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WORKING TOGETHER. BUILDING SUCCESS.
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PEOPLES BANCORP INC.
Peoples Bancorp Inc. (Peoples) is a diversifi ed fi nancial services holding company and makes available a complete line
of banking, trust and investment, insurance and premium fi nancing solutions through its subsidiaries, Peoples Bank and
Peoples Insurance Agency, LLC.
Peoples’ common shares are traded on The Nasdaq Global Select Market® under the symbol “PEBO”, and Peoples is a
member of the Russell 3000 index of U.S. publicly-traded companies.
TOTAL ANNUAL RETURN AS OF DECEMBER 31, 2020
1-YEAR
3-YEAR
5-YEAR
18%
3%
-2%
-2% -3%
-17% -18%
14%
12%
15%
8%
7%
PEBO
PEER GROUP
RUSSELL 2000 FINANCIAL SERVICES
S&P 500
Total Return includes impact of dividends
Peers include: SRCE, NWBI, CHCO, CCNE, CTBI, PRK,
SMNB, SCF, HBNC, PFC, SNMF, THFF, GABC, STBA,
LKSN, SYBT, TMP, FISI, TSC, CIVB, NBTB
Source: Bloomberg
PEOPLES BANK has been headquartered in Marietta,
Ohio since 1902 and has established a heritage of fi nancial
stability, growth and community impact.
Peoples had $4.8 billion in total assets as of December
31, 2020, and 88 locations, including 76 full-service bank
branches in Ohio, Kentucky and West Virginia.
CLEVELAND
COLUMBUS
MARIETTA
CHARLESTON
CINCINNATI
LEXINGTON
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A MESSAGE FROM THE
PRESIDENT AND CEO
Dear Fellow Shareholders,
2020 was a rollercoaster! Peoples associates worked tirelessly for our clients and our
communities during a once in a lifetime pandemic and a year full of civic unrest. Bank stocks
were not treated well in 2020. Fortunately, Peoples common stock performed modestly
better in total shareholder return for 2020 than the average of our proxy peer group. This
consistent performance has led us to beat the average total shareholder return of our proxy
peer group over the last one, three and fi ve year periods. For the past fi ve years, our total
shareholder return performance is fi ve percentage points greater than the average of our
proxy peer group. During this time, bank stocks have underperformed the S&P 500 index,
which has been partially fueled by tech stocks. As of January 31, 2021, small cap bank stocks
have rallied and have closed much of the underperformance relative to the S&P 500.
Pandemic Efforts and Paycheck Protection Program (PPP)
In March 2020, the nation shut down to fi ght the pandemic. Our branch lobbies went
to ”Open by Appointment” and our non-client facing associates largely started to work
from home. Heroic efforts by our technology and facilities teams enabled us to quickly
get people working from home or in safe, socially distant offi ce space. During this time,
we decided to move forward with our technology plans to update both our consumer and
commercial loan origination systems. This proved to be fortuitous. In Q3 2020, we had
record indirect lending volume, almost double our Q3 2019 volume. We would not have
been able to process the volume on our old consumer loan origination system.
The Paycheck Protection Program provided protection to businesses across our footprint.
Our team worked day and night, seven days a week, to help our clients as well as customers
whose banks were not able to perform. We have secured hundreds of new clients and
successfully expanded relationships with insurance, investments and additional banking
services to these new customers.
Current Expected Credit Losses (CECL) and Business Results
CECL is an accounting convention we adopted in 2020. It requires banks to reserve funds
for future credit losses that are embedded in its portfolio. The models are built based
on economic factors. The jolt the economy suffered because of the spring shutdown
caused unemployment forecasts to rise and GDP growth forecast to crater. As a result,
we were required to put $33 million aside for reserves in the fi rst three quarters in 2020.
Fortunately, things were beginning to look better and in the fourth quarter and we were
able to bring $7 million of this back into earnings. We expect CECL to cause some
volatility to our earnings for years to come.
Chuck Sulerzyski
President & CEO
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$1.32
$1.37
$1.16
$4.0
$4.4
$4.8
2018
2020
2019
CASH DIVIDENDS
(Paid on Common Shares)
2018
2020
2019
TOTAL ASSETS
($ Billions)
15 bps
.0%
.5%
.0%
.5%
0%
4 bps
5 bps
2018
2019
2020
NET CHARGE OFF
(as a Percent of Average Total Loans)
2020 was a record year for Peoples in production of indirect loans and mortgages. Our consumer lending team and
the operations professionals who support these business worked tirelessly to book these loans. Consumer demand
remained high despite the economic conditions.
Peoples Premium Finance and Future Acquisitions
We had the good fortune to acquire an insurance premium fi nance business in July of 2020. This business provides
loans across the country to businesses who desire to fi nance their insurance premiums. We see this as a support
to our insurance agency and an opportunity for growth. In the last 6 months of the year, premium fi nance loan
balances grew from $85 million to $115 million.
We remain optimistic about our ability to acquire additional banks and insurance, investment and specialty fi nance
businesses. Specifi cally, we would like to acquire banks contiguous to our footprint or that densify our existing footprint.
Community and Employee Support
The economic shock of the pandemic caused a huge increase in need for hunger relief from food assistance
programs. Peoples Board of Directors approved a $250,000 grant to The Peoples Bank Foundation to primarily
fi ght hunger. We also were able to get $85,000 in matching funds from business partners including FIS, Raymond
James and JobsOhio. Even more impressive was the $116,055 our employees donated out of their own pockets to
help fi ght hunger. We are also proud to be one of the fi rst corporate sponsors, along with Kroger and Bose, of the
Joe Burrow Hunger Relief Fund.
The Peoples Bank Foundation awarded almost $750,000 in grants in 2020, the most it has ever awarded in a
single year. This included grants to fi ght COVID-19, including a $100,000 matching challenge for Marietta Memorial
Hospital that was met by the donors of the Mid-Ohio Valley region in just a few weeks.
The stress of the pandemic to our associates has been huge. Again, I am proud that our Board of Directors
provided support, including a stock grant to associates under the level of Vice President, providing emergency
funds for employee hardship situations, and reimbursement for the cost of additional child and elder care
expenses. Our associates rose to the challenge with the implementation of system changes, the participation in
the PPP, the production of record numbers of indirect and mortgage loans, and the attention given to client service
throughout the year.
2
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Management and Board Changes
We reorganized several executive positions in the company during 2020. These include:
• Jason Eakle, Executive Vice President, Chief Credit Officer, effective April 1, 2020
• Richard Vaughan, Executive Vice President, Retail and Business Banking, effective July 1, 2020
• Katie Bailey, Executive Vice President, Chief Financial Officer, effective October 1, 2020
• Tyler Wilcox, Executive Vice President, President of Community Banking Group effective October 1, 2020
• Mark Augenstein, Executive Vice President, Chief Administration Officer, effective October 1, 2020
These professionals, combined with other team members, will provide leadership for decades to come. I am in awe
of their ability, optimistic about their growth potential and grateful for their dedication.
In October 1, 2020, David Mead stepped down as Chairman of the Board and announced that he would retire from
the Board of Directors on March 31, 2021. David has provided 15 years of wisdom and counsel to Peoples. He has
made many meaningful contributions, including serving as interim CEO from 2010-2011. I am thankful for the
education and support he has provided me.
Susan Rector became our new Chairman of the Board on October 1, 2020. Susan has served on the Board of
Directors for over 10 years, providing a voice of reason and wisdom. We are very fortunate to have such an
accomplished individual step into this very important role.
We also welcomed Michael Vittorio as a member of the Board of Directors in January of 2021. Mike was a successful
CEO of The First National Bank of Long Island for 17 years. I look forward to benefi ting from his experience and
knowledge.
Sadly, former director, Paul Theisen, passed away in December of 2020. Paul ably served the Board from 1978-2012.
We will miss and remember his wisdom, humor and caring manner.
Last and Most Important....Our Culture
“Working Together, Building Success” is our tag line and our way of life. In 2020, our team moved mountains and
outperformed much larger banks in taking care of the client. Why? Because it is in our DNA to take care of ourselves,
each other and our clients. All of us help each other to improve our knowledge and execution through active
coaching and engagement. It is this spirit of caring that creates partnerships across the businesses to positively
impact customers and communities. It is our culture that defi nes what people do when no one is looking. And in
2020, the excellence of our colleagues shined through the clouds created by dire health and economic conditions.
We are very thankful to our shareholders for the faith they have shown in us. We will continue to strive for superior
shareholder returns. For our clients, we will continue to keep our services at the highest level of excellence, whether
you prefer electronic or personal delivery. For our associates, we will continue to do everything we can to provide
an environment that allows you to show your excellence. For our communities, we will continue to be committed to
making a difference where we work and live. Thank you all for your love of Peoples!
All the best,
ki P
ident and
Chuck Sulerzyski, President and CEO
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OUR COMMUNITIES
AND OUR ACTIVE
INVOLVEMENT ARE
VITAL TO OUR SUCCESS.
4
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STOCKHOLDER INFORMATION
Stock Listing
NASDAQ Symbol: PEBO
NASDAQ Global Select Market, CUSIP 709789101
Alternate Newspaper Listings: PEBOOH and PeBcOh
Corporate Offi ces
Peoples’ Headquarters:
138 Putnam Street, PO Box 738
Marietta, OH 45750-0738
Investor Relations: 740.374.6136
peoplesbancorp.com
Stock Transfer Agent, Registrar
Shareowner Services
161 N. Concord Exchange
South St. Paul, MN 55075
800.468.9716 • shareowneronline.com
General Shareholder Inquiries
Peoples Bancorp Inc.
Attn: Investor Relations
138 Putnam Street, PO Box 738
Marietta, OH 45750-0738
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PEOPLES BANCORP INC. AND
PEOPLES BANK DIRECTORS
TARA M. ABRAHAM
Chairman and Co-CEO
Accel, Inc.
S. CRAIG BEAM
Owner
Thorobeam Farm, LLC
BROOKE W. JAMES
Partner
WMSALL Farms
DAVID L. MEAD
Professor (Retired)
Marietta College
GEORGE W. BROUGHTON
SUSAN D. RECTOR
Vice Chairman, Peoples Bancorp Inc.
Chairman, Peoples Bancorp Inc.
and Peoples Bank
Owner and President
and Peoples Bank
Attorney-At-Law
Broughton Commercial Properties, LLC
Peterson Conners LLP
GWB Oil & Gas, LLC
DAVID F. DIERKER
Banking Executive (Retired)
SunTrust Banks, Inc.
JAMES S. HUGGINS
Attorney-At-Law
Theisen Brock, LPA
CHUCK SULERZYSKI
President and Chief Executive Offi cer
Peoples Bancorp Inc. and Peoples Bank
MICHAEL N. VITTORIO
Banking Executive (Retired)
The First National Bank of Long Island
6
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OFFICERS AND DIRECTORS
EMERITUS
Peoples Bancorp Inc. Officers
CHUCK SULERZYSKI
President and Chief Executive Offi cer
KATHRYN M. BAILEY
Executive Vice President
Chief Financial Offi cer and Treasurer
MARK J. AUGENSTEIN
Executive Vice President
Operations
JASON M. EAKLE
Executive Vice President
Chief Credit Offi cer
DOUGLAS V. WYATT
Executive Vice President
Chief Commercial Banking Offi cer
TYLER J. WILCOX
Executive Vice President
Community Banking
Peoples Bancorp Inc.
Directors Emeritus
DAVE M. ARCHER
BRENDA F. JONES, M.D.
CARL L. BAKER, JR.
FRED R. PRICE
FRANK L. CHRISTY
ROBERT W. PRICE
WILFORD D. DIMIT
T. PAT SAUBER
RICHARD FERGUSON
THOMAS J. WOLF
M. RYAN KIRKHAM
Executive Vice President
General Counsel and Corporate Secretary
DAVID A. GROSSMAN
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
Peoples Bank Director Emeritus
HAROLD D. LAUGHLIN
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MAP AND LOCATIONS
MAP AND LOCATIONS
Warren County
Carlisle
Franklin
Hamilton Township
Lebanon
Mason
Springboro
Waynesville
Washington County
Belpre
Lowell
Marietta
Reno
WEST VIRGINIA
Cabell County
Huntington
Kanawha County
Charleston
Mason County
Point Pleasant
Tyler County
Sistersville
Wetzel County
New Martinsville
Wood County
Parkersburg
Vienna
OHIO
Athens County
Athens
Nelsonville
Brown County
Georgetown
Mount Orab
Sardinia
Clermont County
Batavia
Milford
Williamsburg
Clinton County
Blanchester
New Vienna
Sabina
Wilmington
Coshocton County
Coshocton
Cuyahoga County
Beachwood
Lyndhurst
Fairfi eld County
Baltimore
Lancaster
Franklin County
Worthington
Gallia County
Gallipolis
Guernsey County
Byesville
Cambridge
Hamilton County
Cincinati
Madeira
Montgomery
Highland County
Hillsboro
Jackson County
Jackson
Wellston
Knox County
Mount Vernon
Licking County
Heath
Newark
Meigs County
Pomeroy
Morgan County
McConnelsville
Muskingum County
Zanesville
Noble County
Caldwell
Pike County
Waverly
Scioto County
Portsmouth
Sciotoville
Wheelersburg
Summit County
Akron
Cuyahoga Falls
Munroe Falls
Norton
Stark County
North Canton
KENTUCKY
Boyd County
Ashland
Summit
Floyd County
Martin
Prestonsburg
Greenup County
Greenup
Russell
Johnson County
Paintsville
Magoffi n County
Salyersville
Martin County
Inez
Pike County
Pikeville
Scott County
Georgetown
(Not pictured)
MISSOURI
Jackson County
Lee’s Summit
CLEVELAND
COLUMBUS
MARIETTA
CHARLESTON
CINCINNATI
LEXINGTON
8
Peoples locations as of March 12, 2021
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
☒
For the fiscal year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
For the transition period from ____ to ____
Commission File Number: 000-16772
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)
45750-0738
(Zip Code)
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
(740) 373-3155
Title of each class
Common shares, without par value
Securities registered pursuant to Section 12(g) of the Act:
Trading Symbol(s) Name of each exchange on which registered
PEBO
The Nasdaq Stock Market
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No 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 o No 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 every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes x No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an 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
Non-accelerated filer
o
o
Accelerated filer
Smaller reporting company
Emerging growth company
x
☐
☐
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 has filed a report on and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report . ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐
No x
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, 2020 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate market
value of the registrant’s common shares (the only common equity of the registrant) held by non-affiliates was $404,671,000 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:
19,623,956 common shares, without par value, at February 26, 2021.
Document Incorporated by Reference:
Portions of Registrant's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 22, 2021 (the
"2021 Annual Meeting of Shareholders"), are incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I
ITEM 1
ITEM 1A
ITEM 1B
ITEM 2
ITEM 3
ITEM 4
PART II
Business
Risk Factors
Unresolved Staff Comments
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
ITEM 9A
ITEM 9B
PART III
ITEM 10
ITEM 11
ITEM 12
ITEM 13
ITEM 14
PART IV
ITEM 15
ITEM 16
SIGNATURES
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary (not applicable)
4
20
34
34
35
35
36
38
40
82
82
82
83
83
145
145
145
146
146
147
147
153
3
As used in this Annual Report on Form 10-K (this "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
The disclosures set forth in this Item are qualified by "ITEM 1A RISK FACTORS" and the section captioned "Forward-Looking
Statements" in "ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" of this Form 10-K and other cautionary statements set forth elsewhere in this Form 10-K.
Corporate Overview
Peoples Bancorp Inc. is a financial holding company, which was organized in 1980. Peoples operates principally through its
wholly-owned subsidiary, Peoples Bank, an Ohio state-chartered bank which was first chartered in 1902. Peoples' other wholly-
owned subsidiaries are Peoples Investment Company ("PIC") and Peoples Risk Management, Inc., a captive insurance subsidiary.
Peoples also holds all of the common securities of NB&T Statutory Trust III. Peoples Bank's operating subsidiaries include Peoples
Insurance Agency, LLC ("Peoples Insurance"), and an asset management company, Peoples Tax Credit Equity, LLC.
Business Overview
Peoples makes available a complete line of commercial and consumer banking, trust and investment, insurance and premium
financing 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 loans, residential real estate loans, home equity lines of credit, consumer loans and Overdraft Privilege;
debit and automated teller machine ("ATM") cards;
credit cards for individuals and businesses;
◦
◦
◦
◦
◦ merchant credit card transaction processing services;
person-to-person payment processing via Zelle®;
◦
◦ mobile banking features including check deposit, withdrawals with cardless cash, alert notifications, Apple Pay® and
Samsumg Pay®;
safe deposit rental facilities;
◦
◦ money orders and cashier's checks;
◦
◦
◦
◦
◦
◦
◦
a full range of life, health, and property and casualty insurance products;
third-party insurance administration services;
insurance premium financing;
brokerage services;
custom-tailored fiduciary and trust services;
asset management and administration services; and
employee benefit, retirement, and health care plan administration services.
Peoples' financial products and services are primarily offered through its financial service locations and ATMs in Ohio, Kentucky
and West Virginia, as well as through online resources that are web and mobile based. Peoples' premium financing services are
offered nationwide. Brokerage services are offered exclusively through an unaffiliated registered broker-dealer located at Peoples
Bank's offices. Indirect consumer lending activities are offered through approved dealerships. 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, 2020, see Peoples' Consolidated
Financial Statements and Notes to the Consolidated Financial Statements.
Peoples has a history of expanding its business, including its customer base and primary market area, through a combination of
internal growth and targeted acquisitions. The internal growth may include the opening of de novo banking and loan production
offices located in or near Peoples' existing market area. Acquisitions have consisted of traditional banking offices 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 investment administration and management, and insurance premium financing, with the traditional banking
products offered to Peoples' clients; (2) increasing market share in existing markets; (3) expanding Peoples' core financial service
businesses of banking, insurance and investment and investment management; and (4) improving operating efficiency by directing
resources toward offices and markets with the greatest earnings opportunities.
4
Recent Corporate Developments
On January 29, 2021, Peoples announced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase
program authorizing Peoples to purchase up to an aggregate of $30 million of its outstanding common shares. This program replaced
the previous share repurchase program, which had authorized Peoples to purchase up to an aggregate of $40 million of its outstanding
common shares and under which an aggregate of $28.4 million had been purchased through the termination of the previous share
repurchase program on January 28, 2021.
Effective July 1, 2020, Peoples completed the business combination under which Peoples Bank acquired the operations and assets
of Triumph Premium Finance (referred to as the "premium finance acquisition"), a division of TBK Bank, SSB. Based in Kansas
City, Missouri, the division operating as Peoples Premium Finance continues to provide insurance premium financing loans for
commercial customers to purchase property and casualty insurance products through its growing network of independent insurance
agency partners nationwide. Peoples Bank acquired $84.7 million in loans, at acquisition date, after fair value adjustments. Peoples
also recorded $4.3 million of other intangible assets and $5.5 million of goodwill. As of December 31, 2020, Peoples Premium
Finance loans had grown to $114.8 million. Refer to "Note 19 Acquisitions" of the Notes to the Consolidated Financial Statements for
additional information.
Primary Market Area and Customers
Peoples 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, eastern and central Kentucky, and west
central West Virginia. Peoples currently operates 64 locations in Ohio, 13 locations in Kentucky, 10 locations in West Virginia and a
premium finance lending office in Missouri. Peoples' market area consists of rural, small urban and metropolitan markets and serves a
diverse group of industries and employers. Principal industries served in Peoples' primary markets include manufacturing,
distribution, commercial real estate, health care, education, municipal, agricultural, automotive, wholesale and retail trade, franchise,
and service-related industries. This broad-based economic region provides diversity, which helps prevent Peoples' revenue and
earnings from being largely dependent upon any single industry segment.
The COVID-19 pandemic has created disruptions throughout Peoples' primary market area. Governments, businesses, and the
public have taken unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel
bans, shelter-in-place orders, closures of businesses and schools, government fiscal stimulus, payment programs, and legislation
designed to deliver monetary aid and other Federal Reserve Board monetary policy. This has had a negative impact on the customers
of Peoples, including businesses and individuals. The effectiveness and timing of the rollout of vaccines to the general public is
unpredictable, and therefore, the pandemic could continue to impact Peoples' market area and customers.
Lending Activities
Peoples Bank originates various types of loans, including commercial loans (comprised of commercial and industrial loans,
commercial real estate loans, and construction loans), premium finance loans, residential real estate loans, home equity lines of credit,
consumer loans (comprised of both indirect and direct loans) and Overdraft Privilege. Peoples Bank's lending activities are focused
principally on lending opportunities within its primary market areas, with the exception of its premium finance lending, 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, 2020, Peoples Bank had no concentration of loans to borrowers engaged in the same or similar industries that exceeded
10% of total loans (also referred to as "loans, net of deferred fees and costs"), nor did Peoples Bank have any loans outstanding to non-
United States ("U.S.") entities.
Commercial Lending
Commercial loans include commercial and industrial loans, commercial real estate loans, and construction loans.
Commercial loans represented the largest portion of Peoples Bank's total loan portfolio, comprising approximately 59.0% and
55.2% of total loans at December 31, 2020 and December 31, 2019, respectively. Commercial lending inherently carries 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, 2020, the commercial loan portfolio consisted of
42.3% in variable interest rate loans and 57.7% in fixed interest rate loans. In determining whether to grant a commercial loan,
Peoples Bank primarily reviews a schedule of cash flows to evaluate whether the borrower's anticipated future cash flows will be
adequate to service both interest and principal due.
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Peoples Bank also originates variable rate loans with interest rate swaps, where the customer enters into an interest rate swap
with Peoples Bank on terms that match the terms of the loan. By entering into the interest rate swap with the customer, Peoples
Bank effectively provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples Bank
offsets its exposure in the swap by entering into an offsetting interest rate swap with an unaffiliated financial 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, actual knowledge of adverse events affecting the borrower's business, receipt of financial statements
indicating deteriorating credit quality, or other similar events.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the
“CARES Act”), was signed into law on March 27, 2020, to provide national emergency economic relief measures. The CARES
Act amended the loan program of the Small Business Administration (the “SBA”), in which Peoples Bank participates, to create a
guaranteed, unsecured loan program, the Paycheck Protection Program (the “PPP”), to fund operational costs of eligible
businesses, organizations and self-employed persons during COVID-19. An extension of these economic relief measures was
taken upon the enactment in December 2020 of the Consolidated Appropriations Act, 2021.
Commercial and Industrial Loans
Commercial and industrial loans are loans to operating companies for purposes of financing working capital needs, fixed
asset acquisitions, acquisitions of other businesses, and other business activities. Typically, these loans are secured with business
assets and, in some cases, owner-occupied real estate, and are personally guaranteed by the owners of the operating companies.
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. Also
included in commercial and industrial loan balances were the PPP loans. At December 31, 2020, commercial and industrial loans
comprised 28.6% of Peoples Bank's total loan portfolio compared to 23.1% at December 31, 2019.
Commercial Real Estate Loans
Peoples Bank's portfolio of commercial real estate loans comprised 27.3% of total loans at December 31, 2020, and 29.0% at
December 31, 2019. Peoples Bank originates commercial real estate loans for both owner-occupied commercial real estate and
non-owner-occupied investment commercial real estate. Generally, the real estate securing these loans is stabilized and typically
the loans are personally guaranteed by the owners of the borrowing entities. Normally, owner-occupied commercial real estate
loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties
occupied by operating companies. The source of repayment for this type of loan is typically cash flow from the operating
company occupying the real estate. Investment commercial real estate generally includes office buildings and complexes, retail
facilities, multifamily complexes, land under development, and industrial properties, as well as other commercial or industrial real
estate. Typically, the primary source of repayment of this type of loan is rental income generated from leasing activities.
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. These projects include the construction of apartment, office, retail, industrial complexes, and other
commercial and residential projects. The underwriting criteria for construction loans are generally the same as for non-
construction loans. Construction loans comprised 3.1% of Peoples Bank's total loan portfolio at both December 31, 2020 and
December 31, 2019.
Construction financing is generally considered to involve higher 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 sell the collateral of the
unfinished project. In certain cases, such as real estate development projects, repayment of construction loans occurs as a result of
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subsequent sale of the developed real estate. Additional risk exists in these cases 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. Peoples Bank typically requires the term of its construction loans to be less than three years.
Premium Finance Loans
Peoples Bank's portfolio of premium finance loans comprised 3.4% of total loans at December 31, 2020, with the portfolio
having been acquired during 2020. The premium finance loans are originated through independent insurance agency partners
nationwide and provide funding for the purchase by borrowers of property and casualty insurance policies from the insurance
agency partners. The loans are secured by the refundable, unearned premiums with respect to the underlying insurance policies.
These loans require a 15%-20% down payment followed by no less than nine consecutive, equal monthly payments of principal
plus interest. This type of lending is relatively low risk, as the loan amount is generally less than the refundable, unearned
premiums of the underlying insurance policy. If the loan becomes delinquent, the underlying insurance policy is cancelled, and
the unearned premiums are refunded directly to Peoples Bank.
Residential Real Estate Loans
Peoples Bank's portfolio of residential real estate loans comprised 16.9% of total loans at December 31, 2020, and 23.0% at
December 31, 2019. The residential real estate loans originated by Peoples Bank may either be retained in its loan portfolio, or
sold into the secondary market with servicing either retained by Peoples Bank or sold with the loan. Peoples Bank also had $4.7
million of residential real estate loans held for sale and was servicing $486.0 million of loans, consisting primarily of one-to-four
family residential mortgages, which had previously been sold into the secondary market, in each case, as of December 31, 2020.
Peoples Bank also originates and retains jumbo residential mortgage loans for primary and secondary residences, which are
nonconforming loans that have higher loan amounts than those 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. From time-to-time, Peoples Bank sells
its longer-term fixed rate real estate loans into the secondary market; however, Peoples Bank may retain certain fixed rate real
estate loans.
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 or through a designated low-to-moderate income loan program. 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.
Residential 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. Peoples Bank requires evidence of insurance at the time of the loan closing. Additionally, Peoples
Bank has a blanket insurance policy to cover loans secured by real estate with outstanding balances of less than $1 million that do
not include an insurance escrow account. For loans secured by real estate with outstanding balances over $1 million or those that
include an insurance escrow account, Peoples Bank force-places an insurance policy to cover the residential real estate loan when
the borrower fails to maintain adequate insurance. Licensed appraisals are required for all residential real estate loans, and are
completed by an independent third party. A compliance officer assigned to the line of business is responsible for working with
the management team to identify, implement and test regulatory compliance controls.
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, 2020, outstanding home equity lines of credit comprised 3.6% of Peoples Bank's total loans,
compared to 4.6% at December 31, 2019. 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 five-year to 20-year terms. At December 31,
2020, Peoples Bank's home equity loan portfolio consisted of 98.0% in variable interest rate loans and 2.0% in fixed interest rate
loans. Peoples Bank also offers a home equity line of credit product 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, 2020, 17.6% of the total home equity
loan portfolio was represented by convertible rate home equity lines of credit, with total outstanding principal balances and
available credit amounts of $26.1 million and $31.6 million, respectively, and a weighted-average remaining maturity of 7.3
years. The average original loan amount under these convertible rate home equity lines of credit was $40,000 at December 31,
2020.
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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 10-year terms and are subject to a new underwriting review upon request for renewal.
Consumer Lending
Peoples Bank's consumer lending activities include consumer indirect loans and consumer direct 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 not meet its ongoing standards, while strictly adhering to all laws and regulations governing consumer lending. A
compliance officer assigned to the line of business is responsible for working with the management team to identify, implement
and test regulatory compliance controls.
Consumer Indirect Loans
Peoples Bank originates consumer indirect loans through select dealerships, which generally include loans secured by
automobiles, motorcycles and recreational vehicles. At December 31, 2020, consumer indirect loans comprised 14.8% of Peoples
Bank's total loan portfolio, compared to 14.5% at December 31, 2019.
Consumer indirect loans are originated at the point of sale, or dealership, and are subject to the same pricing structure and
underwriting process as consumer loans originated through the retail branch channel. Consumer indirect lending offers Peoples
Bank the opportunity to access additional customers outside of its primary office locations. Peoples Bank offers consumer
indirect lending for new and pre-owned vehicles through approved franchise or independent dealerships. These dealerships
undergo an approval process whereby Peoples Bank reviews the dealership licensing and industry experience, evaluates customer
experience with the dealership and completes an inspection of the inventory, showroom, and general facilities. On an ongoing
basis, the dealerships are monitored based on production volume, application approval rates, portfolio default rates, and adherence
to loan pricing guidelines.
Consumer Direct Loans
Peoples Bank originates consumer direct loans primarily through its office locations. Consumer direct loans generally
include loans secured by automobiles, motorcycles, recreational vehicles and other personal property; unsecured loans; and
personal lines of credit. Consumer direct loans differ from consumer indirect loans as they include expanded products, such as
unsecured loans, or loans secured by stock or deposits. Consumer direct loans comprised 2.3% of Peoples Bank's total loan
portfolio at December 31, 2020 and 2.7% of total loans at December 31, 2019.
Overdraft Privilege
Peoples Bank grants Overdraft Privilege to qualified customers. Overdraft Privilege is a service that provides overdraft
protection to deposit customers, both individual and business, 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 $400,
$700 or $1,000 based on the type of account and other parameters, such as previous charge-off history or credit loss. Customers
also have the ability to opt-out of Overdraft Privilege offered by Peoples. 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 additions to the provision for
credit losses necessary to ensure the maintenance of an appropriate allowance for credit losses against overdrafts deemed
uncollectable. This allowance, along with the related provision and net charge-offs, was included in determining Peoples Bank's
allowance for credit losses. At December 31, 2020, the unfunded commitment related to Overdraft Privilege was $50.1 million.
Investment Activities
At December 31, 2020, investment securities comprised 18.0% of Peoples' total assets, compared to 23.2% at December 31,
2019. The majority of Peoples' investment activities are conducted through Peoples Bank, although Peoples and its non-banking
subsidiary, PIC, 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
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owned by Peoples Bank at December 31, 2020 included 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. Peoples Bank also invests in tax credit funds. The investments owned by
Peoples are comprised of common stocks issued by unrelated bank holding companies. The investments owned by PIC consist of
tax credit funds, municipal obligations, privately issued mortgage-backed securities, and subordinated debt issued by a non-
related banking entity.
Peoples Bank's investment activities are governed internally by a policy approved by the Board of Directors of Peoples Bank,
which is administered by Peoples Bank's Asset-Liability Management Committee ("ALCO"). The primary purpose of Peoples
Bank's investment portfolio is to: (1) employ excess funds not needed to support loan demand; (2) provide a source of liquid
assets to accommodate unanticipated deposit and loan fluctuations, and overall liquidity needs; (3) provide eligible securities to
secure public and trust funds; and (4) earn the maximum overall return commensurate with Peoples Bank's risk appetite and
liquidity needs. Investment strategies to achieve these objectives are reviewed and approved by the ALCO. In its evaluation of
investment strategies, the ALCO considers various factors, including the interest rate environment, balance sheet mix, actual and
anticipated loan demand, funding opportunities and Peoples Bank's overall interest rate sensitivity. The ALCO also has much
broader responsibilities, which are discussed in the "Interest Rate Sensitivity and Liquidity" section of "ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of
this Form 10-K.
Funding Sources
Peoples' primary sources of funds for lending and investing activities are interest-bearing and non-interest-bearing deposits.
Cash flows from both the loan and investment portfolios, which include scheduled payments, as well as prepayments, calls and
maturities, also provide a relatively stable source of funds. Peoples also utilizes a variety of short-term and long-term borrowings
to fund asset growth and satisfy liquidity needs. Peoples' funding sources are managed through Peoples' asset-liability
management process and monitored by the 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. Deposits to individuals have account terms that 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.
Business deposits, which include traditional commercial business as well as governmental entities, are obtained through an
offering of multiple deposit account types as well as cash management solutions. Depending on the need of the entity, these
deposits could be either interest or non-interest bearing. The ability of Peoples Bank to offer competitive cash management
solutions to its customers, enables it to obtain valuable operating account funds as well as non-operating account funds. Retail
and business 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") network. Under these programs, funds from large
customer deposits are placed into accounts issued by other members of the CDARS program or ICS network in increments below
the federal deposit insurance limits to ensure both principal and interest remain eligible for insurance. Peoples Bank also
purchases certain "one-way buy" CDARS deposits, and overnight ICS network deposits which are utilized as a wholesale funding
source, and these deposits are classified as brokered CDs in "Note 7 Deposits" 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 determined to be appropriate, to obtain deposits from deposit brokers. These deposits are used to supplement
Peoples Bank's 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. Additionally, in recent years, Peoples has
issued brokered CDs to fund fixed-rate interest rate swaps.
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 Deposits" of the Notes to the Consolidated Financial Statements.
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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 (the "FHLB") and repurchase agreements. Peoples also has the ability to obtain funds, if
determined to be appropriate, 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. In recent years, Peoples has utilized interest rate swaps to obtain short-term
borrowings at long-term fixed rates, effectively replacing maturing long-term borrowings. Long-term borrowings provide cost-
effective options for funding asset growth and satisfying capital needs, due to the variety of pricing and maturity options
available.
Additional information regarding the amounts and composition of Peoples' borrowed funds can be found in the "Borrowed
Funds" section of "ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" of this Form 10-K and in "Note 8 Short-Term Borrowings" and "Note 9 Long-Term Borrowings"
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 and insurance industries continues to increase as a result of
mergers between, and expansion of, financial services and insurance 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. In addition, financial technology, or "fintech", startups are emerging in key areas of
banking.
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. Peoples continues to emphasize the integration of traditional commercial banking products with non-traditional financial
products, such as insurance and investment products. In addition, Peoples continuously works to improve its online and mobile
capabilities to ensure customers are able to use its products and services utilizing many channels.
Historically, Peoples has focused on providing its full range of products and services in smaller metropolitan markets and certain
major metropolitan areas. Management believes Peoples has developed a level of expertise in serving the financial service needs of all
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.
Human Capital Resources
At December 31, 2020, Peoples had 894 full-time equivalent employees, compared to 900 at December 31, 2019. Peoples makes
it a priority to provide a first class workplace for its employees, focusing on providing quality benefits, recognizing and rewarding
performance, cultivating diversity, promoting a culture of learning and coaching in every direction. Peoples offers paid time off,
medical, dental and vision insurance, along with wellness programs, a 401(k) program, an employee stock purchase program,
programs to assist with education-related costs, reward and recognition programs, as well as other various programs and benefits.
Peoples has also implemented a $15 minimum wage throughout the organization.
Peoples strives to be an inclusive and diverse workplace, free of harassment, and encourages employees to voice their opinions.
Peoples works to attract and retain top quality talent, and in doing so, promotes a learning environment where positive constructive
feedback can be given at any level of the organization. Employees are encouraged to communicate their thoughts, whether it is with a
co-worker, management or the Human Resources Department. Peoples also provides many reward programs for employees and
management to recognize contributions by individuals and teams within the organization. Peoples provides internal training
throughout the organization, as well as opportunities to attend external and online training events. Managers complete quarterly
performance reviews with employees, and semi-annual employee satisfaction pulse surveys are completed. Peoples tracks and
monitors employee turnover and executes exit interviews to better understand why employees choose to leave the organization.
Peoples maintains a high level of commitment to its communities, which is shown both through employees volunteering and with
donations made to many organizations within the Peoples footprint.
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The safety of Peoples' employees is of utmost priority, and during 2020, the COVID-19 pandemic caused several changes. A
portion of Peoples' workforce began working remotely, to facilitate a smaller number of employees in the same location if not
necessary. Peoples has closed lobbies to appointment-only during times of heightened transmission of COVID-19 to protect the health
of its employees. It has also expanded the cleaning and sanitization of office locations, along with providing employees with
appropriate protection equipment. Peoples has supported its employees during the pandemic, and provided time off with pay for those
who have either tested positive, or those caring for a family member who has tested positive, without requiring the employee to use
paid time off that has been accrued. In addition, Peoples is conducting scheduled calls to speak to employees about the changes and
ask for feedback about plans regarding COVID-19, and encouraging employees who are sick to stay home.
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)", "Peoples Investment
Services" "Peoples Premium Finance" and "peoplesbancorp.com" with the U.S. Patent and Trademark Office (the "USPTO"). These
service marks currently have expiration dates ranging from 2021 to 2027.
Peoples may renew the registrations of service marks with the USPTO generally for additional five-year to 10-year periods
indefinitely, provided it continues to use the service marks and files appropriate maintenance and renewal documentation with the
USPTO 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 "peoplespf.com," "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
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 Deposit Insurance Fund. Such laws and regulations may also restrict Peoples' ability to repurchase its
common shares or to receive dividends from Peoples Bank, and impose capital adequacy and liquidity requirements. The following is
a summary of the regulatory agencies, statutes and related regulations that have, or could have, a material impact on Peoples' business.
This discussion is qualified in its entirety by reference to such regulations and statutes.
Financial Holding Company
Peoples is a legal entity separate and distinct from its subsidiaries and affiliated companies. As a financial holding company,
Peoples is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and to inspection,
examination and supervision by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
The Federal Reserve Board has extensive enforcement authority over financial holding companies. In general, the Federal
Reserve Board may initiate enforcement actions for violations of laws and regulations and unsafe or unsound practices. The
Federal Reserve Board may assess civil money penalties, issue cease and desist or removal orders, and require that a financial
holding company divest subsidiaries, including subsidiary banks. Peoples is routinely required to file reports and other
information with the Federal Reserve Board regarding Peoples' 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 ("FRB"). Peoples Bank must also follow the regulations promulgated by 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 U.S, and the states of Ohio, Kentucky and West Virginia 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 that are designed to prevent unfair, deceptive and abusive acts and practices and that ensure that
consumers have access to fair, transparent and competitive markets for consumer financial products and services also affect the
services provided by Peoples Bank.
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
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Insurance and the state insurance regulatory agencies of those states where it conducts business. Peoples Risk Management, Inc.,
a Nevada-chartered captive insurance company, is subject to the laws and regulations of the State of Nevada and undergoes
periodic examinations by the Nevada Division of Insurance.
Other Regulatory Agencies
Securities and Exchange Commission ("SEC") and the Nasdaq Global Select 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, reporting and regulatory requirements of the Securities
Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
regulations promulgated under each of the Securities Act and the Exchange Act, 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, as amended (the "CRA"), and the member's 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 U.S. government.
As insurer, the FDIC is authorized to conduct examinations of and to require routine reporting by insured institutions,
including Peoples Bank, to prohibit any insured institution from engaging in any activity the FDIC determines by regulation or
order 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 or
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.
Insured depository institutions are required to remit quarterly deposit insurance premiums to the FDIC, which are used to
fund the Deposit Insurance Fund. Insurance premiums for each insured depository institution are determined based upon the
institution's capital level and supervisory rating provided to the FDIC by the institution's primary federal regulator and other
information the FDIC determines to be relevant to the risk posed to the Deposit Insurance Fund by the insured depository
institution. The assessment rate determined by considering such information is then applied to the amount of the insured
depository institution's average assets minus average tangible equity to determine the insured depository institution's insurance
premium. An increase in the assessment rate could have a material adverse effect on the earnings of the affected insured
depository institution, depending on the amount of the increase.
The FDIC assesses a quarterly deposit insurance premium on each insured depository institution based on risk characteristics
of the institution and may also impose special assessments in emergency situations. Pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, as amended (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. At September 30, 2018, the DRR met the statutory minimum
of 1.35%. As a result, the previous surcharge imposed on banks with assets of $10 billion or more was lifted. In addition,
preliminary assessment credits were determined by the FDIC for banks with assets of less than $10 billion, which had previously
contributed to the increase of the DRR to 1.35%. On June 30, 2019, the DRR reached 1.40%, and the FDIC applied credits for
banks with assets of less than $10 billion ("small bank credits") beginning with the September 30, 2019 assessment invoice (for
the second quarter of 2019), and on the December 31, 2019 assessment invoice (for the third quarter of 2019), the March 31, 2020
assessment invoice (for the fourth quarter of 2019) and the June 30, 2020 assessment invoice (for the first quarter of 2020).
Peoples utilized all available credits, which were exhausted during the first quarter of 2020 (which was on the June 30, 2020
assessment invoice).
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 determines 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
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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, such as 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, as amended, 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 an application seeking approval of a merger or acquisition transaction, the
bank regulatory authorities consider, among other factors, the competitive effect and public benefits of the transaction, 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 to an
amount equal to 10.0% of the bank's capital stock and surplus;
limit the extent to which a bank or its subsidiaries may engage in "covered transactions" with all affiliates to an amount
equal to 20.0% of the bank's capital stock and surplus; 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 10.0% 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 similar to 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.
The Coronavirus Aid, Relief, and Economic Security Act of 2020 and Initiatives Related to COVID-19
In response to the novel COVID-19 pandemic (“COVID-19”), the Coronavirus Aid, Relief, and Economic Security Act of
2020, as amended (the “CARES Act”), was signed into law on March 27, 2020, to provide national emergency economic relief
measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such as
Peoples and Peoples Bank, and have been implemented through rules and guidance adopted by federal departments and agencies,
including the U.S. Department of Treasury, the Federal Reserve Board and other federal banking agencies, including those with
direct supervisory jurisdiction over Peoples and Peoples Bank. Furthermore, as the ongoing COVID-19 pandemic evolves,
federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility
requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition,
it is possible that the U.S. Congress will enact supplementary COVID-19 response legislation, including amendments to the
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CARES Act or new bills comparable in scope to the CARES Act. Peoples is continuing to assess the impact of the CARES Act
and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.
Section 1102 of the CARES Act amended the loan program of the SBA, in which Peoples Bank participates, to create a
guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations and self-employed
persons during the COVID-19 pandemic. These loans are eligible to be forgiven if certain conditions are satisfied and are fully
guaranteed by the SBA. In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which, among other things,
gave borrowers additional time and flexibility to use PPP loan proceeds. Shortly thereafter, and due to the evolving impact of the
COVID-19 pandemic, additional legislation was enacted authorizing the SBA to resume accepting PPP applications on July 6,
2020, and extending the PPP application deadline to August 8, 2020. No collateral or personal guarantees were required. Neither
the government nor lenders are permitted to charge the recipients of PPP loans any fees. It is anticipated that additional revisions
to the SBA's interim final rules on forgiveness and loan review procedures will be forthcoming to address these and related
changes. On December 27, 2020, the President signed into law omnibus federal spending and economic stimulus legislation titled
the "Consolidated Appropriations Act, 2021" that included the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and
Venues Act (the "HHSB Act"). Among other things, the HHSB Act renewed the PPP, allocating $284.5 billion for both new first-
time PPP loans under the existing PPP and the expansion of existing PPP loans for certain qualified, existing PPP borrowers. In
addition to extending and amending the PPP, the HHSB Act also created a new program for "shuttered venue operators." As a
participating lender in the PPP, Peoples Bank continues to monitor legislative, regulatory, and supervisory developments related
thereto.
On September 29, 2020, the federal bank regulatory agencies issued a final rule that neutralizes the regulatory capital and
liquidity coverage ratio effects of participating in certain COVID-19 liquidity facilities due to the fact there is no credit or market
risk in association with exposures pledged to such facilities. As a result, the final rule supports the flow of credit to households
and businesses affected by COVID-19.
The CARES Act encouraged the Federal Reserve Board, in coordination with the Secretary of the Treasury, to establish or
implement various programs to help mitigate the adverse effects of COVID-19 on midsize businesses, nonprofits, and
municipalities. In April 2020, the Federal Reserve established the Main Street Lending Program (“MSLP”) to implement certain
of these recommendations. The MSLP supported lending to small and medium-sized businesses that were in sound financial
condition before the onset of COVID-19. On November 19, 2020, Treasury Secretary Steven Mnuchin indicated that he would
not reauthorize extending the MSLP past December 31, 2020. However, the Federal Reserve Board extended the program to
January 8, 2021, in order to process loans that were submitted on or before December 14, 2020. The program ended on January 8,
2021. Peoples did not participate in the MSLP.
On November 20, 2020, the federal bank regulatory agencies announced an interim final rule that provides temporary relief
for specified community banking organizations related to certain regulations and reporting requirements as a result, in large part,
of their growth in size from the response to COVID-19. Community banking organizations are subject to different rules and
requirements based on their risk profile and asset size. Due to their involvement in federal COVID-19 response programs (such
as the PPP) and other lending that supports the U.S. economy, many community banking organizations have experienced rapid
and unexpected increases in their sizes, which are generally expected to be temporary. The temporary increase in size could
subject community banking organizations to new regulations or reporting requirements. Community banking organizations with
assets approaching the $10.0 billion threshold and that would otherwise become subject to additional regulatory requirements
upon crossing such threshold, including requirements related to capital adequacy standards, debit card interchange fees and
routing, and management official interlocks, will generally will have until 2022 to either reduce their size or to prepare for new
regulatory and reporting standards.
Capital Adequacy and Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991, as amended ("FDICIA"), identifies five capital
categories for insured depository institutions and requires the applicable 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 FDIC, the ODFI, and the Office of Comptroller of the Currency,
have adopted substantially similar regulatory capital guidelines and regulations consistent with the requirements of FDICIA, and
have 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.
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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.
In July 2013, the U.S. banking regulators issued capital rules (the "Basel III Capital Rules") applicable to smaller banking
organizations which also implement certain provisions of the Dodd-Frank Act. Community banking organizations, including
Peoples and Peoples Bank, began transitioning to the rules on January 1, 2015. The minimum capital requirements became
effective on January 1, 2015; whereas, the capital conservation buffer and deductions from common equity capital phased in from
January 1, 2016 through January 1, 2019, and most deductions from common equity tier 1 capital phased in from January 1, 2015
through January 1, 2019. As of January 1, 2019, Peoples had fully phased in the Basel III Capital Rules.
The Basel III Capital Rules include: (a) a minimum common equity tier 1 capital ratio of 4.5%; (b) a minimum tier 1 risk-
based capital ratio of 6.0%; (c) a minimum total risk-based capital ratio of 8.0%; and (d) a minimum tier 1 leverage ratio of 4.0%.
Common equity for the common equity tier 1 capital ratio generally consists of common stock (plus related surplus), retained
earnings, accumulated other comprehensive income ("AOCI") (unless an institution elects to exclude such income from regulatory
capital), and limited amounts of minority interests in the form of common stock, subject to applicable regulatory adjustments and
deductions.
Tier 1 capital generally consists of 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 otherwise permitted), 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, generally consists of other preferred stock and subordinated
debt meeting certain conditions plus limited amounts of the allowance for credit losses, subject to specified 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).
Under the guidelines, capital is compared to the relative risk included in 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 Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends and share
repurchases, and certain discretionary bonus payments to executive officers if the banking organization does not hold a capital
conservation buffer of greater than 2.5% composed of common equity tier 1 capital above its minimum risk-based capital
requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than
2.5% at the beginning of the quarter.
In September 2019, the Federal Reserve Board, along with the other federal banking regulatory agencies, issued a final rule,
effective January 1, 2020, that gave community banks, including Peoples Bank, the option to calculate a simple leverage ratio to
measure capital adequacy if the community banks met certain requirements. Under the rule, a community bank was eligible to
elect the Community Bank Leverage Ratio ("CBLR") framework if the community bank had less than $10 billion in total
consolidated assets, limited amounts of certain trading assets and liabilities and of off-balance sheet exposures, and a leverage
ratio greater than 9.0%. Qualifying institutions that elected to use the CBLR framework and that maintain a leverage ratio of
greater than 9.0% were be considered to have satisfied the risk-based and leverage capital requirements in the regulatory agencies'
generally applicable capital rules and to have met the well-capitalized ratio requirements. Peoples has opted out of the simplified
framework and continues to follow existing capital rules.
In December 2018, the federal banking agencies issued a final rule to address regulatory capital treatment of credit loss
allowances under the current expected credit loss (“CECL”) model (accounting standard). The rule revises the federal banking
agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in
regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects on
regulatory capital that may result from the adoption of the CECL model. During 2020, regulatory agencies issued guidance
allowing additional phase-in periods for the impact of the CECL model for regulatory capital purposes. This additional phase-in
period includes a 25% deferment of the impact on regulatory capital of the estimated increase in the allowance for credit losses
related to the CECL model, which is applied during the first two years of application. For the first two years of the phase-in
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period, 100% of the transition adjustment due to the implementation of the CECL model is excluded for regulatory capital
purposes, along with 25% of the increase in the allowance for credit losses compared to the January 1, 2020 allowance for credit
losses. In year three of the phase-in, 75% of the transition adjustment, and the cumulative 25% increase in the allowance for
credit losses compared to January 1, 2020, are excluded from regulatory capital, while 50% and 25% of these amounts are
excluded in years four and five, respectively, under this phase-in period. Additional information on the impact of Peoples'
adoption of the CECL methodology can be found under the "FINANCIAL CONDITION - Allowance for Credit Losses" section
of "ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" of this Form 10-K.
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 tier 1 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 16 Regulatory Matters" of the Notes to the Consolidated Financial Statements.
Safety and Soundness Regulations
In accordance with the Federal Deposit Insurance Act (the "FDIA"), the federal bank regulatory agencies adopted safety and
soundness guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify, monitor, and
manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and
unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director or principal shareholder. In addition, regulations adopted by the
federal bank regulatory agencies authorize the agencies to require that an institution that has been given notice that it is not
satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, the institution fails
to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the agency
must issue an order directing corrective actions and may issue an order directing other actions of the types to which an
undercapitalized institution is subject under the "prompt corrective action" provisions of FDIA. If the institution fails to comply
with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.
Community Reinvestment Act
The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and
sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas
by, among other things, providing credit or other financial assistance to low-income and moderate-income individuals and
communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. The most
recent performance evaluation by the Federal Reserve Board (which was Peoples Bank's primary federal banking regulator at the
time of the examination) of Peoples Bank was conducted in 2017 and resulted in an overall rating of "Satisfactory." The most
recent CRA examination for Peoples Bank occurred in March of 2020, and is still pending final results.
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 Peoples 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
Board. Peoples Bank's regulators may prohibit the payment of dividends at any time if the regulators determine the dividends
represent unsafe and/or unsound banking practices, or reduce Peoples Bank's total capital below adequate levels. For further
discussion regarding regulatory restrictions on dividends, refer to "Note 16 Regulatory Matters" 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 over the current year has been sufficient to fully fund the dividends, and the prospective rate of earnings
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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 that 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 will be prohibited from declaring or paying any dividends on Peoples' common shares.
Even where the declaration or payment of a dividend would not otherwise be restricted under applicable laws, 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 Fair Housing Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the
Bank Secrecy Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Fair Credit Reporting Act and the authority
granted to banking regulators under the Federal Trade Commission Act with respect to unfair or deceptive acts or practices
("UDAP").
The CFPB issued its final small dollar loan rule related to payday, vehicle title and certain high cost installment loans (the
“Final Small Dollar Rule”) on July 22, 2020, which became fully effective on October 20, 2020. The Final Small Dollar Rule
rescinds the Mandatory Underwriting Provisions of the 2017 Payday Rule after re-evaluating the legal and evidentiary bases for
these provisions and finding them to be insufficient. The Final Small Dollar Rule does not rescind or alter the Payments
Provisions of the 2017 Payday Rule. Specifically, in the Final Small Dollar Rule, the CFPB revoked provisions that: (i) provide
that it is an unfair and abusive practice for a lender to make a covered short-term or longer term balloon-payment loan, including
payday and vehicle title loans, without reasonably determining that consumers have the ability to repay those loans according to
their terms; (ii) prescribe mandatory underwriting requirements for making the ability-to-repay determination; (iii) exempt certain
loans from the mandatory underwriting requirements; and (iv) establish related definitions, reporting, and recordkeeping
requirements. No lenders are required to comply until the later of November 19, 2020, or until the court in litigation challenging
the Final Small Dollar Rule lifts its stay of the compliance date.
The federal bank regulatory agencies also issued interagency guidance on May 20, 2020, to encourage banks, savings
associations, and credit unions to offer responsible small-dollar loans to customers for consumer and small business purposes.
Office of Foreign Assets Control Regulation
The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade
sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries,
nationals and others. OFAC publishes lists of specially designated targets and countries. Peoples is responsible for, among other
things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial
transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could
have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to
approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval
is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found
to be violating these obligations.
Anti-Money Laundering Act
The Anti-Money Laundering Act of 2020 (the "AMLA"), which amends the Bank Secrecy Act of 1970 (the "BSA"), was
enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-
money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial
institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands
enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and
instituting BSA whistleblower initiatives and protections.
USA Patriot Act
The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
of 2001, as amended (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.
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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 U.S. economy, including changes brought about by COVID-19, 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
The Dodd-Frank Act requires that the federal banking agencies, including the Federal Reserve Board, issue a rule related to
incentive-based compensation. No final rule implementing this provision of the Dodd-Frank Act has, as of the date of the filing of
this Form 10-K, been adopted, but a proposed rule was published in 2016 that expanded upon a prior proposed rule published in
2011. The proposed rule is intended to: (i) prohibit incentive-based payment arrangements that the banking agencies determine
could encourage certain financial institutions to take inappropriate risks by providing excessive compensation or that could lead to
material financial loss; (ii) require the board of directors of those financial institutions to take certain oversight actions related to
incentive-based compensation; and (iii) require those financial institutions to disclose information concerning incentive-based
compensation arrangements to the appropriate federal regulator. Although a final rule has not been issued, Peoples and Peoples
Bank have undertaken efforts to ensure that their incentive compensation plans do not encourage inappropriate risks, consistent
with the principles identified above.
In June 2010, the Federal Reserve Board, the OCC and the FDIC issued comprehensive final guidance on incentive
compensation policies 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. The guidance, which covers all employees that
have the ability to materially affect the risk profile of an organization, either individually, or as a part of a group, is based upon the
key principles that a banking organization's incentive compensation arrangements should (i) provide incentives that do not
encourage risk-taking beyond the organization's ability to effectively identify and manage risks, (ii) be compatible with effective
internal controls and risk management and (iii) be supported by strong corporate governance, including active and effective
oversight by the organization's board of directors. These three principles are incorporated into the proposed joint compensation
regulations under the Dodd-Frank Act, described above.
The Federal Reserve Board reviews, as part of its regular, risk-focused examination process, the incentive compensation
arrangements of banking organizations, such as Peoples Bank, that are not "large, complex banking organizations." These
reviews are tailored to each organization based on the scope and complexity of the organization's activities and the prevalence of
incentive compensation arrangements. Deficiencies will be incorporated into the organization's supervisory ratings, which can
affect the organization's ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking
organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk
to the organization's safety and soundness and the organization is not taking prompt and effective measures to correct the
deficiencies.
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 the public company must fund the reasonable compensation of such
advisors.
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.
Public companies will be required, once stock exchanges adopt 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 an accounting
restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to
compensation paid within a three-year look-back window of the restatement and would cover all executives (including former
executives) who received incentive awards. Peoples has implemented a clawback policy and it is posted under the "Corporate
Overview – Governance Documents" tab of the "Investor Relations" page of Peoples' Internet website.
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that
financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their
risk management processes also address the risk posed by compromised customer credentials, including security measures to
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reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that a
financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid
recovery, resumption and maintenance of the financial institution’s operations after a cybersecurity attack involving destructive
malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business
operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers
fall victim to this type of cybersecurity attack. If Peoples Bank fails to observe the regulatory guidance, it could be subject to
various regulatory sanctions, including financial penalties.
In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about
cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and
disclosure requirements under state and federal banking law and regulations.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.
Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and
providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also
recently implemented or modified their data breach notification and data privacy requirements. Peoples expects this trend of
state-level activity in those areas to continue, and continues to monitor developments in the states in which Peoples' customers are
located.
In the ordinary course of business, Peoples relies on electronic communications and information systems to conduct its
operations and to store sensitive data. Peoples employs an in-depth, layered, defensive approach that leverages people, processes,
and encryption and multi-factor authentication technology to manage and maintain cybersecurity controls. Peoples employs a
variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report
on any suspected advanced persistent threats. Notwithstanding the strength of Peoples’ defensive measures, the threat from
cybersecurity attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in
defensive measures. While to date, Peoples has not detected a significant compromise, significant data loss or any material
financial losses related to cybersecurity attacks, Peoples’ systems and those of its customers and third-party service providers are
under constant threat and it is possible that Peoples could experience a significant event in the future. Risks and exposures related
to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and
sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-
based products and services by Peoples and Peoples' customers. See “ITEM 1A RISK FACTORS” for a further discussion of
risks related to cybersecurity.
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 placed limits on the trading activity of insured depository institutions and
entities affiliated with depository institutions, subject to certain exceptions. Such trading activity included the purchase or sale as
principal of a security, derivative, commodity future, option or similar instrument in order to benefit from short-term price
movements or to realize short-term profits. The Volcker Rule exempts trading in specified U.S. government, agency, state and/or
municipal obligations. The Volcker Rule also excepted (i) trading conducted in certain capacities; (ii) trading to satisfy a debt
previously contracted; (iii) trading under certain repurchase and securities lending agreements; and (iv) trading in connection with
risk-mitigating hedging activities.
In addition, the Volcker Rule prohibited a banking entity from having an ownership interest in, or substantial relationships
with, a hedge fund or private equity fund, also known as "covered funds", subject to a number of exceptions.
In July 2019, the federal agencies that adopted the Volcker Rule adopted a final rule to exempt certain community banks,
including Peoples Bank, from the Volcker Rule, consistent with the Economic Growth, Regulatory Relief, and Consumer
Protection Act. Under the final rule, community banks with $10 billion or less in total consolidated assets and total trading assets
and liabilities of 5.0% or less of total consolidated assets are excluded from the restrictions of the Volcker Rule. On June 25,
2020, the federal bank regulatory agencies also finalized a rule modifying the Volcker Rule's prohibition on banking entities
investing in or sponsoring covered funds. Such rule permits certain banking entities to offer financial services and engage in other
activities that do not raise concerns that the Volcker Rule was originally intended to address.
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 comply with
such rule, as amended.
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. As a result, Peoples anticipates no material capital expenditures for environmental control facilities for its
current fiscal year or for the foreseeable future.
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Peoples believes its primary exposure to environmental risk is through the lending activities of Peoples Bank. Peoples limits
its exposure to environmental risk by lending to a diverse range of consumer and commercial customers. In cases where
management believes environmental risk potentially exists, Peoples Bank mitigates its environmental risk exposure 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. The CARES Act and the Consolidated Appropriations Act ("CAA") were enacted during 2020. These
Acts provided significant funding for PPP loans for businesses and fiscal stimulus funding for individuals, as well as updates
related to reporting for troubled debt restructurings and other various changes. There were sweeping reforms in the Dodd-Frank
Act adopted in 2010, and the rollback of the Dodd-Frank Act that began in 2018. Many of the regulations mentioned above were
adopted or amended pursuant to the guidance issued. 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 such legislation could
significantly increase or decrease costs of doing business, limit or expand permissible activities, and/or affect the competitive
balance among financial institutions. The enactment of the Dodd-Frank Act, the subsequent rollback and the continuing
implementation of final rules and regulations thereunder, and continuing political change and impact of the COVID-19 pandemic
makes the nature and extent of future legislative and regulatory changes affecting financial institutions 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.
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.
Economic, Political, Environmental and Market Risks
• The economic impact of COVID-19 or any other pandemic could adversely affect Peoples' business, financial condition,
liquidity, and results of operations.
In March 2020, the World Health Organization declared COVID-19 a pandemic and the President of the U.S. declared
COVID-19 a national emergency. COVID-19 has caused significant economic dislocation in the U.S. as many state and local
governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an
unprecedented slow-down in economic activity and a related increase in unemployment. Various state governments and federal
agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees).
The federal bank regulatory agencies have encouraged financial institutions to prudently work with affected borrowers, and new
legislation has provided relief from reporting loan classifications due to modifications related to COVID-19.
Given the ongoing and dynamic nature of COVID-19, it is difficult to predict the full impact of the outbreak on Peoples'
business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19
can be controlled and abated, and when and how the economy may be reopened. As of December 31, 2020, Peoples' held and
serviced PPP loans. These PPP loans are subject to the provisions of the CARES Act and to complex and evolving rules and
guidance issued by the SBA and other government agencies. Peoples expects that the great majority of PPP borrowers will seek
full or partial forgiveness of their loan obligations. Peoples has credit risk on the PPP loans if the SBA determines that there is a
deficiency in the manner in which Peoples originated, funded or serviced loans, including any issue with the eligibility of a
borrower to receive a PPP loan. Peoples could face additional risks in its administrative capabilities to service PPP loans, and risk
with respect to the determination of loan forgiveness. In the event of a loss resulting from a default on a PPP loan and a
determination by the SBA that there was a deficiency in the manner in which Peoples originated, funded or serviced the PPP loan,
the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the
guaranty, seek recovery of any loss related to the deficiency.
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The spread of COVID-19 has also caused Peoples to modify business practices, including employee travel, employee work
locations, and cancellation of physical participation in meetings, events and conferences. Further, technology in employees’
homes may not be as robust as in Peoples' offices and could cause the networks, information systems, applications and other tools
available to such employees to be more limited or less reliable. The continuation of these work-from-home measures also
introduces additional operational risk, including increased cybersecurity risk from phishing, malware and other cybersecurity
attacks, all of which could expose us to risks of data or financial loss, and could seriously disrupt Peoples' operations and the
operations of any impacted customers.
COVID-19, or a new pandemic, could subject us to any of the following risks, any of which could, individually or in the
aggregate, have a material adverse effect on Peoples' business, financial condition, liquidity and results of operations:
•
•
demand for Peoples' products and services may decline, making it difficult to grow assets and income;
if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period
of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and
reduced income;
collateral for loans, especially real estate, may decline in value, which could cause credit losses to increase;
•
• Peoples' allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond
•
•
•
•
forbearance periods, which will adversely affect net income;
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on Peoples' assets may
decline to a greater extent than the decline in the cost of interest-bearing liabilities, reducing Peoples' net interest
margin and spread, and reducing net income;
a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of Peoples'
quarterly cash dividend;
a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could result in
Peoples recording a valuation allowance against current outstanding deferred tax assets;
• we rely on third-party vendors for certain services and the unavailability of a critical service due to COVID-19 could
have an adverse effect on us; and
continued adverse economic conditions could result in protracted volatility in the price of Peoples' common shares.
•
Moreover, Peoples' future success and profitability substantially depend on the management skills of the executive officers
and directors. The unanticipated loss or unavailability of key employees due to COVID-19, or any similar pandemic, could harm
Peoples' ability to operate its business or execute its business strategy. Peoples may not be successful in finding and integrating
suitable successors in the event of key employee loss or unavailability.
Even after the COVID-19 pandemic subsides, the U.S. economy will likely require time to recover, the length of which is
unknown and during which the U.S. may experience a recession. Peoples' business could be materially and adversely affected by
any such recession.
To the extent the effects of COVID-19 adversely impact Peoples' business, financial condition, liquidity or results of
operations, it may also have the effect of heightening many of the other risks described in this section.
• Changes in economic and political conditions could adversely affect Peoples’ earnings and capital through declines in
deposits, quality of investment securities, loan demand, the ability of Peoples' borrowers to repay loans and the value of
the collateral securing Peoples' loans.
Peoples’ success depends, in part, on local and national economic and political conditions, as well as governmental fiscal and
monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy,
an increasing federal government, budget deficit, slowing gross domestic product, tariffs, a U.S. withdrawal from or significant
renegotiation of trade agreements, trade wars, the election of a new U.S. President and changes in the membership of Congress in
2021, and other factors beyond Peoples’ control may adversely affect Peoples Bank's deposit levels and composition, the quality
of investment securities available for purchase, the demand for loans, the ability of Peoples Bank's borrowers to repay their loans,
and the value of the collateral securing the loans Peoples Bank makes. Recent political developments have resulted in substantial
changes in economic and political conditions for the U.S. 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 U.S., which can affect
Peoples' earnings and Peoples' capital, as well as the ability of Peoples Bank's customers to repay loans. The effects on the U.S.
of the United Kingdom leaving the European Union (Brexit) are currently unknown.
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. In general, a favorable
business environment and economic conditions are 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
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rates; high unemployment; volatility in pricing and availability of natural resources; natural disasters; or a combination of these or
other factors.
The continued impact on economic conditions caused by the COVID-19 pandemic could have an adverse effect on Peoples'
asset quality, deposit levels and loan demand, and, therefore, Peoples' financial condition and results of operations. Because a
significant amount of Peoples Bank's 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 Bank's ability to sell the collateral upon
foreclosure.
• Changes in interest rates may adversely affect Peoples' profitability.
Peoples' earnings and cash flows are dependent to a significant degree on net interest income, which is the amount by which
interest income exceeds interest expense. Interest rates are highly sensitive to many factors that are beyond Peoples' control,
including general economic conditions and the policies of various governmental and regulatory agencies and, in particular, the
Federal Reserve Board. Changes in monetary policy, including changes in interest rates, not only could influence the interest
Peoples receives on loans and securities, and the amount of interest Peoples 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
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 borrowings.
Changes in interest rates may also negatively affect the ability of Peoples' borrowers to repay their loans, particularly as
interest rates rise and adjustable-rate loans become more expensive.
Recent global public health concerns have caused significant disruption in the equity markets and a significant drop in
interest rates. The duration of the impact is unknown. Should interest rates remain low for an extended period, it could have a
significant adverse impact on the profitability of Peoples.
Peoples' 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.
Peoples' 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.
Peoples' net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest
rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the
federal funds rate to a range from 0% to 0.25%, citing concerns about the impact of COVID-19 on markets and stress in the
energy sector, and maintained this target range as of December 31, 2020. A prolonged period of extremely volatile and unstable
market conditions would likely increase Peoples' funding costs and negatively affect market risk mitigation strategies. Higher
revenue volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income
and a decrease in the fair market values of Peoples' assets. Fluctuations in interest rates will impact both the level of income and
expense recorded on most of Peoples' assets and liabilities and the market value of all interest-earning assets and interest-bearing
liabilities, which in turn could have a material adverse effect on Peoples' net income, results of operations and financial condition.
Low rates increase the risk in the U.S. of a negative interest rate environment in which interest rates drop below zero, either
broadly or for some types of instruments. Such an occurrence would likely further reduce the interest Peoples earns on loans and
other earning assets, while also likely requiring Peoples to pay to maintain its deposits with the Federal Reserve. Peoples' systems
may not be able to adequately handle a negative interest rate environment and not all variable rate instruments are designed for
such a circumstance. Peoples cannot predict the nature or timing of future changes in monetary policies in response to the
COVID-19 outbreak or the precise effects that they may have on Peoples activities and financial results.
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.
• A transition away from the London Interbank Offered Rate ("LIBOR") as a reference rate for financial instruments
could negatively impact Peoples' income and expenses, and the value of various financial instruments.
LIBOR is used extensively in the U.S. and globally as a benchmark for various commercial and financial contracts, including
adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives. LIBOR is set based on interest rate
information reported by certain banks, which may stop reporting such information after 2021. In November 2020, the
administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby
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the publication of the one week and two month LIBOR offered rates will cease after December 31, 2021; but, the publication of
the remaining LIBOR offered rate will continue until June 30, 2023.
In November 2020, the Federal Reserve Board issued a statement supporting the release of a proposal and supervisory
statements designed to provide a clear end date for U.S. Dollar LIBOR (“USD LIBOR”), and the federal banking agencies issued
a release encouraging banks to stop entering into USD LIBOR contracts by the end of 2021, noting that entering into new
contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and bank practices
will be examined accordingly. It is uncertain at this time the extent to which those entering into financial contracts will transition
to any other particular benchmark. Other benchmarks may perform differently than LIBOR or other alternative benchmarks or
have other consequences that cannot currently be anticipated. It is also uncertain what will happen with instruments that rely on
LIBOR for future interest rate adjustments and which remain outstanding if LIBOR ceases to exist.
The Federal Reserve Board, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised
of large U.S. financial institutions, is considering replacing USD LIBOR with a new index calculated by short-term repurchase
agreements, backed by U.S. Treasury securities, otherwise known as the Secured Overnight Financing Rate ("SOFR"). SOFR is
observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated
forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a
secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with
LIBOR). SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial
institutions. Whether or not SOFR attains traction as a LIBOR replacement tool remains in question, although transactions using
SOFR have been completed, including by Fannie Mae. Both Fannie Mae and Freddie Mac ceased accepting adjustable rate
mortgages tied to LIBOR and began accepting mortgages based on SOFR in 2020.
Peoples has a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that
are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and additional
risk. Since proposed alternative rates are calculated differently, payments under financial instruments referencing new rates will
differ from those referencing LIBOR. The transition will change Peoples’ market risk profiles, requiring changes to risk and
pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition
process with Peoples’ customers could adversely impact its reputation. Although Peoples is currently unable to assess what the
ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse
effect on Peoples’ business, financial condition and results of operations.
In 2019, Peoples Bank formed a LIBOR Change Committee. The goal of the LIBOR Change Committee is to monitor
Peoples Bank's efforts to ensure an orderly transition away from LIBOR by the end of 2021, should such a transition become
necessary. The LIBOR Change Committee has already taken actions to ensure that documentation in the loan portfolios provides
for a substitution of an index if the original index is either no longer available or is replaced by a new index. Documentation on
interest rate swaps will be amended in the International Swaps and Derivative Association agreements. While the Peoples Bank’s
securities portfolio is not heavily invested in variable rate securities, there is LIBOR exposure in the agency collateralized
mortgage obligation sector. Peoples Bank will be monitoring the transition of these securities to the new index over the next
several months.
• Changes in market rates and economic 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, 2020, Peoples had seventeen effective interest rate swaps, with an aggregate notional value of
$160.0 million, of which $50.0 million were funded by 90-day brokered CDs and $110.0 million were funded by brokered
demand and savings deposits. Brokered CDs and deposits are expected to be extended every 90 days through the maturity dates
of the swaps.
Although Peoples expects that the hedging relationships described above will be highly effective, such relationships could
prove ineffective. As of December 31, 2020, the termination value of derivative financial instruments in a net liability position
was $12.1 million, which includes accrued interest but excludes any adjustment for nonperformance risk. As of December 31,
2020, Peoples had $41.0 million of collateral posted with certain of its derivative counterparties. However, the counterparties had
no collateral posted against their obligations under these agreements. If Peoples had breached any of the provisions of the
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agreements at December 31, 2020, it could have been required to settle its obligations under the agreements at the termination
value.
Business Operations Risks
• 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 Item, such as reputational risk, cyber, 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. These risks are heightened in light of COVID-19.
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 operating systems. Although Peoples has programs in place related to business continuity, disaster recovery and
information security to maintain the confidentiality, integrity and availability of its operating 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' operating 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, social media and other marketing activities, 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) or that
Peoples' (or its vendors’) business continuity and data security systems will prove to be inadequate.
Current and future restrictions on the access of Peoples' workforce to its facilities could limit Peoples' ability to meet
customer service expectations and have a material adverse effect on operations. Peoples relies on business processes and branch
activity that largely depends on people and technology, including access to information technology systems as well as
information, applications, payment systems and other services provided by third parties.
In response to COVID-19, Peoples has modified its business practices with a portion of employees working remotely from
their homes to limit interruptions to operations as much as possible and to help reduce the risk of COVID-19 infecting entire
departments. Reduced workforces, which may be caused by, but not limited to, illness, quarantine, stay at home or other
government mandates, or difficulties transitioning back to an in office environment, could result in an adverse impact to Peoples'
operations and financial performance. Employees with health conditions putting them at higher risk of adverse effects from
COVID-19 are working remotely. Peoples encouraged virtual meetings and conference calls throughout 2020 in place of in-
person meetings, including the annual shareholders meeting which was held virtually this year. Additionally, travel has been
restricted. Peoples is promoting social distancing, frequent hand washing and thorough disinfection of all surfaces. Peoples'
financial service location lobbies re-opened in June 2020, and became appointment-only again in November 2020. Branch drive-
ups, call center, ATMs and online/mobile banking services continue to operate and are the preferred option of service. Even with
the precautions undertaken, the continued spread or prolonged impact of COVID-19 could negatively impact the availability of
key personnel or significant numbers of Peoples' staff, who are necessary to conduct Peoples' business.
Further, technology in employees’ homes may not be as robust as in Peoples' offices and could cause the networks,
information systems, applications, and other tools available to employees to be more limited or less reliable than in the offices.
The continuation of these work-from-home measures also introduces additional operational risk, including increased
cybersecurity risks. These cybersecurity risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to
disruptions of Peoples' information technology infrastructure and telecommunications systems for remote operations, increased
risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems
failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential
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impairment of Peoples' ability to perform critical functions, including wiring funds, all of which could expose Peoples to risks of
data or financial loss, litigation and liability and could seriously disrupt operations and the operations of any impacted customers.
Moreover, Peoples relies on many third parties in business operations, including appraisers of real property collateral,
vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools, and
providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In
light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their
services. For example, loan origination could be delayed due to the limited availability of real estate appraisers for the underlying
collateral. Loan closings could be delayed due to reductions in available staff in recording offices or the closing of courthouses in
certain counties, which slows the process for title work, and mortgage and UCC filings in those counties. If the third-party
service providers continue to have limited capacities for a prolonged period, or if additional limitations or potential disruptions in
these services materialize, it may negatively affect Peoples' operations.
• 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 become
inoperable, to the extent possible. Peoples also routinely reviews documentation of such controls and backups related to third-
party service providers. 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. In recent years, several 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 the 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. Although Peoples has
policies and procedures in place to verify the authenticity of its customers, Peoples cannot ensure 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 its computer systems and requires its third-party
service providers to maintain similar controls. However, Peoples' 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’ consumer
and business debit card personal identification 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
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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, and Peoples' plans to continue to
implement Internet and mobile banking capabilities to meet customer demand. As cyber and other data security threats continue
to evolve, Peoples may be required to expend significant additional resources to continue to modify and enhance its protective
measures or to investigate and remediate any security vulnerabilities.
Peoples’ 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 or data transfer protocols. Certain
cybersecurity 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,
increased 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.
While Peoples maintains specific "cyber" insurance coverage, which would apply in the event of various breach scenarios,
the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently
difficult to predict and can take many forms, some breaches may not be covered under Peoples' cyber insurance coverage.
• Noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations could cause Peoples
a material financial loss.
The BSA and the USA Patriot Act contain anti-money laundering and financial transparency provisions intended to detect
and prevent the use of the U.S. financial system for money laundering and terrorist financing activities. The Bank Secrecy Act, as
amended by the USA Patriot Act and Anti-Money Laundering Act of 2020 ("AMLA"), requires depository institutions and their
holding companies to undertake activities including maintaining an anti-money laundering program, verifying the identity of
clients, monitoring for and reporting suspicious transactions, reporting on cash transactions exceeding specified thresholds, and
responding to requests for information by regulatory authorities and law enforcement agencies. Financial Crimes Enforcement
Network (also known as FinCEN), a unit of the U.S. Treasury Department that administers the Bank Secrecy Act, is authorized to
impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated
enforcement efforts with the federal banking regulatory agencies, as well as the U.S. Department of Justice, Drug Enforcement
Administration, and Internal Revenue Service. The AMLA is intended to be a comprehensive reform and modernization to U.S.
bank secrecy and anti-money laundering laws, which includes a codified risk-based approach to anti-money laundering
compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for
BSA compliance; expands enforcement and investigation-related authority, including increasing available sanctions for certain
BSA violations and instituting BSA whistleblower incentives and protections.
There is also increased scrutiny of compliance with the rules enforced by OFAC. If Peoples' policies, procedures, and
systems are deemed deficient, or if the policies, procedures, and systems of the financial institutions that Peoples has already
acquired or may acquire in the future are deficient, Peoples may be subject to liability, including fines and regulatory actions such
as restrictions on Peoples' ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain planned
business activities, including acquisition plans, which could negatively impact Peoples' business, financial condition, and results
of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could
also have serious reputational consequences for Peoples.
For a more complete discussion of the BSA, the USA Patriot Act and the AMLA, see the section captioned "Supervision and
Regulation" in "ITEM 1 BUSINESS" of this Form 10-K.
• Peoples' business could be adversely affected through events impacting third parties who 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 relies, in significant part, on a single vendor for the systems which allow Peoples to provide banking services to
Peoples’ customers, with the systems being 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 or disruption 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.
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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 in a cost-effective manner, Peoples’ business
could be materially adversely affected.
Additionally, regulatory guidance adopted by federal banking regulators addressing how banks select, engage and manage
their third-party relationships, could affect the circumstances and conditions under which Peoples works with third parties and the
cost of managing such relationships.
• 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.
On April 2, 2020, Peoples entered into a Loan Agreement (the “U.S. Bank Loan Agreement”) with U.S. Bank National
Association. The U.S. Bank Loan Agreement has a one-year term and provides Peoples with a revolving line of credit in the
maximum aggregate principal amount of $20.0 million. The U.S. Bank Loan Agreement imposes operating and financial
covenants 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
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 are unfavorable to Peoples. The U.S. Bank Loan Agreement matures on April 1, 2021. Peoples is in the process
of renewing this facility and expects that it will be renewed prior to its expiration.
• 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
are to 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 degree of credit risk than residential real estate or consumer loans because commercial loans 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 credit exposures concentrated in a particular industry, resulting in a risk of a material
adverse effect on earnings or financial condition, if there is an event adversely affecting such industry.
Peoples' risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of the
business of Peoples' commercial borrowers and the financial circumstances of Peoples' consumer borrowers. Concern about the
spread of COVID-19 had caused and is likely to continue to cause business shutdowns and slowdowns, limitations on commercial
activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property
vacancy rates, reduced profitability and ability for property owners to make mortgage, auto and other consumer loan payments,
and overall economic and financial market instability, which may affect individuals, households and business differently, and
decreased consumer confidence generally, all of which may cause Peoples' customers to be unable to make scheduled loan
payments.
If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in Peoples' portfolio, Peoples
could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover
Peoples' exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated
with existing loans, the ability to liquidate the real estate collateral securing residential and commercial real estate loans, Peoples'
ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of Peoples'
lending and services, and the financial condition and credit risk of Peoples' customers, both commercial and consumer. Further,
in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent Peoples from
making business decisions or may result in a delay in taking certain remediation actions, such as foreclosure. In addition, Peoples
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has unfunded commitments to extend credit to customers. During a challenging economic environment like now, customers are
more dependent on credit commitments and increased borrowings under these commitments could adversely impact Peoples'
liquidity.
Furthermore, in an effort to support Peoples' communities during the pandemic, Peoples is participating in the PPP under the
CARES Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would
require forbearance of loan payments for a specified time or that would limit Peoples' ability to pursue all available remedies in
the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, Peoples is at the heightened
risk of holding the loan at an unfavorable interest rate as compared to the loans to customers that Peoples would have otherwise
extended credit. Rules providing for forgiveness have been constantly evolving, including an automatic forgiveness if the amount
of the PPP loan was not larger than a specified floor.
Additional information regarding Peoples' credit exposure concentration as of December 31, 2020 can be found in the section
captioned "Loan Concentration" in "ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K.
• Peoples' allowance for credit losses may be insufficient to absorb the expected, lifetime losses in its loan portfolio.
Peoples maintains an allowance for credit losses that is believed to be a reasonable estimate of the expected losses within the
CECL model, based on management's quarterly analysis of the loan portfolio. The determination of the allowance for credit
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 credit losses methodology and the sensitivity of the estimates can be
found in the discussion of "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 credit 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 credit loss allowance will be adequate in the future.
If Peoples' assumptions prove to be incorrect, Peoples' allowance for credit losses may not be sufficient to cover the expected
losses from its loan portfolio, resulting in the need for additions to the allowance for credit 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 credit 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.
On June 16, 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU")
2016-13 "Financial Instruments – Credit Losses", which replaced the incurred loss model with the CECL model, which is an
expected loss model. The new accounting guidance became effective for Peoples beginning January 1, 2020, and included most
debt instruments under the new framework. Under the CECL model, Peoples is required to use historical information, current
conditions and reasonable and supportable forecasts to estimate the expected credit losses. If the methodologies and assumptions
used by Peoples in the CECL model prove to be incorrect, or inadequate, the allowance for credit losses may not be sufficient,
resulting in the need for additional allowance for credit losses to be established, which could have a material adverse impact on
Peoples' financial condition and results of operations.
The adoption of CECL by Peoples resulted in a reduction to the retained earnings balance of $3.7 million, net of income tax,
and a pre-tax increase to the allowance for credit losses of $5.8 million. Due to the COVID-19 pandemic, Peoples' financial
results were negatively impacted as deteriorating economic conditions forecasted increased Peoples' expectations for credit losses,
resulting in higher provision for credit losses during 2020. As a result of the implementation of the CECL model, the time
horizon over which Peoples is required to estimate future credit losses expanded, which could result in increased volatility in
future provisions for credit losses. Peoples may also experience a higher or more volatile provision for credit losses due to higher
levels of nonperforming loans and net charge-offs if commercial and consumer customers are unable to make scheduled loans
payments.
• Peoples' accounting estimates and risk management processes rely on analytical and forecasting models.
The processes Peoples uses to estimate Peoples' expected credit losses and to measure the fair value of financial instruments,
as well as the processes used to estimate the effects of changing interest rates and other market measures on Peoples' financial
condition and results of operations, depend upon the use of analytical and forecasting models. These models reflect assumptions
that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are
accurate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If
the models Peoples uses for interest rate risk and asset-liability management are inadequate, Peoples may incur increased or
unexpected losses upon changes in market interest rates or other market measures. If the models used by Peoples for determining
expected credit losses are inadequate, the allowance for credit losses may not be sufficient to support future charge-offs. If the
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models used by Peoples to measure the fair value of financial instruments are inadequate, the fair value of such financial
instruments may fluctuate unexpectedly or may not accurately reflect what Peoples could realize upon sale or settlement of such
financial instruments. Any such failure in Peoples' analytical or forecasting models could have a material adverse effect on
Peoples' business, financial condition and results of operations.
• Peoples and Peoples Bank may elect or be compelled to seek additional capital in the future, but such capital may not be
available when 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 the businesses or to finance acquisitions, if any, or for other unanticipated reasons. The 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 of Peoples' control. Therefore, there can be no assurance that additional capital will be
available or that capital will be available on acceptable terms. The inability to raise capital may have a material adverse effect on
Peoples' financial condition, results of operations or potential acquisitions.
• Peoples and Peoples Bank operate in a highly regulated industry, and the laws and regulations that govern Peoples’
operations, corporate governance, executive compensation and financial accounting, or financial reporting, including
changes in, or failure to comply with, such laws and regulations may adversely affect Peoples.
The banking industry is highly regulated. Peoples is subject to supervision, regulation and examination by various federal and
state regulators, including the Federal Reserve Board, the SEC, the CFPB, the FDIC, Financial Industry Regulatory Authority,
Inc. (also known as FINRA), and various state regulatory agencies. The statutory and regulatory framework that governs Peoples
is generally designed to protect depositors and customers, the Deposit Insurance Fund, the U.S. banking and financial system, and
financial markets as a whole and not to protect Peoples' shareholders. These laws and regulations, among other matters, prescribe
minimum capital requirements, restrict the ability of Peoples Bank to guarantee Peoples Bancorp Inc.'s debt, and impose
limitations on Peoples’ business activities (including foreclosure and collection practices), limit the dividends or distributions that
Peoples can pay, and impose certain specific accounting requirements that may be more restrictive and may result in greater or
earlier charges to earnings or reductions in capital than would otherwise be required under U.S. generally accepted accounting
principles ("US GAAP"). Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations
often impose additional compliance costs. Both the scope of the laws and regulations, and the intensity of the supervision to
which Peoples is subject, have increased in recent years in response to the perceived state of the financial services industry, as
well as other factors such as technological and market changes. Such regulation and supervision may increase Peoples’ costs and
limit its ability to pursue business opportunities. Further, Peoples’ failure to comply with these laws and regulations, even if the
failure was inadvertent or reflects a difference in interpretation, could subject Peoples to restrictions on business activities, fines,
and other penalties, any of which could adversely affect results of operations, the capital base, and the price of Peoples’ common
shares. Further, any new laws, rules, or regulations could make compliance more difficult or expensive or otherwise adversely
affect Peoples’ business and financial condition.
• Peoples may not be able to adapt to technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to
better serve customers and to reduce costs. Peoples’ future success depends, in part, upon its ability to address customer needs by
using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies
in its operations. Peoples may not be able to effectively implement new technology-driven products and services or be successful
in marketing these products and services to its customers. Failure to successfully keep pace with technological changes affecting
the financial services industry could negatively affect Peoples’ growth, revenue and net income.
• Peoples may not be able to attract and retain skilled key employees.
Peoples' success depends, in large part, on its ability to attract, retain, motivate and develop key employees. Competition for
key employees is ongoing and Peoples may not be able to attract, retain or hire the key employees who 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 what is offered in metropolitan areas to
attract or retain key employees, which may adversely affect salaries and employee benefit 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' 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
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disadvantage to non-financial service competitors. Peoples' ability to attract and retain talented employees may be affected by
these restrictions, or any new executive compensation limits or regulations.
• 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, at the discretion of its Board of
Directors, reduce or eliminate dividends in the future, 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 16 Regulatory Matters" of the Notes to the Consolidated Financial Statements.
• Peoples depends upon the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, Peoples may rely on
information provided by customers and counterparties, including financial statements and other financial information. Peoples
may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and,
with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a
business, Peoples Bank may assume that the customer’s audited financial statements conform with US GAAP and present fairly,
in all material respects, the financial condition, results of operations and cash flows of the customer. Peoples Bank may also rely
on the audit report covering those financial statements. Peoples’ financial condition, results of operations and cash flows could be
negatively impacted to the extent that Peoples Bank relies on financial statements that do not comply with US GAAP or on
financial statements and other financial information that are materially misleading.
• Peoples Bank may be required to repurchase loans it has sold or to 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 Peoples Bank 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 and borrower fraud, there can be no assurance that a breach or fraud
will never occur. Required repurchases, substitutions or indemnifications could have an adverse effect on Peoples’ liquidity,
results of operations and financial condition.
• 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 with respect to all tax returns and does not anticipate that any
examination would have a material impact on Peoples' Consolidated Financial Statements. However, the outcome of any such
examination and the 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 be as 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.
Legislative, Regulatory and Tax Change Risks
• Legislative or regulatory changes or actions 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 FRB, the
FDIC and the CFPB. These regulations are primarily intended to protect depositors and the Deposit Insurance Fund, not Peoples'
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, especially in light of
COVID-19 and the stimulus programs implemented in connection therewith, and Peoples' management cannot predict the effect
of those changes. While such changes are generally intended to lessen the regulatory burden on financial institutions, the impact
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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 credit 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.
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.
• 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 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.
• Increases in FDIC insurance premiums may have a material adverse effect 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 is funded by fees assessed on insured depository institutions, such as Peoples Bank. 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 adopted rules revising its assessments in a manner benefiting banks with assets totaling less than $10 billion in
assets. There can be no assurance, however, that assessments may not be changed in the future. Federal deposit insurance is
described in more detail in the section captioned "Supervision and Regulation" in "ITEM 1 BUSINESS" of this Form 10-K.
Strategic Risks
• Peoples' ability to complete acquisitions and integrate completed acquisitions may be unsuccessful or more difficult, time-
consuming or costly than expected, which could have an adverse effect 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. In addition, 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 anticipated in the acquisitions it
completes. Future acquisitions may also result in other unforeseen difficulties, including in the integration of the combined
31
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 Peoples' shareholders. Recent changes in the stock
price of financial institutions could impact the valuation of potential target companies and, therefore, Peoples' ability to compete
for acquisitions.
• Changes in retail distribution strategies and consumer behavior may adversely impact Peoples’ investments in its financial
service office premises and equipment and other assets, and may lead to increased expenditures to change its retail
distribution channel.
Peoples has significant investments in financial service office premises and equipment for its financial service office network,
including 85 financial service offices as well as its retail work force and other financial service office banking assets. Advances
in technology such as e-commerce, telephone, internet and mobile banking, and in-branch self-service technologies including
automatic teller machines and other equipment, as well as changing customer preferences for these other methods of accessing
Peoples’ products and services, could affect the value of Peoples’ financial service office network or other retail distribution
assets and may cause Peoples to change its retail distribution strategy, close and/or sell certain financial service offices and
restructure or reduce its remaining financial service offices and work force. Further advances in technology and/or changes in
customer preferences including those related to social media could result in additional changes in Peoples’ retail distribution
strategy and/or financial service office network. These actions could lead to losses on these assets or could adversely impact the
carrying value of other long-lived assets and may lead to increased expenditures to renovate and reconfigure remaining financial
service offices or to otherwise reform Peoples’ retail distribution channel.
• Anti-takeover provisions may delay or prevent an acquisition or change in control by a third party.
Provisions in the Ohio General Corporation Law, Peoples' Amended Articles of Incorporation and Peoples' Code of
Regulations, including 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.
General Risks
• 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 held by Peoples possess higher credit risk since they
represent beneficial interests in structured investments collateralized by residential mortgages, debt obligations 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.
Peoples' ability to access short-term funding or liquidity may be limited as a result of the impact of COVID-19 on local and
global markets. This situation could further be exacerbated by a reduced deposit base either through customer withdrawals or
non-renewal of term deposits. Market stress from the virus could result in reduced cash flow from earning assets including other-
than-temporary impairment on investment securities and sustained repayment shortfalls on loans. It is possible that sources of
wholesale funding such as the FHLB, the FRB, or the brokered certificate of deposit market would no longer be accessible to fund
daily liquidity needs.
• Peoples is subject to environmental liability risk associated with lending activities.
A significant portion of Peoples' loan portfolio is secured by real property. During the ordinary course of business, Peoples
forecloses on and takes title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances
could be found on these properties. If hazardous or toxic substances are found, Peoples may be liable for remediation costs, as
well as for personal injury and property damage. Environmental laws may require Peoples to incur substantial expenses and may
materially reduce the affected property’s value or limit Peoples' ability to use or sell the affected property. In addition, future laws
or more stringent interpretations or enforcement policies with respect to existing laws may increase Peoples' exposure to
environmental liability. Environmental reviews of real property before initiating foreclosure actions may not be sufficient to
detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an
environmental hazard could have a material adverse effect on Peoples' business, financial condition and results of operations.
• The value of Peoples’ goodwill and other intangible assets may decline in the future.
As of December 31, 2020, Peoples had $184.6 million of goodwill and other intangible assets. A significant decline in
expected future cash flows, a significant adverse change in the business climate, slower growth rates or a significant and sustained
decline in the price of Peoples’ common shares may necessitate taking charges in the future related to the impairment of goodwill
and other intangible assets. If Peoples were to conclude that a future write-down of goodwill and other intangible assets is
32
necessary, the appropriate charge will be recorded, which could have a material adverse effect on Peoples' business, financial
condition and results of operations.
• 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. Such 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. 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 certain 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
consumers and thereby commit fraud.
• Peoples may not be able to remain competitive.
Peoples experiences significant competition in originating loans, obtaining deposits, and maintaining and growing insurance
and trust customers, principally from other commercial banks, savings associations, credit unions, trust and brokerage companies,
insurance agencies, fintechs and online service providers. Several of Peoples' competitors have greater resources, larger branch
systems and wider arrays of banking and non-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 can 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 that have historically been held as bank
deposits in brokerage accounts, mutual funds, or high yield savings accounts with online banks. 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 will lose market share, which could reduce income generated from deposits, loans and other
products. For a more complete discussion of Peoples' competitive environment, see the section captioned "Competition" in
"ITEM 1 BUSINESS" of this Form 10-K.
• Climate change, severe weather, natural disasters, acts of war or terrorism, the emergence of a pandemic and other
adverse 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, pandemics or concern about a possible pandemic, 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, disrupt the infrastructure that supports Peoples' business and
the communities Peoples is located in, negatively impact financial markets and interest rates, result in lost revenue or cause
Peoples to incur additional expenses.
The COVID-19 pandemic has adversely impacted Peoples' business and financial results, and the ultimate continued impact
on both will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration
of the pandemic and actions taken by governmental and nongovernmental authorities in response to the pandemic.
The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout
the world. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to
mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, government
fiscal stimulus, and legislation designed to deliver monetary aid and other Federal Reserve Board monetary policy. While the
scope, duration, and full effects of COVID-19 are rapidly evolving, including the effectiveness and timing of the rollout of
vaccines to the general public, the pandemic and related efforts to contain it have disrupted global economic activity, adversely
affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted
trade and supply chains. If these effects continue for a prolonged period or result in sustained economic stress or recession, many
of the risk factors identified in Peoples' 2020 Form 10-K could be exacerbated and such effects could have a material adverse
impact on Peoples in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, and
human capital.
33
• Peoples or one of its subsidiaries may be a defendant from time to time 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 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 or adequate replacement policies with acceptable terms.
• Defaults by larger financial institutions could adversely affect Peoples' business, earnings and financial condition.
Many financial institutions and their related operations are closely intertwined, and the soundness of such financial
institutions may, to some degree, be interdependent. 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 the future. 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.
• Changes in tax laws could adversely affect Peoples' performance.
Peoples is subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise,
withholding and other 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.
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. At
December 31, 2020, Peoples Bank operated 62 offices in Ohio, 12 offices in Kentucky, 10 offices in West Virginia and 1 office in
Missouri. Of these 85 offices, 19 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,
Ohio; Sciotoville, Ohio; and in Pikeville, Kentucky.
34
Rent expense on the leased properties totaled $1.6 million in 2020 and $1.3 million in 2019, which excludes intercompany rent
expense. The following are the only properties that have a lease term expiring on or before June 2022:
Location
Address
Lease Expiration Date
Lancaster Fair Avenue Office
Lyndhurst Insurance Office
Huntington Business Production Office
Athens Mall Office
Akron Business Production Office
Cincinnati East Loan Production Office
North Canton Loan Production Office
Pikeville Insurance Office
Munroe Falls Office
Cincinnati West Loan Production Office
Charleston Commercial Office
2211 West Fair Avenue
Lancaster, Ohio
5231 Mayfield Road
Lyndhurst, Ohio
1200 Third Avenue
Huntington, West Virginia
801 East State Street
Athens, Ohio
354 South Main Street
Akron, Ohio
151 Castleberry Court
Milford, Ohio
125 South Main Street
North Canton, Ohio
108 Trivett Drive
Pikeville, Kentucky
34 South Main Street
Munroe Falls, Ohio
6701 Ruwes Oak Drive, Suite 4
Cincinnati, Ohio
10 Hale Street
Charleston, West Virginia
(a) Current lease agreement has no remaining extensions available.
(b) Current lease agreement has one three-year extension remaining.
(c) Current lease agreement has one two-year extension remaining.
(d) Current lease agreement has three five-year extensions remaining.
March 2021 (a)
April 2021 (a)
May 2021 (b)
June 2021 (b)
June 2021 (a)
June 2021 (b)
June 2021 (c)
September 2021 (a)
December 2021 (a)
April 2022 (d)
May 2022 (b)
Peoples considers its offices and related facilities to be suitable and adequate for the present needs of Peoples and its subsidiaries.
Peoples evaluates on a continuing basis the suitability and adequacy of its offices and related facilities, and has opened, relocated,
remodeled or closed them as appropriate to maintain efficient and attractive premises.
Additional information concerning the property and equipment owned or leased by Peoples and its subsidiaries is incorporated
herein by reference from "Note 5 Bank Premises and Equipment" 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, Peoples' 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.
35
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, 2020,
Peoples had 3,149 shareholders of record.
Peoples plans to continue to pay quarterly cash dividends comparable to those paid historically, subject to certain regulatory
restrictions described in "Note 16 Regulatory Matters" of the Notes to the Consolidated Financial Statements, as well as in the section
captioned "Supervision and Regulation – Dividend Restrictions" of "ITEM 1 BUSINESS" of this Form 10-K.
Issuer Purchases of Equity Securities
The following table details repurchases by Peoples and purchases by "affiliated purchasers" as defined in Rule 10b-18(a)(3) under
the Securities Exchange Act of 1934, as amended, of Peoples' common shares during the three months ended December 31, 2020:
(a)
Total
Number of
Common
Shares
Purchased
(b)
Average Price
Paid per
Common Share
77,122 (1)(2) $
102,991 (1)(2) $
3,085 (1)(2) $
$
183,198
23.29 (1)(2)
24.00 (1)(2)
25.73 (1)(2)
23.73
(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)
75,189 $
102,266 $
2,370 $
179,825 $
13,945,155
11,491,559
11,431,179
11,431,179
Period
October 1 – 31, 2020
November 1 – 30, 2020
December 1 – 31, 2020
Total
(1) On February 28, 2020, Peoples announced that on February 27, 2020, Peoples' Board of Directors authorized a share repurchase program (the "February 27,
2020 share repurchase program") authorizing Peoples to purchase up to an aggregate of $40 million of its outstanding common shares. On January 29, 2021,
Peoples announced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to an
aggregate of $30.0 million of its outstanding common shares, replacing the February 27, 2020 share repurchase program which terminated on January 28,
2021. Peoples purchased 75,189, 102,266, and 2,370 common shares under the February 27, 2020 share repurchase program in October, November, and
December, respectively. Additional information regarding the share repurchase programs can be found in "Note 10 Stockholders' Equity" of the Notes to the
Consolidated Financial Statements.
Information includes 1,933 common shares, 725 common shares, and 715 common shares purchased in open market transactions during October,
November, and December, respectively, by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishes a rabbi trust that holds
assets to provide funds for the payment of the benefits under the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for
Directors of Peoples Bancorp Inc. and Subsidiaries.
(2)
36
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, 2015, and assuming reinvestment of dividends, against two indices. The first is the
Russell 2000 Index, which is a leading benchmark for small cap domestic stocks and is comprised of the stocks ranked 1,001 to 3,000
in order of descending market capitalization in the Russell 3000 Index. The second is the Russell 2000 Financial Services Index,
which is comprised of the financial services companies within the Russell 2000 Index.
COMPARISON OF FIVE-YEAR TOTAL SHAREHOLDER RETURN AMONG
PEOPLES BANCORP INC., RUSSELL 2000 INDEX,
AND RUSSELL 2000 FINANCIAL SERVICES INDEX
2015
2016
At December 31,
2018
2017
2019
2020
Peoples Bancorp Inc.
$ 100.00 $ 177.58 $ 183.08 $ 174.35 $ 209.12 $ 173.00
Russell 2000 Index
Russell 2000 Financial Services Index
$ 100.00 $ 121.28 $ 139.02 $ 123.69 $ 155.22 $ 186.15
$ 100.00 $ 131.05 $ 138.56 $ 123.41 $ 153.15 $ 150.02
37
ITEM 6 SELECTED FINANCIAL DATA
The information below has been derived from Peoples' Consolidated Financial Statements.
(Dollars in thousands, except per share data)
Operating Data (a)
Total interest income
Total interest expense
Net interest income
Provision for credit losses (b)
Net (loss) gain on investment securities
Net loss on asset disposals and other transactions
At or For the Year Ended December 31,
2020
2019
2018
2017
2016
$ 157,104 $ 170,095 $ 151,264 $ 126,525 $ 115,444
18,181
29,257
21,652
13,148
10,579
138,923
140,838
129,612
113,377
104,865
26,254
2,504
5,448
(368)
(290)
164
(782)
(146)
(334)
3,772
2,983
3,539
930
(63)
(1,133)
Total non-interest income excluding net gains and losses (c)
64,330
64,892
57,234
52,653
51,070
Total non-interest expense
Net income (d)
Balance Sheet Data (a)
Total investment securities
133,695
137,250
125,977
107,975
106,911
$
34,767 $
53,695 $
46,255 $
38,471 $
31,157
$ 857,031 $ 1,010,578 $ 871,837 $ 874,486 $ 859,455
Loans, net of deferred fees and costs ("total loans")
3,402,940 2,873,525 2,728,778 2,357,137 2,224,936
Allowance for credit losses
Goodwill and other intangible assets
Total assets
Non-interest-bearing deposits
Brokered certificates of deposits
Other interest-bearing deposits
Short-term borrowings
50,359
21,556
20,195
18,793
18,429
184,597
177,503
162,085
144,576
146,018
4,760,764 4,354,165 3,991,454 3,581,686 3,432,348
997,323
671,208
607,877
556,010
734,421
170,146
207,939
263,854
159,618
38,832
2,742,990 2,412,265 2,083,734 2,014,702 1,759,605
73,261
316,977
356,198
209,491
305,607
Junior subordinated debentures held by subsidiary trust
7,611
7,451
7,283
7,107
6,924
Other long-term borrowings
Total stockholders' equity
Tangible assets (e)
Tangible equity (e)
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 (f)
Tangible book value per common share (e)(f)
Weighted-average number of common shares outstanding –
basic
Weighted-average number of common shares outstanding –
diluted
102,957
75,672
102,361
136,912
138,231
575,673
594,393
520,140
458,592
435,261
4,576,167 4,176,662 3,829,369 3,437,110 3,286,330
$ 391,076 $ 416,890 $ 358,055 $ 314,016 $ 289,243
$
1.74 $
2.65 $
2.42 $
2.12 $
1.73
1.37
2.63
1.32
2.41
1.12
2.10
0.84
29.43
28.72
26.59
25.08
$
19.99 $
20.14 $
18.30 $
17.17 $
1.72
1.71
0.64
23.92
15.89
19,721,772 20,120,119 18,991,768 18,050,189 18,013,693
19,843,806 20,273,725 19,122,260 18,208,684 18,155,463
Common shares outstanding at end of period (f)
19,563,979 20,698,941 19,565,029 18,287,449 18,200,067
Closing stock price at end of period (f)
$
27.09 $
34.66 $
30.10 $
32.62 $
32.46
38
(Dollars in thousands, except per share data)
Significant Ratios (a)
Return on average stockholders' equity
Return on average tangible equity (g)
Return on average assets
Return on average assets adjusted for non-core items (h)
Average stockholders' equity to average assets
Average total loans to average deposits
Net interest margin (i)
Efficiency ratio (j)
Efficiency ratio adjusted for non-core items (k)
Pre-provision net revenue to total average assets (l)
Dividend payout ratio
Total loans to deposits (f)
Total investment securities as percentage of total
assets (f)
Asset Quality Ratios (a)
Nonperforming loans as a percent of total loans (f)(m)
Nonperforming assets as a percent of total assets (f)(m)
Nonperforming assets as a percent of total loans and
other real estate owned ("OREO") (f)(m)
Criticized loans as a percent of total loans (f)(n)
Classified loans as a percent of total loans (f)(o)
Allowance for credit losses as a percent of total loans
(f)(p)
Allowance for credit losses as a percent of
nonperforming loans (f)(m)(p)
Provision for credit losses as a percent of average total
loans (b)
Net charge-offs as a percent of average total loans (q)
Capital Information (a)(f)
Common equity tier 1 capital ratio (r)
Tier 1 risk-based capital ratio
Total risk-based capital ratio (tier 1 and tier 2)
Tier 1 leverage ratio
Common equity tier 1 capital
Tier 1 capital
Total capital (tier 1 and tier 2)
Total risk-weighted assets
Total stockholders' equity to total assets
Tangible equity to tangible assets (e)
At or For the Year Ended December 31,
2020
2019
2018
2017
2016
6.04 %
9.48 %
9.48 %
8.54 %
7.20 %
9.47
0.73
0.83
12.14
86.28
3.24
63.86
61.94
1.47
79.14
87.14
14.35
1.27
1.43
13.41
86.35
3.69
64.74
61.09
1.62
50.08
87.50
14.81
1.19
1.32
12.61
89.37
3.71
65.33
61.32
1.57
46.65
92.51
13.33
1.10
1.08
12.83
86.10
3.62
62.20
61.85
1.65
39.86
86.42
11.86
0.94
0.97
13.03
83.22
3.54
65.13
64.30
1.48
37.40
88.81
18.00 %
23.21 %
21.84 %
24.42 %
25.04 %
0.82 %
0.59
0.75 %
0.50
0.71 %
0.49
0.73 %
0.49
1.13 %
0.75
0.84
3.72
2.13
1.48
0.76
3.37
2.30
0.75
0.71
4.18
1.61
0.74
0.74
3.84
1.97
0.80
1.16
4.46
2.59
0.83
180.14
99.28
104.35
108.52
73.43
0.81
0.05 %
0.09
0.04 %
0.21
0.15 %
0.16
0.15 %
0.17
0.09 %
13.01 %
14.59 %
13.66 %
13.26 %
12.91 %
13.25
14.50
8.97 %
14.84
15.58
10.41 %
13.92
14.65
9.99 %
13.55
14.43
9.75 %
13.21
14.11
9.65 %
$ 409,400
$ 427,415
$ 378,855
$ 327,172
$ 306,506
417,011
434,866
386,138
334,279
313,430
456,384
456,422
406,333
355,977
334,957
$ 3,146,767 $ 2,930,355
$ 2,773,383
$ 2,466,620
$ 2,373,359
12.09 %
8.55 %
13.65 %
9.98 %
13.03 %
9.35 %
12.80 %
9.14 %
12.68 %
8.80 %
(a) Reflects the impact of the acquisition of Triumph Premium Finance beginning July 1, 2020, First Prestonsburg Bancshares Inc. ("First Prestonsburg") beginning
April 12, 2019 and ASB Financial Corp. ("ASB") beginning April 13, 2018.
(b) On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model. Prior to the adoption of the CECL model, the provision for credit losses
was the "provision for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans (which includes purchased
credit deteriorated loans), held-to-maturity investment securities, and the unfunded commitment liability in 2020. Additional information regarding the
implementation of the CECL model can be found in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements.
(c) Total non-interest income excluding net gains and losses, is a non-US GAAP financial measure since it excludes all gains and/or losses included in earnings.
Additional information regarding the calculation of total non-interest income excluding net gains and losses can be found in "ITEM 7 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K under the caption "Core Non-Interest
Income and Expense (non-US GAAP)."
39
(d) Net income includes non-core non-interest expenses totaling $3.9 million in 2020, $7.6 million in 2019, $7.5 million in 2018, $583,000 in 2017, and $1.3 million
in 2016. Additional information regarding the non-core non-interest expense 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 "Core Non-Interest Income and Expense (non-US
GAAP)."
(e) These amounts represent non-US GAAP financial measures since they exclude 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 these amounts 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."
(f) Data presented as of the end of the year indicated.
(g) Return on average tangible equity represents a non-US GAAP financial measure since it excludes the after-tax impact of amortization of other intangible assets
from earnings and it excludes the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’
equity. 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 "Return on Average Tangible Equity (non-US GAAP)."
(h) Return on average assets adjusted for non-core items represents a non-US GAAP financial measure since it excludes the release of the deferred tax asset valuation
allowance, the impact of the Tax Cuts and Jobs Act on the remeasurement of deferred tax assets and deferred tax liabilities, the after-tax impact of all gains and/or
losses, core banking system conversion revenue and expenses, acquisition-related expenses, pension settlement charges, severance expenses, and COVID-19-
related expenses in earnings. 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 "Return on Average Assets Adjusted for
Non-Core Items (non-US GAAP)."
(i)
(j)
Information presented on a fully tax-equivalent ("FTE") basis using a 21% statutory federal corporate income tax rate for 2020, 2019 and 2018 and a 35%
statutory federal corporate income tax rate for 2017 and 2016.
The efficiency ratio is defined as total non-interest expense (less amortization of other intangible assets) as a percentage of FTE net interest income plus total non-
interest income (excluding all gains and losses). This amount represents a non-US GAAP financial measure since it excludes amortization of other intangible
assets, and all gains and/or losses included in earnings, and uses FTE 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 (non-US GAAP)."
(k) The efficiency ratio adjusted for non-core items is defined as core non-interest expense (less amortization of other intangible assets) as a percentage of FTE net
interest income plus core non-interest income excluding all gains and losses. This amounts represents a non-US GAAP financial measure since it excludes the
impact of all gains and/or losses, core banking system conversion revenue and expenses, acquisition-related expenses, pension settlement charges, severance
expenses, and COVID-19-related expenses in earnings, and uses FTE 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 (non-US GAAP)."
(l)
Pre-provision net revenue is defined as net interest income plus total non-interest income (excluding all gains and losses) minus total non-interest expense. Pre-
provision net revenue excludes income tax expense. This ratio represents a non-US GAAP financial measure since it excludes the provision for loan losses and all
gains and/or losses included in earnings. This measure is a key metric used by federal banking regulatory agencies in their evaluation of capital adequacy for
financial institutions. Additional information regarding the calculation of this ratio can be found in "ITEM 7 MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K under the caption "Pre-Provision Net Revenue (non-US
GAAP)."
(m) 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.
(n)
(o)
Includes loans categorized as special mention, substandard and doubtful.
Includes loans categorized as substandard and doubtful.
(p) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model. Prior to the adoption of the CECL model, the allowance for credit losses was
the "allowance for loan losses."
(q)
(r)
Included $2.5 million in recoveries during 2020 and $1.8 million in recoveries during 2019 on one single large commercial relationship.
Peoples' capital conservation buffer was 6.50% at December 31, 2020, 7.58% at December 31, 2019, 6.65% at December 31, 2018, 6.43% at December 31, 2017,
and 6.11% at December 31, 2016.
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking Statements
Certain statements made 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," "will likely," "would," "should,"
"could," "project," "goal," "target," "potential," "seek," "intend," 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)
the ever-changing effects of the COVID-19 pandemic - the duration, extent and severity of which are impossible to
predict, including the possibility of further resurgence in the spread of COVID-19 - on economies (local, national and
international) and markets, and on Peoples' customers, counterparties, employees and third-party service providers, as
well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic,
including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut
downs, and other restrictions on travel and commercial, social and other activities), the development, availability and
40
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
effectiveness of vaccines, and the implementation of fiscal stimulus packages, which could adversely impact sales
volumes, add volatility to the global stock markets, and increase loan delinquencies and defaults;
changes in the interest rate environment due to economic conditions related to the COVID-19 pandemic or other
factors and/or the fiscal and monetary policy measures undertaken by the U.S. government and the Federal Reserve
Board in response to such economic conditions, which may adversely impact interest rates, the interest rate yield
curve, interest margins, loan demand and interest rate sensitivity;
the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage
strategic initiatives, including the expansion of commercial and consumer lending activities, in light of the continuing
impact of the COVID-19 pandemic on customers' operations and financial condition;
competitive pressures among financial institutions, or from non-financial institutions, which may increase
significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to
third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention
pressures, and Peoples' ability to attract, develop and retain qualified professionals;
uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit
insurance premium levels, 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 CARES Act and the follow-up legislation
enacted as the CAA, on December 27, 2020, the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, and the Basel III regulatory capital reform;
the effects of easing restrictions on participants in the financial services industry;
local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a
U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade
regulations, and changes in the relationship of the U.S. and its global trading partners) 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;
Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic
dilution to Peoples' current shareholders;
changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and
customer and other counterparties performance and creditworthiness generally, which may be less favorable than
expected in light of the COVID-19 pandemic and adversely impact the amount of interest income generated;
(10) Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or
industry of borrowers or collateral;
(11)
(12)
(13)
(14)
changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial
condition or results of operations;
the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes,
including under the CECL model;
the discontinuation of LIBOR and other reference rates which may result in increased expenses and litigation, and
adversely impact the effectiveness of hedging strategies;
adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19
pandemic and the related responses by governmental and nongovernmental authorities to the pandemic, 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;
(15)
the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value
of mortgage loans, or other factors;
(16) Peoples' ability to receive dividends from its subsidiaries;
(17) Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;
(18)
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;
41
(19) Peoples' ability to secure confidential information and deliver products and services through the use of computer
systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers,
which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples
incurring a financial loss;
(20) Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure
of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider,
which can impact Peoples' ability to respond to customer needs and meet competitive demands;
(21)
(22)
(23)
operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry
changes in information technology systems on which Peoples and its subsidiaries are highly dependent;
changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies,
consumer preferences and behavior, changes in business and economic conditions (including as a result of the
COVID-19 pandemic), legislative or regulatory initiatives (including those in response to the COVID-19 pandemic),
or other factors, which may be different than anticipated;
the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic,
reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit
and interest rate risks associated with Peoples' business;
(24)
the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, or violence;
(25)
(26)
(27)
the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international
widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil
unrest (including any resulting branch closures or damage), military or terrorist activities or international conflicts;
the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual
property claimed by others and adequately protecting Peoples' intellectual property;
risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples'
inexperience in these new geographic markets;
(28) Peoples' ability to identify, acquire, or integrate suitable strategic acquisitions, which may be unsuccessful, or may be
more difficult, time-consuming or costly than expected;
(29) Peoples' continued ability to grow deposits;
(30)
(31)
(32)
the impact of future governmental and regulatory actions upon Peoples' participation in and execution of government
programs related to the COVID-19 pandemic;
uncertainty regarding the impact of changes to the U.S. presidential administration and Congress on the regulatory
landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates
and the response to and management of the COVID-19 pandemic; and
other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with
the SEC, including those risk factors included in the disclosures under the heading "ITEM 1A RISK FACTORS" of
this Form 10-K.
All forward-looking statements speak only as of the filing date of this Form 10-K and are expressly qualified in their entirety by
the cautionary statements. Although management believes the expectations in these forward-looking statements are based on
reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual
results may differ materially from these projections. Additionally, Peoples undertakes no obligation to update these forward-looking
statements to reflect events or circumstances after the filing date of this Form 10-K or to reflect the occurrence of unanticipated events
except as may be required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at
the SEC’s website at www.sec.gov and/or through 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:
42
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◦
◦
On January 29, 2021, Peoples announced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase
program authorizing Peoples to purchase up to an aggregate of $30 million of its outstanding common shares. This program
replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $40 million of its outstanding
common shares, which Peoples' Board of Directors had authorized on February 27, 2020 and which was terminated on
January 28, 2021. During 2020, Peoples repurchased 1,299,577 common shares for $29.3 million compared to 26,427
common shares for $805,000 during 2019.
Peoples originated $489.0 million of PPP loans during 2020 under the loan guarantee program created under the CARES Act.
These loans were targeted to provide small businesses with support to cover payroll and certain other expenses. Loans made
under the PPP are fully guaranteed by the SBA. Additional information can be found later in this discussion under the
caption “FINANCIAL CONDITION - COVID-19 Loan Impacts." As of December 31, 2020, Peoples had $366.9 million in
PPP loans outstanding, which were included in commercial and industrial loan balances. Peoples recognized interest income
of $10.7 million on PPP loans during 2020, which included $7.5 million for deferred fee/cost accretion.
During 2020, Peoples recorded a provision for credit losses of $26.3 million, compared to $2.5 million for 2019 and $5.4
million for 2018. During 2020, Peoples recorded $932,000 of the provision for credit losses to establish the allowance for
credit losses for the loans acquired from Triumph Premium Finance. The increase in the provision for credit losses compared
to 2019 was primarily related to the impact of COVID-19 on the CECL model, as well as the implementation of the CECL
accounting standard.
Peoples has been providing relief solutions to consumer and commercial borrowers, including forbearance and modifications,
during the COVID-19 pandemic. Additional information can be found later in this discussion under the caption
“FINANCIAL CONDITION - COVID-19 Loan Impacts."
Peoples was selected to partner with JobsOhio, a private nonprofit organization charged with economic development.
Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19
Loan Impacts."
Peoples incurred $1.1 million in pension settlement charges in 2020 and $267,000 in 2018, due to the aggregate amount of
lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing
settlement charges during the period. There were no such settlement charges during 2019.
During 2020, Peoples recorded $1.3 million of expenses related to the COVID-19 pandemic. These expenses were primarily
related to donations made to community food banks and pantries, as well as contributions to funds to support employees,
including, in the second quarter of 2020, the issuance of unrestricted common share awards totaling $396,000 granted to
employees at the Assistant Vice President level and below.
During 2020, Peoples incurred $489,000 of acquisition-related expenses, compared to $7.3 million for each of 2019 and
2018. The acquisition-related expenses in 2020 were related to the Triumph Premium Finance acquisition, while the
expenses during 2019 and 2018 were due to the First Prestonsburg and ASB acquisitions, respectively.
During 2020, Peoples sold restricted Class B Visa stock for a gain of $680,000, which was recorded in other non-interest
income. Peoples also sold restricted Class B Visa stock during 2019, resulting in a gain of $787,000.
Effective July 1, 2020, Peoples completed the business combination under which Peoples Bank acquired the operations and
assets of Triumph Premium Finance (referred to as the "premium finance acquisition"), a division of TBK Bank, SSB. Based
in Kansas City, Missouri, the division operating as Peoples Premium Finance will continue to provide insurance premium
financing loans for commercial customers to purchase property and casualty insurance products through its growing network
of independent insurance agency partners nationwide. Peoples Bank acquired $84.7 million in loans, at acquisition date, after
fair value adjustments. Peoples also recorded $4.3 million of other intangible assets and $5.5 million of goodwill. Total
consideration paid for this acquisition was $94.5 million. As of December 31, 2020, Peoples Premium Finance loans had
grown to $114.8 million.
During 2020, Peoples recognized credits to its FDIC insurance expense as the FDIC issued credits to member banks to offset
against the quarterly assessment as a result of the deposit insurance fund reaching its target threshold for smaller banks.
These credits were used by Peoples beginning in 2019 and were fully exhausted during the second quarter of 2020.
On April 2, 2020, Peoples entered into a First Amendment to the Loan Agreement with U.S. Bank National Association (the
“U.S. Bank Loan Agreement”), entered into on April 3, 2019, to extend the maturity. The First Amendment to Loan
Agreement extends the maturity from April 2, 2020 to April 1, 2021. The U.S. Bank Loan Agreement provides Peoples with
a revolving line of credit in the maximum aggregate principal amount of $20.0 million that may be used: (i) for working
capital purposes; (ii) to finance dividends or other distributions (other than stock dividends and stock splits) on or in respect
of Peoples’ capital stock and redemptions, repurchases or other acquisitions of any of Peoples’ capital stock permitted under
the U.S. Bank Loan Agreement; and (iii) to finance acquisitions permitted under the U.S. Bank Loan Agreement.
43
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During 2020, Peoples recognized $109,000 in bank owned life insurance ("BOLI") income related to tax-free death benefits,
compared to $482,000 in 2019.
In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the
Federal Reserve Board first lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3, 2020 and then
lowered the target rate another 100 basis points at the next FOMC meeting on March 15, 2020. The Federal Funds Target
Rate range was 0% - 0.25% as of March 31, 2020 and maintained this rate as of December 31, 2020. According to the Chair
of the Federal Reserve Board, the Federal Funds Target Rate is not likely to drop below this range. However, the Federal
Reserve Board does have other tools available that it can employ and has expressed an intention to do so in order to maintain
a targeted level of liquidity. Furthermore, the Federal Reserve Board has indicated it is committed to a target 0% - 0.25%
range for Federal Funds through at least 2023.
On January 1, 2020, Peoples Insurance acquired a property and casualty-focused independent insurance agency for a
purchase price amount equal to $866,000, and recorded $735,000 of customer relationship intangibles, and $27,000 of other
assets, resulting in $104,000 of goodwill.
On August 22, 2019, Peoples Risk Management, Inc., a wholly-owned subsidiary of Peoples, was formed. Peoples Risk
Management, Inc. is a Nevada-chartered captive insurance company which insures against certain risks unique to the
operations of Peoples and for which insurance may not be currently available or economically feasible. Peoples Risk
Management, Inc. pools resources with several other similar insurance company subsidiaries of financial institutions to help
minimize the risk allocable to each participating insurer.
At the close of business on April 12, 2019, Peoples completed the merger with First Prestonsburg. First Prestonsburg merged
into Peoples and First Prestonsburg's wholly-owned subsidiary, The First Commonwealth Bank of Prestonsburg, Inc., which
operated nine full-service bank branches in central and eastern Kentucky, merged into Peoples Bank. First Prestonsburg
shareholders received total merger consideration of $43.7 million, of which $11.3 million was in the form of a special cash
dividend paid by First Prestonsburg to its shareholders prior to the merger with the remainder being paid in the form of an
aggregate of 1,005,478 Peoples common shares by Peoples. The merger added $129.4 million of total loans and $257.2
million of total deposits at the acquisition date, after fair value adjustments. Peoples also recorded $4.3 million of other
intangible assets and $15.2 million of goodwill. Refer to "Note 19 Acquisitions" of the Notes to the Consolidated Financial
Statements for additional information.
At the close of business on April 13, 2018, Peoples completed the merger with ASB. ASB merged into Peoples, and ASB's
wholly-owned subsidiary, American Savings Bank, fsb, which operated seven full-service bank branches and two loan
production offices in southern Ohio and eastern Kentucky, merged into Peoples Bank. Under the terms of the merger
agreement, Peoples paid total merger consideration of $41.5 million. The merger added an aggregate of $239.2 million of
total loans and loans held for sale, and $198.6 million of total deposits at the acquisition date, after fair value adjustments.
Peoples also recorded $2.6 million of other intangible assets and $18.1 million of goodwill.
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 Summary of Significant Accounting Policies" of the
Notes to the Consolidated Financial Statements. While all of these policies are important to understanding the Consolidated Financial
Statements, certain accounting policies require management to exercise judgment and make estimates or assumptions that affect the
amounts reported in the Consolidated Financial Statements and accompanying Notes. These estimates and assumptions are based on
information available as of the date of the Consolidated Financial Statements; accordingly, as this information changes, the
Consolidated Financial Statements could reflect different estimates or assumptions.
Management has identified four accounting policies 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. The four accounting policies identified were the allowance for credit losses, business
combinations, goodwill, and income taxes. These four accounting policies are described in further detail below.
Allowance for Credit Losses
Peoples adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments" on January 1, 2020, and began using the CECL model to estimate its allowance for credit losses. The
allowance for credit losses is estimated by management using relevant available information, from both internal and external
sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses
is measured on a pool basis, with loans collectively evaluated when similar risk characteristics exist. Peoples evaluated risk
characteristics, including but not limited to: internal or third-party credit scores or credit ratings, risk ratings or classifications,
financial asset type, collateral type, size, effective interest rate, term, geographical location, industry of the borrower, vintage,
44
historical or credit loss patterns, and reasonable and supportable forecast periods. Peoples identified 17 segments for which it
believes there are similar risk characteristics and utilized a discounted cash flow methodology in determining an allowance
for credit losses for each segment.
In estimating credit losses, Peoples uses a loss driver method, which analyzes one or more economic variables to the
change in default rate using a regression analysis. Variables that had a strong correlation were selected as economic
factors, or variables, for the model. If a single variable was not found to be strongly correlated, additional variables were
included. Peoples utilizes the U.S. unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio
Case Shiller Home Price Indices as economic factors in modeling.
In general, Peoples completes a quarterly evaluation based on several qualitative factors to determine if there should be
adjustments made to the allowance for credit losses. These factors include economic conditions, collateral, concentrations,
troubled assets, Peoples' loss trends, peer loss trends, delinquency trends, portfolio composition and loan growth,
underwriting, and certain other risks.
The allowance for credit losses related to specific loans was 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.
There can be no assurance that the allowance for credit losses will be adequate to cover all losses, but management
believes the allowance for credit losses at December 31, 2020 was adequate to provide for expected losses from existing
loans based on information available at that time. 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.
Peoples also completes a quarterly evaluation for unfunded commitments for loans that are not unconditionally
cancellable, which includes construction loans, floor plan lines of credit, home equity lines of credit, other credit lines and
letters of credit. Peoples performed a study to determine the historical funding rates of unadvanced portions of loans, and
applied these funding rates to the unfunded commitments at period end. The loss rates, including qualitative factors, in
determining the allowance for credit losses were applied at the segment level to the unfunded commitment amounts to
determine the allowance for credit loss liability for unfunded commitments.
Prior to January 1, 2020, Peoples utilized the incurred loss model for estimating its allowance for loan losses.
Business Combinations
Peoples utilizes the acquisition method of accounting for business combinations. As of the acquisition date,
Peoples records the acquired company's net assets at fair value. The determination of fair value as of the acquisition date
requires management to consider various factors that involve judgment and estimation, including the application of
discount rates, prepayment rates, attrition rates, future estimates of interest rates, as well as many other assumptions.
These assumptions can have a material impact on the estimated fair value, and as a result, the goodwill recorded in a
business combination.
Goodwill
Peoples records goodwill 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.
The value of recorded goodwill is supported 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. Goodwill impairment exists when the carrying value of
the reporting unit (as defined by US GAAP) exceeds its fair value value and an impairment loss is recognized in earnings
in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit.
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
45
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.
Peoples elected to early adopt Accounting Standards Update (ASU) 2017-04 "Intangibles - Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment" as of January 1, 2019. 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. Instead, entities will record an impairment charge
based on the excess of a reporting unit’s carrying amount over its fair value.
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
quantitative impairment test is unnecessary. However, Peoples has the option to complete the quantitative impairment
test to corroborate the findings of its qualitative analysis. If Peoples determines that it is more-likely-than-not that the
fair value of a reporting unit is less than its carrying amount, Peoples must complete the quantitative impairment test.
At October 1, 2020, management elected to bypass the qualitative assessment and completed a quantitative impairment
test due to the COVID-19 pandemic, and its related impact on stock prices during 2020. This test resulted in management
concluding that the fair value of the 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
Goodwill and Other Intangible Assets" of the Notes to the Consolidated Financial Statements.
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 credit losses, available-for-sale securities, and
accrued employee benefits. Management determined a valuation allowance of $805,000 at December 31, 2017, to be
recorded against the deferred tax assets associated with its investment in a partnership investment. In 2018, Peoples
released the valuation allowance, which reduced income tax expense by $805,000. Peoples sold $6.7 million of equity
investment securities in the second quarter of 2018, which resulted in a capital gain for tax purposes. This capital gain
was large enough to offset an anticipated future capital loss, which was expected to be recognized due to the structure of
the historical tax credit investment, resulting in the release of the valuation allowance. There were no valuation
allowances recorded at December 31, 2020 or 2019.
The calculation of tax liabilities is complex and requires the use of estimates and judgment since it involves the
application of complex tax laws that are subject to different interpretations by Peoples and the various tax authorities.
Peoples' interpretations are subject to challenge by the tax authorities upon audit or to reinterpretation based on
management's ongoing assessment of facts and evolving case law.
From time-to-time and in the ordinary course of business, Peoples is involved in inquiries and reviews by tax
authorities that normally require management to provide supplemental information to support certain tax positions taken
by Peoples in its tax returns. Uncertain tax positions are initially recognized in the Consolidated Financial Statements
when it is more-likely-than-not the position will be sustained upon examination by the tax authorities. Such tax positions
are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being
realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts.
The amount of unrecognized tax benefits was immaterial at both December 31, 2020 and 2019.
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.
46
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 Fair Value of Financial Instruments" of the
Notes to the Consolidated Financial Statements.
EXECUTIVE SUMMARY
Net income for the year ended December 31, 2020 was $34.8 million, compared to $53.7 million in 2019 and $46.3 million in
2018, representing earnings per diluted common share of $1.73, $2.63 and $2.41, respectively. The decline in earnings compared to
2019 was driven by a higher provision for credit losses, which was impacted by the new CECL accounting methodology implemented
on January 1, 2020, coupled with the effect that COVID-19 had on the economic assumptions used within the CECL model. Non-core
items contained in net income included net gains and losses, COVID-19-related expenses, severance expenses, pension settlement
charges and acquisition-related costs. These non-core items negatively impacted earnings per diluted common share by $0.22 for
2020 compared to $0.30 for 2019 and $0.13 for 2018.
Net interest income declined 1% to $138.9 million for 2020, compared to $140.8 million for 2019, and totaled $129.6 million for
2018. The decrease compared to 2019 was largely due to the low interest rate environment that began in early 2020 as a result of the
COVID-19 pandemic, which had a negative impact on interest income from loans and investment securities, and was partially offset
by lower interest expense as Peoples closely managed funding costs. Net interest margin was 3.24% in 2020, compared to 3.69% in
2019 and 3.71% in 2018. Net interest margin compressed during 2020 as loan yields declined due to the low interest rate environment
and investment securities yields decreased as premium amortization increased due to higher refinancing activity. Included in net
interest income during 2020 was the impact of the PPP loans, which added $10.7 million in interest income and 2 basis points to net
interest margin. Funding costs were controlled during 2020, and declined 36 basis points compared to 2019. Net interest income
grew during 2019, compared to 2018, largely due to loan growth, which was positively impacted by the First Prestonsburg and ASB
acquisitions, and higher loan yields. Accretion income, net of amortization expense, from acquisitions totaled $2.8 million for 2020,
$4.9 million for 2019 and $2.2 million for 2018, adding 7 basis points, 12 basis points and 6 basis points, respectively, to the net
interest margin. During 2018, proceeds of $0.9 million were received on an investment security that, in prior years, had been written
down due to an other-than-temporary impairment, which added 3 basis points to net interest margin.
Provision for credit losses grew to $26.3 million for 2020, compared to $2.5 million for 2019. This growth was due to the
combination of the implementation of the CECL model at the beginning of 2020, and the impact of the COVID-19 pandemic on the
economic forecasts utilized within the model. Provision for credit losses declined during 2019 compared to 2018, reflecting lower net
charge-offs, which included a $1.8 million recovery on a previously charged-off loan, and reduced loan growth compared to the prior
year. Net charge-offs as a percent of average total loans were 0.05% for 2020, 0.04% for 2019 and 0.15% for 2018.
Total non-interest income declined 1% compared to 2019, and was largely due to a $2.3 million reduction in deposit account
service charges, which was driven by the COVID-19 pandemic and the higher balances being maintained by customers throughout
2020. The decline in deposit account service charges was partially offset by higher mortgage banking income, as a result of higher
refinancing activity due to the low interest rate environment during 2020. Increases in trust and investment income and electronic
banking income were more than offset by decreases in insurance income, commercial loan swap fee income and bank owned life
insurance income. Compared to 2018, total non-interest income during 2019 increased 13%, and was mostly due to higher electronic
banking income, deposit account service charges and swap fee income. Total non-interest income was positively impacted during
2019 due to the additional deposit accounts and cardholders associated with the acquisitions of First Prestonsburg and ASB.
Total non-interest expense decreased $3.6 million, or 3%, from 2019 and was driven by a reduction in acquisition-related
expenses. Declines in salaries and employee benefit costs, which were mostly due to increased deferred personnel costs associated
with the origination of PPP loans, were partially offset by higher data processing and software expense that was largely a result of
implementation of new software, coupled with higher core processing costs. Peoples also recorded higher FDIC insurance expense
during 2020 compared to the prior year, as credits had been received and recognized during 2019, and were fully utilized during the
second quarter of 2020. Included in total non-interest expense during 2020 were certain non-core expenses which included
COVID-19-related expenses of $1.3 million, severance expenses and pension settlement charges that totaled $1.1 million each, and
acquisition-related expenses of $0.5 million. During 2019, non-core expenses included $7.3 million of acquisition-related expenses.
Compared to 2018, total non-interest expense during 2019 grew $11.3 million, or 9%. This was mostly related to increases in salaries
and employee benefit costs, net occupancy and equipment expense, electronic banking expense and data processing and software
expense, which were partially offset by lower FDIC insurance expense and professional fees. The growth in salaries and employee
benefit costs compared to 2018 was primarily due to higher base salaries, which were impacted by merit increases, including
47
continued movement towards a $15 per hour minimum wage throughout Peoples' organization, and the employees added from the
acquisitions in 2019 and 2018.
Peoples' efficiency ratio, which is calculated as total non-interest expense less amortization of other intangible assets divided by
fully tax-equivalent ("FTE") net interest income, plus total non-interest income, excluding all gains and losses, was 63.9% for 2020,
compared to 64.7% for 2019 and 65.3% for 2018. The improvement in the efficiency ratio during 2020 was mostly due to a reduction
in total non-interest expense, which more than offset declines in revenue. The decline in the efficiency ratio during 2019 was
primarily related to higher total revenue, which outpaced increases in total non-interest expense. The efficiency ratio, when adjusted
for non-core items, was 61.9% for 2020, 61.1% for 2019 and 61.3% for 2018. The increase in the adjusted efficiency ratio for 2020
was mostly due to lower revenue, as a result of the low interest rate environment.
Income tax expense totaled $7.9 million for 2020, compared to $11.7 million for 2019 and $8.7 million for 2018. The effective
tax rate for 2020 was 18.5%, an increase from 17.8% for 2019 and 15.9% for 2018. Included in income tax expense during 2020 was
$863,000 related to a correction for the prior year.
Total assets increased 9% to $4.76 billion at December 31, 2020, compared to $4.35 billion at year-end 2019. The key
contributor to the increase was loan growth, which added $500.6 million, and was primarily related to the PPP loans and the premium
finance acquisition. The allowance for credit losses increased to $50.4 million or 1.48% of total loans, net of deferred fees and costs,
compared to $21.6 million and 0.75%, respectively, at December 31, 2019. The increase in the allowance for credit losses compared
to December 31, 2019 was due to the implementation of ASU 2016-13 on January 1, 2020, coupled with the impact of the COVID-19
pandemic on the underlying assumptions within the CECL model.
Total liabilities were $4.19 billion at December 31, 2020, an increase of $425.3 million since December 31, 2019. Total deposits
increased $619.0 million, to $3.91 billion at December 31, 2020. The significant growth in deposits compared to December 31, 2019
was largely due to the COVID-19 pandemic, resulting in customers maintaining higher balances due to changed customer habits,
coupled with the influx of fiscal stimulus funds and proceeds from PPP loans. Total demand deposits comprised 43% of total deposits
at December 31, 2020 and were 40% of total deposits at December 31, 2019.
Total stockholders' equity was $575.7 million at December 31, 2020, a decline of 3% from December 31, 2019. The decrease
compared to 2019 was due to combination of the repurchase of common shares in the amount of $29.3 million and dividends paid of
$27.5 million, which were partially offset by net income of $34.8 million. Peoples also had a $3.7 million reduction to retained
earnings related to the adoption of the CECL accounting standard on January 1, 2020.
Peoples continued to exceed the capital required by the Federal Reserve Board to be deemed "well capitalized." Peoples' tier 1
capital ratio was 13.25% at December 31, 2020, versus 14.84% at December 31, 2019, while the total capital ratio was 14.50% at
December 31, 2020, versus 15.58% at December 31, 2019. The common equity tier 1 risk-based capital ratio was 13.01% at
December 31, 2020 compared to 14.59% at December 31, 2019. Regulatory capital declined compared to 2019, mostly due to the
impact of the repurchase of common shares during 2020. Peoples' book value and tangible book value per share were $29.43 and
$19.99, respectively, at December 31, 2020, compared to $28.72 and $20.14, respectively, at December 31, 2019. Additional
information regarding capital requirements can be found in "Note 16 Regulatory Matters" of the Notes to the Consolidated Financial
Statements.
RESULTS OF OPERATIONS
Net Interest Income
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
and was 69% of total revenue during 2020. 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.
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 statutory federal corporate income tax rate of 21% for 2020,
2019 and 2018. 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.
48
The following table details the calculation of FTE net interest income for the years ended December 31:
2020
2019
2018
$ 138,923 $ 140,838 $ 129,612
1,054
881
$ 139,977 $ 141,906 $ 130,493
1,068
(Dollars in thousands)
Net interest income
Taxable equivalent adjustments
FTE net interest income
49
The following table details Peoples’ average balance sheets, with corresponding income/expense and yield/cost, for the years
ended December 31:
(Dollars in thousands)
Short-term investments
Investment securities (a)(b)(c):
Taxable (d)
Nontaxable
Total investment securities
Loans (b)(c)(e):
Construction
Commercial real estate, other
Commercial and industrial
Premium finance
Residential real estate (f)
Home equity lines of credit
Consumer, indirect
Consumer, direct
Total loans
Allowance for credit losses
Net loans
Total earning assets
Goodwill and other intangible assets
Other assets
Total assets
Interest-bearing deposits:
Savings accounts
Government deposit accounts
Interest-bearing demand accounts
Money market accounts
Retail certificates of deposit
Brokered deposits
Total interest-bearing deposits
Borrowed funds:
Short-term FHLB advances
Repurchase agreements and other
Total short-term borrowings
Long-term FHLB advances
Other borrowings
Total long-term borrowings
Total borrowed funds
Total interest-bearing liabilities
Non-interest-bearing deposits
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’
equity
Interest rate spread (b)
Net interest margin (b)
2020
2019
2018
Average
Balance
$ 103,767 $
Income/
Expense
343
Yield/
Cost
0.33 % $
Average
Balance
43,157 $
Income/
Expense
919
Yield/
Cost
2.13 % $
Average
Balance
19,462 $
Income/
Expense
402
Yield/
Cost
2.07 %
868,930 14,370
101,965
3,146
970,895 17,516
1.65 %
3.09 %
1.80 %
870,921
106,437
977,358
23,420
3,331
26,751
2.69 %
3.13 %
2.74 %
784,108
94,023
878,131
23,283
3,123
26,406
2.97 %
3.32 %
3.01 %
4,883
107,862
854,749 36,499
925,060 34,458
2,855
50,687
660,025 31,155
127,454
5,799
453,379 19,364
5,286
79,138
3,258,354 140,299
(47,692)
3,210,662 140,299
4,285,324 158,158
181,526
272,439
$ 4,739,289
111,734
829,581
601,900
—
641,053
132,235
416,768
78,838
6,008
4.45 %
44,574
4.20 %
31,611
3.66 %
—
5.54 %
30,671
4.72 %
7,715
4.55 %
17,350
4.27 %
5,564
6.68 %
4.26 % 2,812,109 143,493
(21,239)
4.33 % 2,790,870 143,493
3.66 % 3,811,385 171,163
122,007
819,606
517,026
—
577,858
127,852
373,450
73,171
5,970
5.30 %
41,102
5.30 %
26,042
5.18 %
—
— %
25,965
4.78 %
6,712
5.83 %
14,627
4.16 %
4,919
7.06 %
5.06 % 2,610,970 125,337
(19,359)
5.10 % 2,591,611 125,337
4.46 % 3,489,204 152,145
4.83 %
4.95 %
4.97 %
— %
4.49 %
5.25 %
3.92 %
6.72 %
4.75 %
4.80 %
4.33 %
173,529
237,568
$ 4,222,482
158,115
224,513
$ 3,871,832
$ 571,676 $
375,305
658,214
549,276
473,244
223,940
175
2,226
455
1,416
6,748
2,480
2,851,655 13,500
0.03 % $ 511,112 $
323,768
0.59 %
605,637
0.07 %
425,207
0.26 %
465,381
1.43 %
1.11 %
272,553
0.47 % 2,603,658
437
3,220
1,111
2,745
8,002
6,695
22,210
0.09 % $ 468,624 $
306,356
0.99 %
564,345
0.18 %
386,607
0.65 %
383,929
1.72 %
2.46 %
220,109
0.85 % 2,329,970
303
1,521
750
1,359
4,842
4,930
13,705
0.06 %
0.50 %
0.13 %
0.35 %
1.26 %
2.24 %
0.59 %
129,928
2,489
1.92 %
197,987
4,455
2.25 %
219,897
4,494
2.04 %
46,706
176,634
107,935
8,757
116,692
293,326
82
2,571
1,740
370
2,110
4,681
3,144,981 18,181
46,812
0.18 %
244,799
1.46 %
87,472
1.61 %
7,368
4.23 %
94,840
1.81 %
1.59 %
339,639
0.58 % 2,943,297
257
4,712
1,814
521
2,335
7,047
29,257
79,149
0.55 %
299,046
1.92 %
109,944
2.07 %
7,338
7.07 %
117,282
2.46 %
2.07 %
416,328
0.99 % 2,746,298
744
5,238
2,192
517
2,709
7,947
21,652
0.94 %
1.75 %
1.99 %
7.05 %
2.31 %
1.90 %
0.79 %
924,799
94,123
4,163,903
575,386
$ 4,739,289
653,082
59,980
3,656,359
566,123
$ 4,222,482
591,592
45,803
3,383,693
488,139
$ 3,871,832
$ 139,977
3.08 %
3.24 %
$ 141,906
3.47 %
3.69 %
$ 130,493
3.54 %
3.71 %
(a) Average balances are based on carrying value.
(b) Interest income and yields are presented on an fully-tax-equivalent basis using a 21% statutory federal corporate income tax rate.
(c) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for
held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated
loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million; the addition of $1.5 million
50
unfunded commitment liability included in accrued expense and other liabilities; and a reduction to retained earnings of $3.7 million, net of statutory federal
corporate income tax.
(d) Interest income and yield presented for 2018 includes $0.9 million of proceeds on an investment security for which an other-than-temporary-impairment had been
recorded in previous years. There was no proceeds recorded in 2020 and 2019.
(e) 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.
(f) Loans held for sale are included in the average loan balances listed. Related interest income on loans originated for sale prior to the loan being sold is included in
loan interest income.
The following table provides an analysis of the changes in FTE net interest income:
(Dollars in thousands)
Increase (decrease) in:
INTEREST INCOME:
Short-term investments
Investment Securities (b):
Taxable
Nontaxable
Changes from 2019 to 2020
Volume
Rate
Total (a)
Changes from 2018 to 2019
Volume
Rate
Total (a)
$
(1,163) $
587 $
(576) $
24 $
493 $
517
Total investment income
(9,043)
(192)
(9,235)
(2,497)
2,842
(8,997)
(53)
(9,050)
(2,309)
2,446
(46)
(139)
(185)
(188)
396
Loans (b):
Construction
(925)
(200)
(1,125)
Commercial real estate, other
(9,372)
1,297
(8,075)
Commercial and industrial
(10,807)
13,654
Premium finance
Residential real estate
—
2,855
(416)
900
2,847
2,855
484
Home equity lines of credit
(1,646)
(270)
(1,916)
556
2,967
1,149
—
(518)
505
4,420
—
1,750
2,956
767
957
252
236
1,766
393
459
(298)
1,555
2,014
20
(278)
(23,005)
19,811
(3,194)
8,398
9,758
18,156
(33,211)
20,206
(13,005)
5,925
13,093
19,018
Consumer, indirect
Consumer, direct
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 deposit
Total deposit cost
Borrowed funds:
Short-term borrowings
Long-term borrowings
(309)
(1,448)
(745)
(1,973)
(1,387)
47
454
89
644
133
(262)
(994)
(656)
(1,329)
(1,254)
(3,182)
(1,033)
(4,215)
(9,044)
334
(8,710)
105
1,608
303
1,238
1,995
510
5,759
29
91
58
148
1,165
1,255
2,746
(1,605)
(536)
(2,141)
(687)
462
(225)
49
87
(575)
(461)
137
208
345
38
3,472
5,569
—
4,706
1,003
2,723
645
134
1,699
361
1,386
3,160
1,765
8,505
(526)
(374)
(900)
Total borrowed funds cost
(2,292)
(74)
(2,366)
136
(1,036)
Total interest expense
(11,336)
260
(11,076)
5,895
1,710
7,605
Net interest income
$ (21,875) $ 19,946 $
(1,929) $
30 $ 11,383 $ 11,413
(a) 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.
(b) Interest income and yields are presented on a fully-tax-equivalent basis using a 21% statutory federal corporate income tax rate.
Net interest income decreased $1.9 million, or 1% compared to 2019, and net interest margin declined to 3.24%, compared to
3.69% for 2019. Net interest income and net interest margin were negatively impacted by the low interest rate environment
during 2020, which also led to a $5.0 million increase in premium amortization on Peoples' investment securities portfolio during
2020, compared to 2019. Peoples recorded $10.7 million in interest income on PPP loans during 2020, which included the impact
of accretion of net deferred loan fees and costs, which added 2 basis points to net interest margin. Premium finance loans added
51
$2.9 million of interest income during 2020, and 2 basis points to net interest margin. Funding costs declined to 58 basis points
compared to 99 basis points for 2019, which was driven by reductions in interest rates on deposits, coupled with controlled
borrowing costs.
During 2020, Peoples recognized accretion income, net of amortization expense, from acquisitions of $2.8 million, which added 7
basis points to net interest margin, compared to $4.9 million and 12 basis points in 2019, and $2.2 million and 6 basis points in 2018.
Accretion income during 2020 was impacted by increased prepayment activity. During 2018, proceeds of $894,000 were received on
an investment security that had been, in previous years, written-down due to an other-than-temporary impairment, which added 3 basis
points to the net interest margin, while there were no similar proceeds in 2019 and 2020. Additional interest income in 2020 from
prepayment fees and interest recovered on nonaccrual loans was $738,000, compared to $564,000 in 2019 and $420,000 in 2018.
Net interest income grew 9% during 2019, compared to 2018. The primary driver of the increase in net interest income was
higher interest income on loans due to a combination of loan growth, which was boosted by the acquisitions of ASB in 2018 and First
Prestonsburg in 2019, and higher yields on loans. Net interest margin was relatively stable during 2019, compared to 2018, as the
increase in loan yields nearly outpaced the reduction in investment yields and higher funding costs.
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 Credit Losses
On January 1, 2020, Peoples adopted the provisions of ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments", commonly referred to as the CECL model. Prior to the adoption of the
CECL methodology, the provision for credit losses was the "provision for loan losses." The following table details Peoples’ provision
for credit losses recognized for the years ended December 31:
(Dollars in thousands)
Provision for other credit losses
Provision for checking account overdrafts
Provision for credit losses
2020
$ 25,798
456
$ 26,254
As a percent of average total loans
0.81 %
$
$
2019
1,845
659
2,504
0.09 %
$
$
2018
4,677
771
5,448
0.21 %
The provision for credit losses represents the amount needed to maintain the appropriate level of the allowance for credit losses
based on management’s formal quarterly analysis of the loan portfolio and procedural methodology that estimates the amount of
probable credit losses. The CECL methodology utilized by Peoples relies on economic forecasts, as well as other key assumptions
including prepayments, probability of default and loss given default. Under the incurred loss model (the accounting methodology
prior to 2020), the process for estimating allowance for loan losses considered various factors that affect losses, such as changes in
Peoples’ loan quality and historical loss experience. Given the relatively low recent loss history, the incurred loss model was highly
dependent on qualitative factors to arrive at an appropriate allowance for loan losses in periods prior to 2020. These qualitative factors
included current economic conditions, and other environmental factors such as changes in real estate market conditions,
unemployment, and the economic impact of tariffs.
During 2020, the COVID-19 pandemic caused the economic outlook and assumptions used in the CECL model to be unfavorable,
and as a result, caused the need for additional provision for credit losses to be recorded resulting in higher allowance for credit losses
for the year, compared to prior years.
The lower provision for loan losses for 2019 compared to 2018 was due to lower charge-offs and less loan growth compared to
2018. Net charge-offs in 2019 included a recovery of $1.8 million recorded on a previously charged-off commercial loan.
Additional information regarding changes in the allowance for credit losses and loan credit quality can be found later in this
discussion under the caption "Allowance for Credit Losses."
Net (Losses) Gains Included in Total Non-Interest Income
Net (losses) gains include gains and losses on investment securities, asset disposals and other transactions, which are recognized
in total non-interest income.
52
The following table details the net (losses)gains for the years ended December 31 recognized by Peoples:
(Dollars in thousands)
Net (loss) gain on investment securities
Net loss on asset disposals and other transactions:
Net loss on other assets
Net loss on debt extinguishment
Net loss on OREO
Net gain (loss) on other transactions
$
$
Net loss on asset disposals and other transactions
$
2020
2019
2018
(368) $
164 $
(146)
(367) $
(692) $
(224)
—
(120)
197
(290) $
—
(98)
8
(782) $
(13)
(21)
(76)
(334)
The net loss on other assets during 2020 was primarily due to the loss of $145,000 on the sale of a closed branch from the ASB
acquisition, and market value write-down of $108,000 related to closed offices that were held for sale. The net gain on other
transactions during 2020 was due to receiving $197,000 in funds from a limited partnership investment.
The net loss on other assets during 2019 was driven by net losses on repossessed assets of $320,000, the write-offs of fixed assets
acquired from First Prestonsburg of $243,000 and market value write-downs related to closed offices that were held for sale.
The net loss on other assets during 2018 was primarily due to the disposal of $190,000 of ASB fixed assets acquired coupled with
$198,000 of market value write-downs related to closed offices that were held for sale. The net loss on other transactions during 2018
was due to the write-down of a limited partnership investment.
Total Non-Interest Income, Excluding Net Gains and Losses
Peoples generates total non-interest income excluding net gains and losses from four primary sources: electronic banking income
("e-banking"); insurance income; trust and investment income; and deposit account service charges. Peoples continues to focus on
revenue growth from non-interest income sources in order to maintain a diversified revenue stream through greater reliance on total
non-interest income excluding net gains and losses. As a result, total non-interest income excluding net gains and losses accounted for
31.7% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) in 2020,
compared to 31.5% in 2019 and 30.6% in 2018.
The increase in Peoples' total non-interest income excluding net gains and losses as a percent of total revenue during 2019 from
2018 was due to increases in nearly all non-interest income categories, combined with the interest rate environment and a high amount
of loan payoffs constraining net interest income in the latter half of 2019.
E-banking income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses, for 2020.
The following table shows Peoples' e-banking income for the years ended December 31:
(Dollars in thousands)
E-banking income
2020
2019
2018
$
14,246 $
13,680 $
11,477
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. Revenue is
derived largely from ATM and debit cards, as other services are mainly provided at no charge to the customers. The amount of e-
banking income is largely dependent on the timing and volume of customer activity. During 2020, e-banking income increased
$566,000, or 4%, largely due to increased usage of debit cards, coupled with the full year impact of the First Prestonsburg acquired
accounts. The growth in e-banking income in 2019, compared to 2018, was the result of the increased volume of customers and usage
of debit cards, which includes the impact of additional customers and accounts added in the acquisition of First Prestonsburg in 2019
and of ASB in 2018. In 2020, Peoples' customers used their debit cards to complete $1.0 billion of transactions, versus $913.7 million
in 2019 and $801.2 million in 2018.
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
Other fees and charges
Insurance income
2020
2019
2018
$
10,240 $
10,605 $
10,512
1,897
1,457
448
14,042 $
2,065
1,530
602
14,802 $
2,276
1,452
572
14,812
$
Insurance income declined 5% during 2020, compared to 2019, and decreased across each category of insurance income. The
decrease compared to 2019 was mostly due to the impact of the COVID-19 pandemic. Compared to 2018, insurance income was
relatively flat for 2019. The majority of performance-based commissions typically is recorded annually in the first quarter and is
53
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.
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
Employee benefits fees
Trust and investment income
2020
2019
2018
$
$
6,906 $
4,560
2,196
13,662 $
6,761 $
4,198
2,200
13,159 $
6,579
4,001
1,963
12,543
The following table details Peoples’ assets under administration and management at year-end December 31:
(Dollars in thousands)
Trust
Brokerage
Total
Annual average
2020
2018
2019
$ 1,885,324 $ 1,572,933 $ 1,384,113
1,009,521
849,118
$ 2,894,845 $ 2,516,935 $ 2,233,231
$ 2,510,596 $ 2,382,017 $ 2,342,102
944,002
Trust and investment income increased $503,000, or 4%, compared to 2019. Peoples grew assets under management by 15%
during 2020, driving the increase in both fiduciary and brokerage income compared to the prior year. This increase was partially due
to new assets under management, coupled with the improvement in market values of assets under management at December 31, 2020.
Employee benefits fees for 2020 were relatively flat compared to 2019.
During 2019, the increases in fiduciary and brokerage revenues compared to 2018 were due to a combination of an increase in the
market value of accounts during the latter part of 2019 and new assets under administration and management. Average assets under
administration and management during 2019 were impacted by the lower balance at the beginning of 2019 as a result of the downward
shift in U.S. financial markets at the end of 2018 and in early 2019. Income from employee benefit plans in 2019 increased compared
to 2018 due to the continued growth in administration of 401(k) plans for businesses. 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 are based on the costs associated with services provided by Peoples. The following table details
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
2020
2019
2018
$
$
5,073 $
3,573
772
9,418 $
7,069 $
3,832
799
11,700 $
6,571
2,718
489
9,778
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 fees to ensure they are reasonable based on
operational costs and similar to fees charged in Peoples' markets by competitors. During 2020, deposit account service charges
declined 20% as customer habits changed as a result of the COVID-19 pandemic resulting in customers maintaining higher balances,
coupled with fiscal stimulus funds provided by the government to individuals and proceeds from PPP loans to businesses. Income
from deposit account service charges increased in 2019 compared to 2018 primarily due to the First Prestonsburg and ASB
acquisitions, respectively, coupled with changes in fee schedules. Peoples implemented a new deposit account fee schedule in March
2019, which also positively impacted deposit account service charges compared to 2018.
The following table details the other items included within Peoples' total non-interest income for the years ended December 31:
(Dollars in thousands)
Mortgage banking income
Bank owned life insurance income
Commercial loan swap fees
Other non-interest income (a)
2020
2019
2018
$
6,499 $
4,328 $
1,977
1,741
2,745 $
2,430
2,228
2,565 $
$
3,333
1,955
681
2,655
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in a gain in income of $660,000 for 2020, $831,000 for 2019, and $207,000 for 2018.
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.
54
Mortgage banking income increased significantly during 2020, by 50% compared to 2019, as the low interest rate environment during
the year resulted in heavy refinance activity. Mortgage banking income also increased in 2019, compared to 2018, due to higher
customer demand, which was driven by the decline in mortgage interest rates during second half of 2019. In 2020, Peoples sold
approximately $111.9 million of loans to the secondary market with servicing retained and sold approximately $150.9 million in loans
with servicing released, compared to approximately $98.2 million and $55.4 million, respectively, in 2019. Peoples sold $66.3 million
of loans to the secondary market with servicing retained and $56.4 million of loans with servicing released during 2018. The volume
of sales has a direct impact on the amount of mortgage banking income.
BOLI income declined $453,000 compared to 2019, and the reduction was largely driven by the recognition of $482,000 of tax-
free death benefits that exceeded the cash surrender value of the insurance policies during 2019. These proceeds were also the
contributor to the increase in BOLI income during 2019 compared to 2018. Peoples purchased no additional BOLI policies during
2020, 2019 and 2018.
Commercial loan swap fees are largely dependent on the timing and volume of customer activity. During 2020, the low interest
rate environment resulted in the $487,000 decrease in commercial loan swap fee income, as customer demand lessened. Compared to
2018, commercial loan swap fees in 2019 more than tripled, and were also driven by an increase in customer demand as a result of the
interest rate declines in the latter half of 2019.
Other non-interest income during 2020 and 2019 included additional income related to gains recorded on the sale of restricted
Class B Visa stock of $680,000 and $787,000, respectively. Other non-interest income in 2019 also included a decline in SBA income
of $559,000, or 80%, compared to 2018 as a result of lower volume of loan originations and sales. During 2018, other non-interest
income also included $207,000 recorded in connection with the implementation of a new accounting standard, which modified how
the change in the fair value of equity investment securities was recorded beginning on January 1, 2018.
Total 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 benefit costs
Stock-based compensation
Deferred personnel costs
2020
2019
2018
$
52,016 $
51,835 $
12,200
11,850
8,510
3,607
8,497
3,655
46,438
11,703
6,528
2,575
(4,342)
(2,768)
(2,151)
Payroll taxes and other employment costs
Salaries and employee benefit costs
4,370
76,361 $
4,791
77,860 $
4,215
69,308
$
Full-time equivalent employees:
Actual at end of the period
Average during the period
894
894
900
900
871
840
Base salaries and wages in 2020 were relatively flat compared to 2019. Both 2019 and 2018 included $2.2 million of one-time
expenses associated with acquisitions, whereas Peoples incurred $1.1 million in severance expenses in 2020, due primarily to a
management restructuring that occurred in the latter half of 2020. Base salaries and wages were impacted by merit increases, as well
as continued movement towards a $15 per hour minimum wage throughout Peoples' organization. The $15 per hour minimum wage
was phased in beginning in 2018 and was largely implemented as of January 1, 2020. Base salaries and wages were also impacted by
the addition of employees, primarily as a result of the First Prestonsburg acquisition in 2019 and the ASB acquisition in 2018.
Sales-based and incentive compensation increased in 2020 and 2019 largely due to higher incentive compensation related to the
overall company performance measures combined with mortgage banking income growth of real estate loans sold in the secondary
market. 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 addressing inappropriate practices with
respect to Peoples and its customers, including clawbacks for executives.
During 2020, employee benefit costs were relatively flat compared to 2019. The increase in employee benefits in 2019 compared
to 2018 was impacted by the First Prestonsburg and ASB acquisitions, and included an increase in medical insurance costs of $1.8
million due primarily to higher medical claims, which was impacted by an increase in the number of participants in the insurance plan.
Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to
vesting at the end of three years, and an adjustment is made at the vesting date to reverse expense for non-vested awards. The majority
of Peoples' stock-based compensation 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 the years presented in the table
55
above, Peoples granted restricted common shares to officers and key employees with performance-based vesting periods and time-
based vesting periods, generally with a three-year cliff vesting. Stock-based compensation was relatively flat for 2020, compared to
2019. The increase in stock-based compensation during 2019, compared to 2018, correlates to Peoples' improved performance, and
was also driven by higher expense related to stock grants made to retirement eligible grantees. Stock grants to retirement eligible
grantees are expensed either immediately or over a shorter period than the vesting period. Additional information regarding Peoples'
stock-based compensation plans and awards can be found in "Note 17 Stock-Based Compensation" 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 in interest income. As a
result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with
the average deferred costs per loan that are updated annually at the beginning of each year, which increased in 2020 compared to 2019.
Materially impacting the comparison was the recognition of $921,000 in deferred personnel costs during 2020 related to the
origination of PPP loans. Increased production in residential real estate and indirect consumer loans resulted in higher deferred
personnel costs in 2020 compared to 2019. Additional information regarding Peoples' loan activity can be found later in this
discussion under the caption "Loans."
Payroll taxes and other employee costs decreased during 2020 due to $454,000 in dividends received from Ohio Bureau of
Workers' Compensation in an effort to ease the impact of COVID-19 on the state's business community and workforce. Payroll taxes
and other employee costs increased during 2019 as a result of higher base salaries and wages, sales-based and incentive compensation,
and employee benefits.
Peoples’ net occupancy and equipment expense for the years ended December 31 was comprised of the following:
(Dollars in thousands)
Depreciation expense
Repairs and maintenance costs
Net rent expense
Property taxes, utilities and other costs
$
Net occupancy and equipment expense
$
2020
2019
2018
5,955 $
2,988
1,293
2,572
12,808 $
5,702 $
3,016
1,022
2,691
12,431 $
4,937
2,825
961
2,549
11,272
During 2020, net occupancy and equipment expense increased primarily due to increased depreciation expense and net rent
expense. Depreciation expense increased due to a full year of depreciation related to the First Prestonsburg acquisition in 2019. Net
rent expense increased due to the addition of new leases for the recent insurance acquisition and premium finance acquisition, as well
as a full year of rent expense for the First Prestonsburg branches. Net occupancy and equipment expense increased during 2019
primarily due to the increased maintenance costs, property taxes, utilities and other costs related to the addition of nine full-service
bank branches from the First Prestonsburg acquisition; a full year of expenses related to the additional locations from the ASB
acquisitions in 2018; and ongoing increased operating costs associated with the expanded footprint. These increases were partially
offset by a reduction in ATM repairs and maintenance costs resulting from a new vendor servicing agreement.
The following table details the other items included within Peoples' total non-interest expense for the years ended December 31:
(Dollars in thousands)
E-banking expense
Data processing and software expense
Professional fees
Franchise tax expense
Amortization of other intangible assets
Marketing expense
Other loan expenses
FDIC insurance expense
Communication expense
Other non-interest expense
2020
2019
2018
7,777 $
7,441
6,912
3,506
3,223
2,101
1,584
1,302
1,134
9,546 $
7,186 $
6,332
7,095
3,071
3,359
2,291
1,956
602
1,181
13,886 $
6,057
5,419
7,862
2,771
3,338
1,962
1,431
1,546
1,265
13,746
$
$
Peoples' e-banking expense is comprised of costs associated with debit and ATM cards, as well as Internet and mobile banking
costs. E-banking expense was up for 2020, compared to 2019, due to an increased usage by customers as a result of the COVID-19
pandemic, which in turn increased the volume of transactions involving debit cards and Peoples' internet and mobile banking service.
The increase in 2019, compared to 2018, was due to customers completing a higher volume of transactions using their debit cards, and
Peoples' Internet and mobile banking service. Also contributing to the increase was the addition of accounts related to the acquisitions
of First Prestonsburg in 2019 and ASB in 2018, as well as the annual increase in the cost of each unit of service in internet and mobile
banking. The increased volume of customers and usage of debit cards also produced a greater increase in the corresponding e-banking
revenues over the same period.
56
Data processing and software expense includes software support, maintenance and depreciation expense. The increase in data
processing and software expense for 2020 was driven by systems and software upgrades, annual contractual increases and overall
growth, which included: the implementation of enhanced functionalities for Peoples' core banking system, including making certain
mobile banking tools available to customers; software upgrades; and additional network capacity and security features. The increase
in these costs during 2019 was driven by systems and software upgrades and overall growth, which included: the implementation of
enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers;
increases in customer accounts and customer usage of mobile and online banking tools; software upgrades; and additional network
capacity and security features.
Professional fees were down compared to 2019, mainly due to lower consulting fees and legal expenses. Professional fees were
lower in 2019 compared to 2018 mainly due to lower legal expenses and consulting work performed during 2018, which was not
duplicated in 2019, combined with a decline in acquisition-related expenses of $481,000 compared to 2018.
Peoples is subject to state franchise taxes, which are based largely on Peoples' equity at year-end, in the states where Peoples has a
physical presence. Expenses related to state franchise taxes increased in 2020 due to higher equity as of December 31, 2019 compared
to December 31, 2018, coupled with additional taxes in Kentucky as a result of the First Prestonsburg acquisition in 2019. Franchise
tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial
institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the
taxpayer's gross receipts in Ohio.
Peoples' amortization of other intangible assets is driven by acquisition-related activity. Amortization of other intangible assets
declined in 2020 due to the reduced amortization from previous acquisitions. Amortization of other intangible assets increased
slightly during 2019 as a result of additional amortization related to the acquisition of First Prestonsburg.
Marketing expense, which includes advertising, donations, marketing campaigns, including the premium finance line of business
and other public relations costs, decreased slightly in 2020 due to declines in electronic and print media, ad agency fees and other
public relations expenses. Marketing expense was higher during 2019, compared to 2018, due to overall increases in spending on
brand awareness, donations to Peoples Bank Foundation, Inc., and product marketing campaigns. Peoples Bank Foundation, Inc. was
formed by Peoples in 2004 as a private foundation to make charitable contributions to organizations within Peoples' primary market
area. The increases in marketing expense were also impacted by Peoples' expanded footprint due to the First Prestonsburg acquisition
in 2019 and the ASB acquisition in 2018.
Other loan expenses declined during 2020, primarily due to higher deferral of costs associated with increased origination volume
of consumer indirect loans. Other loan expenses increased during 2019 due to higher real estate loan expense, which was driven by
the mortgage banking demand due to interest rate declines in the latter half of 2019. Other loan expenses increased during 2018 due to
higher real estate loan expense and collection expenses. The increase in collection expenses was related to the growth in indirect
consumer lending.
Peoples recorded higher FDIC insurance expense during 2020 compared to the prior year, as credits were received and recognized
during 2019, and were fully utilized during the second quarter of 2020. Peoples' FDIC insurance expense declined in 2019 due to two
credits received related to its quarterly assessments as a result of the deposit insurance fund reaching its target threshold for smaller
banks (banks with total consolidated assets of less than $10 billion) to recognize a credit to their insurance expense. Peoples cannot
reasonably anticipate any future recognition of credits, as the deposit insurance fund is analyzed on a quarterly basis, and is the
premise for receiving credits. The FDIC quarterly assessment rate is applied to average total assets less average tangible equity, and is
based on the leverage ratio, net income before taxes, nonperforming loans as a percent of total assets, OREO, loan mix and asset
growth. Peoples experienced improvements in each of these categories during 2018, leading to a reduction in the quarterly FDIC
assessment rate in 2018, which offset increases in the expense that were attributable to the asset growth experienced during 2018.
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 2019 and 2018 was attributable to the re-negotiation of contracts with vendors, as
well as the elimination of analog circuits that have been replaced with newer more efficient technology.
Other non-interest expense decreased $4.3 million in 2020 compared to 2019, and increased $140,000 in 2019 compared to 2018.
The decrease during 2020 compared to 2019, and increase during 2019 compared to 2018, were driven by $3.9 million of one-time
acquisition-related expenses in 2019 and $3.6 million in 2018. The 2019 and 2018 acquisition-related expenses related mainly to
contract termination fees and other costs related to the system conversion.
Income Tax Expense
A key driver for the amount of income tax expense or benefit recognized by Peoples each year is the amount of pre-tax income.
In addition to the expense recognized, Peoples receives tax benefits from tax-exempt investments and loans, BOLI, stock awards that
settled or vested during the year, 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 Income Taxes" of
the Notes to the Consolidated Financial Statements.
57
For the full year of 2020, income tax expense totaled $7.9 million, compared to $11.7 million in 2019, and $8.7 million in 2018,
and the effective tax rate for 2020 was 18.5%, compared to 17.8% for 2019, and 15.9% for 2018. The decrease in income tax expense
in 2020 compared to 2019 was the result of lower pre-tax income in 2020 related to the increase in the provision for credit losses
recorded during 2020.
During 2020, income tax expense and the effective tax rate were positively impacted by tax exempt interest income, non-taxable
BOLI income and the full-year impact of the investment in Peoples Risk Management, Inc., which reduced income tax expense by
$412,000. Income tax expense for 2020 was also impacted by additional income tax expense related to an adjustment from the prior
year of $863,000.
During 2019, income tax expense and the effective tax rate were positively impacted by a tax benefit of $508,000 related to non-
taxable BOLI income. In 2018, Peoples released a valuation allowance, which reduced income tax expense by $805,000. The
valuation allowance was related to a historic tax credit that Peoples had invested in during 2015. Peoples sold $6.7 million of equity
investment securities in 2018, which resulted in a capital gain for tax purposes. This capital gain was large enough to offset an
anticipated future capital loss which is expected to be recognized due to the structure of the historic tax credit investment, resulting in
the release of the valuation allowance.
During 2018, the final remeasurement of deferred tax assets and deferred tax liabilities at the changed statutory federal corporate
income tax rate from the Tax Cuts and Jobs ("TCJ") Act resulted in a reduction to income tax expense of $705,000. The initial
remeasurement at the statutory federal corporate income tax rate resulted in write-down of $897,000 of Peoples' net deferred tax
assets, which increased 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 TCJ Act.
Peoples also recorded tax benefits of $5,000 in 2020, $195,000 in 2019, and $332,000 in 2018 related to stock awards that settled
or vested during the year, with the majority recorded in the first quarter of each year.
Pre-Provision Net Revenue (non-US GAAP)
Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when
assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income,
excluding all gains and losses, minus total non-interest expense. PPNR excludes income tax expense. 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. This ratio represents a non-US GAAP financial measure since it excludes the provision for credit losses and all gains and
losses included in earnings.
58
The following table provides a reconciliation of this non-US 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 credit losses (a)
Add: net loss on debt extinguishment
Add: net loss on OREO
Add: net loss on investment securities
Add: net loss on other assets
Add: net loss on other transactions
Less: net gain on investment securities
Less: net gain on other assets
Less: net gain on other transactions
Pre-provision net revenue
2020
$ 42,646
26,254
—
120
368
170
—
—
—
—
$ 69,558
2019
65,358
2,504
—
98
—
692
—
164
8
—
68,480
$
$
2018
54,941
5,448
13
21
146
224
76
—
—
—
60,869
$
$
2017
57,203
3,772
—
116
—
—
—
2,983
28
25
58,055
$
$
2016
45,282
3,539
707
34
—
188
204
930
—
—
49,024
$
$
Total average assets
$ 4,739,289
$ 4,222,482
$ 3,871,832
$ 3,510,274
$ 3,320,447
Pre-provision net revenue to total average assets
Weighted-average common shares outstanding -
diluted
Pre-provision net revenue per common share -
diluted
1.47 %
1.62 %
1.57 %
1.65 %
1.48 %
19,843,806
20,273,725
19,122,260
18,208,684
18,155,463
$
3.49
$
3.37
$
3.18
$
3.19
$
2.70
(a) On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model. Prior to the adoption of CECL, the provision for credit losses was
the "provision for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans, which includes purchased
credit deteriorated loans, held-to-maturity investment securities, and the unfunded commitment liability.
PPNR increased in 2020 mostly due to the reduction in acquisition-related expenses incurred during 2020, compared to 2019,
offset by a decrease in net interest income due to the low interest rate environment. The continued increase in PPNR in recent years
has been driven by acquisitions, coupled with the focus of growing revenues at a higher rate than expenses on a percentage basis. The
ratio of PPNR to total average assets for 2018 declined compared to 2017 due to $7.3 million of acquisition-related expenses during
2018, mitigating the increase in PPNR, combined with the growth of average assets during the year, which was partially attributable to
the ASB acquisition.
Core Non-Interest Income and Expense (non-US GAAP)
Core non-interest income and core non-interest expense are financial measures used to evaluate Peoples' recurring revenue and
expense streams. These measures are non-US GAAP since they exclude the impact of all gains and/or losses, core banking system
conversion revenue and expenses, acquisition-related expenses, pension settlement charges, severance expenses, and COVID-19-
related non-recurring expenses.
The following tables provide reconciliations of these non-US GAAP measures to the amounts of total non-interest income and
total non-interest expense reported in Peoples' Consolidated Financial Statements for the periods presented:
(Dollars in thousands)
2020
2019
2018
2017
2016
Core non-interest income:
Total non-interest income
Less: net (loss) gain on investment securities
$ 63,672 $ 64,274 $ 56,754 $ 55,573 $ 50,867
930
(1,133)
2,983
(63)
(146)
(334)
(368)
(290)
164
(782)
Less: net loss on asset disposals and other transactions
Total non-interest income excluding net losses and
gains
$ 64,330 $ 64,892 $ 57,234 $ 52,653 $ 51,070
85
Plus: core banking system conversion revenue waived
Core non-interest income excluding net losses and gains $ 64,330 $ 64,892 $ 57,234 $ 52,653 $ 51,155
—
—
—
—
59
(Dollars in thousands)
2020
2019
2018
2017
2016
Core non-interest expense:
Total non-interest expense
Less: COVID-19-related expenses
Less: severance expenses
Less: pension settlement charges
Less: acquisition-related expenses
Less: system conversion expenses
Core non-interest expense
Efficiency Ratio (non-US GAAP)
$ 133,695 $ 137,250 $ 125,977 $ 107,975 $ 106,911
—
—
—
—
1,259
$ 129,765 $ 129,693 $ 118,448 $ 107,392 $ 105,652
—
—
267
7,262
—
—
270
—
7,287
—
1,332
1,055
1,054
489
—
—
—
242
341
—
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 FTE net interest income plus total non-interest income
excluding net gains and losses. This measure is non-US GAAP since it excludes amortization of other intangible assets and all gains
and/or losses included in earnings, and uses FTE net interest income.
The following table provides a reconciliation of this non-US GAAP financial measure to the amounts of total non-interest income
and total non-interest expense 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
2020
2019
2018
2017
2016
$ 133,695
3,223
$ 137,250
3,359
$ 125,977
3,338
$ 107,975
3,516
$ 106,911
4,030
Adjusted total non-interest expense
130,472
133,891
122,639
104,459
102,881
Total non-interest income
Less: net (loss) gain on investment securities
Less: net loss on asset disposals and other
transactions
Total non-interest income, excluding net gains and
losses
63,672
(368)
64,274
164
56,754
(146)
55,573
2,983
50,867
930
(290)
(782)
(334)
(63)
(1,133)
64,330
64,892
57,234
52,653
51,070
Net interest income
138,923
140,838
129,612
113,377
104,865
Add: fully-tax-equivalent adjustment (a)
1,054
1,068
881
1,912
2,027
Net interest income on a fully-tax equivalent basis
139,977
141,906
130,493
115,289
106,892
Adjusted revenue
Efficiency ratio
$ 204,307
$ 206,798
$ 187,727
$ 167,942
$ 157,962
63.86 %
64.74 %
65.33 %
62.20 %
65.13 %
Efficiency ratio adjusted for non-core items:
Core non-interest expense
$ 129,765
$ 129,693
$ 118,448
$ 107,392
Less: amortization of other intangible assets
3,223
3,359
3,338
3,516
$ 105,652
4,030
Adjusted core non-interest expense
126,542
126,334
115,110
103,876
101,622
Core non-interest income excluding net gains and
losses
64,330
64,892
57,234
52,653
51,155
Net interest income on a fully-tax-equivalent basis 139,977
141,906
130,493
115,289
106,892
Adjusted core revenue
$ 204,307
$ 206,798
$ 187,727
$ 167,942
$ 158,047
Efficiency ratio adjusted for non-core items
61.94 %
61.09 %
61.32 %
61.85 %
64.30 %
(a) Based on a 21% statutory federal corporate income tax rate for 2020, 2019 and 2018 and a 35% statutory federal corporate income tax rate for 2017 and 2016.
The efficiency ratio for 2020 improved due to a decrease in non-interest expense. The higher efficiency ratio adjusted for non-
core items for 2020, compared to 2019, was driven by lower revenue, while adjusted core non-interest expense was relatively flat.
The decline in the efficiency ratio for 2019 from 2018 was mostly due to higher revenues, which grew at a faster pace than non-
interest expense. The increase in the efficiency ratio between 2018 and 2017 was driven by acquisition-related expenses of $7.3
60
million in 2018, compared to $341,000 in 2017. The improvement in the efficiency ratio adjusted for non-core items in 2017 through
2019 was driven by acquisitions, coupled with the focus of growing revenues at a higher rate than expenses on a percentage basis.
Furthermore, managing expenses has been a major focus over recent years; however, during this time Peoples has continued to make
meaningful investments in its infrastructure and systems.
Return on Average Assets Adjusted for Non-Core Items (non-US GAAP)
In addition to return on average assets, management uses return on average assets adjusted for non-core items to monitor
performance. The return on average assets ratio adjusted for non-core items represents a non-US GAAP financial measure since it
excludes the release of the deferred tax asset valuation allowance, the impact of the TCJ Act on the remeasurement of deferred tax
assets and deferred tax liabilities, and the after-tax impact of all gains and losses, core banking system conversion revenue and
expenses, acquisition-related expenses, pension settlement charges, severance expenses, and COVID-19-related non-recurring
expenses in earnings.
The following table provides a reconciliation of this non-US GAAP financial measure to the amount of net income reported in
Peoples' Consolidated Financial Statements for the periods presented:
(Dollars in thousands)
2020
2019
2018
2017
2016
Net income adjusted for non-core items:
Net income
$ 34,767
$ 53,695
$ 46,255
$ 38,471
$ 31,157
Add: core banking system conversion revenue waived
Less: tax effect of core banking system conversion
revenue waived (a)
Add: net loss on investment securities
Less: tax effect of net loss on investment securities (a)
Less: net gain on investment securities
Add: tax effect of net gain on investment securities (a)
Add: net loss on asset disposals and other transactions
Less: tax effect of net loss on asset disposals and other
transactions (a)
Add: system conversion expenses
Less: tax effect of system conversion expenses (a)
Add: acquisition-related expenses
Less: tax effect of acquisition-related expenses (a)
Add: severance expenses
Less: tax effect of severance expenses (a)
Add: pension settlement charges (a)
Less: tax effect of pension settlement charges (a)
Less: release of deferred tax asset valuation allowance
Less: impact of TCJ Act on deferred tax liability
Add: impact of TCJ Act on deferred tax assets
Add: COVID-19-related expenses
Less: tax effect of COVID-19-related expenses (a)
—
—
368
77
—
—
290
61
—
—
1,459
306
1,055
222
1,054
221
—
—
—
1,332
280
—
—
—
—
164
34
782
164
—
—
7,530
1,581
270
57
—
—
—
—
—
—
—
—
—
146
31
—
—
334
70
—
—
7,262
1,525
—
—
267
56
805
705
—
—
—
—
—
—
—
2,983
1,044
63
22
—
—
341
119
—
—
242
85
—
—
897
—
—
85
30
—
—
930
325
1,133
397
1,259
441
—
—
—
—
—
—
—
—
—
—
—
Net income adjusted for non-core items (after tax)
$ 39,158
$ 60,345
$ 51,072
$ 37,849
$ 32,161
Return on average assets:
Net income
Total average assets
Return on average assets
Return on average assets adjusted for non-core items:
$ 34,767
4,739,289
$ 53,695
4,222,482
$ 46,255
3,871,832
$ 38,471
3,510,274
$ 31,157
3,320,447
0.73 %
1.27 %
1.19 %
1.10 %
0.94 %
Net income adjusted for non-core items
$39,158
$60,345
$51,072
$37,849
$32,161
Total average assets
Return on average assets adjusted for non-core items
4,739,289
4,222,482
3,871,832
3,510,274
3,320,447
0.83 %
1.43 %
1.32 %
1.08 %
0.97 %
(a) Based on a 21% statutory federal corporate income tax rate for 2020, 2019 and 2018 and a 35% statutory federal corporate income tax rate for 2017 and 2016.
61
The decreases in return on average assets and return on average assets, adjusted for non-core items for 2020 were driven by a
reduction in income due to the implementation of CECL, which was impacted by the COVID-19 pandemic. The increases in return on
average assets and return on average assets adjusted for non-core items from 2016 through 2019 has been driven by the acquisitions in
2019 and 2018, coupled with the focus of growing revenues at a higher rate than expenses on a percentage basis. Managing expenses
has been a major focus over the last four years; however, during this time Peoples has continued to make meaningful investments in its
infrastructure and systems. The ratios in 2019 and 2018 were also positively impacted by the lower statutory federal corporate income
tax rate compared to 2017.
Return on Average Tangible Equity (non-US GAAP)
The return on average tangible equity ratio is a key financial measure used to monitor performance. The return on tangible equity
is calculated as net income (less after-tax impact of amortization of other intangible assets) divided by tangible equity. This measure
is non-US GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other
intangible assets acquired through acquisitions on total stockholders' equity.
(Dollars in thousands)
Net income excluding amortization of other intangible assets:
2020
2019
2018
2017
2016
Net income
$ 34,767
$ 53,695
$ 46,255
$ 38,471
$ 31,157
Add: amortization of other intangible assets
Less: tax effect of amortization of other
intangible assets (a)
Net income excluding amortization of other
intangible assets
Average tangible equity:
Total average stockholders' equity
Less: average goodwill and other intangible
assets
Average tangible equity
Return on average stockholders' equity ratio:
3,223
3,359
3,338
3,516
4,030
677
705
701
1,231
1,411
37,313
56,349
48,892
40,756
33,776
$ 575,386
$ 566,123
$ 488,139
$ 450,379
$ 432,666
181,526
173,529
158,115
144,696
147,981
$ 393,860
$ 392,594
$ 330,024
$ 305,683
$ 284,685
Net income
$ 34,767
$ 53,695
$ 46,255
$ 38,471
$ 31,157
Average stockholders' equity
$ 575,386
$ 566,123
$ 488,139
$ 450,379
$ 432,666
Return on average stockholders' equity
Return on average tangible equity ratio:
Net income excluding amortization of other
intangible assets
6.04 %
9.48 %
9.48 %
8.54 %
7.20 %
$ 37,313
$ 56,349
$ 48,892
$ 40,756
$ 33,776
Average tangible equity
$ 393,860
$ 392,594
$ 330,024
$ 305,683
$ 284,685
Return on average tangible equity
9.47 %
14.35 %
14.81 %
13.33 %
11.86 %
(a) Based on a 21% statutory federal corporate income tax rate for 2020, 2019 and 2018 and a 35% statutory federal corporate income tax rate for 2017 and 2016.
The decrease in return on average tangible equity for 2020 was driven by a reduction in net income due to the implementation of
CECL, which was negatively impacted by the COVID-19 pandemic. The decline in return on average tangible equity ratio in 2019
compared to 2018, was impacted by the First Prestonsburg acquisition, which increased capital. The return on average stockholders'
equity and average tangible equity ratios increased in 2018 compared to 2017, reflecting the increase in net income which outpaced
the increases in average stockholders' equity and average tangible equity. Average stockholders' equity and average tangible equity
increased due mainly to net income and the ASB acquisition, partially offset by dividends declared.
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, 2020, excess cash reserves at the
FRB of Cleveland were $25.1 million, compared to $15.6 million at December 31, 2019. 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 2020, Peoples' total cash and cash equivalents increased $36.9 million, as cash provided by operating activities and financing
activities of $85.5 million and $345.3 million, respectively, were partially offset by cash used in investing activities of $393.9 million.
Peoples' investing activities reflected a net increase of $444.1 million in loans and $261.4 million in purchases of available-for-sale
investment securities, which were partially offset by $444.6 million in net proceeds from sales, principal payments, calls and
62
prepayments on available-for-sale and held-to-maturity investment securities. Financing activities included a $618.9 million net
increase in deposits and $50.0 million of proceeds from long-term borrowings, offset partially by a decrease of $263.7 million in
short-term borrowings, as well as the purchase of $29.3 million of treasury stock under the share repurchase program and $27.1
million of cash dividends paid.
In 2019, Peoples' total cash and cash equivalents increased $37.6 million, as cash provided by operating activities and financing
activities of $67.2 million and $1.1 million, respectively, were largely offset by cash used in financing activities of $30.6 million.
Cash used in financing activities was primarily due to a reduction in short-term borrowings of $76.9 million and dividends paid of
$25.9 million, partially offset by the growth in deposit balances of $77.7 million. The increase in cash provided by operating activities
was due primarily to $53.7 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:
(Dollars in thousands)
Available-for-sale securities, at fair value:
Obligations of:
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Equity investment securities (a)
Total fair value
Total amortized cost
Net unrealized gain (loss)
Held-to-maturity securities, at amortized cost:
Obligations of:
States and political subdivisions (b)
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total amortized cost
Other investment securities (a)
Total investment securities:
Amortized cost
Carrying value
$
$
$
$
$
$
$
$
$
2020
2019
2018
2017
2016
5,363 $
114,919
623,218
4,783
4,730
—
753,013 $
734,544 $
18,469 $
8,209 $
114,104
791,009
18,088
4,691
—
936,101 $
929,395 $
6,706 $
— $
88,587
692,608
6,707
3,989
—
791,891 $
804,655 $
(12,764) $
— $
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
35,199 $
25,890
5,429
66,518 $
4,346 $
21,494
5,907
31,747 $
4,403 $
29,044
3,514
36,961 $
3,810 $
32,487
4,631
40,928 $
3,820
33,858
5,466
43,144
37,560 $
42,730 $
42,985 $
38,371 $
38,371
838,622 $ 1,003,872 $
857,091 $ 1,010,578 $
884,601 $
871,837 $
877,031 $
874,486 $
858,532
859,455
(a)
As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale investment securities to other investment
securities. At December 31, 2018, $277,000 of equity investment securities were included in other investment securities compared to $7.8 million of equity investment securities included
in available-for-sale investment securities at December 31, 2017.
(b) Amortized cost is presented net of the allowance for credit losses of $60,000 at December 31, 2020.
At December 31, 2020, Peoples' investment securities represented approximately 18.0% of total assets, compared to 23.2% at
December 31, 2019. Investment securities decreased $153.4 million compared to 2019 due to the acceleration of paydowns and
maturities. During 2020, Peoples sold $82.6 million of available-for-sale securities and reinvested the majority of the proceeds in
held-to-maturity investment securities to minimize the volatility in the securities portfolio, should interest rates begin to rise.
During 2019, Peoples acquired, in the First Prestonsburg acquisition, investment securities totaling $139.7 million and
subsequently sold $65.1 million of acquired available-for-sale investment securities. In April and May of 2019, $53.7 million of the
proceeds were reinvested. Additionally, the fair value of investment securities increased, driven by overall declines in market interest
rates during the latter half of 2019.
During 2018, Peoples acquired, in the ASB acquisition, investment securities totaling $18.8 million and subsequently sold $14.6
million of acquired available-for-sale investment securities. Proceeds from the sale of investment securities were used to reduce
overnight borrowing at the FHLB.
Peoples designates certain securities as "held-to-maturity" at the time of their purchase if management determines Peoples would
have the intent and ability to hold the purchased securities until maturity. The unrealized gain or loss related to held-to-maturity
63
investment securities does not directly impact total stockholders' equity, in contrast to the impact from the available-for-sale
investment securities portfolio.
Additional information regarding Peoples' investment portfolio can be found in "Note 3 Investment Securities" of the Notes to the
Consolidated Financial Statements.
Loans
The following table provides information regarding outstanding loan balances at or for the year ended December 31:
(Dollars in thousands)
Originated loans:
Construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Consumer
Deposit account overdrafts
Total originated loans
Acquired loans:
Construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Consumer
Total acquired loans (a)
Total loans
Average total loans
Average allowance for credit losses
Average loans, net of average allowance for
credit losses
2020
2019
2018
2017
2016
$ 103,169
$ 83,283
$ 124,013
$ 107,118
$ 84,626
780,324
671,576
632,200
595,447
531,557
883,493
754,859
756,213
702,565
616,183
943,024
622,175
530,207
438,051
378,131
100,571
—
—
—
—
281,623
314,935
296,860
304,523
307,490
93,296
93,013
93,326
88,902
85,617
503,526
417,127
407,167
340,390
252,024
75,591
70,852
71,674
67,010
67,579
579,117
487,979
478,841
407,400
319,603
351
$ 2,881,475
878
$ 2,273,839
583
$ 2,156,030
849
$ 1,942,290
1,080
$ 1,708,104
$
3,623
$
5,235
$ 12,404
$
8,319
$ 10,100
149,529
161,662
184,711
165,120
204,466
153,152
30,621
14,187
292,384
166,897
40,818
—
346,541
197,115
35,537
—
296,937
173,439
34,493
—
184,864
214,566
44,208
—
228,435
27,617
1
3,503
39,691
58
5,681
40,653
136
2,370
20,575
329
1,147
25,875
808
2,940
3,504
$ 521,465
$ 3,402,940
3,258,354
5,739
$ 599,686
$ 2,873,525
2,812,109
2,506
$ 572,748
$ 2,728,778
2,610,970
1,476
$ 414,847
$ 2,357,137
2,293,980
3,748
$ 516,832
$ 2,224,936
2,133,175
(47,692)
(21,239)
(19,359)
(18,713)
(17,564)
$ 3,210,662
$ 2,790,870
$ 2,591,611
$ 2,275,267
$ 2,115,611
64
(Dollars in thousands)
Percent of loans to total loans:
Construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Consumer
Deposit account overdrafts (b)
Total percentage
2020
2019
2018
2017
2016
3.1 %
27.3 %
30.4 %
28.6 %
3.4 %
16.9 %
3.6 %
14.8 %
2.3 %
17.1 %
3.1 %
29.0 %
32.1 %
23.1 %
— %
23.0 %
4.6 %
14.5 %
2.7 %
17.2 %
5.1 %
29.9 %
35.0 %
20.7 %
— %
21.8 %
4.9 %
14.9 %
2.7 %
17.6 %
4.9 %
32.3 %
37.2 %
20.0 %
— %
20.8 %
4.6 %
14.5 %
2.9 %
17.4 %
4.3 %
33.0 %
37.3 %
19.0 %
— %
24.1 %
5.0 %
11.4 %
3.2 %
14.6 %
NM
100.0 %
NM
100.0 %
NM
100.0 %
NM
100.0 %
NM
100.0 %
Residential real estate loans being serviced for
others
$ 485,972
$ 496,802
$ 461,256
$ 412,965
$ 398,134
(a)
Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 and thereafter. 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).
(b) NM = not meaningful.
As of December 31, 2020, total loans increased $529.4 million, or 18%, compared to December 31, 2019. The growth compared
to December 31, 2019 was mostly driven by PPP loans added during 2020, which are included in commercial and industrial loan
balances, and the new loans being originated through the acquired premium finance sector. At December 31, 2020, PPP loan balances
totaled $366.9 million, while the premium finance loans totaled $114.8 million. Consumer indirect loans also contributed to the
growth during 2020, and were up $86.3 million, or 21%.
During 2019, total loans grew 5%, or $144.7 million. Total originated loans (excluding acquired loans) grew 5%, or $117.8
million due to an increase in commercial and industrial loans of $92.0 million, or 17%. The increase in total acquired loans during
2019 was due to the First Prestonsburg acquisition, partially offset by the decline in the loan balances acquired in previous
acquisitions.
During 2018, total loans grew 16%, or $371.6 million. Total originated loans (excluding acquired loans) grew 11%, or $213.7
million, due to increases in all categories except residential real estate and deposit account overdrafts. The increase in total acquired
loans during 2018 was due to the ASB acquisition, partially offset by the decline in the loan balances acquired in previous
acquisitions.
During 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, continued
emphasis on growing indirect consumer lending led to growth of $87.9 million, or 35%, compared to December 31, 2016, and was
partially offset by reductions in residential real estate loans.
65
The following table details the maturities of Peoples' commercial real estate and commercial and industrial loans at December 31,
2020:
(Dollars in thousands)
Construction:
Fixed
Variable
Total
Commercial real estate, other:
Fixed
Variable
Total
Commercial and industrial:
Fixed
Variable
Total
Premium finance:
Fixed
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
$
1,398 $
31,265
32,663
298 $
68,409
68,707
2,511 $
2,911
5,422
4,207
102,585
106,792
35,301
67,558
102,859
81,980
136,679
218,659
96,566
162,503
259,069
431,594
103,454
535,048
168,610
399,315
567,925
34,572
185,366
219,938
300,477
629,376
929,853
548,146
425,499
973,645
3.9 %
96.1 %
100.0 %
32.3 %
67.7 %
100.0 %
56.3 %
43.7 %
100.0 %
114,758
—
—
114,758
100.0 %
233,437
235,502
468,939 $
528,458
334,366
862,824 $
967,588
205,693
1,157,460
587,592
793,285 $ 2,125,048
$
45.5 %
54.5 %
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, 2020:
(Dollars in thousands)
Construction:
Apartment complexes
Assisted living facilities and nursing homes
Student housing
Land only
Lodging and lodging related
Residential property
Other (a)
Construction
Outstanding
Balance
Available
Loan
Commitments
Total
Exposure % of Total
$
$
33,510 $
23,847
14,607
12,216
497
1,899
20,216
106,792 $
87,211 $
26,258
201
351
9,785
3,507
9,324
136,637 $
120,721
50,105
14,808
12,567
10,282
5,406
29,540
243,429
49.6 %
20.6 %
6.1 %
5.2 %
4.2 %
2.2 %
12.1 %
100.0 %
(a) All other outstanding balances are less than 2% of the total loan portfolio.
66
(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
Light industrial facilities:
Owner occupied
Non-owner occupied
Total light industrial facilities
Warehouse facilities:
Owner occupied
Non-owner occupied
Total warehouse facilities
Assisted living facilities and nursing homes:
Owner occupied
Non-owner occupied
Total assisted living facilities
Lodging and lodging related:
Owner occupied
Non-owner occupied
Total lodging and lodging related
Education services:
Owner occupied
Non-owner occupied
Total education services
Gas station facilities:
Owner occupied
Non-owner occupied
Total gas station facilities
Agriculture
Other (a)
Outstanding
Balance
Available
Loan
Commitments
Total
Exposure % of Total
$
77,357 $
2,216 $
62,783
140,140
55,594
37,037
92,631
96,548
38,632
56,271
94,903
50,432
20,505
70,937
34,843
27,467
62,310
34,454
26,786
61,240
12,454
40,230
52,684
15,980
26,217
42,197
3,388
5,604
1,591
758
2,349
3,187
473
250
723
987
1,088
2,075
3,650
8
3,658
—
250
250
—
—
—
98
4,000
4,098
79,573
66,171
145,744
57,185
37,795
94,980
99,735
39,105
56,521
95,626
51,419
21,593
73,012
38,493
27,475
65,968
34,454
27,036
61,490
12,454
40,230
52,684
16,078
30,217
46,295
8.2 %
6.8 %
15.0 %
5.9 %
3.9 %
9.8 %
10.3 %
4.0 %
5.8 %
9.8 %
5.3 %
2.2 %
7.5 %
4.0 %
2.8 %
6.8 %
3.5 %
2.8 %
6.3 %
1.3 %
4.1 %
5.4 %
1.7 %
3.1 %
4.8 %
21,664
5,428
27,092
18,630
170,541
929,853 $
10,873
—
10,873
709
8,125
41,651 $
32,537
5,428
37,965
19,339
178,666
971,504
3.3 %
0.6 %
3.9 %
2.0 %
18.4 %
100.0 %
Commercial real estate, other
$
(a) All other outstanding balances are less than 2% of the total loan portfolio.
Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas
within Ohio, Kentucky and West Virginia. In all other states, the aggregate outstanding balances of commercial loans in each state
were not material at either December 31, 2020 or December 31, 2019.
Additional information regarding Peoples' loan portfolio can be found in "Note 4 Loans" of the Notes to the Consolidated
Financial Statements.
67
COVID-19 Loan Impacts
Small Business Administration Paycheck Protection Program
In March 2020, the CARES Act created a new loan guarantee program called the PPP targeted to provide small businesses with
support to cover payroll and certain other expenses. Loans made under the PPP are fully guaranteed by the SBA. The PPP loans also
afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to
retain workers and maintain payroll and/or to make certain mortgage interest, lease and utility payments, and certain other criteria are
satisfied. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be
held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness.
Peoples is a PPP participating lender, and as of December 31, 2020, Peoples had aggregate principal balances of PPP loans of
$374.8 million, net of payoffs during the year, included in commercial and industrial loans. Peoples also recorded deferred loan
origination fees related to the PPP loans, net of deferred loan origination costs, which totaled $7.9 million at December 31, 2020.
Peoples recorded accretion of net deferred loan origination fees of $7.5 million on PPP loans as of December 31, 2020. The net
deferred loan origination fees will be accreted over the life of the respective loans, or until forgiven by the SBA, and will be
recognized in net interest income.
JobsOhio Partnership
Peoples has also been selected to partner with JobsOhio, a private nonprofit organization charged with economic development.
JobsOhio will provide a 90% guarantee on the first $25 million of increased exposure to small businesses, where customers may
obtain up to $200,000 of additional financing, subject to certain eligibility requirements. Through December 31, 2020, Peoples had
assisted 176 Ohio small businesses with approximately $10.0 million in loans.
Payment Relief and Loan Modifications
Peoples is also providing relief solutions to consumer and commercial borrowers. For consumer borrowers, Peoples is providing
interest-only payment options to customers for a period of up to 90 days, with the ability to extend if needed. Peoples is also
providing forbearance to its consumer borrowers which allows them to defer their principal and interest payments for up to 90 days for
non-residential real estate consumer loans and up to 180 days for residential real estate consumer loans. In addition, for commercial
borrowers who meet certain criteria, Peoples is providing interest-only payment options, principal and interest deferrals, and increased
financing. Peoples continues to prudently work with borrowers and review any additional requests for deferment more closely. These
requests are maintained within the CARES Act guidance and have not exceeded twelve consecutive months of deferred payment.
At December 31, 2020, Peoples had $17.0 million of commercial loans on deferment, and $4.0 million of consumer loan
deferments. Borrowers within the lodging industry account for nearly two-thirds of the deferments at December 31, 2020. The
lodging industry continues to be impacted by the COVID-19 pandemic, with a negative outlook for travel demand among both
business and leisure customers.
Portfolio Exposure
Peoples has evaluated its portfolio exposure to certain industries most impacted by the COVID-19 pandemic, which includes
restaurants, lodging and lodging related businesses, floorplans, office and retail facilities, as well as daycare facilities. Peoples has
been proactive in working with clients within these industries, and is keeping in close communication with them. Peoples has made
loan modifications, when it is prudent to do so, and is monitoring early warnings signs of risk within these industry segments. These
segments comprise approximately 61% of the total commercial loan modifications approved in response to COVID-19.
Below is a table detailing Peoples' outstanding balance of loans as of December 31, 2020, within certain industries that have been
impacted:
(Dollars in thousands)
Restaurants (a)
Multifamily
Floorplans (b)
Assisted living facilities and nursing homes (c)
Lodging and lodging related (d)
Total
Outstanding
Balance
% of Total
Loans
Loan-to-
Value
Total
Commitment
$
$
212,351
123,137
91,586
99,907
73,862
600,843
6.2 %
3.6 %
2.7 %
2.9 %
2.2 %
17.6 %
57.8 % $
63.6 %
100.0 %
72.6 %
65.9 %
$
226,165
195,213
170,100
128,760
83,846
804,084
(a) Restaurants outstanding balance included $55.3 million in PPP loans.
(b)
Individual units financed under dealer floor plan agreements are generally financed in line with industry standards at 100% of manufacturer invoice,
auction cost, or wholesale value.
(c) Assisted living facilities and nursing homes outstanding balance included $13.6 million in PPP loans.
(d) Lodging and lodging related outstanding balance included $2.1 million in PPP loans.
68
Approximately 73% of Peoples' outstanding balance to restaurants was to McDonald's franchise operators, which have
additional guarantor support, as well as McDonald's corporate assistance with rent and service fee deferments. At its peak of
deferrals during the second quarter of 2020, Peoples had $116.3 million of deferments to restaurant operators granted due to the
pandemic. Of the $116.3 million of deferments granted, $1.5 million of the deferments remained at December 31, 2020.
The total restaurant portfolio outstanding balance of non-McDonald’s operators was $56.6 million at December 31, 2020, which
included $24.9 million of PPP loans. The loans to non-McDonald's operators included $4.2 million of loans for which there is a
government guarantee enhancement through the CARES Act.
In addition, for multifamily loans, Peoples has sponsors with extensive experience and substantial liquidity. The top five
relationships, in terms of aggregate credit exposures, accounted for 47% of the portfolio balances. The top five relationships consist of
five properties with an average loan-to-value of 72%. Peoples' commercial loan policy for this specific property type is a maximum
loan-to-value of 80%. Additional support is provided by guarantor strength on the majority of these relationships. One of the largest
loans in the portfolio accounts for 13% of the portfolio balances. The loan has notable guarantor support, with a reported
unencumbered liquidity level of more than $400 million.
For floorplan loans, Peoples has a detailed monitoring and audit process, and performs collateral audits frequently.
Approximately 80% of the assisted living facilities and nursing homes are private pay and are not dependent upon Medicare, and
as of December 31, 2020, Peoples had no requests from these customers for relief.
The majority of Peoples' lodging and lodging related outstanding balances is represented by loans to larger established franchises.
At December 31, 2020, this portfolio included $2.1 million of PPP loans. The top three relationships, in terms of aggregate credit
exposures, account for 46% of the portfolio balance. Peoples has provided payment relief to 80% of the lodging and lodging related
portfolio since the start of the pandemic, which consists of primarily 13 properties, which have an average loan-to-value ratio of 64%.
Peoples' commercial loan policy for this specific property type is a maximum loan-to-value of 65%. These properties include ten
nationally franchised locations, while two of the remaining properties are cabin rentals, which have not been as heavily impacted by
the pandemic. The guarantor liquidity is strong on half of the properties securing the lodging and lodging related portfolio.
Peoples' exposure to energy loans was not material at December 31, 2020. Energy loan balances were $4.8 million, or less than
1% of total loans, as of December 31, 2020, with a total commitment of $8.2 million. Peoples' energy loans are mostly to operators
who provide support services for oil and gas companies.
Allowance for Credit Losses
On January 1, 2020, Peoples adopted the provisions of ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments", commonly referred to as the CECL model. Prior to the adoption of the
CECL model, the allowance for credit losses was the "allowance for loan losses." The amount of the allowance for credit losses at the
end of each period represents management's estimate of expected credit losses from existing loans based upon its formal quarterly
analysis of the loan portfolio described in the "Critical Accounting Policies" section of this discussion. While this process involves
allocations being made to specific loans and pools of loans, the entire allowance is available for all losses incurred within the loan
portfolio.
The following details management's allocation of the allowance for credit losses at December 31:
$
(Dollars in thousands)
Commercial real estate
Commercial and industrial
Total commercial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Consumer
Deposit account overdrafts
Originated allowance for credit losses
Acquired allowance for credit losses (a)
Allowance for credit losses (b)
$
2020
19,423
12,763
32,186
1,095
6,044
1,860
8,030
1,081
9,111
63
50,359
—
50,359
2019
7,333
8,432
15,765
—
1,191
546
2,937
294
3,231
94
20,827
729
21,556
$
$
$
$
2018
8,003
6,178
14,181
—
1,214
618
3,214
351
3,565
81
19,659
536
20,195
2017
7,797
5,813
13,610
—
904
693
2,944
464
3,408
70
18,685
108
18,793
$
$
$
$
2016
7,172
6,353
13,525
—
982
688
2,312
518
2,830
171
18,196
233
18,429
As a percent of total loans
1.48 %
0.75 %
0.74 %
0.80 %
0.83 %
69
(a) Beginning on January 1, 2020, the amounts previously included in "acquired allowance for credit losses" were included in the "originated allowance for
credit losses" under the CECL model.
(b) Beginning on January 1, 2020, Peoples calculated the allowance for credit losses using the CECL model, while previous periods used the incurred loss
model.
Peoples implemented ASU 2016-13 on January 1, 2020, which resulted in an increase of $5.8 million in the allowance for credit
losses. The remaining significant increase in the allowance for credit losses at December 31, 2020 compared to December 31, 2019
was mostly due to the recent COVID-19 pandemic, and the resulting impact on economic forecasts utilized in the CECL model.
Peoples calculates its allowance for credit losses using a discounted cash flow model, and incorporates economic forecasts, including
U.S. unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic
factors.
During 2019, the increase in allowance for loan losses was primarily related to continued loan growth in most of the originated
loan portfolios. The allowance for loan losses as a percent of total loans was relatively flat in 2019 compared to 2018 as a result of
relatively stable asset quality metrics and trends, combined with loan growth during 2019. The ratio included all acquired loans, from
both First Prestonsburg and previous acquisitions, of $599.7 million and allowance for acquired loan losses of $729,000 at the end of
2019.
During 2018, the increase in allowance for loan losses was primarily related to continued loan growth in most of the originated
loan portfolios. The allowance for loan losses as a percent of total loans decreased six basis points in 2018 compared to 2017 as a
result of relatively stable asset quality metrics and trends, and the loans acquired in the ASB acquisition. During 2017, the increase in
allowance for loan losses related primarily to growth in consumer indirect loan balances. During 2016, the increase of 9% in the
allowance for loan losses related to total commercial and consumer indirect balance growth.
Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant
Accounting Policies" and "Note 4 Loans" of the Notes to the Consolidated Financial Statements.
70
The following table summarizes the changes in the allowance for credit losses for the years ended December 31:
(Dollars in thousands)
Allowance for credit losses, January 1
Gross charge-offs:
2020
25,868
2019
20,195
$
2018
18,793
$
2017
18,429
$
$
2016
16,779
$
Commercial real estate (a)(b)
Commercial and industrial
Premium finance
Residential real estate (c)
Home equity lines of credit
Consumer, indirect
Consumer, direct (d)
Consumer
Deposit account overdrafts
Total gross charge-offs
Recoveries:
Commercial real estate
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Consumer
Deposit account overdrafts
Total recoveries
Net charge-offs (recoveries):
Commercial real estate
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Consumer
Deposit account overdrafts
Total net charge-offs
Provision for credit losses, December 31 (e)(f)
Allowance for credit losses, December 31 (g)
528
1,565
3
353
103
1,923
187
2,110
673
5,335
200
2,521
—
302
12
302
49
351
186
3,572
156
1,062
—
312
55
1,829
211
2,040
851
4,476
151
2,415
—
229
11
270
52
322
205
3,333
328
(956)
3
51
91
1,621
138
1,759
487
1,763
26,254
50,359
$
$
5
(1,353)
—
83
44
1,559
159
1,718
646
1,143
2,504
21,556
$
$
$
$
849
38
—
357
107
2,515
358
2,873
965
5,189
60
18
—
232
14
474
140
614
205
1,143
789
20
—
125
93
2,041
218
2,259
760
4,046
5,448
20,195
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
$
$
$
$
Net charge-offs (recoveries) as a percent of average total loans (g):
0.01 %
(0.03) %
— %
— %
— %
0.05 %
— %
0.05 %
0.02 %
0.05 %
Commercial real estate
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Consumer
Deposit account overdrafts
Total
— %
(0.05) %
— %
— %
— %
0.06 %
0.01 %
0.07 %
0.02 %
0.04 %
0.03 %
— %
— %
— %
— %
0.08 %
0.01 %
0.09 %
0.03 %
0.15 %
0.01 %
0.01 %
— %
0.02 %
— %
0.06 %
0.01 %
0.07 %
0.04 %
0.15 %
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
(0.05) %
0.03 %
— %
0.02 %
— %
0.04 %
0.02 %
0.06 %
0.03 %
0.09 %
Includes purchased credit impaired loan charge-offs of $0 in 2019, $0 in 2018, $0 in 2017, and $44,000 in 2016.
Includes nonimpaired loan charge-offs of $2,000 in 2019 and $0 in 2018, 2017, and 2016.
Includes purchased credit impaired loan charge-offs of $0 in 2019, $2,000 in 2018, $0 in 2017, and $23,000 in 2016
Includes purchased credit impaired loan charge-offs of $0 in 2019, $0 in 2018, $7,000 in 2017, and $23,000 in 2016
Includes purchased credit impaired loan provision for credit losses of $19,000 in 2019, $0 in 2018, $117,000 in 2017, and $66,000 in 2016.
Includes nonimpaired loan provision for credit losses of $215,000 in 2019, $383,000 in 2018 and $0 in 2017 and 2016.
(a)
(b)
(c)
(d)
(e)
(f)
(g) Beginning on January 1, 2020, the amounts previously included in "acquired allowance for credit losses" were included in the "originated allowance for credit
losses" under the CECL model.
71
Net charge-offs for 2020 were $1.8 million, or 0.05% of average total loans, an increase of $0.6 million compared to $1.1 million,
or 0.04% of average total loans, for 2019. Net charge-offs in 2020 included a recovery of $2.5 million on a single commercial loan
relationship that was previously charged-off; while in 2019, a $2.4 million recovery occurred on the same relationship. The increase in
commercial real estate net charge-offs in 2020 compared to 2019 was due to an increase in charge-off activity in 2020. This activity
consisted of two larger commercial real estate loans with a total of $200,000 in charge-offs coupled with other smaller commercial
real estate charge-offs.
Net charge-offs for 2018 increased $638,000 compared to 2017, driven by a charge-off of $827,000 related to one acquired
commercial loan relationship. Indirect consumer lending provided significant growth during 2018, resulting in the growth in the
allowance for loan losses and net charge-offs within that category.
The increase in net charge-offs from 2016 to 2017 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 loan charge-off. Gross charge-offs totaled $5.2 million in 2016, and were largely
associated with the growth in the consumer loan portfolio.
The following table details Peoples’ nonperforming assets at December 31:
(Dollars in thousands)
Loans 90+ days past due and accruing (a):
Commercial real estate, other
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Consumer
$
Total loans 90+ days past due and accruing
Nonaccrual loans (a):
Construction
Commercial real estate, other
Commercial real estate
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Consumer
Total nonaccrual loans
2020
2019
2018
2017
2016
—
50
589
1,975
82
39
17
56
2,752
4
8,744
8,748
4,017
6,080
708
883
160
1,043
20,596
$
907
155
—
2,677
108
—
85
85
3,932
411
6,699
7,110
1,824
4,471
955
629
48
677
15,037
$
801
18
—
1,430
7
—
—
—
2,256
710
6,730
7,440
1,304
4,075
1,023
324
56
380
14,222
$
215
45
—
1,278
72
—
16
16
1,626
754
6,348
7,102
506
4,267
772
158
32
190
12,837
$
1,506
387
—
1,855
—
—
23
23
3,771
826
10,792
11,618
1,620
4,481
554
9
81
90
18,363
72
(Dollars in thousands)
Nonaccrual troubled debt restructurings (TDRs):
2020
2019
2018
2017
2016
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Total nonaccrual TDRs
Total nonperforming loans (NPLs)
OREO:
Commercial
Residential
Total OREO
Total nonperforming assets (NPAs)
Criticized loans (b)
Classified loans (c)
Asset Quality Ratios:
367
2,175
2,295
159
190
11
5,197
28,545
102
331
1,890
210
211
—
2,744
21,713
154
405
1,951
210
156
—
2,876
19,354
721
492
1,447
90
98
7
2,855
17,318
751
482
1,614
60
6
49
2,962
25,096
—
134
134
28,679
$
$ 126,619
145
82
227
$ 21,940
$ 96,830
—
94
94
$ 19,448
$ 114,188
—
208
208
$ 17,526
$ 90,418
594
67
661
$ 25,757
$ 99,182
72,518
66,154
43,818
46,380
57,736
NPLs as a percent of total loans (d)(e)
NPAs as a percent of total assets (d)(e)
NPAs as a percent of total loans and OREO (d)(e)
Allowance for credit losses as a percent of NPLs
(d)(e)
Criticized loans as a percent of total loans (b)(d)
Classified loans as a percent of total loans (c)(d)
0.82 %
0.59 %
0.84 %
0.75 %
0.50 %
0.76 %
0.71 %
0.49 %
0.71 %
0.73 %
0.49 %
0.74 %
180.14 %
3.72 %
2.13 %
99.28 %
3.37 %
2.30 %
104.35 %
4.18 %
108.52 %
3.84 %
1.61 %
1.97 %
1.13 %
0.75 %
1.16 %
73.43 %
4.46 %
2.59 %
(a) The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past
due and accruing category to the nonaccrual category as of January 1, 2020. As of December 31, 2019, these loans were presented as 90+ days past due and
accruing. Although they were not accruing contractual interest income, they were accreting income from the discount that was recognized due to acquisition
accounting.
(b) Includes loans categorized as special mention, substandard or doubtful.
(c) Includes loans categorized as substandard or doubtful.
(d) Data presented as of the end of the year indicated.
(e) Nonperforming loans include loans 90+ days past due and accruing, troubled debt restructured loans and nonaccrual loans. Nonperforming assets include
nonperforming loans and OREO.
The increase in nonperforming assets during 2020 was due to two commercial relationships aggregating $3.2 million and several
smaller commercial relationships being placed on nonaccrual.
The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans
from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020. As of December 31, 2019, these
loans were presented as 90+ days past due and accruing. Although they were not accruing contractual interest income, they were
accreting income from the discount that was recognized due to acquisition accounting.
Criticized loans, which are those categorized as special mention, substandard or doubtful, increased $29.8 million, or 31%,
compared to December 31, 2019. Classified loans, which are those categorized as substandard or doubtful, grew $6.4 million, or 10%,
compared to December 31, 2019. During 2020, Peoples downgraded several relationships due to the COVID-19 pandemic. The
COVID-related downgrades contributed $29.8 million of additional criticized loans and $9.4 million of additional classified loans
compared to balances at December 31, 2019.
Based on the provisions provided by the CARES Act, on March 22, 2020, federal and state government banking regulators issued
a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers
affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to
borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment
deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance,
borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a
modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any
state government related to COVID-19 are not in the scope of ASC 310-40.
73
On August 3, 2020, federal and state banking regulators issued a joint statement, encouraging financial institutions to consider
prudent accommodation options to mitigate losses for the borrower and financial institution beyond the initial accommodation period.
In this guidance, institutions should also provide consumers with available options for repaying missed payments at the end of their
accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable and affordable payments for the
long term. These considerations should also include prudent risk management practices at the financial institution based on the credit
risk of the borrower. Peoples is actively working with its customers to address any further accommodation needs while carefully
evaluating the associated credit risk of the borrowers.
Nonperforming loans increased in 2019 due to acquired loans from First Prestonsburg, which comprised of $1.9 million of
nonperforming assets during 2019.
The increase in loans 90+ days past due and accruing during 2018 was driven primarily by one commercial loan, which was in the
process of renewal at December 31, 2018. During 2018, the growth in nonaccrual loans was driven primarily by one commercial loan
that was over 90 days past due.
Nonperforming loans decreased in 2017, largely due to a decrease in nonaccrual loans, coupled with a decline 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.
The majority of Peoples' nonaccrual commercial real estate loans consists primarily of owner occupied commercial properties. 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.
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 the availability of updated 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. Interest income on loans classified as
nonaccrual and renegotiated at each year-end that would have been recorded under the original terms of the loans was $1.6 million for
2020, $1.4 million for 2019 and $1.3 million for 2018. No portion of these amounts were recorded during 2020, 2019 or 2018.
Overall, management believes the allowance for credit losses was appropriate at December 31, 2020, based on all significant
information currently available. Still, there can be no assurance that the allowance for credit losses will be adequate to cover future
losses in Peoples’ loan portfolio.
Additional information regarding Peoples' allowance for credit losses can be found in "Note 4 Loans" of the Notes to the
Consolidated Financial Statements.
Deposits
The following table details Peoples’ deposit balances at December 31:
(Dollars in thousands)
Non-interest-bearing deposits (a)
Interest-bearing deposits:
Interest-bearing demand accounts (a)
Savings accounts
Retail CDs
Money market deposit accounts
Governmental deposit accounts
Brokered deposits
Total interest-bearing deposits
Total deposits
$
2020
2019
2018
2017
2016
$
997,323 $
671,208 $
607,877 $
556,010 $
734,421
692,113
628,190
445,930
591,373
385,384
170,146
2,913,136
3,910,459 $
635,720
521,914
490,830
469,893
293,908
207,939
2,620,204
3,291,412 $
573,702
468,500
394,335
379,878
267,319
263,854
2,347,588
2,955,465 $
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
(a) The sum of amounts presented are considered total demand deposits.
At December 31, 2020, the period-end deposit increase of $619.0 million, or 19%, compared to December 31, 2019, was
primarily due to an increase of $326.1 million in non-interest-bearing deposits. The growth in non-interest-bearing deposits was
related to customers maintaining higher balances due to changes in customer habits in light of the COVID-19 pandemic, as well as
fiscal stimulus funds and PPP loan proceeds. During 2020, Peoples had reduced its reliance on higher-rate brokered deposits, which
included one-way buy Certificate of Deposit Account Registry Services. This was partially offset by the issuance of 90-day brokered
74
demand and savings deposits to fund interest rate swaps. As of December 31, 2020, Peoples had seventeen effective interest rate
swaps, with an aggregate notional value of $160.0 million, which were funded by $50.0 million in 90-day brokered CDs and $110.0
million in overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps.
The increase in total deposits between December 31, 2019 and December 31, 2018 was largely due to deposits of $194.2 million
acquired in the First Prestonsburg acquisition. During 2019, Peoples issued $50.0 million of 90-day brokered CDs to fund five $10.0
million interest rate swaps with a notional value in the aggregate of $50.0 million. The swaps will pay a fixed rate of interest while
receiving three-month LIBOR, which offsets the rate on the brokered CDs. The brokered CDs are expected to be extended every 90
days through the maturity dates of the swaps.
The increase in total deposits between December 31, 2018 and December 31, 2017 was largely due to $198.6 million of balances
in deposit accounts acquired from ASB on April 13, 2018, coupled with higher one-way buy CDARS deposits, which are included in
brokered CD balances.
The increase in total deposit balances at December 31, 2017 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, partially offset 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 moved to 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.
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 and third quarter,
corresponding with tax collections, with declines normally in the second and fourth quarter of each year, corresponding with
expenditures by the governmental entities. Peoples continues to emphasize growth of low-cost deposits that do not require Peoples to
pledge assets as collateral, which is required in the case of governmental deposit accounts.
The maturities of retail CDs with total balances of $100,000 or more at December 31 were as follows:
(Dollars in thousands)
3 months or less
Over 3 to 6 months
Over 6 to 12 months
Over 12 months
Total
2020
2019
2018
2017
2016
$
55,402 $
56,516
36,448
70,452
27,780
20,102
25,028
75,860
$ 218,818 $ 239,914 $ 178,659 $ 146,107 $ 148,770
36,623 $
48,581
49,796
104,914
24,118 $
20,011
27,129
74,849
28,214 $
28,436
32,578
89,431
Additional information regarding Peoples' deposits can be found in "Note 7 Deposits" of the Notes to the Consolidated Financial
Statements.
75
Borrowed Funds
The following table details Peoples’ short-term and long-term borrowings at December 31:
(Dollars in thousands)
Short-term borrowings:
Overnight borrowings
FHLB 90-day advances
Current portion of long-term FHLB advances
Repurchase agreements
Unamortized debt issuance costs (a)
Total short-term borrowings
Long-term borrowings:
FHLB advances
National market repurchase agreements
Unamortized debt issuance costs (a)
Junior subordinated debt securities
Total long-term borrowings
Total borrowed funds
2020
2019
2018
2017
2016
$
— $
141,000 $
165,000 $
62,000 $
231,000
—
110,000
110,000
—
20,000
53,261
—
23,009
42,968
—
30,000
30,592
51,202
116,899
74,607
(4)
—
—
—
—
73,261
316,977
356,198
209,491
305,607
102,957
75,672
102,361
136,939
—
—
—
—
—
—
—
(27)
7,611
7,451
7,283
7,107
98,282
40,000
(51)
6,924
110,568
183,829 $
83,123
400,100 $
109,644
465,842 $
144,019
353,510 $
145,155
450,762
$
(a) Unamortized debt issuance costs are related to the costs associated with the Credit Agreement with Raymond James Bank, N.A. which Peoples terminated as
of April 3, 2019.
Total borrowed funds, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit
balances. Peoples continually evaluates the overall balance sheet position given the interest rate environment. Long-term FHLB
advances increased due to a borrowing of a $50.0 million long-term FHLB putable, non-amortizing fixed rate advance and the
reclassification of $20.0 million to short-term borrowings as the time to maturity of these advances had become less than one year.
In years prior to 2020, Peoples' short-term FHLB advances generally consisted of overnight borrowings maintained in connection
with the management of Peoples' daily liquidity position.
During 2019, Peoples had seventeen effective interest rate swaps with an aggregate notional value of $160.0 million, of which
$110.0 million were funded by FHLB 90 day advances. The remaining $50.0 million were funded by 90-day brokered CDs. Long-
term FHLB advances declined by $26.7 million due to the reclassification to short-term borrowings as the time to maturity of these
advances had become less than one year.
During 2018, Peoples entered into twelve effective interest rate swaps with an aggregate notional value of $110.0 million, all of
which were funded by FHLB 90-day advances. Long-term FHLB advances declined by $30 million due to the reclassification to
short-term borrowings as the time to maturity of these advances had become less than one year.
During 2017, $50.6 million of long-term FHLB advances were reclassified to short-term borrowings due to the time to maturity of
these advances becoming less than one year. Of these reclassified borrowings, $30.6 million remained outstanding as of December
31, 2017. Short-term retail repurchase agreements increased due to the reclassification of these repurchase agreements from long-term
borrowings, as the time to maturity had become less than one year.
Effective April 3, 2019, Peoples terminated the Credit Agreement, dated as of March 4, 2016 between Peoples, as Borrower, and
Raymond James Bank, N.A., as Lender (the "RJB Credit Agreement"), which provided for a revolving line of credit in the maximum
aggregate principal amount of $15.0 million. On April 3, 2019, Peoples entered into a Loan Agreement (the “U.S. Bank Loan
Agreement”) with U.S. Bank National Association, the term of which has been extended to April 1, 2021 through an amendment in
April 2020. The U.S. Bank Loan Agreement provides Peoples with a revolving line of credit in the maximum aggregate principal
amount of $20.0 million.
Additional information regarding Peoples' borrowed funds can be found in "Note 8 Short-Term Borrowings" and "Note 9 Long-
Term Borrowings" of the Notes to the Consolidated Financial Statements.
Capital/Stockholders’ Equity
During 2020, Peoples' total stockholders' equity declined $18.7 million, or 3%. This reduction was driven by repurchases of
shares of $29.3 million and dividends paid to shareholders of $27.5 million, which were partially offset by net income of $34.8
million. Also contributing to the decline was the implementation of ASU 2016-13 on January 1, 2020, in which Peoples recorded a
one-time transition adjustment to reduce retained earnings by $3.7 million. This adjustment reflected the increase in the allowance for
credit losses for loans (excluding the gross up of loan balances related to the establishment of an allowance for credit losses for
purchased credit deteriorated loans), the allowance for credit losses for held-to-maturity investment securities and the addition of an
76
unfunded commitment liability, net of statutory federal corporate income taxes. Based on current accounting guidance, Peoples is
electing to utilize the five-year phase-in period for the transition adjustment due to the implementation of ASU 2016-13. This phase-
in period also includes a 25% deferment of the impact on regulatory capital of the estimated increase in the allowance for credit losses
related to the CECL model, which is applied during the first two years of application. For the first two years of the phase-in period,
100% of the transition adjustment due to ASU 2016-13 is excluded for regulatory capital purposes, along with 25% of the increase in
the allowance for credit losses compared to the January 1, 2020 allowance for credit losses. In year three of the phase-in, 75% of the
transition adjustment, and the cumulative 25% increase in the allowance for credit losses compared to January 1, 2020, are excluded
from regulatory capital, while 50% and 25% of these amounts are excluded in years four and five, respectively, under this phase-in
period.
At December 31, 2020, 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 2019, total stockholders' equity increased compared to 2018 mainly due to net income of $53.7 million, $32.4 million of
common shares issued in connection with the acquisition of First Prestonsburg, and an increase in the market value of available-for-
sale investment securities, partially offset by dividends paid of $26.9 million.
During 2018, Peoples' total stockholders' equity increased compared to 2017 mainly due to $40.9 million of common shares
issued in connection with the acquisition of ASB. Also contributing to the increase in total stockholders' equity was net income of
$46.3 million, partially offset by dividends paid of $21.6 million and declines in the market value of available-for-sale investment
securities.
In 2017, Peoples' total stockholders' equity increased compared to 2016 due to higher retained earnings offset slightly by declines
in the market value of available-for-sale investment securities.
Under the risk-based capital 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 risk-based capital ratio and total risk-based capital ratio. Peoples had a capital conservation
buffer of 6.50% at December 31, 2020, 7.58% at December 31, 2019, 6.43% at December 31, 2017, and 6.11% at December 31, 2016.
As such, Peoples exceeded the minimum ratios, including the capital conservation buffer, at December 31, 2020.
The following table details Peoples' actual risk-based capital levels and corresponding ratios at December 31:
(Dollars in thousands)
Capital Amounts:
2020
2019
2018
2017
2016
Common equity tier 1
Tier 1
Total (tier 1 and tier 2)
Net risk-weighted assets
$
409,400
417,011
456,384
$ 3,146,767
$
427,415
434,866
456,422
$ 2,930,355
$
378,855
386,138
406,333
$ 2,773,383
$
327,172
334,279
355,977
$ 2,466,620
$
306,506
313,430
334,957
$ 2,373,359
Capital Ratios:
Common equity tier 1
Tier 1
Total (tier 1 and tier 2)
Tier 1 leverage ratio
13.01 %
13.25 %
14.50 %
8.97 %
14.59 %
14.84 %
15.58 %
10.41 %
13.66 %
13.92 %
14.65 %
9.99 %
13.26 %
13.55 %
14.43 %
9.75 %
12.91 %
13.21 %
14.11 %
9.65 %
In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples'
total stockholders' equity. Such financial measures represent non-US GAAP financial information since they exclude the impact of
goodwill and other intangible assets acquired through acquisitions on the Consolidated Balance Sheets. Peoples' 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 level of intangible assets similar 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.
77
The following table reconciles the calculation of these non-US 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 common share:
Tangible equity
Common shares outstanding
2020
2019
2018
2017
2016
$ 575,673
184,597
$ 391,076
$ 594,393
177,503
$ 416,890
$ 520,140
162,085
$ 358,055
$ 458,592
144,576
$ 314,016
$ 435,261
146,018
$ 289,243
$ 4,760,764
184,597
$ 4,576,167
$ 4,354,165
177,503
$ 4,176,662
$ 3,991,454
162,085
$ 3,829,369
$ 3,581,686
144,576
$ 3,437,110
$ 3,432,348
146,018
$ 3,286,330
$ 391,076
19,563,979
$ 416,890
20,698,941
$ 358,055
19,565,029
$ 314,016
18,287,449
$ 289,243
18,200,067
Tangible book value per common share
$
19.99
$
20.14
$
18.30
$
17.17
$
15.89
Tangible equity to tangible assets ratio:
Tangible equity
Tangible assets
$ 391,076
$ 4,576,167
$ 416,890
$ 4,176,662
$ 358,055
$ 3,829,369
$ 314,016
$ 3,437,110
$ 289,243
$ 3,286,330
Tangible equity to tangible assets
8.55 %
9.98 %
9.35 %
9.14 %
8.80 %
The decline in tangible equity to tangible assets at December 31, 2020, compared to 2019, was partially due to the origination of
PPP loans during 2020, coupled with the repurchase of common shares completed during the year and dividends paid to shareholders,
which exceeded net income for the year. The increase in the tangible equity to tangible assets ratio for 2019 was the result of higher
retained earnings, combined with common shares issued in connection with the First Prestonsburg acquisition and an increase in the
market value of available-for-sale investment securities. The increase in the tangible equity to tangible assets ratio for each of 2018
and 2017 was the result of higher retained earnings, partially offset by the decline in the market value of available-for-sale investment
securities. Also contributing to the increase in 2019 and 2018 was the issuance of common shares in connection with the First
Prestonsburg and ASB acquisition, respectively.
Future Outlook
The COVID-19 pandemic had a significant impact on Peoples' business and financial performance during 2020. The pandemic
caused a sudden shift in interest rates to near zero, which negatively impacted net interest income, while increasing expected credit
losses under the CECL model, in turn, increasing provision for credit losses during the year. As a result, Peoples closely monitored its
expenses, including deposit and borrowing costs, coupled with non-interest expense. During 2020, Peoples completed its premium
finance acquisition, further diversifying its loan portfolio and future opportunities for growth. Peoples also participated in the SBA
PPP during 2020, originating $489.0 million of loans under the program, which resulted in an additional $10.7 million of interest
income.
Peoples spent much of the year supporting its associates and communities during the pandemic, and will continue to do so in the
coming periods. While the future is unpredictable as the pandemic continues, and uncertainty around timing of vaccination of the
majority of individuals is still evolving, Peoples is committed to managing through the process with its clients and associates as a
priority, in addition to improving shareholder value.
For more information regarding risks and uncertainties that could impact the projections described, please refer to "ITEM 1A
RISK FACTORS" of this Form 10-K.
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 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 asset-liability management function is intended to guide management in the
acquisition and disposition of earning assets and selection of appropriate funding sources.
78
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 financial 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 management
policy is to assist the ALCO in its evaluation of the impact of changing interest rate conditions on earnings and the economic
value of equity, as well as assist with the implementation of strategies intended to reduce Peoples' IRR. The management of IRR
involves either maintaining or changing the level of risk exposure by changing the repricing and maturity characteristics of the
cash flows for specific assets or liabilities. Additional oversight of Peoples' IRR is provided by the Board of Directors of Peoples
Bank, who reviews and approves Peoples' IRR management policy at least annually.
The ALCO uses various methods to assess and monitor the current level of Peoples' IRR and the impact of potential
strategies or other changes. However, the ALCO predominantly relies on simulation modeling in its overall management of IRR
since it is a dynamic measure. Simulation modeling also estimates the impact of potential changes in interest rates and balance
sheet structures on future earnings and projected economic value of equity. The methods used by ALCO to assess IRR remain
largely unchanged from those disclosed at December 31, 2019.
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 changes in short-term interest rates is
different from the changes applied to longer-term interest rates. Comparisons showing the net interest income and economic
value of equity variances 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 with balances held constant (dollars in thousands):
Increase
(Decrease) in
Interest Rates
(in Basis Points) December 31, 2020
Estimated Increase (Decrease) in
Net Interest Income
December 31, 2019
December 31, 2020
Estimated (Decrease) Increase in
Economic Value of Equity
300
200
100
(100)
$ 22,034
15,899
8,981
(7,030)
17.3 % $ 14,806
12,063
12.5 %
7,895
7.1 %
(12,524)
(5.5) %
11.2 % $ 117,235
95,189
9.1 %
60,384
6.0 %
(9.5) % (116,205)
December 31, 2019
3.2 %
4.0 %
3.5 %
(5.7) %
15.7 % $ 35,743
45,651
12.7 %
39,137
8.1 %
(63,964)
(15.5) %
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 shows the impact of upward parallel shocks and a downward parallel shock of 100 basis points. Downward parallel
shocks of 300 and 200 basis points are excluded from the table as they are not probable given the current interest rate
environment. For the full year 2020, the weighted average rate on Peoples' non-maturity deposits was roughly 14 basis points. In
the event of a parallel downward shift of 100 basis points, the expense on Peoples' non-maturity deposits would reach a floor at
79
zero, unable to experience the full benefit of falling rates. This floor at zero is consistent with an assumption of non-negative
deposit rates. On the asset side of the balance sheet, a significant majority of the floating rate loans (primarily tied to LIBOR and
prime) would be impacted by the downward 100 basis point shock.
Estimated changes in net interest income and economic value of equity are partially driven by assumptions regarding the rate
at which non-maturity deposits will reprice given a move in short-term interest rates. These assumptions are monitored closely by
Peoples and are reviewed at least semi-annually. As of December 31, 2020, the actual deposit betas experienced by Peoples in the
repricing of non-maturity deposits were lower than those used in Peoples’ interest rate risk modeling.
While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in the balance sheet, interest rates
typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-
term interest rates. Thus, any benefit that might occur as a result of the Federal Reserve Board increasing short-term interest rates
in the future could be offset by an inverse movement in long-term rates, and vice versa. For this reason, Peoples considers other
interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. These include various flattening and
steepening scenarios in which short-term and long-term rates move in different directions with varying magnitude. Peoples
believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above.
Given the shape of market yield curves at December 31, 2020, consideration of the bull flattener scenario provides insights which
were not captured by parallel shifts. The key insight presented by the bull flattener scenario highlights the risk to net interest
income when long-term rates fall while short-term rates remain constant. In such a scenario, Peoples’ deposit costs, which are
correlated with short-term rates, remain constant while asset yields, which are correlated with long-term rates, fall. Asset yields
being reduced through increased premium amortization of investment securities and lower rates on re-investment would not be
offset by reductions in deposit or funding costs, resulting in a decreased amount of net interest income.
During 2020, Peoples' Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the
potential impact on net interest income. The table illustrates this point as changes to net interest income increase in the rising rate
scenarios. While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the
increase in asset sensitivity from December 31, 2019 was largely attributable to greater forecasted impacts of interest rate
movements on the amount of premium amortization in the investment portfolio.
Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are
designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples
making fixed payments. As of December 31, 2020, Peoples had seventeen interest rate swap contracts, with an aggregate notional
value of $160.0 million. Additional information regarding Peoples' interest rate swaps can be found in "Note 14 Derivative
Financial Instruments" of the Notes to the Consolidated Financial Statements.
An asset/liability model used to produce the analysis above requires assumptions to be made such as prepayment rates on
interest-earning assets and repricing impact on non-maturity deposits. These business assumptions are based on business plans,
economic and market trends, and available industry data. Management believes that its methodology for developing such
assumptions is reasonable; however, there can be no assurance that modeled results will be achieved.
Liquidity
In addition to IRR management, another major objective of the ALCO is to ensure sufficient levels of liquidity are
maintained. 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 deposits. Liquidity is also provided by cash generated from earning assets such
as 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, which includes 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 one month, three months, six months
and twelve 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 FRB of Cleveland), and the market value of U.S. government and agency
80
securities that are not pledged. Excluded from this definition are pledged securities, non-government securities, non-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 total loans and unfunded loan commitments. Peoples has also
established a policy limit around the level of liquefiable assets expressed as a percentage of total loans and unfunded loan
commitments. Liquefiable assets are defined as liquid assets plus the market value of unpledged securities not included in the
liquid asset measurement.
An essential element in the management of liquidity risk is a forecast of the sources and uses of anticipated cash flows. On a
monthly basis, Peoples forecasts sources and uses of cash for the next twelve months. To assist in the management of liquidity,
management has established a liquidity coverage ratio, which is defined as the total sources of cash divided by the total uses of
cash. A ratio of greater than 1.0 times indicates that forecasted sources of cash are adequate to fund forecasted uses of cash. The
liquidity management policy establishes a minimum limit of 1.0 times. As of December 31, 2020, Peoples had a ratio of 11.22
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, 2020, Peoples had a ratio of 12.51
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 factors 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 of Cincinnati and the FRB of Cleveland. Peoples' LCFP scenarios include a base scenario, a
mild stress scenario, a moderate stress scenario and a severe stress scenario. Each of these is defined as to the related 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 ("KRIs") that are monitored on a monthly
basis, at a minimum. The KRIs include both internal and external indicators and include loan delinquency levels, criticized and
classified loan levels, non-performing loans to loans and to total assets, the total loan to total 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 KRIs 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.
81
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
15
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 be only partially 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 thirty years. Several of Peoples’ leased facilities are inside retail
shopping centers or office buildings and, as a result, are not available for purchase. Management believes these leased facilities
increase Peoples’ visibility within its markets and afford sales associates additional access to current and potential clients.
For certain acquisitions, often those involving insurance businesses and wealth management books of business, a portion of the
consideration is contingent upon revenue metrics being achieved. US GAAP requires that the amounts be recorded upon acquisition
based on the best estimate of the future amounts to be paid at the time of acquisition. Any subsequent adjustment to the estimate is
recorded in earnings. Based on the acquisitions completed to date, management does not expect contingent consideration to have a
material impact on Peoples' future performance.
The following table details the aggregate amount of future payments Peoples is required to make under certain contractual
obligations as of December 31, 2020:
(Dollars in thousands)
Time deposits
Long-term borrowings (a)
Operating leases
Contingent consideration related to acquisitions (b)
Total
Payments due by period
Total
Less than 1
year
1-3 years
3-5 years
More than
5 years
$ 616,076 $ 461,579 $ 109,249 $
110,568
8,425
339
17,678
1,897
224
$ 735,408 $ 464,861 $ 129,048 $
1,979
1,188
115
45,186 $
1,510
1,120
—
47,816 $
62
89,401
4,220
—
93,683
(a) Amounts reflect solely the minimum required principal payments, and do not include interest.
(b) Amounts assume projected revenue metrics are achieved.
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
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
DISCLOSURE
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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, 2020. 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
(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 84 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 85 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, 2020, that have materially affected, or are reasonably likely to materially
affect, Peoples’ internal control over financial reporting.
ITEM 9B OTHER INFORMATION
None.
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Report of Management's Assessment of Internal Control Over Financial Reporting
Peoples' management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Peoples' internal control over financial
reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation,
integrity, and fair presentation of Peoples' Consolidated Financial Statements for external purposes in accordance with United States
generally accepted accounting principles.
With the supervision and participation of its President and Chief Executive Officer and its Executive Vice President, Chief Financial
Officer and Treasurer, management evaluated the effectiveness of Peoples' internal control over financial reporting as of December 31,
2020, 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, 2020, 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 audit report on Peoples' internal control over financial reporting.
By: /s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
By: /s/ KATIE BAILEY
Katie Bailey
Executive Vice President,
Chief Financial Officer and Treasurer
March 1, 2021
84
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, 2020, 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, 2020, 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 the Company as of December 31, 2020 and 2019, 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, 2020, and the related notes and our report dated March 1, 2021 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 the 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.
/s/ Ernst & Young LLP
Charleston, West Virginia
March 1, 2021
85
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2020, 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 (U.S.) (PCAOB), the
Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our
report dated March 1, 2021 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for the allowance for
credit losses in 2020, due to the adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Statements. See below for discussion of our related critical audit matter.
Basis for 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 on 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 the 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 risks 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
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
86
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the
critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Description
of the
Matter
How We
Addressed
the Matter
in Our
Audit
Accounting for the Allowance for Credit Losses
As discussed above and in Note 1 of the financial statements, on January 1, 2020, the Company adopted
Accounting Standards Update (“ASU”) 2016-13 Financial Instruments - Credit Losses (ASC 326): Measurement
of Credit Losses on Financial Instruments (CECL). Upon adoption, a one-time cumulative effect adjustment
was recorded which reduced retained earnings by $3.7 million, net of statutory corporate federal income taxes.
The Company’s loan portfolio totaled $3.4 billion as of December 31, 2020, and the associated allowance for
credit losses (ACL) was $50.4 million. As discussed in Note 1 and 4 of the financial statements, management
estimates the ACL based on information about past events, including historical experience, current conditions
and reasonable and supportable forecasts that affect the collectability of the reported amount. The ACL is made
up of both a quantitative modeled component as well as a qualitative component. The methodology for
determining the quantitative component includes (1) a pooled component for loans that exhibit similar risk
characteristics and (2) a specific component for those loans that do not exhibit similar risk characteristics. For
loans exhibiting similar risk characteristics, Peoples uses a loss driver method, which analyzes one or more
economic variables to the change in default rate using a regression analysis, and a discounted cash flow
methodology in determining an ACL for each segment. Management applies judgment in determining the extent
of qualitative factors used in the qualitative component to adjust the loss rates for loan segments to reflect the
impact these factors may have on expected losses in the loan portfolio. These include economic conditions,
collateral, concentrations, troubled assets, Peoples' loss trends, peer loss trends, delinquency trends, portfolio
composition and loan growth, underwriting, and certain other risks.
Auditing management’s estimate of the ACL involves a high degree of subjectivity due to the judgment and
estimates required in evaluating management’s determination of the qualitative factors applied to the ACL.
Management’s identification and measurement of the qualitative factors is highly judgmental and could have a
significant effect on the ACL.
We obtained an understanding of the Company’s processes for establishing the ACL at transition on January 1,
2020 and through the year ended December 31, 2020, including the qualitative factor adjustments made to the
loss rates for each segment. We evaluated the design and tested the operating effectiveness of controls over the
Company’s ACL processes, which included, among others, management’s review and approval controls
designed to assess the need and level of qualitative factors and the completeness and accuracy of the data utilized
to support management’s assessment.
To test the qualitative factors, we performed audit procedures that included, among others, the evaluation of the
appropriateness of management’s methodology and assessment of whether all relevant risks were reflected in the
ACL and the basis for the qualitative factors. Regarding the measurement of the qualitative factors, we evaluated
the completeness, accuracy and relevance of the underlying internal and external market data utilized in
management’s estimate and considered the existence of new or contrary information. We evaluated the data by
independently obtaining and comparing it to other third party macro-economic data. With the support of an
internal specialist, we assessed the completeness of the qualitative factors utilized in the calculation of the ACL.
We also compared the total ACL to the Company’s historical losses through recent credit cycles as a way to
evaluate that the total ACL inclusive of the qualitative factors is appropriately reflecting losses expected in the
portfolio and analyzed the change in the ACL relative to the change in the current economic environment.
Additionally, we evaluated whether the overall ACL, inclusive of the qualitative factors, appropriately reflected
losses expected in the loan portfolio by comparing to peer bank data.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1995.
Charleston, West Virginia
March 1, 2021
87
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
$734,544 at December 31, 2020 and $929,395 at December 31, 2019) (a)
Held-to-maturity investment securities, at amortized cost (fair value of $68,082
at December 31, 2020 and $32,541 at December 31, 2019) (a)(b)
Other investment securities
Total investment securities (a)(b)
Loans, net of deferred fees and costs (b)(c)
Allowance for credit losses (b)
Net loans (b)
Loans held for sale
Bank premises and equipment, net of accumulated depreciation
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 (b)
Total liabilities
Stockholders’ Equity
Preferred stock, no par value, 50,000 shares authorized no shares issued at
December 31, 2020 and December 31, 2019
Common stock, no par value, 24,000,000 shares authorized, 21,193,402 shares
issued at December 31, 2020 and 21,156,143 shares issued at December 31,
2019, including shares held in treasury
Retained earnings (b)
Accumulated other comprehensive income (loss), net of deferred income taxes
Treasury stock, at cost, 1,686,046 shares at December 31, 2020 and 504,182
shares at December 31, 2019
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
December 31,
2020
2019
60,902 $
91,198
152,100
53,263
61,930
115,193
753,013
936,101
66,458
31,747
37,560
857,031
3,402,940
(50,359)
3,352,581
4,659
60,094
71,591
171,260
13,337
78,111
4,760,764 $
42,730
1,010,578
2,873,525
(21,556)
2,851,969
6,499
61,846
69,722
165,701
11,802
60,855
4,354,165
997,323 $
2,913,136
3,910,459
73,261
110,568
90,803
4,185,091
671,208
2,620,204
3,291,412
316,977
83,123
68,260
3,759,772
—
—
422,536
420,876
190,691
1,336
187,149
(1,425)
(38,890)
(12,207)
575,673
4,760,764 $
594,393
4,354,165
$
(a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $0 and $60,000,
respectively, as of December 31, 2020.
(b) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the current expected credit loss ("CECL") model, which resulted in the establishment
of a $7,000 allowance for credit losses for held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance
for credit losses for purchased credit deteriorated loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior
to January 1, 2020) of $5.8 million; the addition of a $1.5 million unfunded commitment liability included in accrued expenses and other liabilities; and
a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.
(c) Also referred to throughout this document as "total loans" and "loans held for investment."
See Notes to the Consolidated Financial Statements
88
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Interest income:
Interest and fees on loans
Interest and dividends on taxable investment securities
Interest on tax-exempt investment securities
Other interest income
Total interest income
Interest expense:
Interest on deposits
Interest on short-term borrowings
Interest on long-term borrowings
Total interest expense
Net interest income
Provision for credit losses (a)
Net interest income after provision for credit losses
Non-interest income:
Electronic banking income
Insurance income
Trust and investment income
Deposit account service charges
Mortgage banking income
Bank owned life insurance income
Commercial loan swap fees
Net loss on asset disposals and other transactions
Net (loss) gain on investment securities
Other non-interest income (b)
Total non-interest income
Non-interest expense:
Salaries and employee benefit costs
Net occupancy and equipment expense
Electronic banking expense
Data processing and software expense
Professional fees
Franchise tax expense
Amortization of other intangible assets
Marketing expense
Other loan expenses
FDIC insurance expense
Communication expense
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
2020
2019
2018
$
140,090 $
14,188
2,484
342
157,104
143,340 $
23,205
2,631
919
170,095
13,500
2,571
2,110
18,181
138,923
26,254
112,669
22,210
4,712
2,335
29,257
140,838
2,504
138,334
14,246
14,042
13,662
9,418
6,499
1,977
1,741
(290)
(368)
2,745
63,672
13,680
14,802
13,159
11,700
4,328
2,430
2,228
(782)
164
2,565
64,274
125,263
23,132
2,467
402
151,264
13,705
5,238
2,709
21,652
129,612
5,448
124,164
11,477
14,812
12,543
9,778
3,333
1,955
681
(334)
(146)
2,655
56,754
76,361
12,808
7,777
7,441
6,912
3,506
3,223
2,101
1,584
1,302
1,134
9,546
133,695
42,646
7,879
34,767 $
1.74 $
1.73 $
69,308
11,272
6,057
5,419
7,862
2,771
3,338
1,962
1,431
1,546
1,265
13,746
125,977
54,941
8,686
46,255
$
2.42
$
$
2.41
19,721,772 20,120,119 18,991,768
19,843,806 20,273,725 19,122,260
77,860
12,431
7,186
6,332
7,095
3,071
3,359
2,291
1,956
602
1,181
13,886
137,250
65,358
11,663
53,695 $
2.65 $
2.63 $
(a) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model. Prior to the adoption of the CECL model, the provision for credit losses was the "provision
for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans (which includes purchased credit deteriorated loans), held-
to-maturity investment securities, and the unfunded commitment liability.
(b) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in realized and unrealized gains on equity investment securities recorded in other non-interest income of
$660,000, $831,000, and $207,000 for the years ended December 31, 2020, December 31, 2019 , and December 31, 2018, respectively.
See Notes to the Consolidated Financial Statements
89
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income
Other comprehensive income (loss):
Available-for-sale investment securities:
Gross unrealized holding gain (loss) arising in the period
Related tax (expense) benefit
Reclassification adjustment for net loss (gain) included in net income
Related tax (benefit) expense
Amounts reclassified out of accumulated other comprehensive loss per
ASU 2016-01 (a)
Net effect on other comprehensive income (loss)
Defined benefit plans:
Net (loss) gain arising during the period
Related tax benefit (expense)
Amortization of unrecognized gain on service benefit plans
Related tax expense
Recognition of gain due to settlement and curtailment
Related tax expense
Net effect on other comprehensive income (loss)
Cash flow hedges:
Net loss arising during the period
Related tax benefit
Net effect on other comprehensive loss
Total other comprehensive income (loss), net of tax
Total comprehensive income
2020
2019
2018
$
34,767 $
53,695 $
46,255
11,394
(2,393)
368
(77)
19,635
(4,123)
(164)
34
—
9,292
—
15,382
(1,072)
225
127
(27)
1,054
(221)
86
(385)
81
72
(15)
—
—
(247)
(3,910)
821
146
(31)
(5,020)
(7,994)
325
(69)
99
(21)
267
(56)
545
(8,376)
1,759
(6,617)
2,761
37,528 $
(4,591)
964
(3,627)
11,508
65,203 $
(341)
72
(269)
(7,718)
38,537
$
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, which resulted in the reclassification of $5.0 million in net unrealized gains on equity investment securities from
accumulated other comprehensive loss to retained earnings.
See Notes to the Consolidated Financial Statements
90
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Balance, December 31, 2017
Net income
Other comprehensive loss, net of tax (a)
Cash dividends declared
Exercise of stock appreciation rights
Reissuance of treasury stock for common share 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 repurchased under share repurchase program
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for Boards of
Directors
Stock-based compensation
Common shares issued under employee stock purchase plan
Issuance of common shares related to merger with ASB Financial
Corp. ("ASB")
Amounts reclassified out of retained earnings, net of tax, per ASU
2014-09 (b)
Balance, December 31, 2018
Net income
Other comprehensive loss, net of tax
Cash dividends declared
Reissuance of treasury stock for common share 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 repurchased under share repurchase program
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for Boards of
Directors
Stock-based compensation
Common shares issued under employee stock purchase plan
Issuance of common shares related to merger with First
Prestonsburg Bancshares Inc. ("First Prestonsburg")
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Stockholders'
Equity
$ 345,412 $ 134,362 $
(5,215) $
(15,967) $
458,592
—
—
46,255
5,020
—
(21,578)
(2)
(2,748)
—
—
—
—
—
(7,718)
—
—
—
—
—
—
—
2
2,748
46
46,255
(2,698)
(21,578)
—
—
46
—
—
—
(1,380)
(1,380)
—
668
104
2,359
123
40,898
—
—
—
—
—
—
—
(3,713)
—
—
—
—
—
—
—
—
—
194
—
270
—
—
—
668
298
2,359
393
40,898
(3,713)
$ 386,814 $ 160,346 $
(12,933) $
(14,087) $
520,140
—
—
53,695
—
—
11,508
—
(26,892)
(2,931)
—
—
—
—
—
—
—
—
—
2,931
53
—
—
—
(845)
—
904
78
3,462
112
32,437
—
—
—
—
—
—
—
—
—
—
—
—
(805)
—
235
—
311
—
53,695
11,508
(26,892)
—
53
(845)
(805)
904
313
3,462
423
32,437
Balance, December 31, 2019
$ 420,876 $ 187,149 $
(1,425) $
(12,207) $
594,393
91
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Total
Stockholders'
Equity
(Dollars in thousands)
Net income
Other comprehensive income, net of tax
Cash dividends declared
$
— $ 34,767 $
—
—
—
(27,516)
Reissuance of treasury stock for common share awards
(2,729)
—
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 Boards of
Directors
Common shares issued under performance unit awards, net of tax
Common shares issued under employee stock purchase plan
Stock-based compensation
—
—
—
—
799
17
41
(24)
3,556
—
—
—
—
—
—
—
Impact of adoption of new accounting standard, net of taxes (c)
—
(3,709)
— $
2,761
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
2,729
59
(1,128)
(29,281)
—
360
138
440
—
—
34,767
2,761
(27,516)
—
59
(1,128)
(29,281)
799
377
179
416
3,556
(3,709)
Balance, December 31, 2020
$ 422,536 $ 190,691 $
1,336 $
(38,890) $
575,673
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, which resulted in the reclassification of $5.0 million in net unrealized gains on equity investment securities from accumulated
other comprehensive loss to retained earnings.
(b) As of January 1, 2018, Peoples adopted ASU 2014-09, which resulted in a reduction to retained earnings of $3.7 million, net of statutory federal corporate income taxes, and an
increase in accrued expenses and other liabilities of $4.7 million, to reflect uncompleted contracts in the initial application of the guidance.
(c) On January 1, 2020, Peoples adopted ASU 2016-13, which resulted in a reduction to retained earnings of $3.7 million, net of statutory federal corporate
income tax.
See Notes to the Consolidated Financial Statements
92
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:
2020
2019
2018
$
34,767 $
53,695 $
46,255
Depreciation, amortization and accretion, net
Provision for credit losses
Bank owned life insurance income
Net loss (gain) on investment securities
Fair value adjustment on equity investment securities
Loans originated for sale
Proceeds from sales of loans
Net gains on sales of loans
Deferred income tax (benefit) expense
Increase in accrued expenses
(Increase) decrease in interest receivable
Increase (decrease) in other assets
Non cash lease expense
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
Other investment securities:
Purchases
Proceeds from sales
Proceeds from insurance claim
Net increase in loans held for investment
Net expenditures for premises and equipment
Proceeds from sales of other real estate owned
Proceeds from bank owned life insurance
Business acquisitions, net of cash received
Investment in limited partnership and tax credit funds
Net cash (used in) provided by investing activities
Financing activities:
Net increase in non-interest-bearing deposits
Net increase 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
Purchase of treasury stock in connection with employee incentive program and
compensation plan for Boards of Directors to be held as treasury stock
Proceeds from issuance of common shares
Contingent consideration payments made after a business acquisition
Net cash provided by (used in) financing activities
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
$
93
25,639
26,254
(1,977)
368
(660)
(260,974)
268,363
(6,446)
(8,101)
799
(865)
1,006
47
7,263
85,483
17,861
2,504
(2,430)
(164)
(831)
(156,058)
157,752
(3,667)
109
366
613
(1,227)
55
(1,421)
67,157
18,204
5,448
(1,955)
146
(207)
(123,134)
124,796
(2,846)
(309)
147
(854)
(533)
—
10,085
75,243
(261,395)
82,610
356,854
(271,924)
72,706
199,870
(137,818)
14,489
122,986
(40,112)
5,123
—
4,945
—
4,281
(6,261)
12,180
—
(444,128)
(4,299)
269
108
(94,856)
(12)
(393,919)
326,115
292,822
(263,716)
50,000
(2,715)
(27,052)
(29,281)
(3,114)
7,340
26
(10,661)
(2,809)
239
1,642
7,814
(5,021)
1,053
4,832
72,841
(76,809)
—
(3,501)
(25,942)
(805)
(1,128)
594
(296)
345,343
36,907
115,193
152,100 $
(845)
6
(406)
(30,629)
37,581
77,612
115,193 $
(2,689)
7,622
—
(134,071)
(4,531)
278
—
4,695
(5,398)
(130,156)
22,380
3,449
61,883
—
(4,591)
(20,915)
—
(1,380)
25
(520)
60,331
5,418
72,194
77,612
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
Supplemental cash flow information:
Interest paid
Income taxes paid
Supplemental noncash disclosures:
Transfers from loans to other real estate owned
Lease right-of-use assets obtained in exchange for lessee operating lease
liabilities
2020
2019
2018
$
$
$
18,939 $ 28,887 $ 19,920
6,135
11,450
12,500
296 $
153 $
62 $
3,701 $
90
—
See Notes to the Consolidated Financial Statements
94
PEOPLES BANCORP INC. AND SUBSIDIARIES
TABLE OF CONTENTS TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Note 2. Fair Value of Financial Instruments
Note 3. Investment Securities
Note 4. Loans
Note 5. Bank Premises and Equipment
Note 6. Goodwill and Other Intangible Assets
Note 7. Deposits
Note 8. Short-Term Borrowings
Note 9. Long-Term Borrowings
Note 10. Stockholders' Equity
Note 11. Employee Benefit Plans
Note 12. Income Taxes
Note 13. Earnings Per Common Share
Note 14. Derivative Financial Instruments
Note 15. Off-Balance Sheet Risk
Note 16. Regulatory Matters
Note 17. Stock-Based Compensation
Note 18. Revenue
Note 19. Acquisitions
Note 20. Parent Company Only Financial Information
Note 21. Summarized Quarterly Information (Unaudited)
96
105
108
112
120
121
123
124
125
127
129
132
134
134
136
136
138
140
140
142
144
95
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 85 financial service locations, including 76 full-service bank branches and 85 automated teller machines
in Ohio, Kentucky and West Virginia, 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, total comprehensive income, net cash provided by operating activities or total 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
(along with its wholly-owned subsidiaries) Peoples Investment Company, Peoples Risk Management, Inc. and NB&T Statutory
Trust III, for which Peoples holds all of the common securities. All 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.
Peoples had $41.0 million of restricted funds at December 31, 2020, and $20.0 million restricted funds at December 31, 2019,
held in interest-bearing deposits in other banks, 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, excluding equity investment securities, and any resulting gain or loss, is based
on the specific identification method and recognized as of the trade date. The cost of equity investment securities is based on the
weighted-average method.
Peoples 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 gains and losses reported in total stockholders' equity as a separate component
of accumulated other comprehensive income or loss ("AOCI"), net of applicable deferred income taxes.
Certain restricted equity investment 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 in 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").
Peoples evaluates available-for-sale investment securities on a quarterly basis to determine how much, if any, allowance for
credit losses is required. Peoples reviews available-for-sale investment securities at an unrealized loss position, with potential
exposure to a credit event (which excludes U.S. government and U.S. government sponsored agency securities) to determine if the
unrealized loss was credit-related. An allowance for credit losses is recorded to the extent that the unrealized losses are credit-
related and likely to be permanent.
Peoples evaluates held-to-maturity investment securities on a quarterly basis in determining an allowance for credit losses.
Peoples has determined that the loss given default for U.S. government sponsored enterprise investment securities is zero, due to
the fact that it is unlikely the ultimate guarantor (the U.S. government) would not perform on its implicit guarantee in the event of
96
default. The remaining securities are included in the calculation of the allowance for credit losses for held-to-maturity investment
securities.
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
financial instruments 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 financial 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 ("Repurchase Agreements"): Peoples enters into Repurchase Agreements
with customers and other financial services companies, which are considered financings. As such, these obligations are recorded
as a liability on the Consolidated Balance Sheets and disclosed in "Note 8 Short-Term Borrowings" and "Note 9 Long-Term
Borrowings," 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 Investment Securities." 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, purchase premiums and discounts, charge-
offs and an allowance for credit losses. The foreseeable future is based upon current market conditions and business strategies, as
well as balance sheet management and liquidity. As the conditions change, so may management's view of the foreseeable future.
Net deferred loan origination costs were $5.1 million and $9.8 million at December 31, 2020 and 2019, respectively.
Peoples considers loans 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. Upon detection of the reduced ability of a borrower to
meet cash flow obligations, consumer and residential real estate loans are typically charged down to the net realizable value, with
the residual balance placed on nonaccrual status. Loans deemed to be uncollectable are charged against the allowance for credit
losses, while recoveries of previously charged off amounts are credited to the allowance for credit losses.
Loans acquired in a business combination that have evidence of more than insignificant credit deterioration, which includes
loans that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered
"purchased credit deteriorated" loans. These loans are recorded at the purchase price, and an allowance for credit losses is
determined using the same methodology as for other loans. The initial allowance for credit losses determined on a collective basis
is allocated to individual loans. The total of the purchase price and allowance for credit losses is the initial amortized cost basis of
these loans. The variance between the initial amortized cost basis and the par value of the loan is considered an interest premium
or discount, which is amortized or accreted into interest income on a level yield method over the life of the loan.
Loans acquired in a business combination that are not considered purchased credit deteriorated are recorded at the 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.
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 credit 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.
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Interest Rate Lock Commitments: 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 in either other assets or accrued expenses and other liabilities. 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 Credit Losses: The allowance for credit losses includes both the allowance for credit losses for loans and the
allowance for credit losses on lending-related commitments. The allowance for credit losses is a valuation reserve established
through the provision for credit losses charged against income. The allowance for credit losses is estimated by management using
relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable
and supportable forecasts.
The allowance for credit losses is measured on a pool basis, with loans collectively evaluated when similar risk
characteristics exist. Peoples evaluated risk characteristics, including but not limited to: internal or third-party credit scores or
credit ratings, risk ratings or classifications, financial asset type, collateral type, size, effective interest rate, term, geographical
location, industry of the borrower, vintage, historical or credit loss patterns and reasonable and supportable forecast periods.
Peoples identified 17 segments for which it believes there are similar risk characteristics and utilized a discounted cash flow
methodology in determining an allowance for credit losses for each segment.
In estimating credit losses, Peoples uses a loss driver method, which analyzes one or more economic variables to the change
in default rate using a regression analysis. Variables that had a strong correlation were selected as economic factors, or variables,
for the model. If a single variable was not found to be strongly correlated, additional variables were included. Peoples utilizes
the U.S. unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as
economic factors in modeling.
Probabilities of default are used in the loss driver model, and are analyzed on a quarterly basis to assess reasonableness.
Peoples measured loss given default at the segment level due to statistical considerations using historical information.
Peoples also utilized peer data due to somewhat volatile loss history in certain segments to normalize default curves, which
provided more meaningful results.
Peoples modeled amortizing loans with a prepayment rate annualized to one year. The prepayment rates were calculated
using Peoples' historical data, at the segment level.
Peoples models extensions of contractual terms in the following situations: when a loan is 60 days or more past due, when a
partial charge-off has occurred, if the loan is in nonaccrual status, if a troubled debt restructuring ("TDR") has occurred, or if the
loan is grade 5 or higher. When any of these criteria are met and the loan matures within the next 12 months, the loan will be
modeled to extend for an additional 12 months.
In general, Peoples completes a quarterly evaluation based on several qualitative factors to determine if there should be
adjustments made to the allowance for credit losses. These factors include economic conditions, collateral, concentrations,
troubled assets, Peoples' loss trends, peer loss trends, delinquency trends, portfolio composition and loan growth, underwriting,
and certain other risks.
The allowance for credit losses related to specific loans was 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.
Peoples categorized loans involving commercial borrowers into risk categories based upon an established grading matrix.
This system was used to manage the risk within Peoples' commercial lending activities, evaluate changes in the overall credit
quality of the loan portfolio and evaluate the appropriateness of the allowance for credit 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 at least 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 at least 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 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
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any 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 any 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.
Peoples has elected the practical expedient not to measure allowance for credit losses for accrued interest receivables.
Unfunded Commitments: Peoples also completes a quarterly evaluation for unfunded commitments for loans that are not
unconditionally cancellable, which includes construction loans, floor plan lines of credit, home equity lines of credit, other credit
lines and letters of credit. Peoples performed a study to determine the historical funding rates of unadvanced portions of loans,
and applied these funding rates to the unfunded commitments at period end. The loss rates, including qualitative factors, in
determining the allowance for credit losses were applied at the segment level to the unfunded commitment amount to determine
the allowance for credit loss liability for unfunded commitments.
Troubled Debt Restructuring ("TDR"): The restructuring of a loan is considered a 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 deteriorated 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 evaluated
individually to determine if a write-down is required and if they should be on accrual or nonaccrual status.
On March 22, 2020, federal and state banking regulators issued a joint statement, with which the FASB concurred as to the
approach, regarding accounting for loan modifications for borrowers affected by COVID-19, based on provisions included in the
CARES Act. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who
were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee
waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that
are considered current are those that are less than 30 days past due on their contractual payments at the time a modification
program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state
government related to COVID-19 are not in the scope of accounting for TDRs defined in ASC 310-40. Based on this guidance,
Peoples does not classify COVID-19 loan modifications as TDRs.
On August 3, 2020, federal and state banking regulators issued a joint statement, encouraging financial institutions to
consider prudent accommodation options to mitigate losses for the borrower and financial institution beyond the initial
accommodation period. In this guidance, institutions should also provide consumers with available options for repaying missed
payments at the end of their accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable
and affordable payments for the long term. These considerations should also include prudent risk management practices at the
financial institution based on the credit risk of the borrower. Peoples is actively working with its customers to address any further
accommodation needs while carefully evaluating the associated credit risk of the borrowers.
Nonaccrual loans: 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.
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Under the Coronavirus Aid, Relief and Economic Security ("CARES") Act, which was subsequently extended under
legislation enacted in December 2020, borrowers who were making payments as required and were not considered past due prior
to becoming affected by COVID-19 and then receive payment accommodations as a result of the effects of COVID-19 generally
would not be reported as past due. If Peoples agrees to a payment deferral for a borrower under the CARES Act, this may result
in no contractual payments being past due, and the loans are not considered past due during the period of the deferral. Under the
guidance, during the time that Peoples maintains these short-term arrangements with borrowers, it should not report the loans as
nonaccrual.
Bank Premises and Equipment: Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is
computed on the straight-line method over the estimated useful lives of the related assets owned. Major improvements to leased
facilities are capitalized and included in bank premises at cost less accumulated depreciation, which is calculated on the straight-
line method over the lesser of the remaining term of the leased facility or the estimated economic life of the improvement.
Investments in Affordable Housing Limited Partnerships: Investments in affordable housing consist of investments in limited
partnerships that operate qualified affordable housing projects or that invest in other limited partnerships formed to operate
affordable housing projects. These investments are considered variable interest entities for which Peoples is not the primary
beneficiary. Peoples generally utilizes the effective yield method to account for these investments with the tax credits, net of the
amortization of the investment, reflected in the Consolidated Statements of Income as a reduction in income tax expense. The
unamortized amount of the investments is recorded in other assets and totaled $13.0 million and $13.9 million at December 31,
2020 and 2019, respectively.
Other Real Estate Owned ("OREO"): 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 $134,000 at December 31, 2020 and $227,000 at December 31, 2019.
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 October 1, 2020, based upon the estimated fair value of Peoples'
single reporting unit.
Peoples' other intangible assets include customer relationship intangible assets, 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 represent the right to service loans sold to third-party investors. Loans that are sold are
primarily mortgage loans, but also include small business and agricultural loans. Servicing rights are recognized separately as a
servicing asset whenever Peoples undertakes an obligation to service financial assets. Servicing rights 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 servicing rights 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 utilizing a straight-line
basis approach 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 servicing rights is
determined by using a discounted cash flow model, which estimates the present value of the future net cash flows of the servicing
portfolio based on various factors, such as servicing costs, expected prepayment speeds and discount rates.
Derivatives: Peoples enters into derivative financial instruments to manage exposures that arise from business activities that
result in the receipt or payment of future known or expected cash amounts, the value of which is determined by interest rates.
Peoples’ derivative financial instruments are used to manage differences in the amount, timing and duration of Peoples' known or
expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. Peoples
also has interest rate derivative financial instruments 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
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to customer-related derivative financial instruments in order to minimize its net risk exposure resulting from such transactions.
Amounts reported in AOCI related to derivatives are reclassified to interest income or expense as interest payments are made or
received on Peoples' variable-rate assets or liabilities. For derivative financial instruments designated as cash flow hedges, the
effective portion of changes in the fair value of each derivative financial instrument is reported in AOCI (outside of earnings), net
of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of
changes in the fair value of the derivative financial instrument 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.
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.
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. This includes yield adjustments resulting from the amortization of premiums on
investment securities, loan costs and premiums, and accretion of discounts on investment securities, loan fees and discounts.
Loans that have been placed on nonaccrual, and are subsequently returned to accruing status, recognize interest income similar to
other accruing loans once they return to accruing status. Prior accrued interest that was reversed when the loan was placed on
nonaccrual is recognized when received, after all of the principal of the loan outstanding has been paid. 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.
Under the CARES Act, Peoples has made certain modifications that include the short-term deferral of interest for certain
borrowers. In these cases, Peoples recognizes interest income as earned. The deferred interest will be repaid by the borrower in a
future period.
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 the terms in written contracts, such as loan agreements or securities contracts.
As of January 1, 2018, Peoples adopted ASU 2014-09 – Revenue from Contracts with Customers (Topic 606), and all
subsequent updates that modified Accounting Standards Codification ("ASC") 606. Peoples elected to adopt this new accounting
guidance using the modified retrospective approach. The modified retrospective approach uses a cumulative-effect adjustment to
retained earnings to reflect uncompleted contracts in the initial application of the guidance. As of January 1, 2018, Peoples
recorded a cumulative-effect adjustment for uncompleted contracts, which resulted in a reduction to retained earnings and an
increase in accrued expenses and other liabilities of $3.7 million, which was net of federal income taxes. The impact during 2018
was an increase in insurance income and a decrease in retained earnings of $305,000 as a result of applying ASC 606. Prior
period amounts are not adjusted and continue to be reported under the accounting standards in effect for those respective periods.
Estimates of variable consideration are included in revenue to the extent that it is probable that a significant reversal of
cumulative revenue will not occur, once the uncertainty is resolved. Peoples' contracts with customers are short-term in nature,
and were recognized under the following revenue streams:
Insurance Income: Insurance income generally consists of commissions and fees from the sale of insurance policies, fees
related to third-party administration services and performance-based commissions from insurance companies.
Peoples recognizes commission income from the sale of insurance policies when it acts as an agent between the insurance
carrier and policyholder, arranging for the insurance carrier to provide policies to policyholders, and acts on behalf of the
insurance carrier by providing customer service to the policyholders during the respective policy periods. Commission
income is recognized over time, using the output method of time elapsed, which corresponds with the underlying insurance
policy period, during which Peoples is obligated to perform under contract with the insurance carrier. Commission income is
variable, as it is comprised of a certain percentage of the underlying policy premium. Peoples estimates the variable
consideration based upon the "most likely amount" method, and does not expect or anticipate a significant reversal of revenue
in future periods, based upon historical experience. Payment is due from the insurance carrier for commission income once
the insurance policy has been sold. Peoples has elected to apply a practical expedient related to capitalizable costs, which are
the commissions paid to insurance producers, and will expense these commissions paid to insurance producers as incurred, as
these costs are related to the commission income and would have been amortized within one year or less if they had been
capitalized, the same period over which the commission income was earned.
Fees related to third-party administration services performed are recognized over time, during the period in which services
have been provided, and are recognized monthly in the month the services were performed.
Performance-based commissions from insurance companies are recognized at a point in time, when received, and no
contingencies remain.
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Electronic Banking Income: Electronic banking income consists of two revenue streams related to interchange income, and
promotional and usage income.
Peoples recognizes interchange income over time, on a monthly basis, which is based on the transactional volume of
debit card activity completed by its customers during the month in which income is recognized. Peoples is obligated, based
on its contracts with third parties, to meet certain volumes of debit card activities, which are performed by Peoples'
customers, over a certain period of time. Interchange income is variable as it is based on the transaction volume of debit card
activity completed by Peoples' customers. Peoples estimates the variable consideration based upon the most likely amount
method, and does not expect or anticipate a significant reversal of revenue in future periods. Payment is due for all PIN
transactions from the vendor within one month of the completed customer debit card activity, while all other interchange
transaction fees are earned and recorded on a daily basis. Peoples has elected to apply a practical expedient of right to
invoice when recognizing interchange income, as Peoples has fulfilled the required performance obligations, the vendor has
consumed the service, and Peoples has a right to the related income.
Peoples also recognizes promotional and usage income over time, on a monthly basis, which is related to branding of
debit cards and promotion or use of certain services provided by third-party vendors. Peoples is obligated to brand its debit
cards in a certain manner, and promote and use services provided by third-party vendors. Promotional and usage income is
variable as it is based on certain metrics achieved for promotion and usage of services provided by the third-party vendors.
Peoples estimates the variable consideration based upon the most likely amount method, and does not expect or anticipate a
significant reversal of revenue in future periods. Payment is due from the third-party vendors within 45 days of the monthly
fulfillment of Peoples' performance obligation. Peoples has elected to apply a practical expedient of right to invoice when
recognizing promotional and usage income, as Peoples has fulfilled the required performance obligations, the vendor has
consumed the service, and Peoples has a right to the related income.
Trust and Investment Income: Trust and investment income consists of revenue from fiduciary and brokerage activities,
which includes fees for services such as asset management, record keeping, retirement services and estate management, and
investment commissions and fees related to the sale of investments. Trust and investment income is recognized over time,
which reflects the duration of the contract period for which services have been provided. Trust and investment income is
variable as it is based on the value of assets under administration and management, and specific transactions. Peoples
estimates the variable consideration based upon the most likely amount method, and does not expect or anticipate a
significant reversal of revenue in future periods. Payment is due from the customer when billed, which is typically a monthly
or quarterly billing for services rendered in the most recent period, for which the performance obligation has been satisfied.
Peoples has elected to apply a practical expedient of right to invoice when recognizing trust and investment income, as
Peoples has fulfilled the performance obligation, the customer has consumed the service, and Peoples has a right to the
related income. Peoples has also elected to apply a practical expedient related to capitalizable costs, which are the
commissions paid to financial advisors, and will expense these commissions paid to financial advisors as incurred, as these
costs are related to the trust and investment income and would have been amortized within one year or less if they had been
capitalized, the same period over which the income was earned.
Deposit Account Service Charges: Deposit account service charges consist of two revenue streams related to ongoing
maintenance fees for deposit accounts and transactional-based fees.
Ongoing maintenance fees are recognized on a monthly basis, generally with the monthly period beginning on the day of
the month on which the account was opened. Ongoing maintenance fee income is variable as these fees can be reduced if a
customer meets certain qualifying metrics. Peoples estimates the variable consideration based upon the most likely amount
method, and does not expect or anticipate a significant reversal of revenue in future periods. For accounts that are assessed
maintenance fees through the account analysis process, payment is due from the customer within one month after the monthly
period in which the account activity occurred. For all other accounts, monthly maintenance fees are assessed to the account
on the last day of the monthly period. Peoples has elected to apply a practical expedient of right to invoice when recognizing
ongoing maintenance fees for deposit accounts, as Peoples has fulfilled the required performance obligations, the customer
has consumed the service, and Peoples has a right to the related income.
Transactional-based fees are recognized at a point in time, which is at the completion of the relevant transaction. Peoples
is obligated to perform certain transactions as requested by its consumer and business deposit account customers, which are
outside of the normal maintenance requirements. Transactional-based fee income is variable as these fees are directly related
to a service request from the customer. Peoples estimates the variable consideration based upon the most likely amount
method, and does not expect or anticipate a significant reversal of revenue in future periods. Payment is due from the
customer at the time of completion of the requested transaction.
Commercial Loan Swap Fees: Commercial loan swap fees consist of income related to transactions in which Peoples Bank
originates variable rate loans with interest rate swaps, where the customer enters into an interest rate swap with Peoples Bank
on terms that match the terms of the loan. By entering into the interest rate swap with the customer, Peoples Bank effectively
provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples Bank offsets its
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exposure in the swap by entering into an offsetting interest rate swap with an unaffiliated institution. Commercial loan swap
fees are recognized at a point in time, when the transaction has been completed, and there is no recourse or further
performance obligation required of Peoples. Commercial loan swap fees are variable as these fees are a certain percentage of
the total swap fee collected on a completed transaction. Peoples estimates the variable consideration based upon the most
likely amount method, and does not expect or anticipate a significant reversal of revenue in future periods. Payment is due
from the customer at the time of completion of the requested transaction.
Other Non-Interest Income: Other non-interest income includes certain revenues that are transactional-based, such as wire
transfer fees, money order fees and other ancillary fees or services. These transactional-based fees are recognized as income
at a point in time, at the completion of the relevant transaction. Transactional-based fee income is variable as these fees are
directly related to a service request from the customer. Peoples estimates the variable consideration based upon the most
likely amount method, and does not expect or anticipate a significant reversal of revenue in future periods. Payment is due
from the customer at the time of completion of the requested transaction.
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 corporate income 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 "TCJ Act") was enacted on December 22, 2017, and Peoples' Consolidated Financial
Statements fully reflect the impact of the TCJ Act as of December 31, 2018. As a result of the final impact of the TCJ Act,
Peoples recorded a reduction to income tax expense of $0.7 million during 2018.
At December 31, 2017, Peoples had completed the accounting for the tax effects of enactment of the TCJ Act; however, in
certain cases, Peoples made reasonable estimates of the effects of a reduced statutory federal corporate income tax rate on its
existing deferred tax balances. Peoples also early adopted and retrospectively applied the reclassification of stranded income tax
effects from AOCI to retained earnings as of December 31, 2017, as permitted by ASU 2018-02.
A tax position is initially recognized in the financial statements when it is more-likely-than-not the position will be sustained
upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax
benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge
of the position and all relevant facts. Penalties and interest incurred under the applicable tax law are classified as income tax
expense. The amount of Peoples' uncertain income tax positions and unrecognized benefits are disclosed in "Note 12 Income
Taxes."
Advertising Costs: Advertising costs are expensed as incurred.
Earnings per Share ("EPS"): Basic and diluted 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 EPS is
computed by dividing net earnings allocated to common shareholders by the weighted-average number of common shares
outstanding. Diluted EPS is computed by dividing net earnings allocated to common shareholders by the weighted-average
number of common shares outstanding adjusted to include the effect of potentially dilutive common shares. Potentially dilutive
common shares include incremental common shares issuable upon exercise of outstanding stock appreciation rights and non-
vested restricted common shares using the treasury stock method.
Operating Segments: Peoples' business activities are currently confined to one reporting operating segment, which is community
banking. As a community banking entity, Peoples offers its customers a full range of products including a complete line of
banking, insurance, investment and trust solutions.
Stock-Based Compensation: Stock-based compensation for restricted stock awards is measured at the fair value of these awards
on their grant date. Stock-based compensation is recognized over the restriction period for restricted stock awards. Only the
expense for the portion of the awards expected to vest is recognized. For service-based awards, stock-based compensation for
awards granted to employees who are eligible for retirement is recognized on the date the employee is first eligible to retire.
New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the 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.
Accounting Standards Update ("ASU") 2020-10 - Codification Improvements. This guidance provides clarification of the
Codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting
103
practice or create significant administrative cost to most entities. This update is effective for annual periods beginning after
December 15, 2020 (effective January 1, 2021 for Peoples). Peoples has reviewed and applied the improvements as applicable.
ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting. This guidance provides optional expedients and exceptions for applying US GAAP to contracts, hedging
relationships, and other transactions affected by reference rate reform if certain criteria are met. This guidance was further
updated by ASU 2021-01. This update is effective as of March 12, 2020 through December 31, 2022. Per the guidance, Peoples
is continuing to evaluate the impact of ASU 2020-04 on Peoples' consolidated financial statements.
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 was to be
effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples).
Peoples early adopted this new accounting guidance as of January 1, 2019, and it was incorporated in the October 1, 2019 annual
goodwill and intangible assets impairment analysis, and did not have a material impact on 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 "incurred loss" model for recognizing credit losses with an "expected loss" model, referred
to as the Current Expected Credit Loss ("CECL") methodology. Under the CECL methodology, Peoples is required to present
certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity investment securities, at
the net amount expected to be collected. ASU 2018-19 clarified that receivables arising from operating leases are not within the
scope of Accounting Standards Codification ("ASC") 326-20, and should be accounted for according to ASC 842.
The measurement of expected credit losses is based on information about past events, including historical experience, current
conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The measurement takes
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 under previous US GAAP accounting guidance, which delayed recognition until it was probable a loss
had been incurred.
Peoples adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost on
January 1, 2020. Reporting periods beginning after December 31, 2019 are presented as required by ASU 2016-13, while prior
period amounts continue to be reported in accordance with previously applicable US GAAP requirements. Peoples is using the
prospective transition approach for financial assets purchased with credit deterioration that were previously classified as
purchased credit impaired assets and accounted for under ASC 310-30.
As of January 1, 2020, Peoples recorded a one-time cumulative-effect adjustment to reduce retained earnings by $3.7 million,
net of statutory corporate federal income taxes, an increase in allowance for credit losses of $5.8 million and an increase in
unfunded commitment liability of $1.5 million. On January 1, 2020, the amortized cost basis of the purchased credit deteriorated
assets was adjusted to reflect the addition of $2.6 million to establish the allowance for credit losses. The remaining interest-
related discount is being accreted into interest income at the effective interest rate beginning on January 1, 2020. As of January 1,
2020, Peoples did not record an allowance for credit losses for available-for-sale investment securities, as all unrealized losses on
these securities were deemed to be non-credit in nature, with no credit deterioration upon review by Peoples. Peoples recorded an
allowance for credit losses for held-to-maturity securities of $7,000 as of January 1, 2020.
104
The following table illustrates the impact on the allowance for credit losses from the adoption of ASU 2016-13:
As Reported Under ASC 326
January 1, 2020
Pre-ASC 326 Adoption
December 31, 2019
Impact of ASC 326
Adoption
$
2,876,147 $
2,873,525 $
2,622
(Dollars in thousands)
Assets:
Loans, at amortized cost
Allowance for credit losses on loans:
Construction
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Deposit account overdrafts
Allowance for credit losses on loans
Liabilities:
Allowance for credit losses for unfunded
commitments
$
Note 2 Fair Value of Financial Instruments
651
8,549
5,820
4,360
1,572
5,389
890
94
27,325
1,188
6,560
8,568
1,296
612
2,942
296
94
21,556
(537)
1,989
(2,748)
3,064
960
2,447
594
—
5,769
1,495 $
— $
1,495
Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most
advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value
accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or
a non-recurring basis in the Consolidated Financial Statements. Those assets and liabilities are presented below in the sections entitled
"Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis" and "Assets and Liabilities
Required to be Measured and Reported at Fair Value on a Non-Recurring Basis."
Depending on the nature of the asset or liability, Peoples uses various valuation methodologies and assumptions to estimate fair
value. The measurement of fair value under US GAAP uses a hierarchy, which is described in "Note 1 Summary of Significant
Accounting Policies."
Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to
measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other
circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or
liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods
presented in the Consolidated Financial Statements.
105
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis
The following table provides the fair value for assets and liabilities required to be measured and reported at fair value on a
recurring basis on the Consolidated Balance Sheets by level in the fair value hierarchy.
(Dollars in thousands)
Assets:
Recurring Fair Value Measurements at Reporting Date
December 31, 2020
December 31, 2019
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Available-for-sale investment securities:
Obligations of:
U.S. government sponsored agencies
States and political subdivisions
$
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Total available-for-sale securities
Equity investment securities (a)
Derivative assets (b)
Liabilities:
Derivative liabilities (c)
5,363 $
— $
— 114,919
— 623,218
4,783
—
—
4,730
— 753,013
192
107
27,332
—
$
—
—
—
—
—
—
—
—
— $
8,209 $
— 114,104
— 791,009
18,088
—
—
4,691
— 936,101
198
123
11,419
—
—
—
—
—
—
—
—
—
—
$
— $ 39,395 $
—
$
— $ 15,116 $
(a) Included in other investment securities on the Consolidated Balance Sheets. For additional information, see "Note 3 Investment Securities."
(b) Included in other assets on the Consolidated Balance Sheets. For additional information, see "Note 14 Derivative Financial Instruments."
(c) Included in accrued expenses and other liabilities on the Consolidated Balance Sheets. For additional information, see "Note 14 Derivative Financial
Instruments."
Available-for-Sale Investment Securities: 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) or fair values determined by pricing models using a
market approach that considers observable market data, such as interest rate volatility, LIBOR yield curves, credit spreads and
prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality
controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and
challenges prices when management believes a material discrepancy in pricing exists.
Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from quoted prices in active
exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2).
Derivative Assets and Liabilities: Derivative assets and liabilities are recognized on the Consolidated Balance Sheets at their fair
value within other assets, and accrued expenses and other liabilities, respectively. The fair value for derivative financial
instruments is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters
(Level 2).
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis
The following table provides the fair value for each class of assets and liabilities required to be measured and reported at fair
value on a non-recurring basis on the Consolidated Balance Sheets by level in the fair value hierarchy.
(Dollars in thousands)
Impaired loans (a)
OREO
Servicing rights (b)(c)
Non-Recurring Fair Value Measurements at Reporting Date
December 31, 2020
December 31, 2019
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$
— $
—
—
$
— $
—
—
—
134
2,591
— $
—
—
— $ 29,100
227
—
—
3,881
(a) Impaired loans for 2020 is $0 due to adopting ASU 2016-13.
(b) Included in other intangible assets on the Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or market value.
(c) Peoples established a valuation allowance on servicing rights of $161,000 during 2020, as the fair value of the servicing rights was less than the carrying
value.
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. The carrying value of OREO
is not re-measured to fair value on a recurring basis, but is based on recent real estate appraisals and is updated at least annually.
These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach
106
and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for
differences between the comparable sales and income data available (Level 3).
Financial Instruments Not Required to be Measured and Reported at Fair Value
The following table provides the carrying amount for each class of assets and liabilities, and the fair value for certain financial
instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheets.
(Dollars in thousands)
Assets:
Cash and cash equivalents
Held-to-maturity investment securities:
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
Other investment securities:
FHLB stock
FRB stock
Nonqualified deferred compensation
Other investment securities
Other investment securities (a)
Net loans
Loans held for sale
Bank owned life insurance
Financial liabilities:
Deposits
Short-term borrowings
Long-term borrowings
Fair Value Measurements of Other Financial Instruments
December 31, 2019
December 31, 2020
Fair Value
Hierarchy
Level
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$ 152,100 $ 152,100 $ 115,193 $ 115,193
1
2
2
2
2
2
2
2
3
2
3
2
2
2
4,791
21,569
6,181
32,541
27,235
13,310
1,499
35,139
25,890
5,429
66,458
35,484
26,742
5,856
68,082
4,346
21,494
5,907
31,747
21,718
13,311
1,867
365
37,261
21,718
13,311
1,867
365
37,261
3,352,581 3,408,373
4,733
71,591
4,659
71,591
27,235
13,310
1,499
365
42,409
365
42,409
2,851,969 3,147,190
6,553
69,722
6,499
69,722
$ 3,910,459 $ 3,773,602 $ 3,291,412 $ 3,292,950
317,973
82,701
316,977
83,123
73,261
110,568
74,170
117,364
(a) Other investment securities, as reported on the Consolidated Balance Sheets, also includes equity investment securities for 2020 and 2019, which are
reported in the Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis table above.
For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial
instrument. These financial instruments include cash and cash equivalents, demand and other non-fixed-maturity deposits, and
overnight borrowings. Peoples used the following methods and assumptions in estimating the fair value of the following financial
instruments:
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. The carrying amount for cash on hand and balances due from banks is a reasonable estimate of fair value (Level 1).
Held-to-Maturity Investment Securities: The fair values used by Peoples are obtained from an independent pricing service
and represent fair values determined by pricing models using a market approach that considers observable market data, such
as interest rate volatility, relevant yield curves, credit spreads and prices from market makers and live trading systems (Level
2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's
overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a
material discrepancy in pricing exists.
Other Investment Securities: Other investment securities are measured at their respective redemption values due to
restrictions placed on their transferability (Level 2).
Net Loans: The fair value of portfolio loans assumes the 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). Fair values for loans are estimated using a discounted cash
flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with
similar terms, the credit risk associated with the loan and other market factors, including liquidity.
107
Loans Held for Sale: Loans originated and intended to be sold in the secondary market, generally one-to-four family
residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. The use of a valuation model using
quoted prices of similar instruments are significant inputs in arriving at the fair value (Level 2).
Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level
3). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from
death benefits.
Servicing Rights: The fair value of the servicing rights is determined by using a discounted cash flow model, which
estimates the present value of the future net cash flows of the servicing portfolio based on various factors, such as servicing
costs, expected prepayment speeds and discount rates (Level 3).
Deposits: The fair value of fixed-maturity certificates of deposit ("CDs") is estimated using a discounted cash flow
calculation based on current rates offered for deposits of similar remaining maturities (Level 2).
Short-term Borrowings: The fair value of short-term borrowings is estimated using a discounted cash flow analysis based on
rates currently available to Peoples for borrowings with similar terms (Level 2).
Long-term Borrowings: The fair value of long-term borrowings is estimated using a discounted cash flow analysis based on
rates currently available to Peoples for borrowings with similar terms (Level 2).
Certain financial assets and financial liabilities that are not required to be measured or reported at fair value can be subject to fair
value adjustments in certain circumstances (for example, when there is evidence of impairment). These financial assets and liabilities
include the following: customer relationships, the deposit base, and other information required to compute Peoples’ aggregate fair
value, which 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)
2020
Obligations of:
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Total available-for-sale securities
2019
Obligations of:
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Total available-for-sale securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
4,960 $
110,401
609,865
4,622
4,696
$ 734,544 $
403 $
4,642
15,377
161
192
20,775 $
— $
(124)
(2,024)
—
(158)
5,363
114,919
623,218
4,783
4,730
(2,306) $ 753,013
$
7,917 $
111,217
787,430
18,135
4,696
$ 929,395 $
292 $
3,018
7,763
88
137
11,298 $
— $
(131)
(4,184)
(135)
(142)
8,209
114,104
791,009
18,088
4,691
(4,592) $ 936,101
The unrealized losses related to residential mortgage-backed securities at December 31, 2020 and 2019 were attributable to
changes in market interest rates and spreads since the securities were purchased.
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 (loss) gain realized
2020
2019
2018
$
$
655 $
1,022
(367) $
252 $
88
164 $
6
152
(146)
108
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.
The following table presents a summary of available-for-sale investment securities that had an unrealized loss at December 31:
Less than 12 Months
Unrealized
Loss
No. of
Securities
Fair
Value
(Dollars in thousands)
2020
Obligations of:
12 Months or More
Unrealized
Loss
No. of
Securities
Fair
Value
Total
Fair
Value
Unrealized
Loss
States and political subdivisions $ 17,651 $
124
5 $
— $
Residential mortgage-backed
securities
Bank-issued trust preferred
securities
Total
2019
Obligations of:
156,659
1,795
494
6
45
1
9,892
1,848
$ 174,804 $
1,925
51 $ 11,740 $
—
229
152
381
— $ 17,651 $
124
13
166,551
2,024
2
2,342
158
15 $ 186,544 $
2,306
States and political subdivisions $ 6,226 $
74
2 $ 2,441 $
57
1 $ 8,667 $
131
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Bank-issued trust preferred
securities
Total
284,096
2,527
62
88,993
1,657
39
373,089
4,184
970
—
21
—
1
—
2,409
114
1,858
142
3
2
3,379
1,858
135
142
$ 291,292 $
2,622
65 $ 95,701 $
1,970
45 $ 386,993 $
4,592
Management systematically evaluates available-for-sale investment securities for an allowance of credit losses on a quarterly
basis. At December 31, 2020, management concluded no individual securities at an unrealized loss position required an allowance for
credit losses. At December 31, 2020, 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,
2020 and 2019 were largely attributable to changes in market interest rates and spreads since the securities were purchased and were
not credit related losses. Accrued interest receivable is not included in investment securities balances, and is presented in the "Other
assets" line of the Consolidated Balance Sheets, with no recorded allowance for credit losses. Interest receivable on investment
securities was $2.7 million at December 31, 2020 and $3.6 million at December 31, 2019
At December 31, 2020, approximately 99% of the fair value of mortgage-backed securities that had been at an unrealized loss
position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1%, or two positions,
consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Neither of the
two positions had a fair value of less than 90% of their book value. Management analyzed the underlying credit quality of these
mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these
investments and the low number of loans underlying these securities.
The unrealized losses with respect to the two bank-issued trust preferred securities that had been in an unrealized loss position for
twelve months or more at December 31, 2020 were primarily attributable to the subordinated nature of the debt.
109
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, 2020. The weighted-average yields are based on the amortized cost and are computed on a fully
taxable-equivalent basis using a statutory federal corporate income tax rate of 21%. 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:
Within 1
Year
1 to 5
Years
5 to 10
Years
Over 10
Years
Total
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Total available-for-sale securities
$
—
6,317
2
—
—
$ 6,319
$ 4,960
26,728
5,413
2,543
—
$ 39,644
$
—
34,663
69,803
953
4,696
$ 110,115
$
—
42,693
534,647
1,126
—
$ 578,466
$ 4,960
110,401
609,865
4,622
4,696
$ 734,544
Fair value
Obligations of:
U.S. government sponsored agencies
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Bank-issued trust preferred securities
Total available-for-sale securities
Total weighted-average yield
$
—
6,375
2
—
—
$ 6,377
$ 5,363
27,905
5,498
2,601
—
$ 41,367
$
—
36,996
70,376
991
4,730
$ 113,093
$
—
43,643
547,342
1,191
—
$ 592,176
$ 5,363
114,919
623,218
4,783
4,730
$ 753,013
2.45 %
2.67 %
2.23 %
2.13 %
2.18 %
Held-to-Maturity
The following table summarizes Peoples’ held-to-maturity investment securities at December 31:
(Dollars in thousands)
2020
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
2019
Obligations of:
States and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total held-to-maturity securities
Amortized
Cost
Allowance
for Credit
Losses (a)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
$
$
$
35,199 $
25,890
5,429
66,518 $
4,346 $
21,494
5,907
31,747 $
(60) $
—
—
(60) $
510 $
852
427
1,789 $
(165) $
—
—
(165) $
35,484
26,742
5,856
68,082
— $
—
—
— $
445 $
169
275
889 $
— $
(94)
(1)
(95) $
4,791
21,569
6,181
32,541
(a) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, which resulted in the establishment of a $7,000 allowance
for credit losses for held-to-maturity investment securities
There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for the years ended
December 31, 2020, 2019 and 2018.
Management evaluates held-to-maturity investment securities for an allowance for credit losses on a quarterly basis. The
majority of Peoples' held-to-maturity investment securities are issued by U.S. government sponsored agencies. The remaining
securities are obligations of state and political subdivisions. Peoples analyzed these securities using cumulative default rate averages
for investment grade municipal securities. As a result, at December 31, 2020, Peoples recorded $60,000 of allowance for credit losses
for held-to-maturity securities, compared to $7,000 at January 1, 2020.
110
The following table presents a summary of held-to-maturity investment securities that had an unrealized loss at December 31:
Less than 12 Months
Unrealized
Loss
No. of
Securities
Fair
Value
(Dollars in thousands)
2020
Obligations of:
12 Months or More
Unrealized
Loss
No. of
Securities
Fair
Value
Total
Fair
Value
Unrealized
Loss
States and political subdivisions $ 18,662 $
$ 18,662 $
Total
165
165
5 $
5 $
— $
— $
2019
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Total
$ 7,731 $
1,666
$ 9,397 $
67
1
68
1 $
890 $
1
—
2 $
890 $
—
—
27
—
27
— $ 18,662 $
— $ 18,662 $
165
165
1 $ 8,621 $
—
1,666
1 $ 10,287 $
94
1
95
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, 2020. The weighted-average yields are based on the amortized cost and are computed on a fully
taxable-equivalent basis using a statutory federal corporate income tax rate of 21%. 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
$
$
$
$
—
—
—
—
$
988
—
374
$ 1,362
$ 2,511
2,715
3,737
$ 8,963
$ 31,700
23,175
1,318
$ 56,193
$ 35,199
25,890
5,429
$ 66,518
—
—
—
—
— %
$ 1,163
—
382
$ 1,545
$ 2,832
2,820
4,128
$ 9,780
$ 31,489
23,922
1,346
$ 56,757
$ 35,484
26,742
5,856
$ 68,082
0.63 %
2.97 %
1.04 %
1.29 %
Other Investment Securities
Peoples' other investment securities on the Consolidated Balance Sheets consist largely of shares of FHLB of Cincinnati and FRB
of Cleveland stock, and other equity investment securities.
The following table summarizes the carrying value of Peoples' other investment securities at December 31:
(Dollars in thousands)
FHLB stock
FRB stock
Nonqualified deferred compensation
Equity investment securities
Other investment securities
Total other investment securities
$
$
2020
2019
21,718 $
13,311
1,867
299
365
37,560 $
27,235
13,310
1,499
321
365
42,730
During 2020, Peoples redeemed $10.5 million of FHLB stock in order to be in compliance with the requirements of the FHLB.
Peoples purchased $5.0 million of additional FHLB stock during 2020, as a result of the FHLB's capital requirements on FHLB
advances during the year. During 2019, Peoples redeemed $4.9 million of FHLB stock in order to be in compliance with the
requirements of the FHLB, and acquired $2.8 million of FHLB stock through the First Prestonsburg acquisition.
As of January 1, 2018, Peoples adopted ASU 2016-01, which requires changes in the fair value of equity investment securities to
be recognized in net income. Prior to 2018, changes in the fair value of equity investment securities were recognized through AOCI.
During the year ended December 31, 2020, Peoples recorded the change in the fair value of equity investment securities held at
December 31, 2020 in other non-interest income, resulting in an unrealized loss of $19,000. Net realized gains on sales of equity
investment securities included in other non-interest income during 2020 consisted of a realized gain of $680,000 related to the sale of
111
restricted Class B Visa stock, which had been held at a carrying cost and fair value of zero due to the litigation liability associated with
the stock. During the year ended December 31, 2019, Peoples recorded the change in the fair value of equity investment securities
held at December 31, 2019 in other non-interest income, resulting in unrealized gain of $44,000. Additionally, the adoption of ASU
2016-01 resulted in the reclassification of equity investment securities from available-for-sale investment securities to other
investment securities. Consequently, as of January 1, 2018, net realized gains on the sale of equity investment securities are included
in other non-interest income on the Consolidated Statements of Income. Net realized gains on sales of equity investment securities,
included in other non-interest income during 2019, consisted of a realized gain of $787,000 related to the sale of restricted Class B
Visa stock, which had been held at a carrying cost and fair value of zero due to the litigation liability associated with the stock.
During 2018, there was a $413,000 realized loss on the sale of equity investment securities, included in other non-interest income.
At December 31, 2020, Peoples' investment in equity investment securities was comprised largely of common stocks issued by
various unrelated bank holding companies. There were no equity investment securities of a single issuer that exceeded 10% of
Peoples' stockholders' equity.
Pledged Securities
Peoples had pledged available-for-sale investment securities and held-to-maturity investment securities 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 and held-to-maturity securities to secure additional borrowing capacity at the FHLB and the FRB.
The following table summarizes the carrying value of Peoples' pledged investment securities as of December 31:
(Dollars in thousands)
Securing public and trust department deposits, and Repurchase
Agreements:
Available-for-sale
Held-to-maturity
Securing additional borrowing capacity at the FHLB and the FRB:
Available-for-sale
Held-to-maturity
Note 4 Loans
Carrying Amount
2020
2019
$
547,734 $
16,971
1,685
11,316
527,655
12,975
44,618
14,155
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, central and eastern Kentucky and west central
West Virginia. Peoples also originates insurance premium finance loans nationwide through its premium finance division. Acquired
loans consist of loans purchased in 2012 or thereafter. 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)
Construction
Commercial real estate, other
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Deposit account overdrafts
Total loans, at amortized cost
2020
2019
106,792 $
929,853
973,645
114,758
574,007
120,913
503,527
79,094
351
3,402,940 $
88,518
833,238
662,993
—
661,476
132,704
417,185
76,533
878
2,873,525
$
$
Commercial and industrial loan balances grew significantly compared to December 31, 2019. Peoples began participating as a
Small Business Administration ("SBA") Paycheck Protection Program ("PPP") lender during the second quarter of 2020, and
112
originated $488.9 million of PPP loans during 2020. At December 31, 2020, the PPP loans had an amortized cost of $366.9 million,
and were included in commercial and industrial loan balances. Peoples recorded deferred loan origination fees related to the PPP
loans, net of deferred loan origination costs, which totaled $7.9 million at December 31, 2020. During 2020, Peoples recorded
accretion of net deferred loan origination fees of $7.5 million on PPP loans. The remaining net deferred loan origination fees will be
accreted over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income.
Accrued interest receivable is not included within the loan balances, but is presented in the “Other assets” line of the Consolidated
Balance Sheets, with no recorded allowance for credit losses as Peoples elected the practical expedient not to measure allowance for
credit losses for accrued interest receivables. Interest receivable on loans was $10.9 million at December 31, 2020 and $9.1 million at
December 31, 2019.
Nonaccrual and Past Due Loans
A loan is considered past due if any required principal and interest payments have not been received as of the date such payments
were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or
not such loan is considered past due.
The amortized cost of loans on nonaccrual status and loans delinquent for 90 days or more and accruing were as follows at
December 31:
2020
2019
(Dollars in thousands)
Construction
Commercial real estate, other
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Accruing
Loans 90+
Days Past Due
Nonaccrual (a)
Accruing Loans 90+
Days Past Due (b)
Nonaccrual (a)(b)
$
4 $
— $
411 $
9,111
6,192
—
8,375
867
1,073
—
50
589
1,975
82
39
6,801
2,155
—
6,361
1,165
840
—
907
155
—
2,677
108
—
Consumer, direct
Total loans, at amortized cost
(a) There were $1.3 million of nonaccrual loans for which there was no allowance for credit losses as of December 31, 2020 and $3.1 million of such loans
48
17,781 $
171
25,793 $
17
2,752 $
85
3,932
$
at December 31, 2019.
(b) The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days
past due and accruing category to the nonaccrual category as of January 1, 2020. At December 31, 2019, these loans were presented as 90+ days past
due and accruing.
As of December 31, 2020, Peoples had made short-term modifications, such as payment deferrals, fee waivers, extensions of
repayment terms, or other delays in payment for current borrowers, which were insignificant. Under the CARES Act and interagency
guidance, borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a
modification program is implemented. As such, these modifications made under the CARES Act are not included in Peoples'
nonaccrual or accruing loans 90+ days past due as of December 31, 2020.
The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans
from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020. As of December 31, 2019, these
loans were presented as 90+ days past due and accruing. Although they were not accruing contractual interest income, they were
accreting income from the discount that was recognized due to acquisition accounting. The additional increase in nonaccrual loans at
December 31, 2020, compared to December 31, 2019, was due to two commercial relationships aggregating $3.2 million and several
smaller commercial relationships being placed on nonaccrual. The amount of interest income recognized on nonaccrual loans during
2020 was $1.6 million.
113
The following tables present the aging of the recorded investment in past due loans at December 31:
(Dollars in thousands)
2020
Construction
Commercial real estate, other
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Deposit account overdrafts
Total loans, at amortized cost
2019
Construction
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Deposit account overdrafts
Total loans, at amortized cost
Loans Past Due
30 – 59 days 60 – 89 days
90 + Days
Total
Current
Total
$
$
$
$
— $
1,943
567
385
6,739
309
4,362
424
—
14,729 $
5 $
376
2,780
10,538
642
3,574
619
—
18,534 $
344 $
283
552
1,021
2,688
58
733
43
—
5,722 $
— $
337
312
2,918
510
714
117
—
4,908 $
4 $
8,643
4,535
589
5,512
780
348
123
—
20,534 $
411 $
7,501
1,244
5,872
1,033
370
112
—
16,543 $
348 $
10,869
5,654
1,995
14,939
1,147
5,443
590
—
106,792
929,853
973,645
114,758
574,007
120,913
503,527
79,094
351
40,985 $ 3,361,955 $ 3,402,940
106,444 $
918,984
967,991
112,763
559,068
119,766
498,084
78,504
351
416 $
8,214
4,336
19,328
2,185
4,658
848
—
88,518
833,238
662,993
661,476
132,704
417,185
76,533
878
39,985 $ 2,833,540 $ 2,873,525
88,102 $
825,024
658,657
642,148
130,519
412,527
75,685
878
The increase in loans 90+ days past due, compared to December 31, 2019, was mostly due to a $1.5 million commercial
relationship. Delinquency trends remained stable as 98.8% of Peoples' portfolio was considered "current" at December 31, 2020,
compared to 98.6% at December 31, 2019.
Pledged Loans
Peoples has pledged certain loans secured by one-to-four family and multifamily residential mortgages, and home equity lines of
credit under a blanket collateral agreement to secure borrowings from the FHLB. Peoples also has pledged commercial loans to
secure borrowings with the FRB. Loans pledged are summarized as follows at December 31:
(Dollars in thousands)
Loans pledged to FHLB
Loans pledged to FRB
2020
2019
$
740,584 $
107,340
458,227
172,693
During 2020, Peoples pledged additional collateral to the FHLB and FRB to secure potential funding needs in light of the
COVID-19 pandemic, as well as to fund the PPP loan originations that occurred during the year.
Related Party Loans
In the normal course of its business, Peoples Bank has granted loans to certain directors and officers of Peoples, including their
affiliates, families and entities in which they are principal owners. At December 31, 2020, no related party loan was past due 90 or
more days, a TDR 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 the addition and exit of directors during the year, as applicable.
(Dollars in thousands)
Balance, December 31, 2019
New loans and disbursements
Repayments
Other changes
Balance, December 31, 2020
114
$
$
15,380
3,932
(5,053)
(1,128)
13,131
Credit Quality Indicators
As discussed in "Note 1 Summary of Significant Accounting Policies," Peoples categorizes the majority of its loans into risk
categories based upon an established risk grading matrix using a scale of 1 to 8. 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 $1.0 million are reviewed at least on an annual basis for possible credit deterioration.
Loan relationships whose aggregate credit exposure to Peoples is equal to or less than $1.0 million are reviewed on an event driven
basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements
indicating deteriorating credit quality or other similar events. Adversely classified loans are reviewed on a quarterly basis. 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 are to 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.
"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 estimated 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 credit losses are taken in the period in which the loan becomes uncollectable.
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."
115
The following tables summarize the risk category of Peoples' loan portfolio based upon the most recent analysis performed at
December 31:
(Dollars in
thousands)
Construction
Pass
Special mention
Substandard
2020
2019
2018
2017
2016
Prior
Revolving
Loans
Converted
to Term
Total
Loans
Revolving
Loans
$ 27,670 $ 56,361 $
554 $ 15,089 $
824 $
1,194 $
3,199 $
2,003 $ 104,891
—
—
—
—
496
—
—
186
—
—
143
1,076
—
—
—
—
639
1,262
Total
27,670
56,361
1,050
15,275
824
2,413
3,199
2,003
106,792
Commercial real estate, other
Pass
116,441 125,373
99,522
94,465
99,668 215,385 109,160
9,748
860,014
Special mention
Substandard
Doubtful
297
—
—
5,806
1,191
—
999
677
—
5,296
1,709
—
5,125
1,663
—
12,932
27,066
78
3,967
3,033
—
60
110
—
34,422
35,339
78
Total
116,738 132,370 101,198 101,470 106,456 255,461 116,160
9,918
929,853
Commercial and industrial
Pass
409,237
97,362
67,284
38,450
45,026
77,009 199,597
30,680
933,965
Special mention
1,034
366
2,018
287
1,453
1,452
12,429
526
Substandard
2,226
3,569
2,873
2,167
318
4,163
3,436
1,083
Doubtful
Total
Premium finance
Pass
Total
—
—
—
—
1,698
191
—
187
412,497 101,297
72,175
40,904
48,495
82,815 215,462
32,476
973,645
114,758
114,758
—
—
—
—
—
—
—
—
—
—
—
—
—
—
114,758
114,758
Residential real estate
Pass
Substandard
Loss
Total
47,147
40,223
24,235
29,142
43,105 309,795
65,168
305
558,815
—
—
—
—
—
—
—
—
—
—
15,048
144
—
—
—
—
15,048
144
47,147
40,223
24,235
29,142
43,105 324,987
65,168
305
574,007
Home equity lines of credit
19,039
18,752
1,889
16,469
13,513
12,548
12,382
11,869
40,626
13,506
4,091
120,913
16,469
13,513
12,548
12,382
11,869
40,626
13,506
4,091
120,913
Pass
Total
Consumer, indirect
Pass
Total
Consumer, direct
Total
Deposit account
overdrafts
Total loans, at
amortized cost
210,014
92,696
71,807
39,608
17,156
11,563
60,683
210,014
92,696
71,807
39,608
17,156
11,563
60,683
Pass
31,689
15,923
11,085
4,531
2,529
4,193
31,689
15,923
11,085
4,531
2,529
4,193
9,144
9,144
351
—
—
—
—
—
—
—
—
503,527
503,527
—
—
—
79,094
79,094
351
$ 977,333 $ 452,383 $ 294,098 $ 243,312 $ 230,434 $ 722,058 $ 483,322 $
48,793 $ 3,402,940
During 2020, Peoples downgraded several relationships due to the COVID-19 pandemic. The COVID-related downgrades
contributed to increases of $29.8 million of additional criticized loans and $9.4 million of additional classified loans compared to
balances at December 31, 2019. At December 31, 2020, Peoples had a total of $1.5 million of loans secured by residential real estate
mortgages that were in the process of foreclosure.
116
Collateral Dependent Loans
Peoples has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is
experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail
about the types of collateral that secure collateral dependent loans:
• Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied
investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings,
warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-
owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities,
multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.
• Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second
mortgage.
• Home equity lines of credit are generally secured by second mortgages on residential real estate property.
• Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some
consumer loans are unsecured and have no underlying collateral.
The following table details Peoples' amortized cost of collateral dependent loans at December 31:
(Dollars in thousands)
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Total collateral dependent loans
2020
2019
8,467
6,333
1,670
403
—
—
16,873
$
$
6,818
1,962
1,847
681
713
94
12,115
$
$
The increase in collateral dependent commercial and industrial loans at December 31, 2020 compared to December 31, 2019 was
mostly due to two commercial relationship that became collateral dependent, coupled with some smaller relationships. In addition, the
increase in collateral dependent consumer loans was driven by a change in the policy threshold for evaluation of individually impaired
loans, which was previously $100,000 and on January 1, 2020 was changed to $250,000, thereby reducing the amount of loans
considered collateral dependent which were no longer above the threshold.
117
The following table summarizes the loans that were modified as TDRs during the years ended December 31, 2020 and 2019.
(Dollars in thousands)
2020
Commercial real estate, other
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer , direct
Consumer
Total
2019
Originated loans:
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Consumer
Total
Acquired loans:
Construction
Commercial and industrial
Residential real estate
Home equity lines of credit
Consumer, direct
Total
Recorded Investment (a)
Number
of
Contracts
Pre-
Modification
Post-
Modification
Remaining
Recorded
Investment
5 $
2,294 $
2,294 $
6
16
7
27
7
34
68 $
2 $
3
4
17
3
20
29 $
3,820
1,388
123
349
99
448
8,073 $
3,820
1,423
123
349
99
448
8,108 $
38 $
38 $
437
139
260
52
312
440
139
260
52
312
926 $
929 $
3 $
101 $
76 $
5
38
8
10
1,557
2,069
172
124
1,557
2,069
173
124
64 $
4,023 $
3,999 $
2,217
3,736
1,406
116
313
89
402
7,877
32
431
136
234
45
279
878
76
1,464
1,967
164
114
3,785
(a) 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.
118
The following table presents those loans modified into a TDR during 2020 that subsequently defaulted (i.e., 90 days or more past
due following a modification during 2020). There were no loans modified into a TDR during the year that subsequently defaulted in
2019.
(Dollars in thousands)
Commercial real estate, other
Consumer, indirect
Total
2020
Number
of
Contracts
Recorded
Investment (a)
Impact on the Allowance
for Credit Losses
1
1
2 $
54
15
69 $
—
—
—
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR
that were fully paid down, charged-off or foreclosed upon by period end are not reported.
Peoples had no commitments to lend additional funds to the related borrowers whose loan terms have been modified in a TDR.
Allowance for Credit Losses
Changes in the allowance for credit losses for the period ended December 31, 2020 are summarized below:
(Dollars in thousands)
Beginning Balance,
January 1, 2020
Initial
Allowance for
Purchased
Credit
Deteriorated
Assets
Provision for
Credit Losses
(a)
Charge-offs Recoveries
Ending Balance,
December 31,
2020
Construction
$
600 $
51 $
1,236 $
— $
— $
Commercial real estate, other
Commercial and industrial
Premium finance
Residential real estate
Home equity lines of credit
Consumer, indirect
Consumer, direct
Deposit account overdrafts
Total
$
7,193
4,960
—
3,977
1,570
5,389
856
94
24,639 $
1,356
860
—
383
2
—
34
9,315
5,987
1,098
1,735
379
(528)
(1,565)
(3)
(353)
(103)
4,262
(1,923)
329
(187)
200
2,521
—
302
12
302
49
—
2,686 $
456
24,797 $
(673)
(5,335) $
186
3,572 $
1,887
17,536
12,763
1,095
6,044
1,860
8,030
1,081
63
50,359
(a) Amount does not include the provision for unfunded commitment liability.
The significant increase in the allowance for credit losses as of December 31, 2020 compared to January 1, 2020 was mostly due
to the COVID-19 pandemic, and the resulting impact on economic forecasts utilized in the CECL model. Peoples calculates its
allowance for credit losses using a discounted cash flow model, and incorporates economic forecasts, including U.S. unemployment,
Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic factors. The
economic forecast used in the December 31, 2020 calculation of the allowance for credit losses included higher unemployment rates
and lower Ohio Gross Domestic Product than those at January 1, 2020, which drove much of the increase in the allowance for credit
losses at December 31, 2020. In addition, Peoples recorded an increase of $5.8 million in allowance for credit losses on January 1,
2020 related to the implementation of ASU 2016-13.
During 2020, Peoples recognized a recovery of $2.5 million on a commercial and industrial loan that was previously charged-off.
As of December 31, 2020, Peoples had recorded an unfunded commitment liability of $2.9 million, an increase compared to the
$1.5 million that was recorded on January 1, 2020. The unfunded commitment liability is presented in the “Accrued expenses and
other liabilities” line of the Consolidated Balance Sheets.
119
Note 5 Bank Premises and Equipment
The major categories of bank premises and equipment, net of 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
2020
2019
$
15,035 $
74,807
32,482
122,324
(62,230)
60,094 $
$
15,317
73,097
30,268
118,682
(56,836)
61,846
Peoples depreciates its building and premises, and furniture, fixtures and equipment over estimated useful lives generally ranging
from five to forty years and two to ten years, respectively. Depreciation expense was $6.0 million in 2020, $5.7 million in 2019 and
$4.9 million in 2018.
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 thirty years. Certain leases may include options to extend or terminate the lease.
Only those renewal and termination options which Peoples is reasonably certain of exercising are included in the calculation of the
lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in
the calculation of the lease liability. Short-term leases of certain facilities and equipment, with lease terms of 12 months or less, are
recognized on a straight-line basis over the lease term. At December 31, 2020, Peoples did not have any finance leases or any
significant lessor agreements. Right of Use ("ROU") assets represent the right to use an underlying asset for the lease term and lease
liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are
recognized at the commencement or remeasurement date of a lease based on the present value of lease payments over the remaining
lease term. Operating lease ROU assets include lease payments made at or before the commencement date and initial indirect costs.
Operating lease ROU assets exclude lease incentives.
Peoples elected certain practical expedients, in accordance with the adoption of ASC 842. Peoples elected to recognize a
cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019 for the implementation of ASU 2016-02.
Peoples also made an accounting policy election to account for each separate lease component of a contract and its associated non-
lease components as a single lease component for all leases subject to ASC 842.
The table below details Peoples' lease expense, which is included in net occupancy and equipment expense in the Consolidated
Statements of Income at December 31:
(Dollars in thousands)
Operating lease expense
Short-term lease expense
Total lease expense
2020
2019
$
$
1,308 $
322
1,630 $
1,227
137
1,364
Peoples utilizes an incremental borrowing rate to determine the present value of lease payments for each lease, as the lease
agreements do not provide an implicit rate. The estimated incremental borrowing rate reflects a secured rate and is based on the term
of the lease and the interest rate environment at the lease commencement or remeasurement date.
120
The following table details the ROU asset, the lease liability and other information related to Peoples' operating leases:
(Dollars in thousands)
Right-of-use asset:
Other assets
Lease liability:
Accrued expenses and other liabilities
Other information:
Weighted-average remaining lease term
Weighted-average discount rate
Cash paid during the year for operating leases
Additions for right-of-use assets obtained during the year ended
December 31, 2020
December 31, 2019
$
$
$
$
6,522
$
6,776
$
12.4 years
3.14 %
1,260
62
$
$
7,606
7,813
12.4 years
3.16 %
1,172
3,701
The following table summarizes the future lease payments of operating leases:
(Dollars in thousands)
Payments
Year ending December 31, 2021
$
Year ending December 31, 2022
Year ending December 31, 2023
Year ending December 31, 2024
Year ending December 31, 2025
Thereafter
Total undiscounted lease payments
Imputed interest
Total lease liability
$
$
1,188
1,022
875
625
495
4,220
8,425
(1,649)
6,776
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
Goodwill recorded from acquisitions
Goodwill, end of year
2020
2019
$
$
165,701 $
5,559
171,260 $
151,245
14,456
165,701
Peoples performed the required annual goodwill impairment test as of October 1, 2020, and concluded there was no impairment in
the recorded value of goodwill as of October 1, 2020, based upon the estimated fair value of the single reporting unit. Peoples elected
to bypass the qualitative assessment and perform the quantitative impairment test.
On January 1, 2020, Peoples Insurance acquired a property and casualty-focused independent insurance agency, for which
Peoples recorded $0.1 million of goodwill. On July 1, 2020, Peoples completed its acquisition of Triumph Premium Finance, for
which Peoples recorded $5.5 million of goodwill. On April 12, 2019, Peoples completed its acquisition of First Prestonsburg, for
which Peoples recorded $14.5 million of goodwill. For additional information on these acquisitions, refer to "Note 19 Acquisitions."
121
Other intangible assets
Other intangible assets were comprised of the following at December 31:
(Dollars in thousands)
Core Deposits
Customer
Relationships
Total
2020
Gross intangibles
$
22,233 $
Intangibles recorded from acquisitions
Accumulated amortization
Total acquisition-related intangibles
$
—
(17,298)
4,935 $
Servicing rights
Total other intangibles
2019
Gross intangibles
Intangibles recorded from acquisitions
Accumulated amortization
$
Total acquisition-related intangibles
$
17,999 $
4,234
(15,120)
7,113 $
Servicing rights
Total other intangibles
7,480 $
5,015
(6,579)
5,916 $
$
7,480 $
—
(5,533)
1,947 $
$
29,713
5,015
(23,877)
10,851
2,486
13,337
25,479
4,234
(20,653)
9,060
2,742
11,802
Peoples performed other intangible assets impairment testing as of October 1, 2020 and concluded there was no impairment in the
recorded value of other intangible assets as of October 1, 2020. During the annual other intangible assets 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 other intangible assets exceeded the carrying value.
Other intangible assets recorded from the above mentioned acquisitions in 2020 were $5.0 million of customer relationship
intangible assets. Refer to "Note 19 Acquisitions" for additional information. Other intangible assets recorded from the First
Prestonsburg acquisition in 2019 were $4.2 million of core deposit intangible assets.
The following table details estimated aggregate future amortization of other intangible assets at December 31, 2020:
(Dollars in thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Core
Deposits
Customer
Relationships
Total
$
1,568 $
1,189 $
1,011
1,007
727
587
455
872
761
654
2,757
2,018
1,599
1,348
1,109
587
4,935 $
1,433
5,916 $
2,020
10,851
$
The weighted average amortization period of other intangibles is 8.4 years.
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
Valuation allowance
Balance, end of year
2020
2019
2018
$
$
2,742 $
(1,121)
1,026
—
(161)
2,486 $
2,655 $
(871)
958
—
—
2,742 $
2,305
(1,155)
1,229
276
—
2,655
During 2020, Peoples recorded a valuation allowance of $161,000 related to the decrease in the fair value of servicing rights. No
valuation allowances were required at December 31, 2019 and 2018 for Peoples’ servicing rights since, at each date, the fair value
equaled or exceeded the book value.
122
The fair value of servicing rights was $2.6 million and $3.9 million at December 31, 2020 and 2019, respectively. Fair value at
December 31, 2020 was determined using discount rates ranging from 8.3% to 10.8%, and prepayment speeds ranging from 12.8% to
21.1%, depending on the stratification of the specific right, utilizing state delinquency to calculate the default rate. Fair value at
December 31, 2019 was determined using discount rates ranging from 9.8% to 12.3%, and prepayment speeds ranging from 8.9% to
12.8%.
Note 7 Deposits
Peoples’ deposit balances were comprised of the following at December 31:
(Dollars in thousands)
Retail CDs:
$100,000 or more
Less than $100,000
Retail CDs
Interest-bearing deposit accounts
Savings accounts
Money market deposit accounts
Governmental deposit accounts
Brokered deposit accounts
2020
2019
$
220,532 $
242,476
225,398
445,930
692,113
628,190
591,373
385,384
170,146
248,354
490,830
635,720
521,914
469,893
293,908
207,939
Total interest-bearing deposits
2,913,136
2,620,204
Non-interest-bearing deposits
Total deposits
997,323
671,208
$ 3,910,459 $ 3,291,412
Time deposits that meet or exceed the Federal Deposit Insurance Corporation ("FDIC") limit of $250,000 were $89.0 million and
$100.8 million at December 31, 2020 and 2019, respectively.
The contractual maturities of CDs and brokered demand and savings deposits for each of the next five years and thereafter are as
follows:
(Dollars in thousands)
2021 (a)
2022
2023
2024
2025
Thereafter
Total CDs
Retail
Brokered
Total
$
296,104 $
165,475 $
461,579
76,102
28,476
32,778
4,182
489
—
12,408
62
445,930 $
—
—
170,146 $
$
80,284
28,965
32,778
12,408
62
616,076
(a) Brokered includes $110.0 million of brokered demand and savings deposits.
Deposits from related parties were $11.5 million at December 31, 2020 and 2019.
As of December 31, 2020, Peoples had seventeen effective interest rate swaps, with an aggregate notional value of $160.0 million,
of which $50.0 million were funded by 90-day brokered CDs and $110.0 million were funded by brokered demand and savings
deposits. Brokered CDs and deposits are expected to be extended every 90 days through the maturity dates of the swaps. Additional
information regarding Peoples' interest rate swaps can be found in "Note 14 Derivative Financial Instruments."
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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)
2020
Ending balance
Average balance
Highest month-end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
2019
Ending balance
Average balance
Highest month-end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
2018
Ending balance
Average balance
Highest month-end balance
Interest expense
Weighted-average interest rate:
End of year
During the year
(a) NM = not meaningful.
Retail
Repurchase
Agreements
FHLB
Advances
National
Market
Repurchase
Agreements Other (a)
$ 53,261
44,902
53,261
77
$
$ 20,000
129,928
235,989
2,489
$
0.06 %
0.17 %
1.78 %
1.92 %
$ 42,968
46,686
49,081
266
$
$ 274,009
197,987
274,009
4,455
$
0.37 %
0.57 %
1.74 %
2.25 %
$ 51,202
64,519
72,822
194
$
$ 305,000
219,897
307,561
4,494
$
$
$
$
$
$
$
—
—
—
—
— %
— %
—
—
—
—
— %
— %
—
14,329
30,000
527
$
$
$
$
$
$
—
1,803
64,000
5
— %
0.25 %
—
126
2,200
—
— %
NM
(4)
301
1,553
23
0.48 %
0.30 %
2.32 %
2.04 %
— %
3.68 %
— %
NM
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, 90-day advances used to fund interest rate swaps, other advances with an
original maturity of one year or less, and the current portion of long-term advances due in less than one year. These advances, along
with the long-term advances disclosed in "Note 9 Long-Term Borrowings," 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. Peoples reclassified $20.0 million and $23.2 million of FHLB advances from long-term borrowings to
short-term borrowings in 2020 and 2019, respectively, due to maturity dates of less than one year. Peoples' FHLB advances of $163.0
million and $42.2 million matured in 2020 and 2019, respectively.
Peoples' national market Repurchase Agreements consisted of agreements with unrelated financial service companies.
Other short-term borrowings consisted primarily 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. 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. Federal Reserve Discount Window advances are typically overnight and must be secured by
collateral acceptable to the FRB. At December 31, 2020, Peoples had available Federal Reserve Discount Window credit of $102.3
million. Other short-term borrowings at December 31, 2018 also included the unamortized debt issuance costs related to the costs
associated with the Credit Agreement (the "RJB Credit Agreement") with Raymond James Bank, N.A. which was terminated effective
April 3, 2019.
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As of April 3, 2019, Peoples entered into a Loan Agreement (the “U.S. Bank Loan Agreement”) with U.S. Bank National
Association. The U.S. Bank Loan Agreement has a one-year term, which was renewed as of April 2, 2020, and provides Peoples with
a revolving line of credit in the maximum aggregate principal amount of $20.0 million that may be used: (i) for working capital
purposes; (ii) to finance dividends or other distributions (other than stock dividends and stock splits) on or in respect of Peoples’
capital stock and redemptions, repurchases or other acquisitions of any of Peoples’ capital stock permitted under the U.S. Bank Loan
Agreement and (iii) to finance acquisitions permitted under the U.S. Bank Loan Agreement.
The U.S. Bank Loan Agreement is unsecured. However, the U.S. Bank Loan 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 April 3, 2019; (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 U.S. Bank of any proxy for existing equity interests of Peoples Bank or any of Peoples Bank's subsidiaries.
The U.S. Bank Loan Agreement contains financial covenants, which are usual and customary for comparable transactions,
applicable to Peoples and its subsidiaries including limitations on the ability to incur additional indebtedness, create liens on property,
enter into mergers or consolidations, sell property other than in the ordinary course of business, and make investments, all subject to
permitted exceptions as more fully set forth in the U.S. Bank Loan Agreement. The U.S. Bank Loan Agreement also precludes
Peoples from: (i) taking any action which would result in Peoples Bank no longer being a wholly-owned subsidiary of Peoples; and
(ii) declaring and making dividends or stock repurchases if an Event of Default (as defined in the U.S. Bank Loan Agreement) has
occurred and is continuing under the U.S. Bank Loan Agreement.
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) 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 12.0% at all times;
(iii) Peoples (on a consolidated basis) must maintain a ratio of "Non-Performing Assets" to "Primary Capital" of not
more than 15% as of the last day of each fiscal quarter;
(iv) Peoples (on a consolidated basis) must maintain a ratio of "Return on Average Assets" of at least 0.5% as of the end
of each fiscal quarter, with the items used in this ratio being determined on a trailing four-fiscal quarter basis.
As of December 31, 2020, Peoples was in compliance with the applicable covenants imposed by the U.S. Bank Loan Agreement.
The U.S. Bank Loan Agreement matures on April 1, 2021. Peoples is in the process of renewing this facility and expects that it will
be renewed prior to its expiration.
Note 9 Long-Term Borrowings
Long-term borrowings consisted of the following at December 31:
(Dollars in thousands)
2020
2019
Weighted-
Average
Rate
Weighted-
Average
Rate
Balance
Balance
FHLB putable, non-amortizing, fixed rate advances
$
95,000
1.52 % $
65,000
FHLB amortizing, fixed rate advances
Junior subordinated debt securities
Long-term borrowings
7,957
1.75 %
7,611
110,568
$
4.25 %
1.72 % $
10,672
7,451
83,123
2.18 %
1.74 %
6.55 %
2.51 %
Peoples continually evaluates its overall balance sheet position given the interest rate environment. During 2020, Peoples
borrowed one additional $50.0 million FHLB putable, non-amortizing fixed-rate advance with an interest rate of 0.77%, which
matures in 2030. At December 31, 2020, outstanding long-term FHLB non-amortizing advances, which have interest rates ranging
from 0.77% to 3.20%, mature between 2022 and 2030. Outstanding long-term FHLB amortizing, fixed rate advances have interest
125
rates ranging from 1.25% to 3.83%, mature between 2026 and 2031. Peoples also reclassified two long-term FHLB non-amortizing
advances totaling $20.0 million to short-term borrowings as the time to maturity became less than one year.
The FHLB putable, non-amortizing, fixed rate advances have maturities ranging from one to nine years that may be repaid prior
to maturity, subject to the payment of termination fees. The FHLB has the option, at its sole discretion, to terminate each advance
after the initial fixed rate period of three months, requiring full repayment of the advance by Peoples, prior to the stated maturity. If an
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 being exercised by the FHLB or the
stated maturity.
The FHLB amortizing, fixed rate advances have a fixed rate for the term of each advance, with maturities ranging from five to ten
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.
During 2019, Peoples did not borrow any additional long-term advances from the FHLB. At December 31, 2019, outstanding
long-term FHLB non-amortizing advances, which have interest rates ranging from 1.40% to 3.20%, mature between 2021 and 2027.
During 2019, $20.0 million of long-term FHLB non-amortizing advances and $3.2 million long-term FHLB amortizing advances were
reclassified to short-term borrowings as the time to maturity became less than one year.
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 rate. 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 FRB, the Capital
Securities are redeemable prior to the maturity date of September 6, 2037, and are redeemable at par. Distributions on the Capital
Securities can be deferred from time to time for a period not to exceed 20 consecutive quarterly periods.
At December 31, 2020, the aggregate minimum annual retirements of long-term borrowings in future periods were as follows:
(Dollars in thousands)
Balance
Weighted-
Average Rate (a)
2021
2022
2023
2024
2025
$
1,979
16,521
1,157
869
641
Thereafter
Total long-term borrowings
89,401
110,568
$
1.53 %
1.98 %
1.5 %
1.47 %
1.45 %
1.53 %
1.6 %
(a) The weighted-average rate includes the impact of accreting the current book value of the junior
subordinated debt securities to face value over the period. The weighted-average rates for the
FHLB advances are 1.71% in 2021, 2.00% in 2022, 1.73% in 2023, 1.74% in 2024, 1.76% in
2025, and 1.43% thereafter.
126
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, 2017
Changes related to stock-based compensation awards:
Grant of restricted common shares
Release of restricted common shares
Cancellation of restricted common shares
Exercise of stock options for common shares
Grant of common shares
Changes related to deferred compensation plan for Boards of Directors:
Purchase of treasury stock
Sale of treasury stock
Disbursed out of treasury stock
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for Boards of Directors
Common shares issued under employee stock purchase plan
Issuance of common shares related to acquisition of ASB
Shares at December 31, 2018
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
Disbursed out of treasury stock
Common shares repurchased under repurchase program
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for Boards of Directors
Common shares issued under employee stock purchase plan
Issuance of common shares related to acquisition of First Prestonsburg
Shares at December 31, 2019
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
Disbursed out of treasury stock
Common shares repurchased under repurchase program
Common shares issued under dividend reinvestment plan
Common shares issued under compensation plan for Boards of Directors
Common shares issued under performance unit awards
Common shares issued under employee stock purchase plan
Shares at December 31, 2020
Common
Stock
18,952,385
Treasury
Stock
702,449
—
—
—
—
—
(106,805)
32,082
2,011
(102)
(16,544)
—
—
—
19,282
—
—
1,152,711
20,124,378
6,526
(10)
(2,089)
—
(4,699)
(11,530)
—
601,289
—
—
—
—
(133,926)
19,174
11,113
(5,130)
—
—
—
26,287
—
—
1,005,478
21,156,143
7,227
(2,187)
26,427
—
(6,755)
(13,050)
—
504,182
—
—
—
—
(128,402)
27,391
33,689
(23,482)
—
—
—
37,259
—
—
—
21,193,402
12,005
(2,362)
1,299,577
—
(11,553)
(6,127)
(18,872)
1,686,046
On January 29, 2021, Peoples announced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase
program authorizing Peoples to purchase up to an aggregate of $30.0 million of its outstanding common shares, replacing the February
27, 2020 share repurchase program which had authorized Peoples to purchase up to an aggregate of $40.0 million of its outstanding
common shares.
On February 27, 2020, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to
an aggregate of $40.0 million of its outstanding common shares, replacing the previous share repurchase program which had
127
authorized Peoples to purchase up to an aggregate of $20 million of its outstanding common shares. An aggregate of $6.3 million of
Peoples' common shares were purchased under the previous share repurchase program from inception through its termination date,
which was February 27, 2020. During 2020, Peoples purchased an aggregate of $29.3 million of its outstanding common shares,
$843,000 of which were purchased under the previous share repurchase program and $28.5 million of which were purchased under the
share repurchase program authorized on February 27, 2020 and later terminated on January 28, 2021.
During 2019, Peoples purchased an aggregate of 26,427 of its common shares through the then-authorized share repurchase
program. No common shares were repurchased in 2018.
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, 2020, Peoples had no preferred shares issued or outstanding.
The following table details the cash dividends declared per common share for the year ended December 31:
2020
2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
0.34 $
0.34
0.34
0.35
Total dividends declared
$
1.37 $
0.30
0.34
0.34
0.34
1.32
Accumulated Other Comprehensive Income (Loss)
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, 2017
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 per ASU 2016-01
Other comprehensive (loss) income, net of reclassifications
and tax
Balance, December 31, 2018
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax
Other comprehensive income (loss), net of reclassifications
and tax
Balance, December 31, 2019
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax
Realized loss due to settlement and curtailment, net of tax
Other comprehensive income (loss), net of reclassifications
and tax
Balance, December 31, 2020
Unrealized
Gain
(Loss) on
Securities
$
(2,088) $
Unrecognized
Net Pension
and
Postretirement
Costs
Unrealized
Gain
(Loss) on
Cash Flow
Hedge
Accumulated
Other
Comprehensive
Income (Loss)
(4,256) $
1,129 $
(5,215)
115
—
(5,020)
—
211
—
—
—
—
(3,089)
(10,082) $
$
334
(3,711) $
(269)
860 $
115
211
(5,020)
(3,024)
(12,933)
130
—
—
130
15,512
5,560 $
$
(247)
(3,958) $
(3,627)
(2,767) $
11,638
(1,425)
291
—
—
833
—
—
9,001
14,852 $
$
(747)
(3,872) $
(6,617)
(9,384) $
291
833
1,637
1,336
As of January 1, 2018, Peoples adopted ASU 2016-01, which resulted in the reclassification of $5.0 million in net unrealized
gains on equity investment securities from AOCI to retained earnings.
128
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 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 during the years 2003
through 2009 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 pay 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.
The following tables provide a reconciliation of the changes in the benefit obligations and fair value of assets of the plans for the
years ended December 31, 2020 and 2019, and a statement of the funded status as of December 31, 2020 and 2019:
(Dollars in thousands)
Change in benefit obligation:
Obligation at January 1
Interest cost
Plan participants’ contributions
Actuarial loss
Benefit payments
Settlements
Pension Benefits
Post-retirement Benefits
2020
2019
2020
2019
$ 12,668
$ 10,995
$
326
—
1,708
(238)
(2,154)
438
—
1,696
(461)
—
$ 11,866
$ 10,234
$
1,378
2,093
—
—
(238)
(2,154)
—
—
(461)
—
$ 10,852
$ 11,866
$ (1,458) $
(802)
$ (1,458) $
(802)
$ (1,458) $
(802)
$ —
3,918
$ 3,918
$ —
4,004
$ 4,004
$
$
$
$
$
$
$
75
2
59
6
83
3
121
—
(71)
(132)
$
$
$
—
71
71
—
—
12
59
(71)
—
—
$
(71) $
(71) $
(71) $
$
—
(39)
(39) $
—
75
75
—
—
11
121
(132)
—
—
(75)
(75)
(75)
—
(48)
(48)
Obligation at December 31
Accumulated benefit obligation at December 31
$ 12,310
$ 12,668
$ 12,310
$ 12,668
$
$
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
Amounts recognized in Accumulated Other Comprehensive Loss:
Unrecognized prior service cost
Unrecognized net loss (gain)
Total
Weighted-average assumptions at year-end:
Discount rate
2.38 %
3.12 %
2.38 %
3.12 %
129
The estimated costs relating to Peoples’ pension benefits that will be amortized from AOCI into net periodic cost over the next
fiscal year are $137,000.
Net Periodic Cost (Benefit)
The following table details the components of the net periodic cost (benefit) for the plans at December 31:
Pension Benefits
2019
2018
2020
Post-retirement Benefits
2018
2020
2019
(Dollars in thousands)
Interest cost
Expected return on plan assets
$ 326
(747)
$ 438
(782)
$
423
(640)
Amortization of prior service credit
—
—
Amortization of net loss (gain)
Settlement of benefit obligation
Net periodic cost (benefit)
132
1,054
$ 765
78
—
$ (266) $
—
104
267
154
$ 2
—
—
(5)
3
$
—
(1)
(5)
3
$
—
—
(5)
—
$ (3) $
—
—
(2)
(3) $
Weighted-average assumptions:
Discount rate
2.53 % 4.20 %
3.55 % 3.12 % 4.20 % 3.40 %
Expected return on plan assets
7.50 % 7.50 %
7.50 %
Rate of compensation increase
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
For measurement purposes, a 4.5% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend
rate) was assumed for 2020 and grade down to an ultimate rate of 4.0% in 2070. 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 the fair value of plan assets are required to be remeasured in order to determine the
settlement gain or loss.
There were $1.1 million in settlement charges recorded in 2020, compared to none recorded in 2019, and $267,000 recorded in
2018.
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%-75% to equity securities.
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.
130
The following table provides the fair values of investments held in Peoples' pension plan at December 31, by major asset
category:
(Dollars in thousands)
2020
Equity securities:
Mutual funds – equity
Debt securities:
Mutual funds – taxable income
Total fair value of pension assets
2019
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
7,794 $
7,794 $
2,898
10,692 $
2,898
10,692 $
8,443 $
8,443 $
3,163
11,606 $
3,163
11,606 $
—
—
—
—
—
—
Pension plan assets also included cash and cash equivalents of $152,000 and accrued income of $8,000 at December 31, 2020.
Cash and cash equivalents were $257,000 and accrued income was $2,000 at December 31, 2019. For further information regarding
levels of input used to measure fair value, refer to "Note 2 Fair Value of Financial Instruments."
Equity securities held as investments in Peoples' pension plan did not include any securities of Peoples or related parties in 2020
or 2019.
Cash Flows
Peoples expects to make between $10,000 to $15,000 of contributions to its pension plan in 2021; however, actual contributions
are made at the discretion of the Retirement Plan Committee and Peoples' Board of Directors.
Estimated future benefit payments, which reflect benefits attributable to estimated future service, for the years ending December
31 are as follows:
(Dollars in thousands)
Pension Benefits
Post-retirement
Benefits
2021
2022
2023
2024
2025
$
1,131 $
976
697
752
618
2026 to 2030
Total
$
3,146
7,320 $
11
10
9
8
7
23
68
Retirement Savings Plan
Peoples also maintains a retirement savings plan, or 401(k) plan, which covers substantially all employees. The plan provides
participants with the opportunity to save for retirement on a tax-deferred basis. From January 1, 2011, until December 31, 2019,
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
$2.5 million in 2020, $2.0 million in 2019 and $1.7 million in 2018. Beginning January 1, 2020, Peoples began matching 100% of
participants' contributions that did not exceed 4% of the participants' compensation, plus 50% of participants' contributions between
4% and 6% of the participants' compensation.
131
Note 12 Income Taxes
The TCJ Act was enacted on December 22, 2017 and required Peoples to reflect the changes associated with the TCJ Act’s
provisions in the fourth quarter of 2017. As of December 31, 2017, Peoples was not able to make reasonable estimates for all items
based on its knowledge of accounting under ASC 740, and the provisions of the tax laws that were in effect immediately prior to
enactment. As of December 31, 2018, Peoples finalized the remeasurement of its net deferred tax assets and net deferred tax liabilities
at the new statutory federal corporate income tax rate of 21%, which resulted in a reduction to income tax expense of $0.7 million in
2018. The final adjustment was mainly due to Peoples' contribution of $3.2 million to Peoples' defined benefit pension plan during
2018.
The reported income tax expense and effective tax rate in the Consolidated Statements of Income differ from the amounts
computed by applying the statutory federal corporate income tax rate as follows for the years ended December 31:
(Dollars in thousands)
2020
2019
2018
Income tax computed at statutory federal
corporate income tax rate
Differences in rate resulting from:
Tax-exempt interest income
Investments in tax credit funds
Bank owned life insurance
Stock awards
Captive insurance benefit
Release of valuation allowance
TCJ Act
Other, net
Income tax expense
Amount
Rate
Amount
Rate
Amount
Rate
$ 8,956
21.0 % $ 13,725
21.0 % $ 11,505
21.0 %
(668)
(1.6) %
(659)
(1.0) %
(554)
(1.0) %
(415)
(1.0) %
(530)
(0.8) %
(125)
(0.2) %
(415)
(1.0) %
(510)
(0.8) %
(393)
(0.7) %
(5)
— %
(135)
(0.2) %
(332)
(0.6) %
(412)
(1.0) %
—
—
— %
— %
—
—
—
— %
— %
— %
—
— %
(805)
(1.5) %
(705)
(1.3) %
838
$ 7,879
2.1 %
(228)
18.5 % $ 11,663
(0.4) %
17.8 % $
95
8,686
0.2 %
15.9 %
On January 1, 2018, Peoples began recognizing income tax expense at the 21% statutory federal corporate income tax rate.
During 2018, Peoples released a valuation allowance which reduced income tax expense by $0.8 million. The valuation
allowance was related to a historic tax credit that Peoples had invested in during 2015. Peoples sold $6.7 million of equity investment
securities in 2018, which resulted in a capital gain for tax purposes. This capital gain was large enough to offset an anticipated future
capital loss expected to be recognized due to the structure of the historic tax credit investment, resulting in the release of the valuation
allowance.
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
2020
2019
2018
$
$
15,980 $
11,554 $
(8,101)
7,879 $
109
11,663 $
8,995
(309)
8,686
132
The significant components of Peoples' deferred tax assets and deferred tax liabilities consisted of the following at December 31:
(Dollars in thousands)
Deferred tax assets:
Allowance for credit losses
Accrued employee benefits
Lease obligation
Tax credit investments
Derivative instruments
Other
Total deferred tax assets
Deferred tax liabilities:
Purchase accounting adjustments
Bank premises and equipment (a)
Deferred loan income
Lease right-of-use assets
Available-for-sale securities
Other
Total deferred tax liabilities
Net deferred tax asset (liability)
2020
2019
13,819 $
2,706
1,423
1,799
2,494
5
22,246 $
4,522 $
3,274
2,174
1,370
3,886
583
15,809 $
6,437 $
9,714
2,039
1,640
1,130
736
14
15,273
5,970
3,300
3,120
1,597
1,410
797
16,194
(921)
$
$
$
$
$
(a) Peoples elected Internal Revenue Code Section 179 bonus depreciation in 2019, which increased the
bonus depreciation percentage from 50% to 100% for qualified properties acquired and placed in
service after September 27, 2017, and before January 1, 2023.
As of December 31, 2020, Peoples had no operating loss carryforwards for tax purposes.
The federal income tax benefit from sales of investment securities was $77,000 in 2020 and $31,000 in 2018. The federal income
tax expense from sales of investment securities was $34,000 in 2019.
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 in an audit, based solely on the technical merits of the income tax position. If the recognition
criteria are met, the amount of income tax benefits to be recognized are measured based on the largest income tax benefit that is more
than 50 percent likely to be realized on ultimate resolution of the tax position. The following table provides a reconciliation of
uncertain tax positions at December 31:
(Dollars in thousands)
Uncertain tax positions, beginning of year
Gross increase based on tax positions related to current year
Gross increase for tax position taken during prior years
Gross decrease due to the statute of limitations
Uncertain tax positions, end of year
2020
2019
$
$
$
$
$
250 $
12 $
— $
(113) $
149 $
423
39
8
(220)
250
Peoples is subject to U.S. federal income tax, as well as to tax in various state income tax jurisdictions. 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, 2017 through 2019. The years
open to examination by state taxing authorities vary by jurisdiction.
133
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)
2020
2019
2018
Distributed earnings allocated to common shareholders
$
27,082 $
26,503 $
21,334
Undistributed earnings allocated to common shareholders
7,313
26,796
24,660
Net earnings allocated to common shareholders
$
34,395 $
53,299 $
45,994
Weighted-average common shares outstanding
19,721,772 20,120,119 18,991,768
Effect of potentially dilutive common shares
122,034
153,606
130,492
Total weighted-average diluted common shares outstanding
19,843,806 20,273,725 19,122,260
Earnings per common share:
Basic
Diluted
$
$
1.74 $
1.73 $
2.65 $
2.63 $
2.42
2.41
Anti-dilutive common shares excluded from calculation:
Restricted shares, stock options and stock appreciation rights
64,145
—
1,748
Note 14 Derivative Financial Instruments
Peoples utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk
position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged
is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. The fair value
of derivative financial instruments is included in other assets and accrued expenses and other liabilities in the Consolidated Balance
Sheets and in the net other adjustments to reconcile net income to net cash provided by operating activities in the Consolidated
Statements of Cash Flows.
Derivative Financial Instruments and Hedging Activities – Risk Management Objective of Using Derivative Financial
Instruments
Peoples is exposed to certain risks arising from both its business operations and economic conditions. Peoples principally
manages its exposures to a wide variety of business and operational risks through management of its core business activities. Peoples
manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of
its assets and liabilities, and through the use of derivative financial instruments. Specifically, Peoples enters into derivative financial
instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or expected
cash amounts, the value of which is determined by interest rates. Peoples’ derivative financial instruments are used to manage
differences in the amount, timing and duration of Peoples' known or expected cash receipts and its known or expected cash payments
principally related to certain variable rate borrowings. Peoples also has interest rate derivative financial instruments 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.
Cash Flow Hedges of Interest Rate Risk
Peoples' objectives in using interest rate derivative financial instruments 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 involve the receipt of
variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of December 31, 2020, Peoples had
entered into seventeen interest rate swaps with an aggregate notional value of $160.0 million. 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 interest received on
the floating rate component is intended to offset the interest paid on rolling three-month brokered CDs, which will continue to be
rolled through the life of the swaps. As of December 31, 2020, the interest rate swaps were funded by $110.0 million of Insured Cash
Sweep Services ("ICS") demand deposits and $50.0 million rolling three-month brokered CDs. Amounts reported in AOCI related to
derivatives will be reclassified to interest income or expense as interest payments are made or received on Peoples' variable-rate assets
or liabilities. During the years ended December 31, 2020 and December 31, 2019, Peoples had reclassifications of loss to earnings of
134
$2.0 million and gains to interest expense of $133,000, respectively. During the next twelve months, Peoples estimates that minimal
interest expense will be reclassified.
For derivative financial instruments designated as cash flow hedges, the effective portion of changes in the fair value of each
derivative financial instrument is reported in AOCI (outside of earnings), net of tax, and subsequently reclassified to earnings when
the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative financial instrument 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. The reset dates and
the payment dates on the 90-day advances or brokered CDs used to fund the swaps are matched to the reset dates and payment dates
on the receipt of the three-month LIBOR floating rate portion of the swaps to ensure effectiveness of the cash flow hedge.
Effectiveness is measured by ensuring that reset dates and payment dates are matched.
The following table summarizes information about the interest rate swaps designated as cash flow hedges at December 31:
(Dollars in thousands)
Notional amount
Weighted average pay rates
Weighted average receive rates
Weighted average maturity
Pre-tax unrealized losses included in AOCI
2020
$
160,000
$
2.18 %
0.38 %
4.4 years
(11,879)
2019
160,000
2.18 %
1.73 %
5.4 years
(3,503)
The following table presents net losses or gains recorded in AOCI and in the Consolidated Statements of Income related to the
cash flow hedges for the years ended December 31:
(Dollars in thousands)
Amount of loss recognized in AOCI, pre-tax
$
Amount of loss recognized in earnings
2020
2019
8,376 $
—
4,591
(19)
The following table reflects the cash flow hedges, which are included in the Consolidated Balance Sheets at fair value, at
December 31:
(Dollars in thousands)
2020
2019
Included in other assets:
Interest rate swaps related to debt
Total included in other assets
Included in accrued expenses and other liabilities:
Interest rate swaps related to debt
Total included in accrued expenses and other liabilities
Non-Designated Hedges
Notional
Amount
Fair Value
Notional
Amount
Fair Value
— $
— $
— $
— $
55,000 $
55,000 $
644
644
160,000 $
160,000 $
12,063 $
12,063 $
105,000 $
105,000 $
4,340
4,340
$
$
$
$
Peoples Bank maintains an interest rate protection program for commercial loan customers, which was established in 2010.
Under this program, Peoples Bank originates variable rate loans with interest rate swaps, where the customer enters into an interest
rate swap with Peoples Bank on terms that match the terms of the loan. By entering into the interest rate swap with the customer,
Peoples Bank effectively provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples
Bank offsets its exposure in the swap 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 financial instrument.
These interest rate swaps did not have a material impact on Peoples' results of operation or financial condition.
135
The following table reflects the non-designated hedges, which are included in the Consolidated Balance Sheets at fair value, at
December 31:
(Dollars in thousands)
Included in other assets:
2020
2019
Notional
Amount
Fair Value
Notional
Amount
Fair Value
Interest rate swaps related to commercial loans
$
415,044 $
27,332 $
321,394 $
Total included in other assets
415,044
27,332
321,394
Included in accrued expenses and other liabilities:
Interest rate swaps related to commercial loans
$
415,044 $
27,332 $
321,394 $
Total included in accrued expenses and other liabilities
415,044
27,332
321,394
10,776
10,776
10,776
10,776
Pledged Collateral
When the fair value of Peoples' interest rate swaps are in a net liability position, Peoples must pledge collateral and when the
interest rate swaps are in a net asset position, the counterparties must pledge collateral. At December 31, 2020, Peoples had $41.0
million of cash pledged, while the counterparties had no amount of cash pledged. At December 31, 2019, Peoples had $20.0 million
of cash pledged, while the counterparties had no amount of cash pledged. Cash pledged is included in interest-bearing deposits in
other banks on the Consolidated Balance Sheets.
Note 15 Off-Balance Sheet Risk
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 were:
(Dollars in thousands)
Home equity lines of credit
Unadvanced construction loans
Other loan commitments
Loan commitments
Standby letters of credit
2020
2019
117,792 $
141,009
535,250
794,051
14,342 $
112,464
102,491
353,137
568,092
12,498
$
$
Note 16 Regulatory Matters
The following is a summary of certain regulatory matters affecting Peoples and its subsidiaries:
Federal Reserve Board 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 of Cleveland, based on the amount of total deposits. Average required reserve balances were approximately $3.7
million and $16.5 million in 2020 and 2019, respectively.
Limits on Dividends
The primary source of funds for the dividends paid by Peoples is dividends received from Peoples Bank. The payment of
dividends by Peoples Bank is subject to various banking regulations. The most restrictive provision requires regulatory approval if
dividends declared in any calendar year exceed the total net profits of that year plus the retained net profits of the preceding two years.
136
At December 31, 2020, Peoples Bank had approximately $73.1 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 classifications 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, 2020, required Peoples
and Peoples Bank to maintain minimum amounts and ratios of common equity tier 1 capital, tier 1 capital and total capital (each as
defined in the applicable 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, 2020.
As of December 31, 2020, the most recent notification 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 this notification that management believes have
changed Peoples' or Peoples Bank's category.
Peoples' and Peoples Bank's actual capital amounts and ratios as of December 31 are also presented in the following table:
(Dollars in thousands)
PEOPLES
Common Equity Tier 1 (a)
Actual
For capital adequacy
To be well capitalized
Tier 1 (b)
Actual
For capital adequacy
To be well capitalized
Total Capital (c)
Actual
For capital adequacy
To be well capitalized
Tier 1 Leverage (d)
Actual
For capital adequacy
To be well capitalized
2020
2019
Amount
Ratio
Amount
Ratio
$
409,400
13.01 % $
427,415
141,605
204,540
4.50 %
6.50 %
131,866
190,473
$
417,011
13.25 % $
434,866
188,806
251,741
6.00 %
8.00 %
175,821
234,428
$
456,384
14.50 % $
456,422
251,741
314,677
8.00 %
10.00 %
234,428
293,036
14.59 %
4.50 %
6.50 %
14.84 %
6.00 %
8.00 %
15.58 %
8.00 %
10.00 %
$
417,011
8.97 % $
434,866
10.41 %
186,049
232,561
4.00 %
5.00 %
167,037
208,796
4.00 %
5.00 %
7.58 %
2.50 %
Capital Conservation Buffer
$
204,643
6.50 % $
221,994
Fully phased in
Net Risk-Weighted Assets
78,669
2.50 %
73,259
$
3,146,767
$
2,930,355
137
(Dollars in thousands)
PEOPLES BANK
Common Equity Tier 1 (a)
Actual
For capital adequacy
To be well capitalized
Tier 1 (b)
Actual
For capital adequacy
To be well capitalized
Total Capital (c)
Actual
For capital adequacy
To be well capitalized
Tier 1 Leverage (d)
Actual
For capital adequacy
To be well capitalized
2020
2019
Amount
Ratio
Amount
Ratio
$
395,753
12.58 % $
406,612
141,513
204,408
4.50 %
6.50 %
131,757
190,316
$
395,753
12.58 % $
406,612
188,684
251,579
6.00 %
8.00 %
175,676
234,235
$
435,101
13.84 % $
428,168
251,579
314,473
8.00 %
10.00 %
234,235
292,794
$
395,753
12.58 % $
406,612
185,845
232,306
4.00 %
5.00 %
166,898
208,622
13.89 %
4.50 %
6.50 %
13.89 %
6.00 %
8.00 %
14.62 %
8.00 %
10.00 %
9.75 %
4.00 %
5.00 %
6.62 %
2.50 %
Capital Conservation Buffer
$
183,522
5.84 % $
193,933
Fully phased in
Net Risk-Weighted Assets
78,618
2.50 %
73,199
$
3,144,734
$
2,927,941
(a) Ratio represents common equity tier 1 capital to net risk-weighted assets
(b) Ratio represents tier 1 capital to net risk-weighted assets
(c) Ratio represents total capital to net risk-weighted assets
(d) Ratio represents tier 1 capital to average assets
Note 17 Stock-Based Compensation
Under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan (the "2006 Equity Plan"), Peoples may grant,
among other awards, nonqualified stock options, incentive stock options, restricted common share awards, stock appreciation rights,
performance units and unrestricted common share awards to employees and non-employee directors. The total number of common
shares available under the 2006 Equity Plan is 891,340. The maximum number of common shares that can be issued for incentive
stock options is 500,000 common shares. Since February 2009, Peoples has granted restricted common shares to employees, and
periodically to non-employee directors, subject to the terms and conditions prescribed by the 2006 Equity Plan. Additionally, in 2017,
Peoples granted performance units to certain officers. 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.
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 the restricted common shares awarded to employees expire after periods ranging from one to
five years. Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions.
In 2020, Peoples granted an aggregate of 80,338 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. During 2020, Peoples granted, to certain key employees, an aggregate of 48,064
restricted common shares subject to time-based vesting, the majority of which will vest three years after the grant date.
138
The following summarizes the changes to Peoples’ outstanding restricted common shares for the year ended December 31, 2020:
Time-Based Vesting
Number of
Common
Shares
Weighted-
Average
Grant Date
Fair Value
Performance-Based Vesting
Weighted-
Average
Grant Date
Fair Value
Number of
Common
Shares
Outstanding at January 1
Awarded
Released
Forfeited
Outstanding at December 31
32,230 $
48,064
5,250
7,286
67,758 $
33.05
19.67
32.76
31.85
23.71
253,884 $
80,338
56,827
26,403
250,992 $
33.29
32.91
32.42
33.33
33.36
The total intrinsic value of restricted common shares released was $2.0 million, $1.8 million and $2.8 million in 2020, 2019 and
2018, respectively.
Performance Unit Awards
Under the 2006 Equity Plan, Peoples may grant 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 and each performance unit representing $1.00.
During 2019, one of the seven performance unit awards was forfeited as the individual to whom the performance unit award was
granted left Peoples before meeting the minimum service requirement to retain the performance unit award. The performance unit
awards granted covered the performance period beginning January 1, 2018 and ending on December 31, 2019, and were subject to two
performance goals. Twenty-five percent of the performance units subject to each award was to vest if, but only if, the related
company-specific target performance goal was achieved. As of December 31, 2019, the target level of achievement for the company-
specific target performance goal was reached for the performance period. The remaining 75% of the performance units subject to each
award was to vest based on the relative performance of Peoples compared to a defined peer group (measured by percentile ranking)
with respect to the related maximum performance goal. As of December 31, 2019, Peoples did not achieve the second performance
goal. On February 27, 2020, the Compensation Committee of the Board of Directors certified the level of achievement of the
performance goals that had been satisfied and a portion of the performance unit awards vested based on the performance achieved.
The vested performance unit awards were settled in common shares of Peoples equal to (i) the aggregate number of the participant's
performance units (and equivalent 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 the performance units were deemed
to have vested (which was the certification date) and rounded down to the nearest whole common share. As a result, during the first
quarter of 2020, the remaining six officers holding performance unit awards received an aggregate of 9,395 common shares at a fair
market value of $29.26 per common share on the date the performance units were deemed vested, with a related expense of $275,000,
recorded in the prior year.
Stock-Based Compensation
Peoples recognizes stock-based compensation, which is included as a component of Peoples’ salaries and employee benefit costs,
for restricted common shares and performance unit awards, as well as purchases made by participants in the employee stock purchase
plan. For restricted common shares, Peoples recognizes stock-based compensation based on the estimated fair value of the awards
expected to vest on the grant date. The estimated fair value is then expensed over the vesting period, which is normally three years.
For performance unit awards, Peoples recognizes stock-based compensation, over the performance period, based on the portion of the
awards that is expected to vest based on the expected level of achievement of the established performance goals. Peoples also has an
employee stock purchase plan whereby employees can purchase Peoples' common shares at a discount of up to 15%. The following
summarizes the amount of stock-based compensation and related tax benefit recognized for the years ended December 31:
(Dollars in thousands)
Employee stock-based compensation expense:
Restricted common share grant expense
Employee stock purchase plan expense
Performance stock unit expense
$
Total employee stock-based compensation expense
Non-employee director stock-based compensation expense
Total stock-based compensation expense
Recognized tax benefit
Net expense recognized
$
2020
2019
2018
3,556 $
63
(12)
3,607
340
3,947
(818)
3,129 $
3,462 $
63
130
3,655
308
3,963
(832)
3,131 $
2,359
60
156
2,575
345
2,920
(613)
2,307
Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in 2020, 2019 and
2018. The fair value of restricted common share awards on the grant date is the market price of Peoples' common shares. Total
139
unrecognized stock-based compensation related to unvested restricted common share awards was $2.8 million at December 31, 2020,
which will be recognized over a weighted-average period of 1.8 years. In 2020, the Board of Directors granted 3,680 unrestricted
common shares to non-employee directors, with related stock-based compensation of $120,000.
Note 18 Revenue
The following table details Peoples' revenue from contracts with customers for the year ended December 31:
(Dollars in thousands)
Insurance income:
Commission and fees from sale of insurance policies (a)
$
Fees related to third-party administration services (a)
Performance-based commissions (b)
Trust and investment income (a)
Electronic banking income:
Interchange income (a)
Promotional and usage income (a)
Deposit account service charges:
Ongoing maintenance fees for deposit accounts (a)
Transactional-based fees (b)
Commercial loan swap fees (b)
Other non-interest income transactional-based fees (b)
Total
Timing of revenue recognition:
Services transferred over time
Services transferred at a point in time
Total
(a) Services transferred over time.
(b) Services transferred at a point in time.
$
$
$
2020
2019
12,137 $
448
1,457
13,662
11,160
3,086
3,573
5,845
1,741
820
53,929 $
44,066 $
9,863
53,929 $
12,670
602
1,530
13,159
10,797
2,883
3,832
7,868
2,228
716
56,285
43,943
12,342
56,285
Peoples records contract assets for income that has been recognized over a period of time for the fulfillment of performance
obligations, but has not yet been received, related to electronic banking income. This income typically relates to bonuses for which
Peoples is eligible, but will not receive until a certain time in the future. Peoples records contract liabilities for payments received for
commission income related to the sale of insurance policies, for which the performance obligations have not yet been fulfilled. The
contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is
over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income,
for which income is recognized during the period in which the performance obligations are fulfilled. The following table details the
changes in Peoples' contract assets and contract liabilities for the period ended December 31, 2020:
(Dollars in thousands)
Balance, January 1, 2020
Additional income receivable
Additional deferred income
Recognition of income previously deferred
Balance, December 31, 2020
Contract Assets Contract Liabilities
$
$
600 $
647
—
—
1,247 $
5,190
—
244
(210)
5,224
From more information on Peoples' revenue recognition policies, see "Note 1 Summary of Significant Accounting Policies."
Note 19 Acquisitions
Effective July 1, 2020, Peoples closed on a business combination under which Peoples Bank acquired the operations and assets of
Triumph Premium Finance (referred to as "premium finance acquisition"), a division of TBK Bank, SSB. Based in Kansas City,
Missouri, the division operating as Peoples Premium Finance continues to provide insurance premium financing loans for commercial
140
customers to purchase property and casualty insurance products through its growing network of independent insurance agency
partners nationwide.
The following table provides the purchase price calculation as of the date of acquisition, and the assets acquired and liabilities
assumed at their estimated fair values.
(Dollars in thousands, except per share data)
Total purchase price
Net Assets at Fair Value
Assets
Cash and due from banks
Loans, net of deferred fees and costs
Bank premises and equipment, net of accumulated depreciation
Customer relationship intangible assets
Other assets
Total assets
Liabilities
Accrued expenses and other liabilities
Total liabilities
Net assets
Goodwill
$
94,526
$
$
$
$
$
$
509
84,704
45
4,280
11
89,549
479
479
89,070
5,456
The accounting for the premium finance acquisition has been completed. The estimated fair values presented in the above table
reflect additional information that was obtained during the three months ended December 31, 2020, which resulted in changes to
certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded
during the period in which they occur and, as a result, previously recorded results have changed. The below table reflects the changes
in the estimated fair value at December 31, 2020 from balances reported at September 30, 2020:
(Dollars in thousands)
Net assets
Loans
Customer relationship intangible assets
Change in goodwill
Change in Fair Value
$
$
(113)
108
(5)
Peoples recorded a customer relationship intangible of $4.3 million. Peoples expects to amortize the intangible over 10 years,
and recorded $310,000 of intangible amortization during 2020.
As of the acquisition date, Peoples estimated an allowance for credit losses of $923,000 for the acquired loans through the income
statement, which was included in the provision for credit losses during the third quarter of 2020.
Acquired loans are reported net of the unamortized fair value adjustment. The following table details the fair value adjustment for
acquired loans as of the acquisition date:
(Dollars in thousands, except per share data)
Nonimpaired Loans
Triumph Premium
Finance
Contractual cash flows
Nonaccretable difference
Expected cash flows
Accretable yield
Fair value
$
$
84,968
(179)
85,147
443
84,704
On January 1, 2020, Peoples Insurance acquired a property and casualty-focused independent insurance agency for a purchase
price amount equal to $866,000, and recorded $735,000 of customer relationship intangibles, and $27,000 of other assets, resulting in
$104,000 of goodwill. The acquisition will not materially impact Peoples' financial position, results of operations or cash flows. As
of December 31, 2020, Peoples had $339,000 of contingent consideration payable related to the acquisition.
141
Note 20 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
Other investment securities
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
Condensed Statements of Income
(Dollars in thousands)
Income:
Dividends from subsidiary bank
Dividends from non-bank subsidiary
Interest and other income
Total income
Expense:
Trust preferred securities expense
Intercompany management fees
Other expense
Total expense
December 31,
2020
2019
$
50 $
50
14,313
20,094
659
225
140
237
561,870
573,429
11,771
3,546
592,434 $
9,418
3,067
606,435
6,253 $
602
9,906
1,955
342
9,745
16,761
575,673
592,434 $
12,042
594,393
606,435
$
$
$
Year Ended December 31,
2020
2019
2018
$
49,000 $
37,000 $
13,500
—
16
—
81
2,500
357
49,016
37,081
16,357
373
1,369
5,376
7,118
534
1,607
5,432
7,573
520
1,561
4,647
6,728
9,629
(2,511)
34,115
46,255
Income before federal income taxes and equity in undistributed earnings of
subsidiaries
Applicable income tax expense
(Excess dividends from) equity in undistributed earnings of subsidiaries
Net income
41,898
(1,128)
(8,259)
34,767 $
29,508
(1,670)
22,517
53,695 $
$
142
Statements of Cash Flows
(Dollars in thousands)
Operating activities
Net income
Year Ended December 31,
2020
2019
2018
$
34,767 $
53,695 $
46,255
Adjustments to reconcile net income to cash provided by operations:
Depreciation, amortization and accretion, net
161
168
9,177
Excess dividends from (equity in) undistributed earnings of subsidiaries
8,259
(22,517)
(34,115)
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 in receivable from subsidiary
Business combinations, net of cash received
Other, net
Net cash (used in) provided by investing activities
Financing activities
Purchase of treasury stock
Proceeds from issuance of common stock
Cash dividends paid
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
Supplemental cash flow information:
Interest paid
(8)
—
8,492
3,801
—
31
51,671
35,147
21,348
10
—
5,388
(35,238)
(18,874)
(31,813)
34,719
—
(76)
18,869
(1,438)
226
(585)
(1,217)
32,236
(637)
228
5,402
(30,409)
(1,650)
(1,380)
594
6
25
(27,052)
(25,942)
(56,867)
(27,586)
(5,781)
20,144
6,344
13,800
(20,915)
(22,270)
4,480
9,320
14,363 $
20,144 $
13,800
385 $
544 $
513
$
$
143
Note 21 Summarized Quarterly Information (Unaudited)
(Dollars in thousands, except per share data)
Total interest income
Total interest expense
Net interest income
Provision (recovery) for credit losses (a)
Net gain (loss) on investment securities (b)
Net loss on asset disposals and other transactions (b)
2020
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
40,862 $
39,306 $
39,013 $
37,923
6,226
34,636
16,969
319
(87)
4,446
34,860
11,834
62
(122)
3,894
35,119
4,728
2
(28)
3,615
34,308
(7,277)
(751)
(53)
Total non-interest income excluding net gains and losses (b)
15,505
14,724
16,796
17,305
Amortization of other intangible assets
Acquisition-related expenses
Total non-interest expense excluding amortization of other
intangible assets and acquisition-related expenses
Income tax (benefit) expense
Net (loss) income
(Loss) earnings per common share – basic
(Loss) earnings per common share – diluted
729
30
33,566
(156)
(765) $
(0.04) $
(0.04) $
728
47
31,030
1,136
857
335
33,123
2,636
909
77
32,264
4,263
4,749 $
10,210 $
20,573
0.24 $
0.23 $
0.52 $
0.51 $
1.06
1.05
$
$
$
Weighted-average common shares outstanding – basic
20,367,564
19,720,315
19,504,503
19,302,919
Weighted-average common shares outstanding – diluted
20,538,214
19,858,880
19,637,689
19,442,284
(Dollars in thousands, except per share data)
Total interest income
Total interest expense
Net interest income
(Recovery) provision for credit losses (a)
Net gain (loss) on investment securities (b)
Net loss on asset disposals and other transactions (b)
Amortization of other intangible assets
Acquisition-related expenses
Total non-interest expense excluding amortization of other
intangible and acquisition-related expenses
Income tax expense
Net income
Earnings per common share – basic
Earnings per common share – diluted
2019
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
40,576 $
43,621 $
43,609 $
42,289
6,662
33,914
(263)
30
(182)
694
253
30,913
3,377
7,572
36,049
626
(57)
(293)
15,639
824
6,770
31,282
2,238
7,855
35,754
1,005
97
(78)
7,168
35,121
1,136
94
(229)
16,374
17,298
953
199
31,841
3,281
888
65
32,568
2,767
$
$
$
14,369 $
9,598 $
14,868 $
14,860
0.74 $
0.73 $
0.47 $
0.46 $
0.72 $
0.72 $
0.72
0.72
Total non-interest income excluding net gains and losses (b)
15,581
Weighted-average common shares outstanding – basic
19,366,008
20,277,028
20,415,245
20,407,505
Weighted-average common shares outstanding – diluted
19,508,868
20,442,366
20,595,769
20,599,127
(a) On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model. Prior to the adoption of CECL, the provision for credit losses was
the "provision for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans, which includes purchased
credit deteriorated loans, held-to-maturity investment securities, and the unfunded commitment liability.
(b) The sum of amounts are considered total non-interest income.
144
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
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
on April 22, 2021 ("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 2020 Annual Meeting of Shareholders held on April 23, 2020.
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.
Information regarding beneficial ownership reporting compliance under Section 16(a) of the Securities Exchange Act of 1934, as
amended, is incorporated by reference from the text to be included under the caption "DELINQUENT SECTION 16(a) REPORTS" of
Peoples' Definitive Proxy Statement, to the extent that disclosure of information is required.
The Board of Directors of Peoples has adopted charters for each of the Audit Committee, the Compensation Committee, the
Executive Committee, the Governance and Nominating Committee, and the Risk Committee.
In accordance with the requirements of Rule 5610 of the Nasdaq Stock Market Corporate Governance Requirements, the Board of
Directors of Peoples has adopted a Code of Ethics covering the directors, officers and employees of Peoples and its subsidiaries,
including, without limitation, the principal executive officer, the principal financial officer, the principal accounting officer and the
controller of Peoples. Peoples intends to disclose the following events, if they occur, in a Current Report on Form 8-K and on the
"Investor Relations" page 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
(a) applies to the principal executive officer, principal financial officer, principal accounting officer or controller of
Peoples, or persons performing similar functions,
(b) relates to any element of the code of ethics definition set forth in Item 406(b) of SEC Regulation S-K, and
(c)
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 an 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 "Corporate
Overview – Governance Documents" tab of the "Investor Relations" 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.
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 2020," "GRANTS OF PLAN-BASED AWARDS FOR 2020,"
"OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2020," "OPTION EXERCISES AND STOCK VESTED FOR
2020," "PENSION BENEFITS FOR 2020," "NON-QUALIFIED DEFERRED COMPENSATION FOR 2020," "OTHER
POTENTIAL POST EMPLOYMENT PAYMENTS," "DIRECTOR COMPENSATION" and "COMPENSATION COMMITTEE
REPORT" of Peoples' Definitive Proxy Statement, which sections are incorporated herein by reference.
145
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, 2020, 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. Third Amended and Restated 2006 Equity Plan (the "2006 Equity 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))
360,241
360,241
(1) $
$
(2)
—
—
(3)
476,280
476,280
Plan Category
Equity compensation plans
approved by shareholders
Total
(1) Includes an aggregate of 318,750 restricted common shares subject to time-based or performance-based vesting restrictions
granted under the 2006 Equity Plan, and 41,491 common shares allocated to participants' bookkeeping accounts under the
Directors' Deferred Compensation Plan.
(2) 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 Equity Plan or bookkeeping accounts under the
Directors' Deferred Compensation Plan.
(3) Includes 261,483 common shares remaining available for future grants under the 2006 Equity Plan at December 31, 2020, as
well as 214,797 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.
Additional information regarding Peoples' stock-based compensation plans can be found in "Note 17 Stock-Based Compensation"
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.
146
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)(1) Financial Statements:
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 Financial Statements and Supplementary Data and set forth
immediately following "ITEM 9B OTHER INFORMATION" of this Form 10-K:
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, 2020 and 2019
Consolidated Statements of Income for each of the fiscal years in the three-year period ended December 31, 2020
Consolidated Statements of Comprehensive Income for each of the fiscal years in the three-year period ended
December 31, 2020
Consolidated Statements of Stockholders’ Equity for each of the fiscal years in the three-year period ended
December 31, 2020
Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended December 31,
2020
Notes to the Consolidated Financial Statements
Peoples Bancorp Inc. Parent Company Only Financial Information is included in Note 20 of the Notes to the
Consolidated Financial Statements
(a)(2) Financial Statement Schedules
Page
84
86
88
89
90
91
93
96
142
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 in the Index to Exhibits that immediately precedes the signature page of this Form 10-K, are filed/
furnished with this Form 10-K as exhibits or incorporated into this 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.
(b)
Exhibits
The documents listed in the Index to Exhibits that immediately precedes the signature page of this Form 10-K are filed/
furnished with this Form 10-K as exhibits or incorporated into this Form 10-K by reference as noted.
(c)
Financial Statement Schedules
None
ITEM 16 FORM 10-K SUMMARY
Not applicable.
147
INDEX TO EXHIBITS
Description
Exhibit Location
Exhibit
Number
2.1
2.2
3.1(c)
3.1(d)
Agreement and Plan of Merger, dated as of October 23, 2017,
between Peoples Bancorp Inc. and ASB Financial Corp.+
Agreement and Plan of Merger, dated as of October 29, 2018, as
amended on December 18, 2018, between Peoples Bancorp Inc. and
First Prestonsburg Bancshares Inc.+
3.1(a)
Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed
with the Ohio Secretary of State on May 3, 1993) P
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 definitive proxy
statement/prospectus which forms a part of the
Registration Statement of Peoples Bancorp Inc. on
Form S-4/A (Registration No. 333-222054)
Included as Annex A to the definitive proxy
statement/prospectus which forms a part of the
Registration Statement of Peoples Bancorp Inc. on
Form S-4/A (Registration No. 333-228745)
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)
3.1(f)
Certificate of Amendment by Directors to Articles filed with the Ohio
Secretary of State on January 28, 2009, evidencing adoption of
amendments by the Board of Directors of Peoples Bancorp Inc. to
Article FOURTH of the Amended Articles of Incorporation to
establish express terms of Fixed Rate Cumulative Perpetual Preferred
Shares, Series A, each without par value, of Peoples Bancorp Inc.
Incorporated herein by reference to Exhibit 3(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)
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)
3.1(g)
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.]
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”)
3.2(a)
Code of Regulations of Peoples Bancorp Inc.P
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)
3.2(b)
Certified Resolutions Regarding Adoption of Amendments to
Incorporated herein by reference to Exhibit 3(c) to
Sections 1.03, 1.04, 1.05, 1.06, 1.08, 1.10, 2.03(C), 2.07, 2.08, 2.10
and 6.02 of the Code of Regulations of Peoples Bancorp Inc. by
shareholders on April 10, 2003
Peoples’ March 31, 2003 Form 10-Q
3.2(c)
Certificate regarding adoption of amendments to Sections 3.01, 3.03,
3.04, 3.05, 3.06, 3.07, 3.08 and 3.11 of the Code of Regulations of
Peoples Bancorp Inc. by shareholders on April 8, 2004
Incorporated herein by reference to Exhibit 3(a) to
the Quarterly Report of Peoples Bancorp Inc. on
Form 10-Q for the quarterly period ended March
31, 2004 (File No. 0-16772)
+Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K, as in effect at the time of filing of the
Agreement and Plan of Merger. A copy of any omitted schedules or exhibits will be furnished supplementally by Peoples Bancorp Inc.
to the SEC on a confidential basis upon request.
PPeoples Bancorp Inc. filed this exhibit with the SEC in paper form originally and this exhibit has not been filed with the SEC in
electronic format.
148
Exhibit
Number
3.2(d)
Description
Exhibit Location
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
3.2(e)
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
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)
3.2(f)
3.2(g)
4.1
4.2(a)
4.2(b)
4.3(a)
4.3(b)
4.3(c)
4.4
Certificate regarding Adoption of Amendment to Division (D) of
Section 2.02 of Code of Regulations of Peoples Bancorp Inc. by the
Shareholders at the Annual Meeting of Shareholders on April 26,
2018
Incorporated herein by reference to Exhibit 3.1 to
the Current Report of Peoples Bancorp Inc. on
Form 8-K dated and filed on June 28, 2018 (File
No. 0-16772) ("Peoples' June 28, 2018 Form 8-K")
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 3.2 to
Peoples' June 28, 2018 Form 8-K
Agreement to furnish instruments and agreements defining rights of
holders of long-term debt
Filed herewith
Indenture, dated as of June 25, 2007, between NB&T Financial
Group, Inc., as issuer, and Wilmington Trust Company, as trustee,
relating to Fixed/Floating Rate Junior Subordinated Debt Securities
due 2037
First Supplemental Indenture, dated June 5, 2015, and made to be
effective as of 6:00 p.m., Eastern Standard Time, on March 6, 2015,
between Wilmington Trust Company, as trustee, and Peoples
Bancorp Inc., as successor to NB&T Financial Group, Inc.
Amended and Restated Declaration of Trust of NB&T Statutory Trust
III, dated and effective as of June 25, 2007
NOTE: Pursuant to the First Supplemental Indenture, dated June 5,
2015, and made to be effective as of 6:00 p.m., Eastern Standard
Time, on March 6, 2015, between Wilmington Trust Company, as
trustee, and Peoples Bancorp Inc., Peoples Bancorp Inc. succeeded to
and was substituted for NB&T Financial Group, Inc. as "Sponsor"
Notice of Removal of Administrators and Appointment of
Replacements, dated June 5, 2015, delivered to Wilmington Trust
Company by the Successor Administrators named therein and
Peoples Bancorp Inc.
Incorporated herein by reference to Exhibit 4.1(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
Incorporated herein by reference to Exhibit 4.2(b)
to Peoples' June 30, 2015 Form 10-Q
Notice of Removal of Administrator and Appointment of
Replacement, dated February 11, 2021, delivered to Wilmington
Trust Company by the Continuing Administrators and the Successor
Administrator named therein and Peoples Bancorp Inc.
Filed herewith
Guarantee Agreement, dated as of June 25, 2007, between NB&T
Financial Group, Inc. and Wilmington Trust Company, as guarantee
trustee, relating to the Capital Securities (as defined therein)
NOTE: Pursuant to the First Supplemental Indenture, dated June 5,
2015, and made to be effective as of 6:00 p.m., Eastern Standard
Time, on March 6, 2015, between Wilmington Trust Company, as
trustee, and Peoples Bancorp Inc., Peoples Bancorp Inc. succeeded to
and was substituted for NB&T Financial Group, Inc. as "Guarantor"
Incorporated herein by reference to Exhibit 4.3 to
Peoples' June 30, 2015 Form 10-Q
4.5
Description of Capital Stock of Peoples Bancorp Inc.
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)*
*Management Compensation Plan or Agreement
149
Incorporated herein by reference to Exhibit 4.5 to
the Annual Report of Peoples Bancorp Inc. on
Form 10-K for the fiscal year ended December 31,
2019 (File No. 0-16772) ("Peoples' 2019 Form 10-
K")
Incorporated herein by reference to Exhibit 10.1(a)
to Peoples' 2015 Form 10-K
Exhibit
Number
10.1(b)
10.2
10.3
10.4
10.5
10.6
Description
Exhibit Location
Rabbi Trust Agreement, made January 6, 1998, between Peoples
Bancorp Inc. and The Peoples Banking and Trust Company
(predecessor to Peoples Bank, National Association and now known
as Peoples Bank following conversion to state-chartered bank) as
Trustee*
Incorporated herein by reference to Exhibit 10.1(c)
to the Annual Report of Peoples Bancorp Inc. on
Form 10-K for the fiscal year ended December 31,
2007 (File No. 0-16772)
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
and ending with the fiscal year ended December 31, 2019]*
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)
Summary of Peoples Bancorp Inc. Annual Incentive Program for
Executive Officers and other employees of Peoples Bancorp Inc.
[Effective for fiscal year ended December 31, 2020]*
Incorporated herein by reference to Exhibit 10.3 to
Peoples' 2019 Form 10-K
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, 2021]*
Filed herewith
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
10.7
Summary of Compensation for Directors of Peoples Bancorp Inc.*
Filed herewith
10.8
10.9
10.10
Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan
(approved by the shareholders of Peoples Bancorp Inc. on April 26,
2018; successor to the Peoples Bancorp Inc. Second Amended and
Restated 2006 Equity Plan, the Peoples Bancorp Inc. Amended and
Restated 2006 Equity Plan and the Peoples Bancorp Inc. 2006 Equity
Plan)*
Incorporated herein by reference to Exhibit 99 to
the Current Report of Peoples Bancorp Inc. on
Form 8-K dated and filed on April 30, 2018 (File
No. 0-16772)
Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan
Time-Based Restricted Stock Award Agreement (for Executives)
used and to be used to evidence awards of time-based restricted stock
granted to executives of Peoples Bancorp Inc. on and after July 31,
2018 *
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
September 30, 2018 (File No. 0-16772) ("Peoples'
September 30, 2018 Form 10-Q")
Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan
Performance-Based Restricted Stock Award Agreement (for
Executives) used and to be used to evidence awards of performance-
based restricted stock granted to executives of Peoples Bancorp Inc.
on and after July 31, 2018*
Incorporated herein by reference to Exhibit 10.2 to
Peoples' September 30, 2018 Form 10-Q
10.11
Peoples Bancorp Inc. Amended and Restated Nonqualified Deferred
Compensation Plan (adopted effective July 11, 2019)*
10.12
Peoples Bancorp Inc. Amended and Restated Change in Control
Agreement between Peoples Bancorp Inc. and Charles W. Sulerzyski
(adopted April 4, 2011)*
10.13
Peoples Bancorp Inc. Employee Stock Purchase Plan*
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 June 30,
2019 (File No. 0-16772)
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)
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)
10.14
Form of Peoples Bancorp Inc. Second Amended and Restated 2006
Equity Plan Performance-Based Restricted Stock Agreement used to
evidence awards of performance-based restricted stock granted to
employees of Peoples Bancorp Inc. on and after January 29, 2015 and
prior to July 31, 2018*
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
150
Exhibit
Number
10.15
Description
Exhibit Location
Form of Peoples Bancorp Inc. Second Amended and Restated 2006
Equity Plan Performance-Based Restricted Stock Award Agreement
used to evidence awards of performance-based restricted stock
granted to executive officers of Peoples Bancorp Inc. on and after
January 29, 2015 and prior to January 1, 2018*
Incorporated herein by reference Exhibit 10.1 to
the Quarterly Report of Peoples Bancorp Inc. on
Form 10-Q for the quarterly period ended March
31, 2015 (File No. 0-16772)
10.16
Form of Peoples Bancorp Inc. 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)
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Peoples Bancorp Inc. 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
Loan Agreement, made and entered into as of April 3, 2019, between
Peoples Bancorp Inc., as Borrower, and U.S. Bank National
Association, as Lender
Revolving Credit Note issued by Peoples Bancorp Inc. on April 3,
2019 to U.S. Bank National Association in the principal amount of
$20,000,000
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 9, 2019 (File
No. 0-16772) ("Peoples' April 9, 2019 Form 8-K")
Incorporated herein by reference to Exhibit 10.2 to
Peoples' April 9, 2019 Form 8-K
First Amendment to Loan Agreement, made and entered into as of
April 2, 2020, between Peoples Bancorp Inc., as Borrower, and U.S.
Bank National Association, as Lender
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 6, 2020 (File
No. 0-16772)
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)
Peoples Bancorp Inc. Change in Control Agreement between Peoples
Bancorp Inc. and Ryan Kirkham (adopted January 1, 2019)*
Incorporated herein by reference to Exhibit 10.24
to Peoples' 2019 Form 10-K
Peoples Bancorp Inc. Change in Control Agreement between Peoples
Bancorp Inc. and Jason M. Eakle (adopted April 1, 2020)*
10.24
Peoples Bancorp Inc. Change in Control Agreement between Peoples
Bancorp Inc. and Kathryn M. Bailey (adopted October 1, 2020)*
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 June 30,
2020 (File No. 0-16772)
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
September 30, 2020 (File No. 0-16772) ("Peoples
September 30, 2020 Form 10-Q")
10.25
10.26
10.27
21
23
24
Peoples Bancorp Inc. Change in Control Agreement between Peoples
Bancorp Inc. and Mark J. Augenstein (adopted October 1, 2020)*
Incorporated herein by reference to Exhibit 10.2 to
Peoples' September 30, 2020 Form 10-Q
Peoples Bancorp Inc. Change in Control Agreement between Peoples
Bancorp Inc. and Tyler Wilcox (adopted October 1, 2020)*
Incorporated herein by reference to Exhibit 10.3 to
Peoples' September 30, 2020 Form 10-Q
Separation Agreement and General Release between John C. Rogers
(executed on October 5, 2020) and Peoples Bank (executed on
October 6, 2020)*
Incorporated herein by reference to Exhibit 10.4 to
Peoples' September 30, 2020 Form 10-Q
Subsidiaries of Peoples Bancorp Inc.
Consent of Independent Registered Public Accounting Firm – Ernst
& Young LLP
Filed herewith
Filed herewith
Powers of Attorney of Directors and Executive Officers of Peoples
Bancorp Inc.
Filed herewith
31.1
Rule 13a-14(a)/15d-14(a) Certifications [President and Chief
Filed herewith
Executive Officer]
*Management Compensation Plan or Agreement
151
Exhibit
Number
Description
Exhibit Location
31.2
Rule 13a-14(a)/15d-14(a) Certifications [Executive Vice President,
Filed herewith
Chief Financial Officer and Treasurer]
32
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of
the United States Code [President and Chief Executive Officer; and
Executive Vice President, Chief Financial Officer and Treasurer]
Furnished herewith
101.INS
Inline XBRL Instance Document ##
Submitted electronically herewith #
101.SCH Inline XBRL Taxonomy Extension Schema Document
Submitted electronically herewith #
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
Submitted electronically herewith #
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
Submitted electronically herewith #
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Submitted electronically herewith #
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Submitted electronically herewith #
104
Cover Page Interactive Data File (formatted as Inline XBRL with
applicable taxonomy extension information contained in Exhibits
101)
Submitted electronically herewith
# Attached as Exhibit 101 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 of Peoples Bancorp Inc. are
the following documents formatted in Inline XBRL (eXtensive Business Reporting Language): (i) Consolidated Balance Sheets at
December 31, 2020 and December 31, 2019; (ii) Consolidated Statements of Income for the years ended December 31, 2020, 2019 and
2018; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018; (iv) Consolidated
Statements of Stockholders' Equity for the years ended December 31, 2020, 2019 and 2018; (v) Consolidated Statements of Cash Flows
for the years ended December 31, 2020, 2019 and 2018; and (vi) Notes to the Consolidated Financial Statements.
## The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL
document.
152
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: March 1, 2021
PEOPLES BANCORP INC.
By: /s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Title
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ KATIE BAILEY
Katie Bailey
/s/ TARA M. ABRAHAM*
Tara M. Abraham
/s/ S. CRAIG BEAM*
S. Craig Beam
/s/ GEORGE W. BROUGHTON*
George W. Broughton
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
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
Director
Chairman of the Board and Director
/s/ MICHAEL N. VITTORIO*
Director
Michael N. Vittorio
Date
3/1/2021
3/1/2021
3/1/2021
3/1/2021
3/1/2021
3/1/2021
3/1/2021
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3/1/2021
3/1/2021
3/1/2021
* The undersigned, by signing his name hereto, does hereby sign this Annual Report on Form 10-K on behalf of each of the
directors of the Registrant identified above pursuant to Powers of Attorney executed by the directors of the Registrant identified
above, which Powers of Attorney are filed with this Annual Report on Form 10-K in Exhibit 24.
By:
/s/ CHARLES W. SULERZYSKI
Charles W. Sulerzyski
President and Chief Executive Officer
Attorney-in-Fact
153
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$116,055
AMOUNT RAISED IN 2020 BY
ASSOCIATE DONATIONS
TO LOCAL FOOD BANKS
DURING PANDEMIC
OUR VISION
Our vision is to be
THE BEST COMMUNITY BANK IN AMERICA.
EMPLOYEE
PROMISE CIRCLE
CLIENTS FIRST
INTEGRITY ALWAYS
RESPECT FOR ALL
COMMITMENT TO COMMUNITY
LEAD THE WAY
EXCELLENCE IN EVERYTHING
138 PUTNAM STREET I PO BOX 738 I MARIETTA, OH 45750 I 800.374.6123
peoplesbancorp.com
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