,203
3,772
—
116
—
—
—
—
2,983
53
$
58,055
$ 3,510,288
$
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
1.65%
1.48%
0.96%
1.10%
1.26%
Peoples generated positive operating leverage for the full year of 2017, with 6% revenue growth outpacing expense
growth of 1% compared to 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 net interest income growth offset partially by a slight
increase in total non-interest expenses. The increase in the PPNR in 2016 was primarily due to an increase in revenue as a
result of net interest income growth coupled with a decrease in total non-interest expense. 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 Fee-Based Income and Expense
Core fee-based income and core non-interest expense are financial measures used to evaluate Peoples' recurring revenue
and expense streams. These measures are non-GAAP since they exclude the impact of all gains and/or losses, core banking
system conversion revenue and costs, acquisition-related costs, pension settlement charges and other non-recurring expenses.
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)
2017
2016
2015
2014
2013
Core fee-based income:
Total non-interest income
Less: net gain on investment securities
Add: net loss on asset disposals and other transactions
Total fee-based income
Plus: core banking system conversion revenue waived
Core fee-based income
(Dollars in thousands)
Core non-interest expense:
Total non-interest expense
Less: system conversion costs
Less: acquisition-related costs
Less: pension settlement charges
Less: other non-core charges
Core non-interest expense
$
$
$
55,573 $
2,983
(63)
52,653 $
—
52,653 $
50,867 $
930
(1,133)
51,070 $
85
51,155 $
46,382 $
729
(1,788)
47,441 $
—
47,441 $
40,020 $
398
(431)
40,053 $
—
40,053 $
37,554
489
(155)
37,220
—
37,220
2017
2016
2015
2014
2013
$ 107,975 $ 106,911 $ 115,081 $
—
341
242
—
1,259
—
—
—
—
10,722
459
592
$ 107,392 $ 105,652 $ 103,308 $
85,009 $
—
4,752
1,400
298
78,559 $
68,265
—
1,412
270
—
66,583
50
Efficiency Ratio
The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total
non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income
plus total fee-based income, which excludes all gains and/or losses. 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)
Efficiency ratio:
Total non-interest expense
Less: Amortization of other intangible assets
Adjusted total non-interest expense
Total fee-based income
Net interest income
Add: Fully tax-equivalent adjustment
Net interest income on a fully tax-equivalent
basis
Adjusted revenue
Efficiency ratio
Core non-interest expense
Less: Amortization of other intangible assets
Adjusted core non-interest expense
Core fee-based income
Net interest income on a fully tax-equivalent
basis
Adjusted revenue
2017
2016
2015
2014
2013
$
$
$
$
$
$
$
$
$
$
$
107,975
3,516
104,459
52,653
113,377
1,912
115,289
167,942
62.20%
107,392
3,516
103,876
52,653
115,289
167,942
$
$
$
$
$
$
$
$
$
$
$
106,911
4,030
102,881
51,070
104,865
2,027
106,892
157,962
65.13%
105,652
4,030
101,622
51,155
106,892
158,047
$
$
$
$
$
$
$
$
$
$
$
115,081
4,077
111,004
47,441
97,612
1,978
99,590
147,031
75.50%
103,308
4,077
99,231
47,441
99,590
147,031
$
$
$
$
$
$
$
$
$
$
$
85,009
1,428
83,581
40,053
69,506
1,335
70,841
110,894
75.37%
78,559
1,428
77,131
40,053
70,841
110,894
$
$
$
$
$
$
$
$
$
$
$
68,265
807
67,458
37,220
55,385
1,211
56,596
93,816
71.90%
66,583
807
65,776
37,220
56,585
93,805
70.12%
Efficiency ratio adjusted for non-core items
61.85%
64.30%
67.49%
69.55%
Peoples' efficiency ratio was 62.20% for 2017, compared to 65.13% for 2016 and 75.50% for 2015. During 2017, the
decline in the efficiency ratio was driven by higher net interest income resulting from loan growth, increased fee-based
income and controlled non-interest expenses. For the full year of 2017, the efficiency ratio, when adjusted for non-core
items, was 61.85% compared to 64.30% in 2016. The continued decline in the adjusted efficiency ratio in recent years has
been driven by acquisitions, coupled with the focus of growing revenues and controlling expenses. Managing expenses has
been a major focus over the last two years, however, during this time Peoples has continued to make meaningful investments
in its infrastructure and systems.
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, 2017, excess
cash reserves at the Federal Reserve Bank were $9.3 million, compared to $4.4 million at December 31, 2016. 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 2017, Peoples' total cash and cash equivalents increased $6.0 million, as cash provided by financing activities and
operating activities of $107.9 million and $60.8 million, respectively, were partially offset by cash used of $162.7 million in
investing activities. Cash used in investing activities was primarily due to funded loan growth of $130.4 million. The loan
51
growth was partially funded by the increase of Peoples' financing activities of deposit growth of $220.6 million, which was
offset by decreases of $97.5 million in short and long-term borrowings, and the increase in operating activities due to $38.5
million of net income.
In 2016, Peoples' total cash and cash equivalents decreased $5.0 million, as $198.4 million of cash was used in investing
activities, which was 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 due to $31.2 million of net income.
Further information regarding the management of Peoples' liquidity position can be found later in this discussion under
“Interest Rate Sensitivity and Liquidity.”
Investment Securities
The following table provides information regarding Peoples’ investment portfolio at December 31:
2017
2016
2015
2014
2013
(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 (loss) gain
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
$
$
$
$
$
$
$
$
$
— $
—
101,569
673,664
6,976
5,129
7,849
795,187 $
797,732 $
(2,545) $
— $
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 $
3,810 $
32,487
4,631
40,928 $
3,820 $
33,858
5,466
43,144 $
3,831 $
35,367
6,530
45,728 $
3,841 $
36,945
7,682
48,468 $
38,371 $
38,371 $
38,401 $
28,311 $
20
319
50,962
510,097
32,304
7,829
4,577
606,108
621,126
(15,018)
3,850
37,536
7,836
49,222
25,196
877,031 $
874,486 $
858,532 $
859,455 $
864,433 $
868,830 $
709,746 $
713,659 $
695,544
680,526
At December 31, 2017, Peoples' investment securities were approximately 24.4% of total assets compared to 25.0% at
December 31, 2016. Although Peoples' investment securities as a percentage of total assets declined during 2017, compared
to 2016, the total investment portfolio increased largely due to purchases of residential mortgage-backed securities, which
was partially offset by principal paydowns.
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.
Peoples designates certain securities as "held-to-maturity" at the time of their purchase if management determines
Peoples would have the ability to hold certain purchased securities until maturity. 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.
52
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
2017
2016
2015
2014
2013
$
$
1,924 $
2,109
(185) $
2,991 $
3,206
(215) $
4,201 $
4,331
(130) $
14,058 $
13,604
454 $
23,446
22,926
520
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, 2017, 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.
53
Loans
The following table provides information regarding outstanding loan balances at December 31:
(Dollars in thousands)
Gross originated loans:
2017
2016
2015
2014
2013
Commercial real estate, construction
Commercial real estate, other
$ 107,118
595,447
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
$
84,626
$
63,785
$
37,901
$
44,703
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
702,565
438,051
304,523
88,902
340,390
67,010
407,400
849
$1,942,290
1,080
$ 1,708,104
1,448
$ 1,414,639
2,933
$ 1,212,014
2,060
$ 1,085,496
$
8,319
$
10,100
$
12,114
$
1,051
$
2,836
165,120
173,439
34,493
184,864
20,575
329
1,147
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
1,476
$ 414,847
$2,357,137
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
54
(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 (b)
Total percentage
2017
2016
2015
2014
2013
$2,293,980
(18,713)
$2,133,175
(17,564)
$1,952,241
(19,174)
$1,364,808
(17,362)
$1,046,371
(17,935)
$2,275,267
$2,115,611
$1,933,067
$1,347,446
$1,028,436
4.9 %
32.3 %
37.2 %
20.0 %
20.8 %
4.6 %
14.5 %
2.9 %
17.4 %
NM
100.0%
4.3 %
33.0 %
37.3 %
19.0 %
24.1 %
5.0 %
11.4 %
3.2 %
14.6 %
NM
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%
Residential real estate loans being serviced for
others
$ 412,965
$ 398,134
$ 390,398
$ 352,779
$ 341,183
Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 and thereafter.
(a)
(b) Not meaningful
As of December 31, 2017, total loans grew 6%, or $132.2 million. The increase was primarily the result of commercial
loan growth of $95.5 million, or 8%, which includes commercial real estate and commercial and industrial loan balances.
Additionally, indirect consumer lending had growth of $87.9 million, or 35%, compared to December 31, 2016, and was
partially offset by reductions in residential real estate loans.
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 consumer 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.
55
The following table details the maturities of Peoples' commercial real estate and commercial and industrial loans at
December 31, 2017:
(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
$
$
$
$
$
$
$
$
787 $
61,589
62,376 $
11,990 $
28,801
40,791 $
7,780 $
4,490
12,270 $
10,117 $
317,801
327,918 $
118,056 $
144,462
262,518 $
95,624 $
74,507
170,131 $
4,614 $
297,408
302,022 $
61,142 $
52,748
113,890 $
27,876 $
28,756
56,632 $
20,557
94,880
115,437
223,797
536,770
760,567
93,632
378,912
472,544
15,518 $
676,798
692,316 $
191,188 $
226,011
417,199 $
131,280 $
107,753
239,033 $
337,986
1,010,562
1,348,548
17.8%
82.2%
100.0%
29.4%
70.6%
100.0%
19.8%
80.2%
100.0%
25.1%
74.9%
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, 2017:
(Dollars in thousands)
Commercial real estate, construction:
Apartment complexes
Mixed commercial use facilities
Office buildings
Assisted living facilities and nursing homes
Light industrial
Residential property
Other
Commercial real estate, construction
Outstanding
Balance
Available
Loan
Commitments
Total
Exposure % of Total
$
$
44,017 $
9,996
5,490
4,427
9,717
2,420
39,370
115,437 $
49,119 $
21,658
24,994
25,700
3,036
2,647
7,026
134,180 $
93,136
31,654
30,484
30,127
12,753
5,067
46,396
249,617
37.3 %
12.7 %
12.2 %
12.1 %
5.1 %
2.0 %
18.6 %
100.0%
56
(Dollars in thousands)
Commercial real estate, other:
Office buildings and complexes:
Owner occupied
Non-owner occupied
Total office buildings and complexes
Mixed commercial use facilities:
Owner occupied
Non-owner occupied
Total mixed commercial use facilities
Apartment complexes
Retail facilities:
Owner occupied
Non-owner occupied
Total retail facilities
Light industrial facilities:
Owner occupied
Non-owner occupied
Total light industrial facilities
Lodging and lodging related
Assisted living facilities and nursing homes
Warehouse facilities
Residential property:
Owner occupied
Non-owner occupied
Total residential property
Other
Outstanding
Balance
Available
Loan
Commitments
Total
Exposure % of Total
$
43,062 $
46,381
89,443
2,575 $
478
3,053
36,680
40,976
77,656
64,203
27,480
33,183
60,663
49,421
11,691
61,112
36,990
35,519
27,625
874
1,514
2,388
187
653
982
1,635
38
—
38
2,899
1,065
255
45,637
46,859
92,496
37,554
42,490
80,044
64,390
28,133
34,165
62,298
49,459
11,691
61,150
39,889
36,584
27,880
2,213
10,263
12,476
294,880
760,567 $
1,845
1,963
3,808
16,021
31,349 $
4,058
12,226
16,284
310,901
791,916
5.8 %
5.9 %
11.7 %
4.7 %
5.4 %
10.1 %
8.1 %
3.6 %
4.3 %
7.9 %
6.2 %
1.5 %
7.7 %
5.0 %
4.6 %
3.5 %
0.5 %
1.5 %
2.0 %
39.4 %
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 not material at either December 31, 2017 or December 31, 2016.
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.
57
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, indirect
Consumer, other
Consumer
Deposit account overdrafts
Originated allowance for loan losses
Allowance for acquired loan losses
Allowance for loan losses
As a percent of total loans, net of
deferred fees and costs
2017
2016
2015
2014
2013
7,797
5,813
13,610
904
693
2,944
464
3,408
70
18,685
108
18,793
$
$
7,172
6,353
13,525
982
688
2,312
518
2,830
171
18,196
233
18,429
$
$
7,076
5,382
12,458
1,257
732
1,427
544
1,971
121
16,539
240
16,779
$
$
9,825
4,036
13,861
1,627
694
1,113
474
1,587
112
17,881
—
17,881
$
$
13,215
2,174
15,389
881
343
187
129
316
136
17,065
—
17,065
$
$
0.80%
0.83%
0.81%
1.10%
1.43%
The allowance for loan losses as a percent of total loans decreased 3 basis points in 2017 compared to 2016 as a result of
the reduction in delinquencies and stable credit quality trends. During 2017, the increase in allowance for loan losses related
to consumer indirect loans was a result of loan growth in recent periods. 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.
During 2016, the increase of 9% in the allowance for loan losses related to total commercial and consumer indirect
balance growth. 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.
58
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:
2017
18,429
2016
16,779
$
2015
17,881
$
2014
17,065
$
2013
17,811
$
$
Commercial real estate (a)
Commercial and industrial
Residential real estate (b)
Home equity lines of credit
Consumer, indirect
Consumer, other (c)
Consumer
Deposit account overdrafts
Total gross charge-offs
Recoveries:
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, other
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, indirect
Consumer, other
Consumer
Deposit account overdrafts
Total net charge-offs (recoveries)
Provision for (recoveries of) loan losses,
December 31 (d)
$
Allowance for loan losses, December 31 $
408
175
637
131
2,110
379
2,489
1,038
4,878
146
1
152
13
764
179
943
215
1,470
262
174
485
118
1,346
200
1,546
823
3,408
3,772
18,793
68
1,017
611
73
2,072
583
2,655
774
5,198
1,209
306
278
56
1,059
226
1,285
175
3,309
(1,141)
711
333
17
1,013
357
1,370
599
1,889
3,539
18,429
$
$
$
$
302
13,576
631
125
931
422
1,353
774
16,761
104
98
315
119
505
250
755
171
1,562
198
13,478
316
6
426
172
598
603
15,199
14,097
16,779
203
199
478
128
745
446
1,191
516
2,715
2,060
77
169
36
434
263
697
153
3,192
1,053
44
621
162
512
572
1,084
527
3,491
5,839
40
536
26
286
266
552
162
7,155
(1,857)
122
309
92
311
183
494
363
(477)
339
17,881
$
$
(4,786)
4
85
136
226
306
532
365
(3,664)
(4,410)
17,065
$
$
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, indirect
Consumer, other
Consumer
Deposit account overdrafts
0.01 %
0.01 %
0.02 %
— %
0.06 %
0.01 %
0.07 %
0.04 %
0.15 %
(0.05)%
0.03 %
0.02 %
— %
0.04 %
0.02 %
0.06 %
0.03 %
0.09 %
0.01 %
0.69 %
0.02 %
— %
0.02 %
0.01 %
0.03 %
0.03 %
0.78%
(0.14 )%
0.01 %
0.02 %
0.01 %
0.02 %
0.02 %
0.04 %
0.03 %
(0.03)%
(0.46 )%
— %
0.01 %
0.01 %
0.02 %
0.03 %
0.05 %
0.04 %
(0.35)%
Total
(a) Includes purchased credit impaired loan charge-offs of $0 in 2017, $44,000 in 2016 and $60,000 in 2015.
(b) Includes purchased credit impaired loan charge-offs of $0 in 2017, $23,000 in 2016 and $3,000 in 2015.
(c) Includes purchased credit impaired loan charge-offs of $7,000 in 2017, $23,000 in 2016 and $3,000 in 2015.
(d) Includes purchased credit impaired loan provision for loan losses of $117,000 in 2017, $66,000 in 2016 and $303,000 in 2015.
59
During 2017, net charge-offs were 0.15% of average total loans. The increase from 2016 was primarily related to a
decline in recoveries of commercial loans and an increase in net charge-offs of consumer indirect loans due to higher
balances from recent loan growth.
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 growth in 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.
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)
OREO:
Commercial
Residential
Total OREO
Total nonperforming assets (NPAs)
$
2017
2016
2015
2014
2013
$
$
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
$
$
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
$
$
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
$
$
—
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
215
45
1,278
72
—
16
1,626
754
6,348
506
4,267
772
158
32
12,837
—
721
492
1,447
90
98
7
2,855
17,318
—
208
208
17,526
60
(Dollars in thousands)
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 (a)
Classified loans as a percent of total loans (b)
2017
90,418
46,380
2016
99,182
57,736
2015
122,147
60,315
2014
74,545
44,723
2013
59,059
36,673
0.73%
0.49%
0.74%
108.52%
3.84%
1.97%
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%
0.60%
0.39%
0.67%
237.87%
4.94%
3.07%
(a) Includes loans categorized as special mention, substandard or doubtful.
(b) Includes loans categorized as substandard or doubtful.
Nonperforming loans decreased in 2017, largely due to the decrease in nonaccrual loans, coupled with declines in loans
90+ days past due and accruing. The decrease in nonaccrual loans was driven by several commercial real estate relationships
that were paid off in 2017.
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.
At December 31, 2015, loans 90+ days past due and accruing included $2.3 million of acquired loans that were
purchased 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.
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 $2.6 million for 2017, $1.9 million for 2016 and $2.1 million for 2015. No portion of
these amounts was recorded during 2017, 2016 or 2015, 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, 2017, 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.
61
Deposits
The following table details Peoples’ deposit balances at December 31:
(Dollars in thousands)
Non-interest-bearing deposits
Interest-bearing deposits:
Interest-bearing demand accounts
Savings accounts
Retail certificates of deposit
Money market deposit accounts
Governmental deposit accounts
Brokered certificates of deposits
Total interest-bearing deposits
Total deposits
$
2017
2016
2015
2014
2013
$
556,010 $
734,421 $
717,939 $
493,162 $
409,891
593,415
446,714
338,673
371,376
264,524
159,618
2,174,320
2,730,330 $
278,975
436,344
361,725
407,754
251,671
38,832
1,775,301
2,509,722 $
250,023
414,375
435,214
394,119
276,639
47,635
1,818,005
2,535,944 $
173,659
295,307
418,350
337,387
161,305
53,904
1,439,912
1,933,074 $
134,618
215,802
344,561
275,801
132,379
67,706
1,170,867
1,580,758
The increase in total deposit balances compared to December 31, 2016 was primarily due to increases of $314.4 million
in interest-bearing demand deposits and $120.8 million in brokered CDs, offset partially by a decrease of $178.4 million in
non-interest-bearing demand deposits. Shifts in balances occurred between non-interest-bearing deposits and interest-bearing
demand account balances as Peoples migrated consumers to new products during the second half of 2017. During this
migration, customer accounts were evaluated based on certain characteristics, and some accounts that were traditionally non-
interest-bearing deposits were converted to interest-bearing demand accounts as Peoples moves toward a relationship-based
deposit product. The increase in brokered CDs in 2017 was the result of adding relatively shorter term funding on the
balance sheet to secure fixed rate funding in a rising rate environment.
In 2016, deposits decreased primarily due to decreases in retail and brokered 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, based on the rate environment
that existed in 2016. These actions accounted for much of the changes in deposit balances in 2016 compared to 2015.
Peoples' governmental deposit accounts represent savings and interest-bearing transaction accounts from state and local
governmental entities. These funds are subject to periodic fluctuations based on the timing of tax collections and subsequent
expenditures or disbursements. Peoples normally experiences an increase in balances annually during the first quarter
corresponding with tax collections, with declines normally in the second half of each year corresponding with expenditures
by the governmental entities. 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.
In 2015 and 2014, the increases in deposits primarily related to the acquisitions of NB&T, Midwest, Ohio Heritage and
North Akron.
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
2017
2016
2015
2014
2013
$
$
24,118 $
20,011
27,129
74,849
146,107 $
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
62
Borrowed Funds
The following table details Peoples’ short-term and long-term borrowings at December 31:
(Dollars in thousands)
Short-term borrowings:
FHLB advances
Retail repurchase agreements
Short-term borrowings
Long-term borrowings:
2017
2016
2015
2014
2013
$
92,592 $
116,899
209,491
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
136,939
—
—
7,080
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
144,019
353,510 $
145,155
450,762 $
113,670
274,056 $
179,083
267,360 $
121,826
235,416
$
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
current interest rate environment, Peoples added long-term FHLB advances in anticipation of a rising rate environment.
During 2017, $40.0 million of long-term FHLB advances, with fixed rates ranging from 1.20% to 3.92%, were reclassified to
short-term borrowings due to the advances maturing within one year.
In 2017, short-term retail repurchase agreements increased due to the reclassification of repurchase agreements from
long-term borrowings that mature within one year. During 2017, Peoples entered into two forward starting interest rate
swaps to obtain fixed rate borrowings with interest rates of 2.47% and 2.53%, which become effective in January and April of
2018 and mature in 2025 and 2027. These swaps locked in funding rates for $20.0 million in repurchase agreements that
mature in 2018 and have interest rates of 3.61% and 3.55%.
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
of long-term FHLB advances.
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 with all of these
covenants as of December 31, 2017.
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 2017, Peoples' total stockholders' equity increased due to higher net income offset slightly by dividends paid and
declines in the market value of investments. At December 31, 2017, 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
63
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. These three minimum required ratios are the common equity tier 1 capital ratio, tier 1
capital ratio and total risk-based capital ratio. 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. Peoples' had a capital buffer of 6.62% at December 31, 2017 and 6.11% at December 31,
2016 compared to the fully phased-in capital conservation buffer of 2.50% required by January 1, 2019. As such, Peoples
exceeded the minimum ratios including the capital conservation buffer at December 31, 2017.
In 2016, Peoples' total stockholders' equity increased due to higher retained earnings offset slightly by the repurchase of
279,770 treasury shares and the slight decline in the market value of investments.
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:
2017
2016
2015
2014
2013
Common Equity Tier 1
Tier 1
Total (Tier 1 and Tier 2)
Net risk-weighted assets
$
$
332,774
339,881
361,579
2,473,329
$
$
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
$
$
Capital Ratios:
Common Equity Tier 1
Tier 1
Total (Tier 1 and Tier 2)
Tier 1 leverage
13.45%
13.74%
14.62%
9.90%
12.91%
13.21%
14.11%
9.66%
13.36%
13.67%
14.54%
9.52%
N/A
N/A
14.32%
15.48%
9.92%
12.42%
13.78%
8.52%
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.
64
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
$
$
$
$
$
$
2017
2016
2015
2014
2013
458,592
144,576
314,016
$
$
435,261
146,018
289,243
$
$
419,789
149,617
270,172
3,581,686
144,576
3,437,110
$ 3,432,348
146,018
$ 3,286,330
$ 3,258,970
149,617
$ 3,109,353
314,016
18,287,449
$
289,243
18,200,067
$
270,172
18,404,864
$
$
$
$
$
340,118
109,158
230,960
2,567,769
109,158
2,458,611
230,960
14,836,727
$
$
$
$
$
221,553
77,603
143,950
2,059,108
77,603
1,981,505
143,950
10,605,782
17.17
$
15.89
$
14.68
$
15.57
$
13.57
Tangible Equity to Tangible Assets Ratio:
Tangible equity
Tangible assets
$
$
314,016
3,437,110
289,243
$
$ 3,286,330
270,172
$
$ 3,109,353
$
$
230,960
2,458,611
$
$
143,950
1,981,505
Tangible equity to tangible assets
9.14%
8.80%
8.69%
9.39%
7.26%
The 2017 increase in tangible equity and tangible assets ratio, compared to 2016, was due mainly to the increase in
retained earnings, offset by the decline in the market value of investment securities.
In 2016, the increase in 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
During 2017, Peoples reported notable accomplishments in many areas, including 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 of 62.20% and record net
income for Peoples. Additionally, Peoples announced the pending acquisition of ASB, which is expected to close in mid
April 2018. The projections for 2018 that are included below exclude the anticipated benefits of the ASB acquisition. The
ASB acquisition is expected to be accretive to earnings by approximately 6 to 7 cents in 2018 and 13 to 15 cents in 2019,
excluding one-time acquisition costs. Peoples currently anticipates one-time acquisition costs of approximately $8.2 million
in 2018. The majority of the one-time acquisition costs will be recognized during the second quarter of 2018.
For 2018, Peoples expects to build on the success and momentum of 2017 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 for the 2018 Annual Meeting of Shareholders, and providing returns for its shareholders superior to
those of its peers, regardless of operating conditions.
65
Net interest income comprised 68% of Peoples' revenue for 2017, and therefore, remained a major source of revenue.
Thus, Peoples' ability to grow revenue in 2018 will be impacted by the amount of net interest income generated. During
2017, Peoples benefited from the Federal Reserve Board's decision to raise interest rates, which they are expected to continue
to do throughout 2018. 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. At December 31, 2017, Peoples'
Consolidated Balance Sheet remained positioned for a rising rate environment, meaning that net interest income would
increase to the extent interest rates increase. However, 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 2018. For 2017, net interest
margin was 3.62%. Net interest margin for 2018 is expected to be approximately 3.60%. Loan growth will again be the key
driver in stabilizing asset yields.
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 has continually sought to maintain a diversified revenue stream through its strong fee-based businesses, such as
insurance and wealth management. However, Peoples' fee revenue as a percent of total revenue has decreased slightly over
the last few years. In 2015 and 2016, Peoples' fee revenue comprised 33% of its total revenue, and 32% in 2017. In 2013,
Peoples' fee revenue comprised 40% of total revenue, which was the highest point. The decline in recent years has been due
primarily to loan growth, coupled with the rising interest rates, and the bank acquisitions completed since 2013, only one of
which had a wealth management practice. In addition, only four 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. Additionally impacting total non-interest income in 2018 will be the market volatility of
equity investment securities, which had a fair value of $7.8 million at December 31, 2017, as the change in market value will
be recognized in total non-interest income instead of accumulated other comprehensive loss. For 2018, management expects
fee-based revenue growth of between 2% and 4%.
While the primary focus will be on revenue growth, management remains disciplined with operating expenses.
Management has deployed an expense management approach to control the annual growth in total non-interest expense. The
management of the growth rate is partially achieved through having various areas within the organization attempt to "self-
fund" investments, meaning that the areas must determine cost savings opportunities prior to making additional investments.
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. For 2018,
management anticipates a slightly higher volume of settlement charges to that incurred in 2017. 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 of between 2% and 4%.
Given the expected revenue and expense growth, Peoples anticipates generating positive operating leverage in 2018.
Additionally, Peoples' efficiency ratio is expected to be between 61% and 63% for 2018.
As previously mentioned, net interest income growth for 2018 is largely dependent upon achieving meaningful loan
growth. Management believes period-end loan balances could increase by 5% to 7% in 2018. Within Peoples' commercial
lending activity, the primary emphasis continues to be on non-mortgage commercial lending opportunities. Consumer
lending activity grew significantly during 2017 and is expected to remain a large contributor to overall loan growth in 2018,
primarily indirect lending.
At December 31, 2017, the investment portfolio comprised 24% of total assets. In 2018, the investment portfolio is
anticipated to decrease slightly. 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. Given the expected increase in earning assets, borrowed funds are expected to increase in 2018 to
the extent earning asset growth is more than deposit growth. Similar to prior years, should this occur, management would
66
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
2018 as the prospects of large charge-offs and recoveries diminish. Management anticipates Peoples' provision for loan
losses and the net charge-off rate for 2018 will normalize, with the net charge-off rate within its long-term historical range of
0.20% to 0.30% of average loans. For 2018, management intends to remain prudent with the level of Peoples' allowance for
loan losses. However, the level will continue to be based upon management's quarterly assessment of the losses inherent in
the loan portfolio, and the amount of any provision for loan losses should be driven mostly by a combination of the net
charge-off rate and loan growth.
Peoples' capital position remains strong. Given the excess capital position and the increase in Peoples' common share
price, Peoples will continue to look for ways to effectively manage its capital, including, but not limited to, bank acquisitions
and dividends. In January 2018, Peoples announced a quarterly dividend of $0.26 per common share, which was an 18%
increase. 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 since late in 2016, 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 2018.
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.
67
The modeling process starts with a base case simulation using the current balance sheet and current interest rates held
constant for the next twenty-four months. Alternate scenarios are prepared which simulate the impact of increasing and
decreasing market interest rates, assuming parallel yield curve shifts. Comparisons produced from the simulation data,
showing the changes in net interest income from the base interest rate scenario, illustrate the risks associated with the
current balance sheet structure. Additional simulations, when deemed appropriate or necessary, are prepared using
different interest rate scenarios from those used with the base case simulation and/or possible changes in balance sheet
composition. The additional simulations include non-parallel shifts in interest rates whereby the direction and/or
magnitude of change of short-term interest rates is different than the changes applied to longer-term interest rates.
Comparisons showing the earnings and economic value of equity variance from the base case are provided to the ALCO
for review and discussion.
The ALCO has established limits on changes in the twelve-month net interest income forecast and the economic
value of equity from the base case. The ALCO may establish risk tolerances for other parallel and non-parallel rate
movements, as deemed necessary.
The following table details the current policy limits used to manage the level of Peoples' IRR:
Immediate and
Sustained Shift in
Interest Rates
+ / - 100 basis points
+ / - 200 basis points
+ / - 300 basis points
Net Interest
Income
-5%
-10%
-15%
Economic
Value of
Equity
-10%
-15%
-20%
The following table shows the estimated changes in net interest income and the economic value of equity based upon
a standard, parallel shock analysis (dollars in thousands):
Increase
(Decrease) in
Interest Rate
Estimated Increase (Decrease) in
Net Interest Income
Estimated (Decrease) Increase in
Economic Value of Equity
(in Basis Points) December 31, 2017
$
300
200
100
(100)
4,114
3,368
2,252
(8,352)
3.5 % $
2.9 %
1.9 %
(7.1)%
(1,100)
83
603
(7,839)
(1.0)% $ (83,466)
(56,377)
0.1 %
(27,710)
0.6 %
10,317
(7.3)%
December 31, 2016
December 31, 2017
(11.9)% $ (88,004)
(57,925)
(8.0)%
(27,441)
(4.0)%
10,826
1.5 %
December 31, 2016
(15.0)%
(9.9)%
(4.7)%
1.8 %
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. Management regularly assesses the impact of both increasing and decreasing
interest rates, the table above reflects the impact of upward shocks, and a downward parallel shock of 100 basis points.
Downward shocks of 200 and 300 basis points are excluded from the table above as they are not probable given the
current interest rate environment.
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 2017, 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 in light of the Federal Reserve Board's stated goal of potentially raising interest
rates at a slow and measured pace. During 2017, the federal funds rate was raised three times totaling 75 basis points.
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
68
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 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, 2017, Peoples had a ratio of 1.7 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, 2017, Peoples had a ratio of 7.1 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
69
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 special mention list loan levels, non-performing loans to loans and to total assets, the
loan to deposit ratio, the level of net non-core funding dependence, the level of contingency funding sources, the liquidity
coverage ratio, changes in regulatory capital levels, forecasted operating loss and negative media concerning Peoples,
irrational competitor pricing that persists and an increase in rates for external funding sources. The LCFP establishes
levels that define each of these KRI's under base, mild, moderate and severe scenarios.
The LCFP is reviewed and updated at least on an annual basis by the ALCO and 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 borrowing 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.
70
The following table details the aggregate amount of future payments Peoples is required to make under certain
contractual obligations as of December 31, 2017:
(Dollars in thousands)
Time deposits
Long-term borrowings (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
498,291 $
144,019
2,782
1,172
414
646,678 $
Less than 1
year
273,887 $
4,378
924
1,172
414
280,775 $
1-3 years
3-5 years
More than
5 years
158,990 $
59,072
945
—
—
65,297 $
38,500
583
—
—
219,007 $
104,380 $
117
42,069
330
—
—
42,516
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, 2017. 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
71
(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 73 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 74 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, 2017, that have materially affected, or are
reasonably likely to materially affect, Peoples’ internal control over financial reporting.
ITEM 9B OTHER INFORMATION
None.
72
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, 2017, 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, 2017, and,
based on this assessment, has concluded Peoples' internal control over financial reporting was effective at a reasonable
assurance level 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
73
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Peoples Bancorp Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Peoples Bancorp Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2017,
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). In our opinion, Peoples Bancorp Inc. and Subsidiaries
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31,
2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Peoples Bancorp Inc. and Subsidiaries as of December 31, 2017 and 2016, 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, 2017, and the related notes and our report dated February 27, 2018 expressed
an unqualified opinion thereon.
Basis for Opinion
The Company’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 are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
Charleston, West Virginia
February 27, 2018
74
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Peoples Bancorp Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Peoples Bancorp Inc. and Subsidiaries (the Company) as
of December 31, 2017 and 2016, 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, 2017, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2017, 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)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated February 27, 2018 expressed an unqualified opinion thereon.
Basis of opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risk of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audit also
included evaluating 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.
We have served as the Company’s auditor since 1995.
February 27, 2018
Charleston, West Virginia
75
$
$
$
December 31,
2017
2016
58,121 $
14,073
72,194
58,129
8,017
66,146
795,187
777,940
40,928
43,144
38,371
874,486
2,357,137
(18,793)
2,338,344
2,510
52,510
62,176
133,111
11,465
34,890
3,581,686 $
556,010 $
2,174,320
2,730,330
209,491
144,019
39,254
3,123,094
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
—
—
345,412
344,404
134,362
(5,215)
(15,967)
110,294
(1,554)
(17,883)
458,592
3,581,686 $
435,261
3,432,348
$
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
$797,732 at December 31, 2017 and $777,017 at December 31, 2016)
Held-to-maturity investment securities, at amortized cost (fair value of $41,213
at December 31, 2017 and $43,227 at December 31, 2016)
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, 2017 and December 31, 2016
Common stock, no par value, 24,000,000 shares authorized, 18,952,385 shares
issued at December 31, 2017 and 18,939,091 shares issued at December 31,
2016, including shares in treasury
Retained earnings
Accumulated other comprehensive loss, net of deferred income taxes
Treasury stock, at cost, 702,449 shares at December 31, 2017 and 795,758
shares at December 31, 2016
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to the Consolidated Financial Statements
76
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
2017
2016
2015
$
103,043 $
20,415
2,923
144
126,525
93,845 $
18,423
3,126
50
115,444
87,155
18,051
2,992
135
108,333
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
Non-interest income:
Insurance income
Trust and investment income
E-banking income
Deposit account service charges
Net gain on investment securities
Bank owned life insurance income
Mortgage banking income
Commercial loan swap fee income
Net loss on asset disposals and other transactions
Other non-interest income
Total non-interest income
Non-interest expense:
Salaries and employee benefit costs
Net occupancy and equipment expense
Professional fees
E-banking expense
Data processing and software expense
Amortization of other intangible assets
Franchise tax expense
FDIC insurance expense
Communication expense
Marketing expense
Foreclosed real estate and other loan expenses
Other non-interest expense
Total non-interest expense
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
7,154
1,534
4,460
13,148
113,377
3,772
109,605
14,204
11,558
10,358
9,614
2,983
1,950
1,872
1,232
(63)
1,865
55,573
60,276
10,633
6,575
5,874
4,441
3,516
2,246
1,816
1,475
1,714
873
8,536
107,975
57,203
18,732
38,471 $
2.12 $
2.10 $
5,942
508
4,129
10,579
104,865
3,539
101,326
13,846
10,589
10,353
10,662
930
1,414
1,304
1,076
(1,133)
1,826
50,867
57,433
10,735
7,436
5,992
3,763
4,030
2,192
1,899
2,261
1,594
859
8,717
106,911
45,282
14,125
31,157 $
1.72 $
1.71 $
18,050,189
18,208,684
18,013,693
18,155,463
6,206
182
4,333
10,721
97,612
14,097
83,515
13,783
9,577
8,958
10,845
729
598
1,317
565
(1,788)
1,798
46,382
59,216
11,207
7,295
5,300
3,671
4,077
1,968
2,084
2,286
2,838
1,276
13,863
115,081
14,816
3,875
10,941
0.62
0.61
17,555,140
17,687,795
77
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
Amounts reclassified out of accumulated other comprehensive (loss)
income per ASU 2018-02
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
Amounts reclassified out of accumulated other comprehensive (loss)
income per ASU 2018-02
Net effect on other comprehensive (loss) income
Cash flow hedges:
Net (loss) gain arising during the period
Related tax benefit (expense)
Amounts reclassified out of accumulated other comprehensive (loss)
income per ASU 2018-02
Net effect on other comprehensive (loss) income
Total other comprehensive (loss) income, net of tax
Total comprehensive income
See Notes to the Consolidated Financial Statements
2017
2016
2015
$
38,471 $
31,157 $
10,941
(555)
195
2,983
(1,044)
(370)
(2,669)
(616)
216
96
(34)
242
(85)
(754)
(935)
(395)
138
200
(57)
(3,661)
34,810 $
$
(2,590)
906
930
(326)
—
(2,288)
(232)
81
89
(31)
—
—
—
(93)
1,824
(638)
—
1,186
(1,195)
29,962 $
1,232
(431)
729
(255)
—
327
373
(130)
112
(38)
459
(161)
—
615
—
—
—
—
942
11,883
78
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
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
Repurchase of treasury stock in connection with employee
incentive plan and under compensation plan for Boards of
Directors
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 acquisition of NB&T
Financial Group, Inc.
Common shares issued under employee stock purchase plan
Balance, December 31, 2015
Net income
Other comprehensive loss, net of tax
Cash dividends declared
Exercise of stock appreciation rights
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
Repurchase of treasury stock in connection with employee
incentive plan and under compensation plan for Boards of
Directors
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
Accumulated
Other
Comprehensive
(Loss) Income
Treasury
Stock
(14,714) $
(1,301) $
Total
Stockholders'
Equity
$ 265,742 $
90,391 $
—
—
10,941
—
— (10,542)
51
—
—
397
(43)
1,843
76,027
(69)
—
—
—
—
—
—
—
—
—
942
—
—
—
—
—
—
—
—
—
—
—
—
—
184
340,118
10,941
942
(10,542)
51
184
(741)
(741)
—
177
—
—
504
397
134
1,843
76,027
435
$ 343,948 $
90,790 $
(359) $
(14,590) $
419,789
—
—
31,157
—
— (11,653)
(40)
(1,297)
26
—
—
—
437
(18)
1,332
16
—
—
—
—
—
—
—
—
—
—
—
(1,195)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
40
1,297
—
232
31,157
(1,195)
(11,653)
—
—
26
232
(515)
(515)
(4,965)
(4,965)
—
263
—
355
437
245
1,332
371
Balance, December 31, 2016
$ 344,404 $ 110,294 $
(1,554) $
(17,883) $
435,261
79
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 appreciation rights
Reissuance of treasury stock for common stock awards
Reissuance of treasury stock for deferred compensation plan for
Boards of Directors
Repurchase of treasury stock in connection with employee
incentive plan and under compensation plan for Boards of
Directors
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
Amounts reclassified out of accumulated other comprehensive
(loss) income per ASU 2018-02
Balance, December 31, 2017
See Notes to the Consolidated Financial Statements
Common
Stock
Retained
Earnings
—
—
38,471
—
— (15,327)
(6)
(1,455)
—
—
525
88
1,747
109
—
—
—
—
—
—
—
—
Accumulated
Other
Comprehensive
(Loss) Income
—
(2,737)
—
—
—
—
—
—
—
—
—
Treasury
Stock
Total
Stockholders'
Equity
—
—
—
6
1,455
500
(508)
—
207
—
256
38,471
(2,737)
(15,327)
—
—
500
(508)
525
295
1,747
365
—
924
$ 345,412 $ 134,362 $
(924)
(5,215) $
—
(15,967) $
—
458,592
80
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:
2017
2016
2015
$
38,471 $
31,157 $
10,941
Depreciation, amortization and accretion, net
Provision for loan losses
Bank owned life insurance income
Net gain on investment securities
Loss on debt extinguishment
Loans originated for sale
Proceeds from sales of loans
Net gains on sales of loans
Deferred income tax benefit
Increase (decrease) in accrued expenses
(Increase) decrease in interest receivable
Excess tax benefit from share-based payments
Increase in other assets
Other, net
Net cash provided by operating activities
Investing activities:
Available-for-sale investment securities:
Purchases
Proceeds from sales
Proceeds from principal payments, calls and prepayments
Held-to-maturity investment securities:
Purchases
Proceeds from principal payments
Net increase in loans
Net expenditures for premises and equipment
Proceeds from sales of other real estate owned
Purchase of bank owned life insurance
Business combinations, net of cash received
Return of (investment in) limited partnership and tax credit funds
Net cash used in investing activities
Financing activities:
Net (decrease) increase in non-interest-bearing deposits
Net increase (decrease) in interest-bearing deposits
Net (decrease) increase in short-term borrowings
Proceeds from long-term borrowings
Payments on long-term borrowings
Cash dividends paid
Repurchase of treasury stock under share repurchase program
Repurchase of treasury stock in connection with employee incentive and
compensation plan for Boards of Directors 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 increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest paid
Income taxes paid
See Notes to the Consolidated Financial Statements
81
18,142
3,772
(1,950)
(2,983)
—
(63,730)
66,025
(1,445)
(2,779)
950
(807)
—
6,050
1,104
60,820
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
(180,109)
8,355
143,000
(166,241)
30,734
127,824
(196,599)
57,415
126,401
(1,310)
3,142
(130,397)
(4,865)
556
—
(1,069)
9
(162,688)
(178,411)
398,991
(146,721)
55,000
(5,738)
(14,706)
—
—
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)
—
(508)
(515)
(741)
9
—
107,916
6,048
66,146
72,194 $
18
26
133,078
(4,969)
71,115
66,146 $
—
51
(37,111)
9,661
61,454
71,115
12,880 $
14,036 $
10,439 $
11,890 $
11,541
672
$
$
$
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 74 financial service locations, including 65 full-service bank branches and 71 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 of 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, and NB&T Statutory Trust III, for
which Peoples holds all of the common securities. All significant intercompany accounts and transactions have been
eliminated.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-
bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety
days or less. Included in interest-bearing deposits in other banks was $1.0 million in funds at December 31, 2017 and
2016, 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
82
when it is more likely than not that Peoples will be required to sell the security, the entire impairment loss must be
recognized in earnings. In all other situations, only the portion of the impairment loss representing the credit loss must be
recognized in earnings, with the remaining portion being recognized in stockholders' equity as a component of
accumulated comprehensive income or loss, net of applicable deferred taxes.
Fair Value Measurements: The measurement of fair value under US GAAP uses a hierarchy intended to maximize the
use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to
measure the fair value of assets and liabilities as follows:
Level 1: Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S.
Treasury and other U.S. government and agency securities actively traded in over-the-counter markets.
Level 2: Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in
less active markets, or other observable inputs that can be corroborated by observable market data; also includes
derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived
principally from, or corroborated by, observable market data. This category generally includes certain U.S.
government and agency securities, corporate debt securities, derivative instruments, and residential mortgage loans
held for sale.
Level 3: Unobservable inputs supported by little or no market activity for financial instruments whose value is
determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments
for which the determination of fair value requires significant management judgment or estimation; also includes
observable inputs for single dealer nonbinding quotes not corroborated by observable market data. This category
generally includes certain private equity investments, retained interests from securitizations, and certain collateralized
debt obligations.
Securities Sold Under Agreements to Repurchase: Peoples enters into sales of securities under agreements to repurchase
(“Repurchase Agreements”) with customers and other financial service companies, which are considered financings. As
such, these obligations are recorded as a liability on the Consolidated Balance Sheets and disclosed in Note 8 and Note 9,
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, charge-offs 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 $7.5 million and $5.4 million at December 31, 2017 and 2016, 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 "purchased credit impaired" loans, since origination and for which it is probable, at acquisition, that Peoples will be
unable to collect all contractually required payments which 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
83
acquired purchased credit impaired loan portfolio for changes in credit quality. Increases in expected cash flows
subsequent to acquisition are recognized prospectively over the remaining life of the acquired purchased credit impaired
loans 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 purchased credit impaired loans are considered to be accruing and performing even though collection
of contractual payments on the 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 discount or premium
to a loan's cost basis and is accreted or amortized to interest income over the loan's remaining life using the level yield
method. Subsequent to the acquisition date, the method 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 the 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 fair 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. An interest rate lock commitment generally terminates once the loan is funded, the lock
period expires or the borrower decides not to contract for the loan. A best efforts commitment generally terminates 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 an other asset or an other 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 indirect 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
economic and business conditions and developments that affect the collectibility of the portfolio, including the condition
of various market segments, which are considered by management include, among other factors, (1) changes in
international, national, regional and local economic and business conditions, (2) changes in asset quality, (3) changes in
loan portfolio volume, (4) the composition and concentrations of credit, (5) changes in the value of underlying collateral
84
due to economic or market conditions, (6) the impact of interest rate changes on portfolio risk, and (7) effectiveness of
Peoples' loan policies, procedures and internal controls. The total allowance for loan losses established for each
homogenous loan pool represents the product of the historical loss rate, adjusted for qualitative factors, and the total dollar
amount of the loans in the pool.
Peoples categorizes loans involving commercial borrowers into risk categories based upon an established grading
matrix. This system is used to manage the risk within its commercial lending activities, evaluate changes in the overall
credit quality of the loan portfolio and evaluate the appropriateness of the allowance for loan losses. Loan grades are
assigned at the time a new loan or lending commitment is extended by Peoples and may be changed at any time when
circumstances warrant. Loans to borrowers with an aggregate unpaid principal balance in excess of $1 million are
reviewed on an annual basis for possible credit deterioration. 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 residential real estate, home equity lines of credit and 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 consideration 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
85
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 $4.7
million and $5.0 million at December 31, 2017 and 2016, 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
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 $208,000 at December 31, 2017 and $661,000 at December 31, 2016.
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, 2017, based
upon the estimated fair value of Peoples' single reporting unit.
Peoples' other intangible assets include customer relationship, core deposit intangible assets and servicing rights
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 that have been
completely sold are not included on 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 the 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 Administration and Management: Peoples manages certain assets held in a fiduciary or agency
capacity for customers. These assets under administration and 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 they are 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. As of January 1, 2018, Accounting Standards Update ("ASU") 2014-09 - Revenue from Contracts with
Customers (Topic 606) updates the guidance for revenue recognition as it relates to uncompleted contracts. For further
information, refer to "New Accounting Pronouncements" later in this footnote.
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.
86
Other Income Recognition: Service charges on deposits include cost recovery fees associated with the 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.
Income Taxes: Peoples and its subsidiaries file a consolidated federal income tax return. Deferred income tax assets and
liabilities are provided as 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 Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017 and ASC 740 required Peoples to reflect
the changes associated with the Act’s provisions in the fourth quarter of 2017. The Act is complex and has extensive
implications for Peoples’ federal taxes. At December 31, 2017, Peoples completed the accounting for the tax effects of
enactment of the Act; however, in certain cases as described below, Peoples made reasonable estimates of the effects of a
reduced federal tax rate on its existing deferred tax balances. In other cases, Peoples has not been able to make a
reasonable estimate and continued to account for those items based on its existing accounting under ASC 740 and the
provisions of the tax laws that were in effect immediately prior to enactment. For the items for which Peoples was able to
determine a reasonable estimate, Peoples recognized a provisional amount of $0.9 million, which is included as a
component of income tax expense from continuing operations. In all cases, Peoples will continue to make and refine its
calculations during the remeasurement period as additional analysis is completed. In addition, these estimates may also
be affected as Peoples gains a more thorough understanding of the tax law.
Peoples releases the impact of income tax effects from accumulated other comprehensive loss in the period in which
they occur. The Act resulted in stranded income tax effects in accumulated other comprehensive loss, for which new
accounting guidance was issued under ASU 2018-02. This guidance allowed for Peoples to early adopt and
retrospectively apply the reclassification of stranded income tax effects from accumulated other comprehensive loss to
retained earnings. As of December 31, 2017, Peoples had reclassified all income tax effects resulting from the Act from
accumulated other comprehensive loss to retained earnings, and the components of accumulated other comprehensive
income or loss included in the Consolidated Statements of Stockholders' Equity were computed based upon a 21%
statutory federal tax rate. As of December 31, 2016, the components of accumulated other comprehensive income or loss
included in the Consolidated Statements of Stockholders' Equity were computed based upon a 35% statutory 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 expensed as incurred.
Earnings per Share: Basic and diluted earnings per common share (“EPS”) are calculated using the two-class method
since Peoples has issued share-based payment awards considered participating securities because they entitle holders 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 are computed by dividing net earnings
allocated to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per
common share are 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 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.
87
Stock-Based Compensation: Compensation expense for stock appreciation rights and restricted stock awards 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 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.
ASU 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220): Allows for a reclassification
from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Act.
This amendment eliminates the stranded tax effects resulting from the Act and will improve the usefulness of information
reported to financial statement users. The amendment will be effective for interim and annual reporting periods beginning
after December 15, 2018. Early adoption of the amendment is permitted for public business entities for reporting periods
for which financial statements have not yet been issued. The amendment should be applied either in the period of
adoption or retrospectively to each period in which the effect of the U.S. federal corporate income tax rate in the Act is
recognized. Peoples has elected to early adopt this accounting guidance effective December 31, 2017, and has
reclassified income tax effects of the Act of approximately $0.9 million from accumulated other comprehensive loss to
retained earnings.
ASU 2018-01 - Leases (Topic 842): Improvements of transparency and comparability by recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about leasing transactions. This update provides
an optional practical expedient that affects entities with land easements that existed or expired before an entity's adoption
of Topic 842, provided that the entity does not account for those land easements as leases under Topic 840. The
amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective but may be early adopted.
The effective date and transition requirements for the amendments are the same as the effective date and transition
requirements in ASU 2016-02. Peoples will adopt this guidance as required, in conjunction with the adoption of ASU
2016-02 described below, however this update is not expected to materially alter the implementation of ASU 2016-02, or
to have a material impact on Peoples' consolidated financial statements.
ASU 2017-12 - Derivatives and Hedging (Topic 815): Targeted improvements to accounting for hedging activities.
The amendments in this ASU better align an entity’s risk management activities and financial reporting for hedging
relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and
the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both
nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging
instrument and the hedged item in the financial statements. The amendments will be effective for interim and annual
reporting periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new
accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial
statements.
ASU 2017-11 - Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and
Hedging (Topic 815): (Part 1) Accounting for certain financial instruments with down round features and (Part II),
Replacement of the indefinite deferral for mandatory redeemable financial instruments of certain nonpublic entities and
certain mandatory redeemable noncontrolling interests with a scope exception. (Part I) of the update addresses the
complexity of accounting for certain financial instruments with down round features of certain equity-linked instruments
and will be effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1,
2019 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material
impact on Peoples' consolidated financial statements.
ASU 2017-09 - Compensation - Stock Compensation (Topic 718): Scope and Modification Accounting. An entity
may change the terms or conditions of a share-based payment award for many different reasons, and the nature and effect
of the change can vary significantly. Modification is currently defined as "a change in any of the terms or conditions of a
share-based payment award." The amendments in this ASU provide guidance about which changes to the terms or
conditions of a share-based payment award require an entity to apply modification accounting in accordance with Topic
718. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2017
(effective January 1, 2018 for Peoples). Peoples adopted this new accounting guidance effective January 1, 2018, and it is
not expected to have a material impact on Peoples' consolidated financial statements.
88
ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on
Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable
debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The
amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized
to maturity. The amendments will be effective for interim and annual reporting periods beginning after December 15,
2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not
expected to have a material impact on Peoples' consolidated financial statements.
ASU 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this ASU require that an employer
disaggregate the service cost component from the other components of net benefit cost. The amendments will improve
the consistency, transparency, and usefulness of financial information and will be effective for interim and annual
reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Peoples adopted this new
accounting guidance effective January 1, 2018, and it will have no impact on Peoples' consolidated financial statements as
the accrual for pension plan benefits for all participants was frozen as of March 1, 2011.
ASU 2017-04 - Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The
amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating the
requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This accounting
guidance will be effective for interim and annual reporting periods beginning after December 15, 2019 (effective January
1, 2020 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a
material impact on Peoples' consolidated financial statements.
ASU 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this
ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business
affects many areas of accounting, including acquisitions, disposals, goodwill and consideration. ASU 2017-01 will
become effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018
for Peoples). Peoples will adopt Phase 1 of this new accounting guidance as required and management will apply this
guidance to future transactions upon adoption. Phase 2, which was released as ASU 2017-05, will not impact Peoples'
consolidated financial statements.
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. This accounting guidance replaces the current “incurred loss” model for recognizing credit losses with an
“expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Under the CECL model,
Peoples will be required to present certain financial assets carried at amortized cost, such as loans held-for-investment and
held-to-maturity debt securities, at the net amount expected to be collected.
The measurement of expected credit losses is to be based on information about past events, including historical
experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported
amount. This measurement will take place at the time the financial asset is first added to the balance sheet and
periodically thereafter. This differs significantly from the “incurred loss” model required under current US GAAP, which
delays recognition until it is probable a loss has been incurred. Accordingly, Peoples expects that the adoption of the
CECL model will materially affect how the allowance for loan losses is determined and could require significant increases
to the allowance for loan losses. Moreover, the CECL model may create more volatility in the level of Peoples' allowance
for loan losses. If required to materially increase the level of allowance for loan losses for any reason, such increase
could adversely affect Peoples' business, financial condition and results of operations.
The new CECL standard will become effective for interim and annual reporting periods beginning after December
15, 2019 (effective January 1, 2020 for Peoples). Peoples is currently evaluating the impact that the CECL model will
have on Peoples' financial statements and expects to recognize a one-time cumulative-effect adjustment to the allowance
for loan loss provision as of the beginning of the first reporting period in which the new standard is effective, consistent
with regulatory expectations set forth in interagency guidance issued at the end of 2016. Peoples has not yet determined
the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on Peoples'
financial condition or results of operations.
ASU 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting. The amendments in this ASU require all excess income tax benefits or tax deficiencies of stock awards to be
recognized in the income statement when the awards vest or are settled. The amendments also allow an employer to
repurchase more of an employee’s shares than the employer could under previous guidance for tax withholding purposes
without triggering liability accounting and to make a policy election to account for forfeitures as they occur. Peoples
adopted this pronouncement as of January 1, 2017, and will continue using an estimated forfeiture rate. In 2017, Peoples
89
recorded a tax benefit of $154,000 associated with the adoption of this ASU for the tax benefit related to awards that
settled or vested during the year, with the majority recorded in the first quarter of 2017.
ASU 2016-02 - Leases (Topic 842): The amendments in this ASU were 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. Additional aspects of this new accounting guidance 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 September of 2017 and January of 2018, clarifying several areas of the guidance. 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. This ASU will require both finance and operating leases to be recognized on the balance sheet. This ASU
will affect all companies and organizations that lease real estate. This ASU will become effective for interim and annual
reporting periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new
accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial
statements.
ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets
and Financial Liabilities. The amendments in this ASU are intended to enhance the reporting model for financial
instruments to provide users of financial statements with more useful information. The amendments require 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 issuer.
This ASU will be effective for fiscal years beginning after December 15, 2017 (effective January 1, 2018 for Peoples).
Peoples adopted this accounting guidance as of January 1, 2018, which will result in an impact to the income statement on
a quarterly and annual basis as market values fluctuate. As of December 31, 2017, Peoples had net unrealized gains on
equity securities of $6.4 million.
ASU 2014-09 - Revenue from Contracts with Customers (Topic 606). The FASB issued updates in March, April,
May and December of 2016, and in September and November of 2017, 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,
• Licensing implementation guidance, and
• Transition provisions for public business entities that otherwise would not meet the definition of a public
business entity except for a requirement to include, or the inclusion of, its financial statements or financial
information in another public business entity's filing.
This accounting guidance can be implemented using either a full retrospective method or a modified retrospective
approach. This 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 adopted this new accounting guidance in 2018, as required, and will
use 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' analysis indicates
that certain non-interest income financial statement line items contain revenue streams that are in the scope of this update,
the most substantial of which is insurance income, and also includes trust and investment income, e-banking income,
deposit account service charges, commercial loan swap fee income and certain revenue included in other non-interest
income.
As of January 1, 2018, Peoples will record a cumulative-effect adjustment and expects to record a reduction to
retained earnings of approximately $3 million, which is net of federal income taxes. This analysis is preliminary, and is
subject to further review. Beginning in 2018, Peoples will begin recording insurance income under the new guidance,
which is not expected to have a significant impact on Peoples’ financial condition or results of operations.
90
Note 2 Fair Value of Financial Instruments
Available-for-sale securities measured at fair value on a recurring basis were comprised of the following at December 31:
(Dollars in thousands)
2017
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity securities
Total available-for-sale securities
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
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
$
$
$
$
101,569 $
673,664
6,976
5,129
7,849
795,187 $
1,000 $
117,230
626,567
19,291
4,899
8,953
777,940 $
— $
—
—
—
7,694
7,694 $
— $
—
—
—
—
8,734
8,734 $
101,569 $
673,664
6,976
5,129
155
787,493 $
1,000 $
117,230
626,567
19,291
4,899
219
769,206 $
—
—
—
—
—
—
—
—
—
—
—
—
—
Held-to-maturity securities reported at fair value were comprised of the following at December 31:
(Dollars in thousands)
2017
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
2016
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
$
$
$
$
4,417 $
32,227
4,569
41,213 $
4,041 $
33,762
5,424
43,227 $
— $
—
—
— $
— $
—
—
— $
4,417 $
32,227
4,569
41,213 $
4,041 $
33,762
5,424
43,227 $
—
—
—
—
—
—
—
—
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
91
the pricing services in management's overall assessment of the reasonableness of the fair values provided and challenges
prices when management 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), less estimated selling costs. At December 31, 2017, impaired loans
with an aggregate outstanding principal balance of $25.7 million were measured and reported at a fair value of $20.6
million. For the year ended December 31, 2017, Peoples recognized losses of $42,000 on impaired loans through
the allowance for loan losses.
The following table presents the fair values of financial assets and liabilities carried on Peoples’ Consolidated Balance
Sheets, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring
basis or non-recurring basis at December 31:
(Dollars in thousands)
Financial assets:
Cash and cash equivalents
Investment securities
Loans (1)
Bank owned life insurance
Servicing rights
Financial liabilities:
Deposits
Short-term borrowings
Long-term borrowings
Cash flow hedges (2)
2017
2016
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
72,194 $
874,486
2,340,854
62,176
2,305
72,194
874,771
2,276,704
62,176
2,305
$
66,146 $
859,455
2,210,529
60,225
2,305
66,146
859,538
2,152,544
60,225
2,305
$ 2,730,330 $ 2,730,071
209,628
142,108
1,354
209,491
144,019
1,354
$ 2,509,722 $ 2,512,647
305,607
145,106
1,779
305,607
145,155
1,779
(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 below. 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, bank owned life insurance, servicing rights and cash flow hedges. 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).
Short-term borrowings: The fair value of short-term borrowings is estimated using discounted cash flow analysis
based on rates currently available to Peoples for borrowings with similar terms (Level 2 inputs).
92
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 within other assets. 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.
Note 3 Investment Securities
Available-for-sale
The following table summarizes Peoples’ available-for-sale investment securities at December 31:
(Dollars in thousands)
2017
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity securities
Total available-for-sale securities
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
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
$
$
$
100,039 $
684,100
7,004
5,195
1,394
797,732 $
1,786 $
2,582
11
141
6,520
11,040 $
(256) $
(13,018)
(39)
(207)
(65)
(13,585) $
101,569
673,664
6,976
5,129
7,849
795,187
1,000 $
115,657
633,802
19,337
5,169
2,052
777,017 $
— $
1,836
3,758
41
91
6,969
12,695 $
— $
(263)
(10,993)
(87)
(361)
(68)
(11,772) $
1,000
117,230
626,567
19,291
4,899
8,953
777,940
Peoples’ investment in equity securities was comprised largely of common stocks issued by unrelated bank holding
companies at both December 31, 2017 and 2016. At December 31, 2017, there were no securities of a single issuer that
exceeded 10% of total 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
2017
2016
2015
$
$
2,999 $
16
2,983 $
933 $
3
930 $
795
66
729
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.
93
The following table presents a summary of available-for-sale investment securities that had an unrealized loss at
December 31:
(Dollars in thousands)
2017
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 $ 16,985 $
89
274,998
3,462
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Bank-issued trust preferred
securities
Equity securities
Total
2016
Obligations of:
2,487
—
276
$ 294,746 $
States and political subdivisions $ 23,501 $
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Bank-issued trust preferred
securities
Equity securities
Total
427,088
7,770
—
263
$ 458,622 $
23
—
1
3,575
263
8,495
87
—
3
8,848
18
77
1
—
1
97
$
5,308 $
167
1
$ 22,293 $
256
291,812
9,556
88
566,810
13,018
1,274
2,792
112
$ 301,298 $
16
207
64
10,010
1
3
1
94
3,761
2,792
388
$ 596,044 $
39
207
65
13,585
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
Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair
value on a quarterly basis. At December 31, 2017, 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, 2017 and 2016 were attributable to changes in market interest rates and spreads since the securities were
purchased.
At December 31, 2017, 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 four
positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to
2004. Two of these four positions had a fair value of less than 90% of their book value, with an aggregate book and fair
value of $0.6 million and $0.4 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, 2017 were primarily attributable to the floating rate
nature of those investments, the current interest rate environment and spreads within that sector.
94
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, 2017. 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.
(Dollars in thousands)
Amortized cost
Obligations of:
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:
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
995
445
—
—
—
1,440
$ 10,453
13,971
5,714
—
—
$ 30,138
$ 31,525
43,502
—
2,196
—
$ 77,223
$ 57,066
626,182
1,290
2,999
—
$ 687,537
$ 100,039
684,100
7,004
5,195
1,394
$ 797,732
1,004
436
—
—
—
1,440
3.63%
$ 10,478
13,860
5,702
—
—
$ 30,040
$ 31,825
43,188
—
2,337
—
$ 77,350
$ 58,262
616,180
1,274
2,792
—
$ 678,508
$ 101,569
673,664
6,976
5,129
7,849
$ 795,187
2.44%
3.22%
2.69%
2.75%
Held-to-Maturity
The following table summarizes Peoples’ held-to-maturity investment securities at December 31:
(Dollars in thousands)
2017
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
2016
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
$
$
$
$
3,810 $
32,487
4,631
40,928 $
3,820 $
33,858
5,466
43,144 $
607 $
269
—
876 $
221 $
432
—
653 $
— $
(529)
(62)
(591) $
4,417
32,227
4,569
41,213
— $
(528)
(42)
(570) $
4,041
33,762
5,424
43,227
There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for the years
ended December 31, 2017, 2016 and 2015.
95
The following table presents a summary of held-to-maturity investment securities that had an unrealized loss at
December 31:
(Dollars in thousands)
2017
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
2016
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
Less than 12 Months
Unrealized
Loss
No. of
Securities
Fair
Value
12 Months or More
Unrealized
Loss
No. of
Securities
Fair
Value
Total
Fair
Value
Unrealized
Loss
$
1,476 $
—
$
1,476 $
$ 12,139 $
5,424
$ 17,563 $
4
—
4
476
42
518
2
$ 12,098 $
—
4,569
2
$ 16,667 $
3
1
4
$
$
963 $
—
963 $
525
62
587
52
—
52
3
1
4
$ 13,574 $
4,569
$ 18,143 $
1
$ 13,102 $
—
5,424
1
$ 18,526 $
529
62
591
528
42
570
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, 2017. 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.
(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
$
$
$
$
— $
—
—
— $
— $
—
—
— $
—%
313
444
—
757
$
$
2,980
6,358
—
9,338
$
517
25,685
4,631
$ 30,833
$
3,810
32,487
4,631
$ 40,928
314
442
—
756
2.64%
$
3,570
6,437
—
$ 10,007
$
533
25,348
4,569
$ 30,450
$
4,417
32,227
4,569
$ 41,213
2.47%
2.88%
2.79%
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 $522.7 million and $517.9 million
at December 31, 2017 and 2016, respectively, and held-to-maturity investment securities with a carrying value of $18.3
million and $20.0 million at December 31, 2017 and 2016, 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 $6.7 million and $9.2 million at December 31, 2017 and 2016, respectively, and held-to-
maturity securities with carrying values of $19.9 million and $22.2 million at December 31, 2017 and 2016, respectively, to
secure additional borrowing capacity at the FHLB and the FRB.
96
Note 4 Loans
Peoples' loan portfolio consists of various types of loans originated primarily as a result of lending opportunities within
Peoples' primary market areas of 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. Loans that
were acquired and subsequently re-underwritten, are reported as originated upon execution of such credit actions (for example,
renewals and increases in lines of credit). The major classifications of loan balances (in each case, net of deferred fees and costs)
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
$
$
2017
2016
107,118 $
595,447
702,565
438,051
304,523
88,902
340,390
67,010
407,400
849
1,942,290 $
8,319 $
165,120
173,439
34,493
184,864
20,575
329
1,147
1,476
414,847 $
2,357,137 $
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
Peoples has acquired various loans through business combinations for which there was, at acquisition, evidence of
deterioration of credit quality since origination, and for which it was probable that all contractually required payments would not
be collected. The carrying amounts of these purchased credit impaired 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
2017
2016
8,117 $
767
19,532
33
28,449 $
19,564 $
11,476
1,573
23,306
76
36,431
26,524
$
$
$
97
Changes in the accretable yield for purchased credit impaired loans during the year ended December 31, 2017 were as
follows:
(Dollars in thousands)
Balance, December 31, 2016
Additions:
Reclassification from nonaccretable to accretable
Accretion
Balance, December 31, 2017
$
$
Accretable
Yield
7,132
1,285
(1,713)
6,704
Peoples completes annual re-estimations of cash flows on acquired purchased credit impaired loans in August of each year.
The above reclassification from nonaccretable to accretable related to the re-estimation of cash flows on the purchased credit
impaired loan portfolio, coupled with the loans performing better than expected. The majority of the reclassification related to
prepayment speeds decreasing in the residential portfolio, resulting in higher total expected cash flows.
Cash flows expected to be collected on purchased 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 $487.2 million and $542.5 million at
December 31, 2017 and 2016, respectively. Peoples also had pledged commercial loans to secure borrowings with the FRB. The
outstanding balances of these loans totaled $74.0 million and $152.0 million at December 31, 2017 and 2016, 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, 2017, 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, as applicable.
(Dollars in thousands)
Balance, December 31, 2016
New loans and disbursements
Repayments
Other changes
Balance, December 31, 2017
$
$
17,187
8,855
(9,202)
(1,738)
15,102
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.
98
The recorded investments in loans on nonaccrual status and loans delinquent for 90 days or more and accruing were as
follows at December 31:
(Dollars in thousands)
2017
2016
2017
2016
Nonaccrual Loans
Accruing Loans
90+ Days Past Due
Originated loans:
Commercial real estate, construction
$
754 $
826
$
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
6,877
7,631
739
3,546
550
256
39
295
12,761 $
192 $
259
2,168
312
—
—
—
2,931 $
15,692 $
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
$
$
$
$
$
$
— $
—
—
—
548
50
—
16
16
614 $
215 $
45
730
22
—
—
—
1,012 $
1,626 $
—
—
—
—
183
—
10
—
10
193
1,506
387
1,672
—
13
—
13
3,578
3,771
The following tables present the aging of the recorded investment in past due loans at December 31:
(Dollars in thousands)
2017
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
Loans Past Due
30 - 59 days 60 - 89 days
90 + Days
Total
Current
Loans
Total
Loans
— $
107,118 $
587,965
695,083
435,830
296,319
87,925
337,484
66,499
403,983
849
107,118
595,447
702,565
438,051
304,523
88,902
340,390
67,010
407,400
849
$ 1,919,989 $ 1,942,290
7,482
7,482
2,221
8,204
977
2,906
511
3,417
—
22,301
$
$
— $
990
990
1,423
4,562
502
2,153
417
2,570
—
10,047 $
— $
—
—
92
1,234
80
648
46
694
—
2,100 $
— $
6,492
6,492
706
2,408
395
105
48
153
—
10,154 $
99
(Dollars in thousands)
2017
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
Deposit account overdrafts
Total acquired loans
Total loans
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
$
$
$
$
$
$
$
$
— $
775
775
—
4,656
126
3
10
13
—
5,570 $
15,617 $
— $
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 $
— $
948
948
1
1,391
—
—
11
11
—
2,351 $
4,451 $
— $
225
225
700
1,019
45
273
38
311
—
2,300 $
— $
208
208
3
2,496
65
—
—
—
2,772 $
5,072 $
— $
312
312
171
1,910
301
—
—
—
—
2,694 $
12,848 $
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 $
— $
8,319 $
163,085
171,404
34,321
176,907
20,148
326
1,126
1,452
—
8,319
165,120
173,439
34,493
184,864
20,575
329
1,147
1,476
—
$
414,847
$ 2,324,221 $ 2,357,137
404,232 $
$
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
2,035
2,035
172
7,957
427
3
21
24
—
10,615
32,916
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
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 loans if required,
for any weakness that may exist.
100
“Special Mention” (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 loans 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 loans. 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,
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 tables summarize the risk category of Peoples' loan portfolio based upon the most recent analysis performed at
December 31:
(Dollars in thousands)
2017
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
Pass Rated
Special
Mention
Substandard Doubtful
(Grades 1 - 4)
(Grade 5)
(Grade 6)
(Grade 7)
Not
Rated
Total
Loans
$
100,409 $
561,320
661,729
420,477
17,896
454
55
33
88
—
$
1,100,644 $
5,502 $
17,189
22,691
13,062
1,000
—
8
—
8
—
36,761 $
754 $
16,938
17,692
4,512
11,371
—
—
—
—
—
33,575 $
— $
—
—
—
216
—
—
—
—
—
216 $
453 $
—
453
—
274,040
88,448
340,327
66,977
407,304
849
107,118
595,447
702,565
438,051
304,523
88,902
340,390
67,010
407,400
849
771,094 $ 1,942,290
101
(Dollars in thousands)
2017
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
Deposit account overdrafts
Total acquired loans
Total loans
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
Special
Mention
Substandard Doubtful
(Grades 1 - 4)
(Grade 5)
(Grade 6)
(Grade 7)
Not
Rated
Total
Loans
$
8,267 $
149,486
157,753
32,011
12,543
124
12
35
47
—
202,478 $
1,303,122 $
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 $
$
$
$
$
$
$
$
— $
6,527
6,527
157
593
—
—
—
—
—
7,277 $
44,038 $
— $
11,855
11,855
15,210
957
—
13
—
13
—
28,035 $
— $
12,475
12,475
227
709
—
—
—
—
13,411 $
41,446 $
52 $
9,107
9,159
2,325
1,105
—
—
—
—
—
12,589 $
46,164 $
826 $
14,673
15,499
16,130
12,828
135
—
—
—
—
44,592 $
54 $
10,210
10,264
978
1,404
—
—
—
—
12,646 $
57,238 $
— $
—
—
—
—
—
—
—
—
—
— $
216 $
— $
—
—
—
304
—
—
—
—
—
304 $
— $
—
—
194
—
—
—
—
—
194 $
498 $
— $
—
—
—
170,623
20,451
317
1,112
1,429
—
8,319
165,120
173,439
34,493
184,864
20,575
329
1,147
1,476
—
192,503 $
414,847
963,597 $ 2,357,137
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
102
Impaired Loans
The following table summarizes loans classified as impaired at December 31:
(Dollars in thousands)
2017
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
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
$
$
Unpaid
Principal
Balance
Recorded Investment
Without
Allowance Allowance
With
Total
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
821 $
14,909
15,730
1,690
24,743
1,707
273
87
360
44,230 $
894 $
20,029
20,923
7,289
27,703
908
220
130
350
57,173 $
— $
14
14
951
477
81
70
56
126
1,649 $
— $
7,474
7,474
2,732
138
—
—
—
—
10,344 $
754 $
13,606
14,360
572
22,626
1,624
206
28
234
39,416 $
866
12,227
13,093
1,003
27,393
908
224
130
354
42,751 $
754 $
13,620
14,374
1,523
23,103
1,705
276
84
360
41,065 $
866 $
19,701
20,567
3,735
27,531
908
224
130
354
53,095 $
— $
1
1
199
58
18
26
37
63
339 $
— $
803
803
585
24
—
—
—
—
1,412 $
788 $
14,392
15,180
1,668
23,195
1,505
184
79
263
41,811 $
913 $
18,710
19,623
3,386
27,455
717
136
138
274
51,455 $
—
503
503
65
1,246
85
20
7
27
1,926
3
700
703
125
1,419
44
16
13
29
2,320
Peoples' loans classified as impaired 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 a loan with
similar risk characteristics, the significance of the modification relative to the unpaid principal loan balance or collateral value of
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 a new loan 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.
103
The following table summarizes the loans that were modified as TDRs during the years ended December 31, 2017 and 2016.
Recorded Investment (1)
Number
of
Contracts
Pre-
Modification
Post-
Modification
Remaining
Recorded
Investment
(Dollars in thousands)
2017
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, other
Total
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
1 $
4
7
6
15
2
17
35 $
3 $
9
5
1
18 $
3 $
7
8
5
14
3
17
40 $
2 $
14
4
2
3
14 $
210
483
296
218
10
228
1,231 $
288 $
442
328
2
1,060 $
109 $
836
266
81
164
24
188
1,480 $
14 $
210
483
296
218
10
228
1,231 $
288 $
442
328
2
1,060 $
109 $
836
266
81
164
24
188
1,480 $
237 $
237 $
1,080
260
7
15
1,082
260
7
15
14
149
473
289
201
8
209
1,134
280
412
320
—
1,012
107
750
266
81
164
23
187
1,391
237
1,076
250
7
15
22
Consumer
5
25 $
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.
22
1,599 $
22
1,601 $
1,585
104
The following table presents those loans modified into 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, 2017:
(Dollars in thousands)
Acquired loans:
Residential real estate
Total
2017
Number
of
Contracts
Recorded
Investment
(1)
Impact on the
Allowance for
Loan Losses
2 $
2 $
64 $
64 $
—
—
(1) The amounts shown are inclusive of all partial paydowns and charge-offs.
Loans modified in a TDR that were fully paid down, charged-off or foreclosed
upon by period end are not reported.
Peoples did not have any modified TDRs that subsequently defaulted in 2016. Peoples did not have any originated loans that
were modified as a TDR during the last twelve months that subsequently defaulted. 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)
Commercial
Real Estate
Commercial
and
Industrial
Residential
Real Estate
Home
Equity
Lines of
Credit
Consumer,
indirect
Consumer,
other
Deposit
Account
Overdrafts Total
Balance, January 1, 2017
$
7,172 $
6,353 $
982 $
688 $
2,312 $
518 $
171 $18,196
Charge-offs
Recoveries
Net (charge-offs) recoveries
Provision for (recovery of) loan
losses
Balance, December 31, 2017
Period-end amount allocated to:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
Balance, December 31, 2017
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
$
$
$
$
$
$
$
(408)
146
(262)
887
(175)
1
(174)
(366)
(637)
152
(485)
(131)
13
(118)
(2,110)
764
(1,346)
(372)
179
(193)
(1,038)
(4,871)
215
1,470
(823)
(3,401)
7,797 $
5,813 $
904 $
693 $
2,944 $
407
123
1,978
139
464 $
722
3,890
70 $18,685
1 $
199 $
58 $
18 $
26 $
37 $
— $
339
7,796
5,614
846
675
2,918
7,797 $
5,813 $
904 $
693 $
2,944 $
427
464 $
70
18,346
70 $18,685
7,076 $
5,382 $
1,257 $
732 $
1,427 $
544 $
121 $16,539
(24)
1,209
1,185
(1,017)
306
(711)
(1,089)
1,682
(588)
278
(310)
35
(73)
56
(17)
(27)
(2,072)
1,059
(1,013)
1,898
7,172 $
6,353 $
982 $
688 $
2,312 $
(583)
226
(357)
(774)
(5,131)
175
3,309
(599)
(1,822)
331
518 $
649
3,479
171 $18,196
803 $
585 $
24 $ — $
— $
— $
— $ 1,412
6,369
5,768
958
688
2,312
7,172 $
6,353 $
982 $
688 $
2,312 $
518
518 $
171
16,784
171 $18,196
The increase in total allowance for loan losses in 2017, was primarily due to total loan growth of 6%, or $132.2 million. The
increase was primarily the result of commercial loan growth of $95.5 million , or 8%, which includes commercial real estate and
105
commercial and industrial loan balances. Additionally, indirect consumer lending had growth of $87.9 million, or 35%, compared
to December 31, 2016, and was partially offset by reductions in residential real estate loans.
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.
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
purchased 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 purchased credit impaired loans 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 for loan losses 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)
Purchased credit impaired loans:
Balance, January 1
Charge-offs
Recoveries
Net charge-offs
(Recovery of) provision for loan losses
Balance, December 31
$
$
2017
2016
233 $
(7)
—
226
(118)
108 $
240
(67)
—
173
60
233
During 2017, Peoples recognized a recovery of loan losses that was related to an acquired purchased credit impaired loan that
was paid off.
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
2017
2016
$
12,871
$
61,729
27,137
101,737
(49,227)
52,510
$
$
12,085
61,451
26,078
99,614
(45,998)
53,616
Peoples depreciates its building and premises, and furniture, fixtures and equipment over estimated useful lives generally
ranging from 5 to 40 years and 2 to 10 years, respectively. Depreciation expense was $4.9 million, $5.1 million and $4.6
million, in 2017, 2016 and 2015, respectively.
106
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 $1,104,000 in 2017,
$1,073,000 in 2016 and $988,000 in 2015.
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, 2017:
(Dollars in thousands)
2018
$
2019
2020
2021
2022
Thereafter
Total future operating lease payments
$
Payments
924
590
355
313
270
330
2,782
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
2017
2016
$
$
132,631 $
480
133,111 $
132,631
—
132,631
Peoples performed the required goodwill impairment test and concluded there was no impairment in the recorded value of
goodwill in 2017, 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.
During 2017, Peoples Insurance acquired a third-party insurance administration company, for which no goodwill was
recorded, and a property and casualty focused independent insurance agency for which Peoples recorded $480,000 of
goodwill.
107
Other intangible assets
Other intangible assets were comprised of the following at December 31:
(Dollars in thousands)
Core Deposits
Customer
Relationships
Total
2017
Gross intangibles
Acquired intangibles
Accumulated amortization
Total acquired intangibles
Servicing rights
Total other intangibles
2016
Gross intangibles
Acquired intangibles
Accumulated amortization
Total acquired intangibles
Servicing rights
Total other intangibles
$
$
$
$
16,150
$
5,373
$
—
(10,281)
5,869
16,150
—
(7,594)
8,556
$
$
$
1,593
(3,675)
3,291
4,859
514
(2,847)
2,526
$
$
$
$
$
21,523
1,593
(13,956)
9,160
2,305
11,465
21,009
514
(10,441)
11,082
2,305
13,387
Acquired intangibles of $1.6 million in 2017 relates to the acquisitions of a third-party insurance administration company
and a property and casualty focused independent insurance agency.
The following table details estimated aggregate future amortization expense of core deposit and customer relationship
intangible assets at December 31, 2017:
(Dollars in thousands)
2018
2019
2020
2021
2022
Thereafter
Total
Core
Deposits
$
$
2,175
1,658
1,138
648
208
42
5,869
Customer
Relationships
839
$
$
706
563
413
274
496
3,291
$
$
Total
3,014
2,364
1,701
1,061
482
538
9,160
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
2017
2016
2015
$
$
2,305
(741)
741
—
2,305
$
$
2,387
(762)
680
—
2,305
$
$
2,238
(662)
566
245
2,387
No valuation allowances were required at December 31, 2017, 2016 and 2015 for Peoples’ servicing rights since, at each
date, the fair value equaled or exceeded the book value.
108
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
Interest-bearing transaction accounts
Savings accounts
Money market deposit accounts
Governmental deposit accounts
Brokered certificates of deposits
Total interest-bearing deposits
Non-interest-bearing deposits
Total deposits
2017
2016
$
149,105 $
152,222
189,568
338,673
593,415
446,714
371,376
264,524
159,618
209,503
361,725
278,975
436,344
407,754
251,671
38,832
2,174,320
1,775,301
556,010
734,421
$ 2,730,330 $ 2,509,722
The contractual maturities of certificates of deposits for each of the next five years and thereafter are as follows:
(Dollars in thousands)
2018
2019
2020
2021
2022
Thereafter
Retail
Brokered
Total
$
165,862 $
71,137
108,025 $
35,576
44,895
39,716
16,946
117
338,673 $
7,382
4,777
3,858
—
159,618 $
273,887
106,713
52,277
44,493
20,804
117
498,291
Total certificates of deposits
$
Deposits from related parties approximated $12.0 million and $42.0 million at December 31, 2017 and 2016,
respectively.
109
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)
2017
Ending balance
Average balance
Highest month-end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
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
Retail
Repurchase
Agreements
FHLB
Advances
National
Market
Repurchase
Agreements
$
$
$
$
$
$
76,899
75,344
80,649
128
0.17%
0.17%
74,607
72,886
81,353
123
0.17%
0.17%
84,386
83,574
92,711
140
$
$
$
$
$
$
92,592
100,205
208,000
1,160
1.91%
1.16%
231,000
86,260
231,000
384
0.64%
0.44%
76,000
16,863
76,000
42
$
$
$
$
$
$
0.17%
0.17%
0.35%
0.25%
40,000
6,685
40,000
246
3.68%
3.68%
—
—
—
—
—%
—%
—
—
—
—
—%
—%
Note: Excludes other short-term borrowings, for which Peoples completes annual testing and for which
amounts were de minimus for 2017, 2016 and 2015.
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. During 2017, Peoples reclassified $50.6 million of FHLB advances from long-term
borrowings to short-term borrowings due to maturity dates of less than one year, of which $20.0 million matured in 2017.
Peoples' national market repurchase agreements consist of agreements with unrelated financial service companies.
Additional information regarding the national market repurchase agreements can be found in Note 9. The $40.0 million of
national market repurchase agreements were reclassified from long-term borrowings to short-term borrowings during 2017.
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 $5.0 million from certain of its correspondent banks at December 31,
2017. 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.
110
Note 9 Long-Term Borrowings
Long-term borrowings consisted of the following at December 31:
2017
2016
(Dollars in thousands)
FHLB putable and non-amortizing, fixed rate advances
Balance
$
115,000
FHLB amortizing, fixed rate advances
Callable national market repurchase agreements
Junior subordinated debt securities
Unamortized debt issuance cost
Long-term borrowings
21,939
—
7,107
(27)
144,019
$
Weighted-
Average
Rate
Weighted-
Average
Rate
Balance
1.86 % $
2.02 %
— %
4.97 %
— %
2.04% $
70,000
28,282
40,000
6,924
(51)
145,155
2.49 %
2.01 %
3.63 %
4.48 %
— %
2.81%
The putable and non-amortizing, fixed rate FHLB advances have maturities ranging from two to ten years that may be
repaid prior to maturity, subject to termination fees. The FHLB has the option, at its sole discretion, to terminate the advance
after the initial fixed rate period of three months, 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
three to fourteen 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. 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 2017,
Peoples borrowed an additional $75.0 million of long-term FHLB non-amortizing advances, which have interest rates
ranging from 1.20% to 2.03% and mature between 2018 and 2022. Peoples also entered into two additional interest rate
swaps in 2017 with a notional value of $20.0 million associated with People' cash outflows for various FHLB advances. The
swaps become effective in 2018, roughly to coincide with the maturity of existing FHLB advances. During 2017, $40.0
million in callable national market repurchase agreements and $50.6 million in long-term FHLB non-amortizing advances
were reclassified to short-term borrowings as the maturity became less than one year.
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 have 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%.
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 full
at the quarterly date. As of December 31, 2017, Peoples' callable national market repurchase agreements had no remaining
callable options. Peoples is required to make quarterly interest payments.
111
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 $15.0 million (the "RJB Loan Commitment") for the purpose of: (i) to the extent that any amounts remained
outstanding, paying off the then outstanding $15.0 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.
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.
112
As of December 31, 2017, 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 in 2037 (the "junior subordinated debt
securities") at an acquisition-date fair value of $6.6 million, held in a wholly-owned statutory trust whose common securities
were wholly-owned by NB&T. The sole assets of the statutory trust are the junior subordinated debt securities and related
payments. The junior subordinated debt securities and the back-up obligations, in the aggregate, constitute a full and
unconditional guarantee of the obligations of the statutory trust under the Capital Securities held by third-party investors.
Distributions on the Capital Securities are payable at the annual rate of 1.50% over the 3-month LIBOR. Distributions on the
Capital Securities are included in interest expense in the Consolidated Financial Statements. These securities are considered
tier I capital (with certain limitations applicable) under current regulatory guidelines. The junior subordinated debt securities
are subject to mandatory redemption, in whole or in part, upon repayment of the Capital Securities at maturity or their earlier
redemption at the liquidation amount. Subject to prior approval of the Federal Reserve, the Capital Securities are redeemable
prior to the maturity date of September 6, 2037, and are redeemable at par. Since September 6, 2012, the Capital Securities
have been redeemable at par, subject to such approval. Distributions on the Capital Securities can be deferred from time to
time for a period not to exceed 20 consecutive semi-annual periods.
At December 31, 2017, the aggregate minimum annual retirements of long-term borrowings in future periods were as
follows:
(Dollars in thousands)
2018
2019
2020
2021
2022
Thereafter
Long-term borrowings
Balance
Weighted-
Average Rate
$
$
4,378
33,508
25,564
21,979
16,521
42,069
144,019
1.67 %
1.37 %
1.84 %
1.75 %
1.97 %
2.90 %
2.04%
113
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, 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
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
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
Changes related to stock-based compensation awards:
Release of restricted common shares
Cancellation of restricted common shares
Exercise of stock options for common shares
Grant of restricted common shares
Grant of common shares
Changes related to deferred compensation plan for Board of Directors:
Purchase of treasury stock
Reissuance of treasury stock
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for Board of Directors
Common shares issued under employee stock purchase plan
Shares at December 31, 2017
Common
Stock
15,599,643
Treasury
Stock
590,246
131,011
—
(28,219)
2,810
—
—
18,257
—
—
3,207,698
18,931,200
—
—
(11,820)
—
—
—
—
—
19,711
—
—
18,939,091
—
(3,554)
—
—
—
—
—
16,848
—
—
18,952,385
—
25,205
—
(100)
7,654
(9,642)
—
(10,231)
(16,446)
—
586,686
(56,000)
17,220
1,000
(350)
(1,775)
8,396
(12,012)
279,770
—
(11,450)
(15,727)
795,758
10,452
5,050
(266)
(68,707)
(300)
5,413
(24,634)
—
(9,092)
(11,225)
702,449
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 repurchased in 2015. During 2016, Peoples repurchased 279,770 common shares at a cost of $5.0
million under the program. No common shares were repurchased in 2017.
114
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.
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, 2017, Peoples had no preferred shares issued or outstanding.
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, 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
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax
Realized loss due to settlement and curtailment, net of tax
Amounts reclassified out of accumulated other
comprehensive (loss) income per ASU 2018-02
Other comprehensive loss, net of reclassifications and tax
Balance, December 31, 2017
$
Unrealized
Gain
(Loss) on
Securities
$
2,542 $
$
(474)
—
801
2,869 $
(604)
(1,684)
$
581 $
(1,939)
—
(370)
(360)
(2,088) $
Unrecognized
Net Pension
and
Postretirement
Costs
Unrealized
Gain
(Loss) on
Cash Flow
Hedge
Accumulated
Other
Comprehensive
(Loss) Income
(3,843) $
— $
(1,301)
—
298
317
(3,228) $
—
—
—
— $
—
—
(93)
(3,321) $
1,186
1,186 $
—
157
—
—
(754)
(338)
(4,256) $
200
(257)
1,129 $
(474)
298
1,118
(359)
(604)
(591)
(1,554)
(1,939)
157
(924)
(955)
(5,215)
As of December 31, 2017, Peoples elected to early adopt and retrospectively apply the reclassification of stranded
income tax effects from accumulated other comprehensive loss to retained earnings, as permitted under ASU 2018-02.
115
Note 11 Employee Benefit Plans
Peoples sponsors a noncontributory defined benefit pension plan that covers substantially all employees hired before
January 1, 2010. The plan provides retirement benefits based on an employee’s years of service and compensation. For
employees hired before January 1, 2003, the amount of postretirement benefit is based on the employee’s average monthly
compensation pay over the highest five consecutive years out of the employee’s last ten years with Peoples while an eligible
employee. For employees hired on or after January 1, 2003, the amount of postretirement benefit is based on 2% of the
employee’s annual compensation plus accrued interest. Effective January 1, 2010, the pension plan was closed to new
entrants. Effective March 1, 2011, the accrual of pension plan benefits for all participants was frozen. Peoples recognized
this freeze as a curtailment as of December 31, 2010 and March 1, 2011, under the terms of the pension plan. 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.
116
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, 2017, and a statement of the funded status as of December 31, 2017 and 2016:
(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
2017
2016
2017
2016
$
103
$
$ 12,127
451
$ 11,965
438
—
—
1,207
(189)
(605)
$ 12,991
$ 12,991
151
(427)
—
$ 12,127
$ 12,127
$
7,582
1,140
565
—
(189)
(605)
8,493
$
7,124
405
480
—
(427)
—
7,582
$
$ (4,498) $ (4,545)
$
$ (4,498) $ (4,545)
$ (4,498) $ (4,545)
$
$
$
$
$
$
$
4,311
4,311
$
3,368
3,368
$
$
3
46
(4)
(57)
—
91
$
— $
— $
—
11
46
(57)
—
— $
(91) $
(91) $
(91) $
(1) $
(56)
(57) $
126
4
49
(7)
(69)
—
103
—
—
—
20
49
(69)
—
—
(103)
(103)
(103)
(1)
(48)
(49)
Amounts recognized in Accumulated Other Comprehensive Loss:
Unrecognized prior service cost
$
— $
— $
3.40%
3.80%
3.40%
3.80%
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 $112,000.
117
Net Periodic Benefit Cost
The following table details 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
2016
438
(492)
95
—
41
$
$
2017
451
(553)
102
242
242
2015
447
(493)
117
459
530
$
Post-retirement Benefits
2015
2017
4
3
$
—
—
(5)
(6)
—
—
(1)
(3) $
2016
4
—
(6)
—
(2) $
$
$
3.80%
7.50%
n/a
3.90%
7.50%
n/a
3.80% 3.80%
n/a
7.50%
n/a
n/a
3.90%
n/a
n/a
3.50%
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 2017, grading down to an ultimate rate of 4.0% 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.
Settlement charges recorded were $0.2 million in 2017 compared to none in 2016, and $0.5 million in 2015.
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.
118
The following table provides the fair values of investments held in Peoples' pension plan at December 31, by major asset
category:
(Dollars in thousands)
2017
Equity securities:
Mutual funds - equity
Debt securities:
Mutual funds - taxable income
Total fair value of pension assets
2016
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
6,131
$
6,131
$
2,248
8,379
$
2,248
8,379
$
5,241
$
5,241
$
2,107
7,348
$
2,107
7,348
$
—
—
—
—
—
—
Pension plan assets also included cash and cash equivalents of $113,000 and accrued income of $1,000 at December 31,
2017. Cash and cash equivalents were $221,000 and accrued income was $12,000 at December 31, 2016. 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 2017 or 2016.
Cash Flows
Peoples expects to make between $410,000 to $440,000 of contributions to its pension plan in 2018; however, actual
contributions are made at the discretion of the Retirement Plan Committee and Peoples' Board of Directors. During 2018,
Peoples may elect to make additional contributions to take advantage of tax savings related to the Act that was enacted on
December 22, 2017.
Estimated future benefit payments, which reflect benefits attributable to estimated future service, for the years ending
December 31 are as follows:
(Dollars in thousands)
2018
Pension Benefits
1,112
$
2019
2020
2021
2022
2023 to 2027
Total
$
1,110
1,165
1,223
738
3,353
8,701
Post-retirement
Benefits
$
$
12
11
10
10
9
34
86
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 $1,546,000 in 2017, $1,549,000 in 2016 and $1,454,000 in 2015.
119
Note 12 Income Taxes
The Act was enacted on December 22, 2017 and ASC 740 required Peoples to reflect the changes associated with the
Act’s provisions in the fourth quarter of 2017. The Act is complex and has extensive implications for Peoples' federal taxes.
At December 31, 2017, Peoples completed the accounting for the tax effects of enactment of the Act; however, in certain
cases as described below, Peoples made reasonable estimates of the effects of a reduced federal tax rate on its existing
deferred tax balances. In other cases, Peoples has not been able to make a reasonable estimate and continued to account for
those items based on its existing accounting under ASC 740, and the provisions of the tax laws that were in effect
immediately prior to enactment. For the items for which Peoples was able to determine a reasonable estimate, Peoples
recognized a provisional amount of $0.9 million, which is included as a component of income tax expense from continuing
operations. In all cases, Peoples will continue to make and refine its calculations during the remeasurement period as
additional analysis is completed. In addition, these estimates may also be affected as Peoples gains a more thorough
understanding of the tax law.
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)
2017
2016
2015
Income tax computed at statutory federal tax rate
Amount
$ 20,045
Amount
Rate
35.0 % $ 15,785
Rate
35.0 % $
Amount
5,051
Rate
34.1 %
Differences in rate resulting from:
Tax-exempt interest income
Investments in tax credit funds
Bank owned life insurance
Other, net (1)
Income tax expense
(1,092)
(221)
(683)
683
$ 18,732
(1,170)
(1.9)%
(164)
(0.4)%
(495)
(1.2)%
1.2 %
169
32.7 % $ 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 %
(1) For 2017, the write down on net deferred tax assets of $0.9 million was as a result of the recently-enacted Tax Cuts and Jobs Act, to value the net
deferred tax asset at 21%.
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
2017
2016
2015
$
$
21,511
(2,779)
18,732
$
$
16,587
(2,462)
14,125
$
$
5,457
(1,582)
3,875
120
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
Available-for-sale securities
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Purchase accounting adjustments
Deferred loan income
Derivative instruments
Bank premises and equipment
Available-for-sale investment securities
Other
Total deferred tax liabilities
Net deferred tax asset
2017
2016
6,992
2,569
1,560
—
555
116
11,792
805
10,987
6,092
2,459
300
307
—
484
9,642
1,345
$
$
$
$
$
$
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
$
$
$
$
$
$
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, 2017, Peoples had a gross
operating loss carryforward of approximately $348,000 for tax purposes, which will be available to offset future taxable
income. If not used, this carryforward will expire in 2035.
The $805,000 valuation allowance was related to a partnership investment and was recorded for deferred tax assets at
December 31, 2017, 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 $1.0 million in 2017, $326,000 in 2016 and
$255,000 in 2015.
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)
2017
2016
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
$
$
522 $
42
20
—
(34)
550 $
417
113
45
—
(53)
522
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, 2014 through 2016. The years open to examination by state taxing authorities vary by jurisdiction.
121
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
2017
2016
2015
$
$
15,159 $
23,115
38,274 $
11,532 $
19,483
31,015 $
10,426
404
10,830
Weighted-average common shares outstanding
18,050,189
18,013,693
17,555,140
Effect of potentially dilutive common shares
158,495
141,770
132,655
Total weighted-average diluted common shares outstanding
18,208,684
18,155,463
17,687,795
Earnings per common share:
Basic
Diluted
$
$
2.12 $
2.10 $
1.72 $
1.71 $
0.62
0.61
Anti-dilutive common shares excluded from calculation:
Restricted shares, stock options and stock appreciation rights
453
20,769
46,109
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 are 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
customer-related derivative financial instruments in order to minimize its net risk exposure resulting from such transactions.
Fair Values of Derivative Instruments on the Balance Sheet
Peoples' fair value of the derivative financial instruments was $4.6 million in an asset position and $3.2 million in a liability
position at December 31, 2017, and there was a fair value of $5.0 million in an asset position and $3.2 million in a liability
position at December 31, 2016. The amounts are recorded in other assets, and accrued expenses and other liabilities on the
Consolidated Balance Sheet at the periods indicated.
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, Peoples has 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,
2017, Peoples had seven interest rate swaps with a notional value of $60.0 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 loss (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.
122
Peoples hedged its exposure to the variability in future cash flows for forecasted transactions over a maximum period of
ten months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).
Peoples entered into the seven interest rate swap contracts, described above, whereby Peoples will pay a fixed rate of interest
for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The received
floating rate component is intended to offset the rate on the rolling three-month FHLB advances. Amounts reported in
accumulated other comprehensive loss 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, 2017,
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 $1.4 million for the
year ended December 31, 2017. There were no pre-tax net losses recorded for the year ended in December 31, 2017. Additionally,
Peoples had no reclassifications to earnings for the year ended December 31, 2017.
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 $363.3 million and fair value of $3.0 million of equally offsetting
assets and liabilities at December 31, 2017 and a notional value of $247.3 million and fair value of $3.2 million of equally
offsetting assets and liabilities at December 31, 2016. 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
2017
2016
83,949 $
112,475
260,552
456,976
20,873 $
85,024
119,075
269,669
473,768
25,651
$
$
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
$17.7 million and $17.0 million in 2017 and 2016, respectively.
123
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, 2017, Peoples Bank had approximately $24.0 million of net profits available for
distribution to Peoples as dividends without regulatory approval.
Capital Requirements
Peoples and Peoples Bank are subject to various regulatory capital guidelines administered by the banking regulatory
agencies. Under capital adequacy requirements and the regulatory framework for prompt corrective action, Peoples and
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, 2017, 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, 2017.
As of December 31, 2017, the most recent notifications from the banking regulatory agencies categorized Peoples Bank
as well capitalized under the regulatory framework for prompt corrective action applicable to Peoples Bank. Peoples
maintained the capital required by the Federal Reserve Board to be deemed well capitalized and remain a financial holding
company. To be categorized as well capitalized, Peoples and Peoples Bank must maintain minimum common equity tier 1,
tier 1 risk-based, total risk-based and tier I leverage ratios as set forth in the table below. There are no conditions or events
since these notifications that management believes have changed Peoples or Peoples Bank's category.
124
Peoples' and Peoples Bank's actual capital amounts and ratios as of December 31 are also presented in the following
table:
2017
2016
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
$
$
$
332,774
111,303
160,772
339,881
148,405
197,873
361,579
197,843
247,341
13.5% $
4.5%
6.5%
13.7% $
6.0%
8.0%
14.6% $
8.0%
10.0%
306,506
106,801
154,268
313,430
142,402
189,869
334,957
189,869
237,336
$
339,881
137,343
171,679
$ 2,473,329
9.9% $
4.0%
5.0%
313,430
129,803
162,254
$ 2,373,359
$
$
310,818
147,940
197,254
310,818
110,955
160,268
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
310,818
137,163
171,454
$ 2,465,653
329,611
197,254
246,567
$
$
12.6% $
4.5%
6.5%
12.6% $
6.0%
8.0%
13.4% $
8.0%
10.0%
271,319
106,474
153,795
291,319
141,965
189,287
309,749
189,287
236,608
9.1% $
4.0%
5.0%
291,319
129,633
162,041
$ 2,366,082
125
12.9%
4.5%
6.5%
13.2%
6.0%
8.0%
14.1%
8.0%
10.0%
9.7%
4.0%
5.0%
11.5%
4.5%
6.5%
12.3%
6.0%
8.0%
13.1%
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 2009,
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 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 respective grant dates and are to expire ten years from the respective 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, 2017:
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
2,338
2,024
—
314
314
$
$
$
27.37
27.93
—
23.77
23.77
0.1 years
0.1 years
$
$
2.779
2.779
Restricted Common 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 restricted common shares awarded to non-employee directors expire after
six months, while the restrictions on restricted common shares awarded to employees expire after periods ranging from one
to three years. In 2017, Peoples granted an aggregate of 61,457 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, during
2017, Peoples granted, to certain key employees, an aggregate of 4,250 restricted common shares subject to time-based
vesting with restrictions that will lapse three years after the grant date. Peoples also granted, to non-employee directors, an
aggregate of 3,300 restricted common shares subject to time-based vesting with restrictions that lapsed six months after the
grant date.
126
The following summarizes the changes to Peoples’ outstanding restricted common shares for the year ended
December 31, 2017:
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
21.85
31.36
24.42
24.69
22.85
40,316 $
7,550
12,484
2,300
33,082 $
Number of
Common
Shares
142,415 $
61,457
21,050
6,604
176,218 $
Weighted-
Average
Grant Date
Fair Value
21.95
32.42
21.75
25.25
25.50
The total intrinsic value of restricted common shares released was $1.1 million, $1.0 million and $2.0 million in 2017,
2016 and 2015, 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
2017
2016
2015
$
$
1,747 $
(367)
1,380 $
1,332 $
(466)
866 $
1,843
(645)
1,198
Restricted common shares were the only stock-based compensation awards granted by Peoples in 2017, 2016 and 2015.
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 $1.4 million at December 31, 2017, which
will be recognized over a weighted-average period of 1.8 years.
Performance Unit Award Agreement
Under the 2006 Equity Plan, Peoples may award performance unit awards to officers, key employees and non-employee
directors. On July 26, 2017, Peoples granted a total of seven performance unit awards to officers with a maximum aggregate
dollar amount of $1.3 million represented by the performance units subject to such awards, with each performance unit
representing $1.00. The performance unit awards granted are for the performance period beginning January 1, 2018 and
ending on December 31, 2019, and will be subject to two performance goals. Twenty-five percent of the performance units
subject to each award will vest if, but only if, the related target performance goal is achieved. The remaining 75% of the
performance units subject to each award will vest based on the relative performance (measured by percentile ranking) with
respect to the related maximum performance goal. If, for the performance period, the target level of achievement for the first
performance goal and/or the maximum level of achievement for the second performance goal is not reached, the dollar
amount represented by the performance units associated with each performance goal will be adjusted to reflect the level of
performance achieved. After the vesting date, the participant will receive that number of common shares of Peoples equal to
(i) the aggregate number of participant's performance units (and dollar value of such performance units) that vested based on
the performance achieved under both performance goals (ii) divided by the fair market value of a common share of Peoples
on the date of such vesting and rounded down to the nearest whole common share.
127
Note 17 Acquisitions
On January 31, 2017, Peoples Insurance acquired a third-party insurance administration company for total cash
consideration of $450,000, and recorded $450,000 of customer relationship intangibles, resulting in no goodwill. This
acquisition did not materially impact Peoples' financial position, results of operations or cash flows. As of December 31,
2017, Peoples had $194,000 of contingent consideration payable related to the acquisition.
On October 2, 2017, Peoples Insurance acquired a property and casualty focused independent insurance agency for total
cash consideration of $1.7 million, and recorded $1.1 million of customer relationship intangibles, and $100,000 of fixed
assets, resulting in $480,000 of goodwill. The acquisition will not materially impact Peoples' financial position, results of
operations or cash flows. As of December 31, 2017, Peoples had $856,000 of contingent consideration payable related to the
acquisition.
On October 23, 2017, Peoples entered into an Agreement and Plan of Merger with ASB. The ASB agreement calls for
ASB to merge into Peoples and for ASB's wholly-owned subsidiary, American Savings Bank, fsb, which operates 6 full-
service branches in southern Ohio and northern Kentucky, to merge into Peoples Bank. As of December 31, 2017, ASB had
approximately $288.3 million in total assets, which included approximately $247.2 million in net loans, and approximately
$203.2 million in total deposits. This transaction is expected to close during the second quarter of 2018, subject to the
satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of ASB.
Under the terms of the ASB agreement, shareholders of ASB can elect to receive either 0.592 common share of Peoples for
each share of ASB common stock or $20.00 cash per share, with a limit of 15% of the merger consideration being paid in
cash.
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 $615 at December 31,
2017 and $1,255 at December 31, 2016)
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,
2017
2016
$
50 $
9,270
9,486
6,933
50
7,988
3,255
8,109
431,482
1,812
1,700
460,733 $
395,468
28,730
1,649
445,249
1,471 $
270
400
2,141
2,589
165
7,234
9,988
458,592
460,733 $
435,261
445,249
$
$
$
128
Condensed Statements of Income
(Dollars in thousands)
Income:
Dividends from subsidiary bank
Dividends from non-bank subsidiary
Net gain on securities transactions
Interest and other income
Total income
Expenses:
Trust preferred securities expense
Intercompany management fees
Other expense
Total expenses
Year Ended December 31,
2017
2016
2015
$
27,000 $
20,000
20,500 $
1,250
21,959
19,706
2,602
237
49,839
346
1,361
3,380
5,087
—
209
397
1,131
3,154
4,682
17,500
2,000
—
206
304
3,171
5,653
9,128
10,578
(3,139)
(2,776)
10,941
Income before federal income taxes and equity in (excess dividends from)
undistributed earnings of subsidiaries
Applicable income tax benefit
(Excess dividends from) equity in undistributed earnings of subsidiaries
Net income
44,752
(1,309)
(7,590)
38,471 $
17,277
(1,718)
12,162
31,157 $
$
129
Statements of Cash Flows
(Dollars in thousands)
Operating activities
Net income
Adjustment to reconcile net income to cash provided by operations:
Depreciation, amortization and accretion, net
Excess dividends from (equity in) undistributed earnings of subsidiaries
Gain on investment securities
Other, net
Net cash provided by operating activities
Investing activities
Net proceeds from sales and maturities of investment securities
Investment in subsidiaries
Decrease (increase) in receivable from subsidiary
Business combinations, net of cash received
Other, net
Net cash (used in) provided by 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 financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
Supplemental cash flow information:
Interest paid
Year Ended December 31,
2017
2016
2015
$
38,471 $
31,157 $
10,941
(6,525)
7,590
(2,602)
2,810
39,744
2,359
(50,883)
25,496
—
(229)
(23,257)
—
(508)
9
(14,706)
—
(15,205)
1,282
190
(12,162)
—
355
19,540
—
(22,769)
23,389
—
—
620
—
(5,480)
18
(11,173)
26
(16,609)
3,551
8,038
9,320 $
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
364 $
433 $
594
$
$
130
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) gain on asset disposals and other transactions
Net gain on investment securities
Other income
Amortization of other intangible assets
Acquisition-related expenses
Total non-interest expense less amortization of other
intangible assets and acquisition-related expenses
Income tax expense
Net income
Earnings per common share - Basic
Earnings per common share - Diluted
2017
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
29,817
$
31,208
$
32,728
$
2,872
26,945
624
(3)
340
3,118
28,090
947
109
18
3,508
29,220
1,086
(25)
1,861
32,772
3,650
29,122
1,115
(144)
764
13,334
13,590
12,610
13,119
863
—
871
—
26,468
25,809
3,852
8,809
0.49
0.48
$
$
$
4,414
9,766
0.54
0.53
$
$
$
$
$
$
869
—
25,689
5,127
10,895
0.60
0.60
$
$
$
913
341
26,152
5,339
9,001
0.50
0.49
Weighted-average common shares outstanding - Basic
18,029,991
18,044,574
18,056,202
18,069,467
Weighted-average common shares outstanding - Diluted
18,192,957
18,203,752
18,213,533
18,240,092
(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
Total non-interest expense less amortization of other
intangible and system conversion 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
—
2,613
26,308
727
(769)
767
12,367
1,007
90
2,607
26,123
1,146
(224)
(1)
13,538
1,008
423
25,274
25,408
25,411
3,654
7,995
0.44
0.44
$
$
$
3,479
7,962
0.44
0.44
$
$
$
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
131
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 26, 2018 (“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 2017
Annual Meeting of Shareholders held on April 27, 2017.
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 each of 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 each of 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.
132
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 2017”, “GRANTS OF PLAN-BASED AWARDS FOR
2017”, “OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2017”, “OPTION EXERCISES AND STOCK
VESTED FOR 2017”, “PENSION BENEFITS FOR 2017”, “NON-QUALIFIED DEFERRED COMPENSATION FOR
2017”, “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, 2017, 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))
325,526 (1) $
23.77 (2)
431,210 (3)
—
325,526
$
—
23.77
—
431,210
Plan Category
Equity compensation plans
approved by shareholders
Equity compensation plans not
approved by shareholders
Total
(1) Includes an aggregate of 14,637 common shares issuable upon exercise of options and stock appreciation rights
granted under the 2006 Plan and 276,842 restricted common shares subject to time-based or performance-based
vesting restrictions granted under the 2006 Plan, and 34,047 common shares allocated to participants' bookkeeping
accounts under the Deferred Directors' 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 174,608 common shares remaining available for future grants under the 2006 Plan at December 31, 2017,
as well as 256,602 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.
133
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.
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
PART IV
The following reports of the independent registered public accounting firm 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, 2017 and 2016
Consolidated Statements of Income for each of the fiscal years in the three-year period ended December 31, 2017
Consolidated Statements of Comprehensive Income for each of the fiscal years in the three-year period ended
December 31, 2017
Consolidated Statements of Stockholders’ Equity for each of the fiscal years in the three-year period ended
December 31, 2017
Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended December 31,
2017
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
73
74
75
76
77
78
79
81
82
128
(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
The documents listed below are filed/furnished with this Annual Report on Form 10-K as exhibits or incorporated
into this Annual Report on Form 10-K by reference as noted. Each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Form 10-K is identified as such in the list below.
134
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
3.1(c)
3.1(d)
Description
Exhibit Location
Agreement and Plan of Merger, dated as of January 21, 2014,
between Peoples Bancorp Inc. and Midwest Bancshares, Inc.+
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 effective as of July 25, 2014, 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.+
Agreement and Plan of Merger, dated as of October 23, 2017,
between Peoples Bancorp Inc. and ASB Financial Corp.+
3.1(a)
Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed
with the Ohio Secretary of State on May 3, 1993)
3.1(b)
Certificate of Amendment to the Amended Articles of Incorporation
of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on
April 22, 1994)
Included as Annex A to the proxy statement/
prospectus which forms a part of the Registration
Statement of Peoples Bancorp Inc. on Form S-4
(Registration No. 333-194626)
Included as Annex A to the proxy statement/
prospectus which forms a part of the Registration
Statement of Peoples Bancorp Inc. on Form S-4
(Registration No. 333-196872)
Included as Annex A to the proxy statement/
prospectus which forms a part of the Registration
Statement of Peoples Bancorp Inc. on Form S-4
(Registration No. 333-197736)
Included as Annex A to the proxy statement/
prospectus which forms a part of the Registration
Statement of Peoples Bancorp Inc. on Form S-4
(Registration No. 333-199152)
Included as Annex A to the proxy statement/
prospectus which forms a part of the Registration
Statement of Peoples Bancorp Inc. on Form S-4
(Registration No. 333-222054)
Incorporated herein by reference to Exhibit 3(a) to
the Registration Statement of Peoples Bancorp
Inc. on Form 8-B filed on July 20, 1993 (File No.
0-16772)
Incorporated herein by reference to Exhibit 3.1(b)
to the Quarterly Report on Form 10-Q of Peoples
Bancorp Inc. for the quarterly period ended
September 30, 2017 (File No. 0-16772) ("Peoples
September 30, 2017 Form 10-Q")
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 3.1(c)
to Peoples’ September 30, 2017 Form 10-Q
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)
3.1(e)
Certificate of Amendment by Shareholders to the Amended Articles
of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio
Secretary of State on January 22, 2009)
Incorporated herein by reference to Exhibit 3(a) to
the Quarterly Report on Form 10-Q of Peoples
Bancorp Inc. for the quarterly period ended March
31, 2003 (File No. 0-16772) (“Peoples’ March 31,
2003 Form 10-Q”)
Incorporated herein by reference to Exhibit 3.1 to
the Current Report of Peoples Bancorp Inc. on
Form 8-K dated and filed on January 23, 2009
(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.
135
Description
Exhibit Location
Exhibit
Number
3.1(f)
3.1(g)
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.
Amended Articles of Incorporation of Peoples Bancorp Inc. [This
document represents the Amended Articles of Incorporation of
Peoples Bancorp Inc. in compiled form incorporating all
amendments. The compiled document has not been filed with the
Ohio Secretary of State.]
3.2(a)
Code of Regulations of Peoples Bancorp Inc.
3.2(b)
3.2(c)
3.2(d)
3.2(e)
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
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
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
Certificate regarding adoption of an amendment to Section 2.01 of
Peoples Bancorp Inc.'s Code of Regulations by the shareholders on
April 22, 2010
3.2(f)
Code of Regulations of Peoples Bancorp Inc. [This document
represents the Code of Regulations of Peoples Bancorp Inc. in
compiled form incorporating all amendments.]
Incorporated herein by reference to Exhibit 3.1 to
the Current Report of Peoples Bancorp Inc. on
Form 8-K dated and filed on February 2, 2009
(File No. 0-16772)
Incorporated herein by reference to Exhibit 3.1(g)
to the Annual Report of Peoples Bancorp Inc. 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
the Registration Statement of Peoples Bancorp
Inc. on Form 8-B filed July 20, 1993 (File No.
0-16772)
Incorporated herein by reference to Exhibit 3(c) to
Peoples’ March 31, 2003 Form 10-Q
Incorporated herein by reference to Exhibit 3(a) to
the Quarterly Report of Peoples Bancorp Inc. on
Form 10-Q for the quarterly period ended March
31, 2004 (File No. 0-16772)
Incorporated herein by reference to Exhibit 3.1 to
the Current Report of Peoples Bancorp Inc. on
Form 8-K dated and filed on April 14, 2006 (File
No. 0-16772)
Incorporated herein by reference to Exhibit 3.2(e)
to the Quarterly Report of Peoples Bancorp Inc.
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")
Incorporated herein by reference to Exhibit 3.2(f)
to Peoples' June 30, 2010 Form 10-Q/A
4.1
Agreement to furnish instruments and agreements defining rights of
holders of long-term debt
Filed herewith
4.2(a)
4.2(b)
4.3(a)
Indenture, dated as of June 25, 2007, between NB&T Financial
Group, Inc., as issuer, and Wilmington Trust Company, as trustee,
relating to Fixed/Floating Rate Junior Subordinated Debt Securities
due 2037
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"
Incorporated herein by reference to Exhibit 4.1(a)
to the Quarterly Report of Peoples Bancorp Inc. on
Form 10-Q for the quarterly period ended June 30,
2015 (File No. 0-16772) ("Peoples' June 30, 2015
Form 10-Q")
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
136
Exhibit
Number
4.3(b)
4.3(c)
4.4
Description
Exhibit Location
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.
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.
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 4.2(b)
to Peoples' June 30, 2015 Form 10-Q
Incorporated herein by reference to Exhibit 4.9 to
the Annual Report of Peoples Bancorp Inc. on
Form 10-K for the fiscal year ended December 31,
2015 (File No. 0-16772) ("Peoples' 2015 Form 10-
K")
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
10.1(b)
Rabbi Trust Agreement, made January 6, 1998, between Peoples
Bancorp Inc. and The Peoples Banking and Trust Company
(predecessor to Peoples Bank, National Association and now known
as Peoples Bank following conversion to state-chartered bank) as
Trustee*
Incorporated herein by reference to Exhibit 10.1(c)
to the Annual Report of Peoples Bancorp Inc. on
Form 10-K for the fiscal year ended December 31,
2007 (File No. 0-16772)
10.2
10.3
10.4
10.5
10.6
10.7
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 Award 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]*
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
(b) to the Annual Report of Peoples Bancorp Inc.
on 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 the Annual Report of Peoples Bancorp Inc. on
Form 10-K for the fiscal year ended December 31,
2011 (File No. 0-16772) ("Peoples’ 2011 Form 10-
K")
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
Peoples Bancorp Inc. Second Amended and Restated 2006 Equity
Plan (approved by the shareholders of Peoples Bancorp Inc. on April
25, 2013; sometimes referred to as "Peoples Bancorp Inc. 2006
Equity Plan")*
Incorporated herein by reference to Exhibit 10.1 to
the Quarterly Report of Peoples Bancorp Inc. on
Form 10-Q for the quarterly period ended June 30,
2013 (File No. 0-16772) ("Peoples' June 30, 2013
Form 10-Q")
*Management Compensation Plan or Agreement
137
Exhibit
Number
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
Description
Exhibit Location
First Amendment to the Peoples Bancorp Inc. Second Amended and
Restated 2006 Equity Plan (adopted by the Board of Directors of
Peoples Bancorp Inc. on January 25, 2018)
Filed herewith
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. 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)*
Incorporated herein by reference to Exhibit 10.43
to Peoples’ 2011 Form 10-K
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
Peoples Bancorp Inc. Amended and Restated Change in Control
Agreement between Peoples Bancorp Inc. and Charles W. Sulerzyski
(adopted April 4, 2011)*
Incorporated herein by reference to Exhibit 10.2 to
the Quarterly Report of Peoples Bancorp Inc. on
Form 10-Q for the quarterly period ended June 30,
2011 (File No. 0-16772)
10.18
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
10.19
Peoples Bancorp Inc. Employee Stock Purchase Plan*
Incorporated herein by reference to Exhibit 10.1 to
the Current Report of Peoples Bancorp Inc. on
Form 8-K dated and filed on April 28, 2014 (File
No. 0-16772)
10.20
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
the Current Report of Peoples Bancorp Inc. on
Form 8-K dated and filed on August 4, 2014 (File
No. 0-16772)
10.21
Change in Control Agreement between Peoples Bancorp Inc. and
Robyn A. Stevens (adopted June 17, 2016)*
Incorporated herein by reference to Exhibit 10.1 to
the Quarterly Report of Peoples Bancorp Inc. on
Form 10-Q for the quarterly period ended June 30,
2016 (File No. 0-16772)
10.22
Form of Peoples Bancorp Inc. Second Amended and Restated 2006
Equity Plan Performance-Based Restricted Stock Agreement used
and to be used to evidence awards of performance-based restricted
stock granted to employees of Peoples Bancorp Inc. on and after
January 29, 2015*
Incorporated herein by reference to Exhibit 10.2 to
the Quarterly Report of Peoples Bancorp Inc. on
Form 10-Q for the quarterly period ended March
31, 2017 (File No. 0-16772) ("Peoples' March 31,
2017 Form 10-Q")
*Management Compensation Plan or Agreement
138
Exhibit
Number
10.23
Description
Exhibit Location
Form of Peoples Bancorp Inc. Second Amended and Restated 2006
Equity Plan Performance-Based Restricted Stock Award Agreement
used and to be used to evidence awards of performance-based
restricted stock granted to executive officers of Peoples Bancorp Inc.
on and after January 29, 2015*
Incorporated herein by reference to Exhibit 10.2 to
Peoples' March 31, 2017 Form 10-Q
10.24
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*
Incorporated herein by reference to Exhibit 10.3 to
the Quarterly Report of Peoples Bancorp Inc. on
Form 10-Q for the quarterly period ended March
31, 2016 (File No. 0-16772) ("Peoples' March 31,
2016 Form 10-Q")
10.25
10.26
10.27
10.28
21
23
24
31.1
31.2
32
Change in Control Agreement between Peoples Bancorp Inc. and
Douglas Wyatt (adopted May 2, 2016)*
Incorporated herein by reference to Exhibit 10.1 to
Peoples' March 31, 2017 Form 10-Q
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
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
Form of Peoples Bancorp Inc. Second Amended and Restated 2006
Equity Plan Performance Unit Award Agreement used and to be used
to evidence grants of performance units to executive officers of
Peoples Bancorp Inc. on and after July 26, 2017*
Incorporated herein by reference to Exhibit 10.1 to
the Quarterly Report of Peoples Bancorp Inc.on
Form 10-Q for the quarterly period ended June 30,
2017 (File No. 0-16772)
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, 2017 of Peoples Bancorp Inc. are
the following documents formatted in XBRL (eXtensive Business Reporting Language): (i) Consolidated Balance Sheets at December
31, 2017 and December 31, 2016; (ii) Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015; (iii)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015; (iv) Consolidated
Statements of Stockholders' Equity for the years ended December 31, 2017, 2016 and 2015; (v) Consolidated Statements of Cash Flows
for the years ended December 31, 2017, 2016, and 2015 and (vi) Notes to the Consolidated Financial Statements.
139
(b)
Exhibits
The documents listed in Item 15(a)(3) are filed/furnished with this Annual Report on Form 10-K as exhibits or
incorporated into this Annual Report on Form 10-K by reference.
(c)
Financial Statement Schedules
None
ITEM 16 FORM 10-K SUMMARY
Not applicable.
140
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, 2018
PEOPLES BANCORP INC.
By: /s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Title
President, Chief Executive Officer and Director
Executive Vice President, Chief Financial Officer
2/27/2018
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/ 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
* 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 in Exhibit 24, in the capacities indicated and on the 25th day of January,
2018.
By:
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
Attorney-in-Fact
141
Date
2/27/2018
2/27/2018
2/27/2018
2/27/2018
2/27/2018
2/27/2018
2/27/2018
2/27/2018
2/27/2018
2/27/2018
Our Promise
We will work side by side to
overcome challenges and seize
opportunities. We listen and work
with you. Together we will build
and execute thoughtful plans and
actions, blending our experience
and expertise, to move you toward
your goals. Our core difference
is providing you peace of mind,
confidence, and clarity in your
financial life.
Employee
Promise Circle
Clients First
Integrity Always
Respect for All
Commitment to Community
Lead the Way
Excellence in Everything
2017
ANNUAL
REPORT
Call.
Click.
Come In.
800.374.6123
peoplesbancorp.com
Visit your local office
138 Putnam Street | PO Box 738 | Marietta, OH 45750