PEOPLES BANCORP INC.

138 Putnam Street

P.O. Box 738

Marietta, Ohio 45750-0738

(740) 374-6136

www.peoplesbancorp.com

PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS

To Be Held April 23, 2009

 

 

We are sending this proxy statement and the accompanying proxy card to you because the Board of Directors of Peoples Bancorp Inc. (“Peoples”) is soliciting your proxy to vote at the Annual Meeting of Shareholders, to be held on Thursday, April 23, 2009, at 10:00 a.m., Eastern Daylight Saving Time (the “Annual Meeting”), or at any adjournment thereof.  The Annual Meeting will be held in the Ball Room of the Holiday Inn, 701 Pike Street in Marietta, Ohio (Interstate 77, Ohio exit 1).  This proxy statement summarizes the information that you will need in order to vote.

 

Peoples has three wholly-owned subsidiaries, Peoples Bank, National Association (“Peoples Bank”), Peoples Investment Company and PEBO Capital Trust I.  Peoples Bank also owns an insurance agency subsidiary, Peoples Insurance Agency, Inc., and an asset management subsidiary, PBNA, L.L.C.  Peoples Investment Company also owns a capital management subsidiary, Peoples Capital Corporation.  In 2003, Peoples established Peoples Bancorp Foundation, Inc., as an independent charitable foundation to provide financial assistance and grants to local organizations within Peoples’ market area.

 

 

We mailed this proxy statement and the accompanying proxy card on or about March 27, 2009 to all shareholders entitled to vote their common shares at the Annual Meeting.  The common shares are the only shares of Peoples’ capital stock entitled to vote at the Annual Meeting.  We also sent with this proxy statement, Peoples’ 2008 Annual Report to Shareholders, which includes the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the “2008 Annual Report”).  Additional copies of the 2008 Annual Report may be obtained, without charge, by sending a written request to:  Rhonda L. Mears, Corporate Secretary, 138 Putnam Street, P.O. Box 738, Marietta, Ohio 45750-0738.  Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2008 is posted in the “Company Information SEC Filings Updated” section of the “Investors Relations” page of Peoples’ website at www.peoplesbancorp.com and is also on file with the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website at www.sec.gov.

 

 

FOR 2010 ANNUAL MEETING

 

Proposals by shareholders intended to be presented at the 2010 Annual Meeting of Shareholders (the “2010 Annual Meeting”) must be received by the Corporate Secretary of Peoples no later than November 27, 2010, to be eligible for inclusion in Peoples’ proxy, notice of meeting, proxy statement and Notice of Internet Availability of Proxy Materials relating to the 2010 Annual Meeting.  Peoples will not be required to include in its proxy, a notice of meeting, proxy statement or Notice of Internet Availability of Proxy Materials, a shareholder proposal that is received after that date or that otherwise fails to meet the requirements for shareholder proposals established by applicable SEC rules.

 

The SEC has promulgated rules relating to the exercise of discretionary voting authority under proxies solicited by the Board of Directors.  If a shareholder intends to present a proposal at the 2010 Annual Meeting without inclusion of that proposal in Peoples’ proxy materials, and does not notify the Corporate Secretary of Peoples of the proposal by February 10, 2010, the proxies solicited by the Board of Directors for use at the 2010 Annual Meeting will confer discretionary authority to vote on the proposal should it then be raised at the 2010 Annual Meeting.

 

In each case, written notice must be given to Peoples’ Corporate Secretary, at the following address:  Peoples Bancorp Inc., 138 Putnam Street, P.O. Box 738, Marietta, Ohio 45750-0738.

 

Shareholders desiring to nominate candidates for election as directors at the 2010 Annual Meeting must follow the procedures described in the section captioned “NOMINATING PROCEDURES.”

 

 

 

No appraisal or dissenters’ rights exist for any action proposed to be taken at the Annual Meeting. If any other matters are properly presented for voting at the Annual Meeting, the persons named as proxies on the accompanying proxy card will vote on those matters, to the extent permitted by applicable law, in accordance with their best judgment.

 

The following sets forth the votes required, and the impact of abstentions and broker non-votes, if any, on the three proposals:

 

Item		Vote Required		Impact of Abstentions and Broker Non-Votes, if any
Election of Directors		Under Ohio law and Peoples’ Code of Regulations, the four nominees for election as directors receiving the greatest number of votes “FOR” their election will be elected as directors in the class whose terms will expire in 2012.		· Common shares as to which the authority to vote is withheld will be counted for quorum purposes but will affect whether a nominee has received sufficient votes to be elected.
Ratification of Independent Registered Public Accounting Firm		The affirmative vote of a majority of the common shares represented at the Annual Meeting, in person or by proxy, and entitled to vote on the proposal, is required to ratify the appointment of Ernst & Young LLP as Peoples’ independent registered public accounting firm for the fiscal year ending December 31, 2009.		· Abstention has the same effect as a vote “AGAINST” the proposal.
Approval, in Non-Binding Advisory Vote of Executive Compensation		The affirmative vote of a majority of the common shares represented at the Annual Meeting, in person or by proxy, and entitled to vote on the proposal, is required to approve, in a non-binding advisory vote, Peoples’ executive compensation disclosed in this proxy statement.		· Abstention has the same effect as a vote “AGAINST” the proposal.

 

Peoples’ policy is to keep confidential proxy cards, ballots and voting tabulations that identify individual shareholders.  However, exceptions to this policy may be necessary in some instances to comply with legal requirements and, in the case of any contested proxy solicitation, to verify the validity of proxies presented by any person and the results of the voting.  Inspectors of election and any employees associated with processing proxy cards or ballots and tabulating the vote must acknowledge their responsibility to comply with this policy of confidentiality.

 

To obtain directions to attend the Annual Meeting and vote in person, please call Investor Relations at 740-374-6136.

 

 

Peoples will carefully review the ARRA executive compensation standards and any U.S. Treasury and/or SEC regulations, once issued.  To the extent that (i) the U.S. Treasury amends the Securities Purchase Agreement to make these standards applicable, (ii) the U.S. Treasury and/or the SEC issues regulations describing how Peoples is to comply with these standards or (iii) Peoples determines that these standards apply, Peoples will work with its Senior Executive Officers and other affected employees to take such steps as it deems necessary to comply with the standards and adopt administrative and other procedures consistent with the foregoing.

 

 

(4)

Based on information contained in a Schedule 13G amendment, dated February 9, 2009, filed with the SEC on February 9, 2009 on behalf of Dimensional Fund Advisors LP to report its beneficial ownership of common shares of Peoples as of December 31, 2008.  The Schedule 13G amendment reported that Dimensional Fund Advisors LP had sole voting power as to 789,594 common shares and sole investment power as to 809,653 common shares, all of which were held in portfolios of four registered investment companies to which Dimensional Fund Advisors LP furnishes investment advice and of certain other commingled group trusts and separate accounts for which Dimensional Fund Advisors LP serves as investment manager.  The common shares reported were owned by the investment companies, trusts and accounts.  Dimensional Fund Advisors LP disclaimed beneficial ownership of the reported common shares.

 

The following table sets forth, as of February 23, 2009, certain information with respect to the common shares beneficially owned by each current director of Peoples (including each nominee for re-election as a director of Peoples), by each individual named in the Summary Compensation Table for 2008 and by all current executive officers and directors of Peoples as a group:

 

	Amount and Nature of Beneficial Ownership (1)
Name of Beneficial Owner	Common Shares Presently Held		Common Shares Which Can Be Acquired Upon Exercise of Options Currently Exercisable or Options First Becoming Exercisable Within 60 Days			Total	Percent of Class (2)
Carl L. Baker, Jr.	86,642	(3)		7,984		94,626	(4)
Mark F. Bradley (5)	9,956	(6)		24,822		34,778	(4)
George W. Broughton	180,959	(7)		4,665		185,624	1.78%
Frank L. Christy	81,965	(8)		6,932		88,897	(4)
Wilford D. Dimit	56,563	(9)		8,386		64,949	(4)
Richard Ferguson	720	(10)		2,355		3,075	(4)
Deborah K. Hill (5)	1,619			0		1,619	(4)
David L. Mead	3,100	(11)		600		3,700	(4)
Robert W. Price	15,880	(12)		5,820		21,700	(4)
Theodore P. Sauber	130,188	(13)		2,355		132,543	1.27%
Carol A. Schneeberger (5)	32,235	(14)		18,554		50,789	(4)
Edward G. Sloane (5)	2,791	(15)		0		2,791	(4)
Paul T. Theisen	24,225	(16)		7,550		31,775	(4)
David T. Wesel (5)	5,632	(17)		3,609		9,241	(4)
Joseph H. Wesel	37,926	(18)		5,820		43,746	(4)
Thomas J. Wolf	25,600	(19)		3,510		29,110	(4)
Joseph S. Yazombek (5)	43,073	(20)		26,656		69,729	(4)
All current directors and executive officers as a group (numbering 17)	739,074	(21)		129,618		868,692	8.22%

 

(1)

Unless otherwise indicated in the footnotes to this table, the beneficial owner has sole voting and investment power with respect to all of the common shares reflected in the table.  All fractional common shares have been rounded down to the whole common share.  The mailing address of each of the current executive officers and directors of Peoples is 138 Putnam Street, P.O. Box 738, Marietta, Ohio 45750-0738.

 

(2)

The “Percent of Class” computation is based on the sum of (i) 10,439,168 common shares outstanding and entitled to vote on February 23, 2009 and (ii) the number of common shares, if any, as to which the named individual or group has the right to acquire beneficial ownership upon the exercise of options which are currently exercisable or will first become exercisable within 60 days after February 23, 2009.

 

(3)

Includes 5,777 common shares held in an investment account by Carl L. Baker, Jr., as to which Mr. Baker exercises sole voting and investment power. Includes 8,352 common shares held by B & N Coal, Inc., as to which Mr. Baker exercises shared voting and investment power.  Also includes (i) 8,943 common shares held by Mr. Baker as Trustee of the Gilbert Baker Trust, as to which Mr. Baker exercises sole voting and investment power; (ii) 44,924 common shares held by Mr. Baker as Trustee of the Jewell Baker Trust, as to which Mr. Baker exercises sole voting and investment power; (iii) 5,005 common shares held by Mr. Baker as Trustee of the Mary Baker Trust, as to which Mr. Baker exercises sole voting and investment power; and (iv) 2,000 common shares held by Mr. Baker as Trustee of Baker Investments LLC, as to which Mr. Baker exercises sole voting and investment power. Does not include 277 common shares accrued to Mr. Baker’s account under the Peoples Bancorp Inc.  Second Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp Inc. and Subsidiaries (the “Deferred Compensation Plan for Directors”), as to which Mr. Baker has no voting or investment power.

 

(4)	Reflects beneficial ownership of less than 1% of the outstanding common shares.

 

(5)	Executive officer of Peoples during the fiscal year ended December 31, 2008 (the “2008 fiscal year”) and named in the Summary Compensation Table.  Mark F. Bradley also serves as a director of Peoples.

 

(6)

Does not include 1,568 common shares accrued to Mark F. Bradley’s account under the Deferred Compensation Plan for Directors, as to which Mr. Bradley has no voting or investment power.  Includes 6,878 common shares allocated to the account of Mr. Bradley in the Retirement Savings Plan, as to which Mr. Bradley has the power to direct the voting and investment.

 

(7)

Includes 5,135 common shares held by George W. Broughton as custodian for his children, as to which Mr. Broughton has sole voting and investment power.  Includes 2,000 common shares held by George Broughton Family Limited Partnership, as to which Mr. Broughton exercises sole voting and investment power.  Includes 558 common shares held by Broughton Commercial Properties, LLC, as to which Mr. Broughton exercises sole voting and investment power.  Includes 17,004 common shares held by Mr. Broughton as Trustee of the George W. Broughton and Nancy R. Broughton Retained Annuity Trust, as to which Mr. Broughton has shared voting and investment power.  Includes 13,374 common shares held in an IRA account by Peoples Bank as custodian, as to which Mr. Broughton exercises sole voting and investment power.  Does not include 16,333 common shares held of record and beneficially owned by Mr. Broughton’s wife, as to which Mr. Broughton has no voting or investment power and disclaims beneficial ownership.  Does not include 1,370 common shares accrued to Mr. Broughton’s account under the Deferred Compensation Plan for Directors, as to which Mr. Broughton has no voting or investment power.  As of February 23, 2009, 558 common shares held by Broughton Commercial Properties, LLC and 9,306 common shares held by Mr. Broughton had been pledged as security.

 

(8)

Includes 70,115 common shares held in the Riverbank Restaurants Inc. Agency Account at Peoples Bank, as to which Frank L. Christy exercises shared voting and investment power with Peoples Bank.  Also includes 979 common shares held in an investment account by Mr. Christy, as to which Mr. Christy exercises sole voting and investment power.  Also includes 10,271 common shares held by Mr. Christy as Co-Trustee of the F. Leonard Christy Trust Investment Account at Peoples Bank, as to which Mr. Christy exercises shared voting and investment power.

 

(9)

Includes 24,153 common shares held in the Wilford D. Dimit Trust Investment Account at Peoples Bank, as to which Mr. Dimit exercises shared voting and investment power with Peoples Bank.  Also includes 31,100 common shares held in the Marjorie E. Dimit Trust Investment Account at Peoples Bank, as to which Wilford D. Dimit exercises shared voting and investment power with Peoples Bank.  Does not include 25,581 common shares accrued to Mr. Dimit’s account under the Deferred Compensation Plan for Directors, as to which Mr. Dimit has no voting or investment power.

 

(10)

Includes 103 common shares allocated to the account of Richard Ferguson in the Ferguson Consulting, LLC retirement savings plan, as to which Mr. Ferguson has the power to direct the voting and investment.  Does not include 4,721 common shares accrued to Mr. Ferguson’s account under the Deferred Compensation Plan for Directors, as to which Mr. Ferguson has no voting or investment power.

 

(11)

Includes 2,500 common shares held in an investment account by David L. Mead, as to which Mr. Mead exercises sole voting and investment power. Does not include 2,419 common shares accrued to Mr. Mead’s account under the Deferred Compensation Plan for Directors, as to which Mr. Mead has no voting or investment power.

 

(12)

Includes 11,167 common shares held in the Robert W. Price Investment Account, as to which Mr. Price exercises sole investment and voting power.  Does not include 6,345 common shares accrued to Mr. Price’s account under the Deferred Compensation Plan for Directors, as to which Mr. Price has no voting or investment power.

 

(13)

Includes 56,173 common shares held in the Carol J. Sauber Trust Account at Peoples Bank, as to which Theodore P. Sauber exercises shared investment and voting power with Peoples Bank.  Includes 65,594 common shares held in the Theodore P. Sauber Trust Account at Peoples Bank, as to which Mr. Sauber exercises shared investment and voting power with Peoples Bank.  Includes 8,121 common shares held in an IRA account by Peoples Bank as custodian, as to which Mr. Sauber exercises shared investment and voting power with Peoples Bank.

 

(14)

Includes 8,452 common shares held jointly by Carol A. Schneeberger with her husband, as to which Ms. Schneeberger exercises shared voting and investment power. Includes 13,123 common shares allocated to the account of Ms. Schneeberger in the Retirement Savings Plan, as to which Ms. Schneeberger has the power to direct the voting and investment.  Includes 3,751 common shares held by David Radcliff, the father of Ms. Schneeberger.  Mr. Radcliff has granted to Ms. Schneeberger, pursuant to a power of attorney, voting and investment powers with respect to these 3,751 common shares; however, Ms. Schneeberger disclaims beneficial ownership as to them.

 

(15)	Includes 1,132 common shares allocated to the account of Mr. Sloane in the Retirement Savings Plan, as to which Mr. Sloane has the power to direct the voting and investment.

 

(16)	Does not include 6,199 common shares accrued to Paul T. Theisen’s account under the Deferred Compensation Plan for Directors, as to which Mr. Theisen has no voting or investment power.

 

(17)	Includes 2,789 common shares held jointly by David T. Wesel with his wife, as to which Mr. Wesel exercises shared voting and investment power.  Includes 2,040 common shares held by Mr. Wesel as custodian for his children.

 

(18)

Does not include 14,879 common shares held in the Luada Wesel Estate Plan Trust Investment Account at Peoples Bank, as to which: (i) Joseph H. Wesel has no voting or investment power and disclaims beneficial ownership and (ii) Peoples Bank shares voting and investment power with Luada Wesel.  Does not include 8,461 common shares accrued to Mr. Wesel’s account under the Deferred Compensation Plan for Directors, as to which Mr. Wesel has no voting or investment power.  Does not include 15,986 common shares in the Joseph and Lu Wesel Grandchildren’s Trust, as to which Peoples Bank has sole investment and voting power.

 

(19)	As of February 23, 2009, 20,000 common shares held by Mr. Wolf had been pledged as security.

 

(20)

Includes 26,506 common shares held jointly by Joseph S. Yazombek and with his wife, as to which Mr. Yazombek exercises shared voting and investment power.  Includes 15,726 common shares allocated to the account of Mr. Yazombek in the Retirement Savings Plan, as to which Mr. Yazombek has the power to direct the voting and investment.

 

(21)	Includes common shares held jointly by current directors and executive officers with other persons, as well as 36,928 common shares allocated to the accounts of the executive officers of Peoples in the Retirement Savings Plan.  See notes (3) and (6) through (20) above.

 

 

·	Frank L. Christy filed late one Form 4 reporting the disposition of common shares by Mr. Christy as Co-Trustee of the F. Leonard Christy Trust in a total of 12 transactions (which occurred on March 12, 2008 and was reported on May 7, 2008).

·	Carl L. Baker, Jr. reported late on a Form 4 the acquisition of common shares through dividend reinvestment (which occurred on April 2, 2007 and was reported on February 25, 2008).

·

The following directors and executive officers reported late on a Form 4 the acquisition of common shares through an award of restricted shares on February 20, 2008, which was reported on February 25, 2008 or on February 26, 2008:  George W. Broughton, Carl L. Baker, Jr., Mark F. Bradley, Frank L. Christy, Wilford D. Dimit, Richard Ferguson, David L. Mead, Robert W. Price, Theodore P. Sauber, Carol A. Schneeberger, Paul T. Theisen, David T. Wesel, Joseph H. Wesel, Thomas J. Wolf, and Joseph S. Yazombek.

·	Edward G. Sloane filed late one Form 4 reporting the disposition of common shares which were withheld to pay the tax liability associated with the vesting of restricted shares on December 2, 2008, which form 4 was filed on January 6, 2009.

 

The following table gives certain information, as of the date of this proxy statement, concerning each nominee for re-election as a director of Peoples.  Unless otherwise indicated, each individual has had the same principal occupation for more than five years.

 

The following table gives certain information, as of the date of this proxy statement, concerning the current directors of Peoples who will continue to serve after the Annual Meeting.  Unless otherwise indicated, each individual has had the same principal occupation for more than five years.

 

Name	Age	Position(s) Held with Peoples and Its Principal Subsidiaries and Principal Occupation(s)	Director Continuously Since	Term Expiring In
Mark F. Bradley	39	Chief Executive Officer since May 2005, President since June 2004, a Director since February 2003, Chief Operating Officer from July 2003 to May 2005, Executive Vice President and Chief Integration Officer from February 2001 to July 2003, and Controller from 1997 to 2001, of Peoples. Chief Executive Officer since May 2005, President since 2002, Chief Operating Officer from 2002 to May 2005, and Controller from 1997 to 2001, of Peoples Bank. Chairman, President and a Director of Peoples Bancorp Foundation, Inc. since December 2003. President from January 2006 to February 2009 and a Director since January 2004 of Peoples Insurance Agency, Inc. (1)	2003	2011
Frank L. Christy	61	President of Christy & Associates, Inc., a business development company located in Marietta, Ohio. Chairman of Caron Products and Services, Inc., a manufacturer and distributor of chillers and incubators for scientific work, located in Marietta, Ohio. Chairman of Rossi Pasta Ltd., a manufacturer and distributor of gourmet pasta and sauce, located in Marietta, Ohio.	1999	2011
David L. Mead	53	Vice President for Business Affairs, Otterbein College, located in Westerville, Ohio, since September 2006. Associate Professor of Finance, Marietta College, located in Marietta, Ohio, from August 2004 to September 2006. Chief Financial Officer and Treasurer of First Place Financial Corp, headquartered in Warren, Ohio, from December 2002 to June 2004.  Treasurer of First Place Bank from May 2002 to December 2002. (1)	2006	2010
Robert W. Price	45	Private Investor. From 2002 until February 6, 2008, General Manager, Findley, Ohio District, Shelly Materials, Inc., a division of The Shelly Company.  The Shelly Company is an asphalt and construction materials company headquartered in Thornville, Ohio, and a wholly-owned subsidiary of Oldcastle Materials Group, a division of CRH, plc.  Formerly President of Smith Concrete, a concrete company located in Marietta, Ohio, and related companies.	2000	2010

 

Theodore P. Sauber	75	Vice President of T.C.K.S., Inc., a holding company for McDonald’s Restaurants in Ohio and West Virginia.  A member of the Ohio University Trustees Academy. A member of Service Corps of Retired Executives (SCORE) of Athens (Ohio). A Director of Peoples Bancorp Foundation, Inc. since December 2003. Retired Trustee of Rio Grande University. (1)	2004	2011
Paul T. Theisen	78	Attorney-At-Law, retired.  For more than 40 years, was a litigator with TheisenBrock, A Legal Professional Association (“TheisenBrock”), located in Marietta, Ohio, and was Of Counsel to, and an independent contractor with, that firm.  Vice Chairman of the Board since June 2005, and Leadership Director from December 2005 to July 2008, of Peoples Bancorp Inc. Chairman of the Board of Peoples Bank since June 2005. (1)	1980	2010
Joseph H. Wesel	79	President of W.D.A., Inc., a real estate holding company, located in Marietta, Ohio. Chairman and Chief Executive Officer of Marietta Automotive Warehouse, Inc., an automotive parts wholesaler, located in Marietta, Ohio, from 1978 until December 2007. Chairman of the Board from 1991 until July 2003 and since June 2005, Leadership Director from July 2003 to December 2005 and Vice Chairman of the Board from July 2003 to June 2005, of Peoples. (1)	1980	2011
Thomas J. Wolf	62	President of seven holding companies for 13 McDonald’s Restaurants in Kentucky and West Virginia. Chairman of the Board for Fifth Avenue Broadcasting Co., Inc., a holding company for four radio stations in Huntington, West Virginia. Board member of Our Lady of Bellefonte Hospital in Ashland, Kentucky, from 2002 to 2008. Board member of the Ronald McDonald House in Huntington, West Virginia, since 1998.	2004	2010

 

(1)	Also a director of Peoples Bank.

 

Other than the father-son relationship between Joseph H. Wesel, a director of Peoples, and David T. Wesel, an executive officer of Peoples, there are no family relationships among any of the directors, nominees for election as directors and executive officers of Peoples.

 

 

 

The Following are the executive officers of Peoples, all of whom are elected annually and serve at the pleasure of the Board of Directors of Peoples.  This table lists each executive officer’s age as of the date of this proxy statement as well as the positions presently held by each executive officer with Peoples and our principal subsidiaries and each executive officer’s individual business experience.

Name		Age		Position
Mark F. Bradley		39		President and Chief Executive Officer
Deborah K. Hill		44		Executive Vice President, Consumer and Business Financial Services
Carol A. Schneeberger		52		Executive Vice President, Operations
Edward G. Sloane		48		Chief Financial Officer, Treasurer and Executive Vice President
David T. Wesel		47		Executive Vice President, Investment and Insurance Services
Joseph S. Yazombek		55		Executive Vice President, Chief Lending Officer

Mr. Bradley has been Chief Executive Officer of Peoples since May 2005 and President of Peoples since June 2004.  Mr. Bradley also has been Chief Executive Officer of Peoples Bank since May 2005 and President since July 2002.  Prior thereto, Mr. Bradley served as Chief Operating Officer of Peoples from July 2003 to May 2005, and Executive Vice President and Chief Integration Officer from February 2001 to July 2003.  He also served as Chief Operating Officer of Peoples Bank from July 2002 to May 2005.  Between 1997 and 2001, Mr. Bradley served as Controller of Peoples and Peoples Bank.  Mr. Bradley joined Peoples in 1991.  In January 2006, Mr. Bradley was appointed President of Peoples Insurance, and served in that capacity until March 2009.  Mr. Bradley remains a Director of Peoples Insurance.  Mr. Bradley has been a director of Peoples since 2003 and Peoples Bank since 2002.

Ms. Hill joined Peoples in September 2007 when she was appointed Executive Vice President, Consumer and Business Financial Services of both Peoples and Peoples Bank.  Prior to joining Peoples, Ms. Hill served as Senior Vice President and Regional Manager of U.S. Bank’s Wisconsin/Chicago region from 1994 to August 2007.

Ms. Schneeberger, a Certified Public Accountant, serves as Executive Vice President, Operations of Peoples and Peoples Bank, positions she has held since April 1999 and February 2000, and she has served as Cashier of Peoples Bank since March 2000.  From April 2007 to May 2008, Ms. Schneeberger served as interim Chief Financial Officer and Treasurer of both Peoples and Peoples Bank.  From October 1988 to April 1999, Ms. Schneeberger was Vice President/Operations of Peoples.  Prior thereto, she was Auditor of Peoples from August 1987 to October 1988 and Auditor of Peoples Bank from January 1986 to October 1988.  Ms. Schneeberger joined Peoples Bank in 1977.

Mr. Sloane, a Certified Public Accountant, joined Peoples in May 2008 when he was appointed as Chief Financial Officer, Treasurer and Executive Vice President of Peoples and Peoples Bank.  Prior to joining Peoples, Mr. Sloane served as Senior Vice President of Strategic Planning and Analysis for WesBanco, Inc., a West Virginia bank holding company located in Wheeling, West Virginia, from 2006 to 2008.  From 1991 to 2006, Mr. Sloane served as Controller of WesBanco, Inc.  He has over 25 years of experience in the financial services industry in various roles of increasing responsibility in the accounting, finance, mergers and acquisitions, asset/liability management and strategic planning areas.

Mr. Wesel became Executive Vice President of Peoples in January 2006.  Mr. Wesel was also appointed as President of Peoples Bank’s Peoples Financial Advisors division in January 2006.  Effective March 1, 2009, Mr. Wesel also assumed the position of President of Peoples Insurance Agency, Inc., and was named Executive Vice President for Investment and Insurance Services.  Mr. Wesel served as Sales Manager of Peoples Financial Advisors from February 2004 to December 2005.  Prior to joining Peoples, Mr. Wesel had over 20 years experience in senior management and sales administration, including two years experience from September 2002 to February 2004 with Parker Hunter, a regional brokerage firm.  Mr. Wesel is the son of Joseph H. Wesel, a director of Peoples and Peoples Bank.

Mr. Yazombek was appointed Executive Vice President/Chief Lending Officer of Peoples in January 2000.  Mr. Yazombek has also held the position of Executive Vice President and Chief Lending Officer of Peoples Bank since October 1998.  He was an Executive Vice President of Peoples Bank’s Consumer and Mortgage Lending areas from May 1996 to October 1998, where he also directly managed Peoples Bank’s collections efforts.  Mr. Yazombek joined Peoples Bank in 1983 and served as a real estate lender until May 1996.

 

COMMITTEES OF THE BOARD

 

 

The rules of the NASDAQ Stock Market LLC (the “NASDAQ Rules”) require that a majority of Peoples’ Board of Directors be independent directors.  The definition of an independent director for purposes of the NASDAQ Rules includes a series of objective criteria, which Peoples’ Board of Directors has used in determining whether its members are independent.

 

In addition to considering the objective criteria, as required by the NASDAQ Rules, the Board of Directors has made a subjective determination as to each independent director that no relationships exist which, in the opinion of the Board, would interfere with such individual’s exercise of independent judgment in carrying out the responsibilities of a director.  In making these independence determinations, the Board of Directors has reviewed, considered and discussed each director’s business and personal relationships, both direct and indirect, with Peoples and our subsidiaries and the compensation and other payments each director and such director’s immediate family members have, both directly and indirectly, received from or made to Peoples and our subsidiaries and presently expect to receive from or make to Peoples and its subsidiaries.  Based on that review, consideration and discussion, the Board of Directors has determined that at least a majority of its members qualify as independent directors.  The Board of Directors has further determined that each of the following directors has no financial or personal ties, either directly or indirectly, with Peoples or our subsidiaries (other than compensation received in the individual’s capacity as a director of Peoples and our subsidiaries, non-preferential banking relationships in the ordinary course of business with Peoples Bank and ownership of common shares of Peoples as described in this proxy statement) and thus qualifies as independent: Carl L. Baker, Jr.; George W. Broughton; Frank L. Christy; Richard Ferguson; Wilford D. Dimit;  David L. Mead; Robert W. Price; Theodore P. Sauber; Paul T. Theisen; and Thomas J. Wolf.

 

Paul T. Theisen was Of Counsel to, and an independent contractor with, the law firm of TheisenBrock until December 2008.  Mr. Theisen has not been a partner, controlling shareholder or executive officer or otherwise been related to or held any interest in TheisenBrock, other than as Of Counsel and an independent contractor (and has not personally performed legal services for Peoples or any of its subsidiaries), since 1998.  TheisenBrock performed legal services for Peoples and our subsidiaries during the 2008 fiscal year.

 

Mark F. Bradley does not qualify as an independent director because he currently serves as an executive officer of Peoples.

 

On September 14, 2005, the Board of Directors appointed David T. Wesel as an executive officer of Peoples and Peoples Bank, effective January 1, 2006.  Joseph H. Wesel is the father of David T. Wesel.  The Board of Directors has determined that, due to his relationship to David T. Wesel, Joseph H. Wesel does not qualify as an independent director either under the applicable NASDAQ Rules or for purposes of Rule 16b-3 under the Exchange Act or Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), each of which applies to directors serving on the Compensation Committee.

 

 

In the event that the Chairman of the Board of Directors does not qualify as an independent director because he is the Chief Executive Officer or the President of Peoples or for some other reason does not qualify, the Board of Directors elects a Leadership Director from among its members who is an independent director to preside over the proceedings of all executive sessions of the independent directors (without management present) and to perform the other duties required by Section 3.04 of Peoples’ Code of Regulations.  The Leadership Director also serves as the Chairman of the Governance and Nominating Committee.  Paul T. Theisen served as the Leadership Director from December 8, 2005 to July 1, 2008 when Richard Ferguson, an independent director, became Chairman of the Board.

 

  In accordance with applicable NASDAQ Rules, the independent directors were given the opportunity to meet in executive session at the end of each Board of Directors meeting and at such other times as the independent directors deemed necessary.

 

The Board of Directors held a total of 14 meetings during the 2008 fiscal year.  Each incumbent director attended 78% or more of the aggregate of the total number of meetings held by the Board of Directors and the total number of meetings held by all committees of the Board of Directors on which he served, in each case during his period of service.

 

Peoples encourages all incumbent directors and director nominees to attend each annual meeting of shareholders.  All of the directors attended Peoples’ last annual meeting of shareholders held on April 10, 2008.

 

 

The Board of Directors has a standing Audit Committee, a standing Compensation Committee, a standing  Executive Committee, and a standing Governance and Nominating Committee.

 

 

 

The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act and conducts its business pursuant to a written charter adopted by the Board of Directors.  A current copy of the charter of the Audit Committee is posted on the “Corporate Governance & Ethics” page of Peoples’ website at www.peoplesbancorp.com.  At least annually, the Audit Committee reviews and reassesses the adequacy of its charter and recommends any proposed changes to the full Board of Directors as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.  Among other duties set forth in its charter, the Audit Committee is responsible for:

 

·	overseeing the accounting and financial reporting processes of Peoples;

 

·	overseeing the audits of the consolidated financial statements of Peoples;

 

·	appointing, terminating, compensating and overseeing the work of Peoples’ independent registered public accounting firm, including resolving any disagreements between management and the independent registered public accounting firm regarding financial reporting;

 

·	pre-approving all audit and non-audit services provided by the independent registered public accounting firm;

 

·	discussing with management, the internal auditors and the independent registered public accounting firm the adequacy and effectiveness of the accounting and financial controls of Peoples;

 

·	reviewing and concurring in the appointment, replacement, reassignment or dismissal of the internal auditor, the scope of the internal audit and the operation and performance of the internal auditor;

 

·	reviewing and approving all related party transactions (any transaction required to be reported pursuant to Item 404 of SEC Regulation S-K) for potential conflict of interest situations;

 

·	reviewing Peoples’ earnings press releases, financial information and earnings guidance and financial statements and related disclosures in Peoples’ periodic reports;

 

·	setting hiring policies for employees or former employees of the independent registered public accounting firm;

 

·	establishing procedures for the receipt, retention and treatment of complaints received by Peoples regarding accounting, internal accounting controls or auditing matters;

 

·	assisting the Board of Directors in the oversight of:

 

·	the performance of Peoples’ independent registered public accounting firm,

 

·	the independent registered public accounting firm’s qualifications and independence; and

 

·	Peoples’ compliance with ethics policies and legal and regulatory requirements; and

 

·	other responsibilities as may be delegated to the Audit Committee by the full Board of Directors.

 

The Audit Committee held six meetings during the 2008 fiscal year.  The “AUDIT COMMITTEE REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008” appears beginning on page 49.

 

The Audit Committee is currently comprised of Richard Ferguson (Chairman), Carl L. Baker, Jr., George W. Broughton, David L. Mead, Theodore P. Sauber and Thomas J. Wolf.  Messrs. Ferguson, Baker, Broughton, Sauber and Wolf served as members of the Audit Committee during the entire 2008 fiscal year.  Mr. Mead was appointed to the Audit Committee on June 12, 2008.  The Board of Directors has determined that each of the members of the Audit Committee qualifies as an independent director for purposes of Rule 10A-3 under the Exchange Act and under the applicable NASDAQ Rules.

 

The Board of Directors has concluded that each member of the Audit Committee is capable of (i) understanding accounting principles generally accepted in the United States (“US GAAP”) and financial statements, (ii) assessing the general application of US GAAP in connection with the accounting for estimates, accruals and reserves, (iii) analyzing and evaluating Peoples’ consolidated financial statements, (iv) understanding internal control over financial reporting, and (v) understanding audit committee functions.  Based upon his background, knowledge, qualifications, experience and profession, the Board of Directors has determined that each of Richard Ferguson and David L. Mead qualifies as an “audit committee financial expert” under the SEC’s rules, and as “financially sophisticated” for purposes of the applicable NASDAQ Rules.

 

 

 

The Compensation Committee is comprised of six directors who qualify as (i) “independent directors” under the applicable NASDAQ Rules, (ii) “outside directors” for purposes of Section 162(m) of the Internal Revenue Code and (iii) “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act.  The members of the Compensation Committee are:  Frank L. Christy, Chairman; Carl L. Baker, Jr.; George W. Broughton; David L. Mead; Robert W. Price; and Paul T. Theisen, each of whom served on the Compensation Committee throughout the entire 2008 fiscal year.

 

The Compensation Committee is organized and conducts its business pursuant to a written charter adopted by the Board of Directors.  A current copy of the charter of the Compensation Committee is posted on the “Corporate Governance & Ethics” page of Peoples’ website at www.peoplesbancorp.com.  The Compensation Committee periodically reviews and reassesses the adequacy of its charter and recommends any proposed changes to the full Board of Directors for approval.

 

The Compensation Committee held seven (7) meetings during 2008.  Its Chairman determines the agenda for the meetings of the Compensation Committee with the assistance of Peoples’ Executive Vice President, Operations who also serves as the Secretary to the Compensation Committee.  During the 2008 fiscal year, the Compensation Committee reviewed and approved on behalf of the Board of Directors, management recommendations regarding all forms of compensation provided to the executive officers and directors of Peoples and its subsidiaries.  Additionally, the Compensation Committee reviewed and approved all equity-based compensation, cash incentives, perquisites, employee benefits, salary programs, and human resources policies and procedures for employees of Peoples and its subsidiaries.  The Compensation Committee also reviewed and approved the 2008 goals and objectives relevant to the compensation of Peoples’ executive officers, and recommended the corporate performance goals to the Board of Directors, which were subsequently approved by the Board of Directors.  The Compensation Committee evaluated the executive officers’ performance in light of those goals and objectives and determined the compensation earned by each executive officer based on that evaluation.  Leadership and management succession plans were also reviewed and discussed during 2008.

 

The primary function of the Compensation Committee is to review and approve, on behalf of the Board of Directors, management recommendations regarding all forms of compensation to be provided to the executive officers and directors of Peoples and its subsidiaries, including bonuses, equity-based compensation, cash incentives, perquisites, employee benefits and salary programs.  In carrying out this function, the Compensation Committee is responsible for reviewing and approving goals and objectives relevant to the compensation of Peoples’ executive officers and other officers designated by the Board of Directors, evaluating such officers’ performance in light of those goals and objectives and determining compensation based on that evaluation.  The Compensation Committee administers Peoples’ Amended and Restated 1993 Stock Option Plan (the “1993 Plan”), 1995 Stock Option Plan (the “1995 Plan”), 1998 Stock Option Plan (the “1998 Plan”), 2002 Stock Option Plan (the “2002 Plan”), Amended and Restated 2006 Equity Plan (the “2006 Plan”), and Amended and Restated Incentive Award Plan (the “Incentive Plan”), and approves grants of awards under these plans in compliance with applicable securities and tax laws.  The Compensation Committee also undertakes such other responsibilities as the full Board of Directors may from time to time prescribe.

 

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law.  ARRA executive compensation standards require that Peoples establish a compensation committee consisting solely of independent directors for the purpose of reviewing employee compensation plans.  This compensation committee is required to meet at least semi­annually to discuss and evaluate employee compensation plans in light of an assessment of any risk posed to Peoples from such plans.  As of March 17, 2009, the Treasury had not amended the Securities Purchase Agreement to require that Peoples comply with this requirement or issued regulations describing how Peoples is to implement this requirement.  To the extent that the Treasury amends the Securities Purchase Agreement to require that Peoples comply with this requirement and/or issues such regulations, Peoples will take such steps as are necessary to comply with this requirement, including the evaluation of the composition of the existing Compensation Committee to determine whether it is consistent with the requirements of the ARRA.

 

The Compensation Committee is required to make certain certifications in connection with Peoples’ participation in the Treasury’s Capital Purchase Program.  The certifications in the form required by the regulations issued by the Treasury in October 2008 are included in the section captioned “COMPENSATION COMMITTEE REPORT.”

 

The “COMPENSATION DISCUSSION AND ANALYSIS” regarding executive compensation appears beginning on page 20, and the “COMPENSATION COMMITTEE REPORT” appears beginning on page 33.

 

 

 

The Executive Committee is comprised of six directors: Mark F. Bradley, Chairman; Wilford D. Dimit; Richard Ferguson; Robert W. Price; Paul T. Theisen; and Joseph H. Wesel.  Messrs. Bradley, Dimit, Price, Theisen and Wesel served as members of the Executive Committee throughout the 2008 fiscal year.  Mr. Ferguson was appointed to the Executive Committee on June 12, 2008.  The Executive Committee is authorized to act in the intervals between meetings of the directors on matters delegated to the Executive Committee by the full Board of Directors.  There were no meetings of the Executive Committee held during the 2008 fiscal year.

 

 

 

As described above, Peoples has a standing Governance and Nominating Committee that has the responsibility to identify and recommend to the full Board of Directors individuals qualified to become directors.  Each candidate must satisfy the eligibility requirements set forth in Peoples’ Code of Regulations.  To be eligible for election as a director, an individual must be a shareholder of Peoples.  In addition, the individual must either (i) serve as chief executive officer or in another position of active leadership with a business or professional interest located within the geographic area served by Peoples and our subsidiaries or (ii) serve as an executive officer of Peoples or one of Peoples’ subsidiaries.  However, the qualification in the preceding sentence does not apply to individuals elected as initial directors.  An individual will not be eligible for nomination and re-election as a director after five years has passed since the individual ceased to hold the executive or leadership position satisfying the eligibility requirement.  This five-year limitation does not apply, however, to an individual who retires from service as the Chairman of the Board or the Chief Executive Officer of Peoples.

 

When considering potential candidates for the Board of Directors, the Governance and Nominating Committee strives to assure that the composition of the Board, as well as its practices and operation, contribute to value creation and to the effective representation of Peoples’ shareholders.  The Governance and Nominating Committee may consider those factors it deems appropriate in evaluating director candidates, including judgment, skill, diversity, strength of character, experience with businesses and organizations comparable in size or scope to Peoples, experience and skill relative to other Board members and specialized knowledge or experience.  Depending upon the current needs of the Board of Directors, certain factors may be weighed more or less heavily by the Governance and Nominating Committee.

 

In considering candidates for the Board of Directors, the Governance and Nominating Committee evaluates the entirety of each candidate’s credentials and, other than the eligibility requirements set forth in Peoples’ Code of Regulations, does not have any specific minimum qualifications that must be met by a Governance and Nominating Committee-recommended nominee.  However, the Governance and Nominating Committee does believe that all members of the Board should have the highest character and integrity, a reputation for working constructively with others, sufficient time to devote to Board matters and no conflict of interest that would interfere with performance as a director.

 

The Governance and Nominating Committee considers candidates for the Board of Directors from any reasonable source, including shareholder recommendations, and does not evaluate candidates differently based on who has made the recommendation.  The Governance and Nominating Committee has the authority under its charter to hire and pay a fee to consultants or search firms to assist in the process of identifying and evaluating director candidates.  No such consultants or search firms have been used to date and, accordingly, no fees have been paid to consultants or search firms.

 

Shareholders may recommend director candidates for consideration by the Governance and Nominating Committee by writing to the Corporate Secretary of Peoples at Peoples’ executive offices in Marietta, Ohio.  Such recommendation should provide the candidate’s name, age, business address, residence address, principal occupation or employment and number of common shares beneficially owned.  The recommendation should also describe the qualifications, attributes, skills or other qualities of the recommended director candidate.  A written statement from the candidate consenting to be named as a director candidate and, if nominated and elected, to serve as a director should accompany any such recommendation.

 

Shareholders who wish to nominate an individual for election as a director at an annual meeting of the shareholders of Peoples must comply with Peoples’ Code of Regulations regarding shareholder nominations.  Shareholder nominations must be made in writing and delivered or mailed to the Corporate Secretary of Peoples not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors.  However, if less than 21 days’ notice of the meeting is given to the shareholders, the nomination must be mailed or delivered to the Corporate Secretary not later than the close of business on the seventh day following the day on which the notice of the meeting was mailed to the shareholders.  Nominations for the Annual Meeting must be received by April 9, 2009.  Each nomination must contain the following information to the extent known by the nominating shareholder:

 

·	the name, age, business address and residence address of each proposed nominee;

 

·	the principal occupation or employment of each proposed nominee;

 

·	the number of shares of capital stock of Peoples beneficially owned by each proposed nominee and by the nominating shareholder; and

 

·	any other information required to be disclosed with respect to a nominee for election as a director under the SEC’s proxy rules.

 

Each nomination must be accompanied by the written consent of the proposed nominee to serve as a director of Peoples if elected.  Nominations not made in accordance with the above requirements and Peoples’ Code of Regulations will not be considered.

 

 

 

 

The Compensation Committee of the Board of Directors (for the purpose of this discussion and analysis, the “Committee”) has responsibility for establishing, implementing, and continually monitoring adherence with Peoples’ compensation philosophy.  The Committee ensures that the total compensation paid during 2008 to the individuals included in the “SUMMARY COMPENSATION TABLE FOR 2008” on page 34 (referred to collectively as the “executive officers”), is reasonable, competitive and aligned with the best interests of the shareholders.  We believe all employees should be rewarded for executing on goals designed to create long-term shareholder value.

 

The goal of the compensation program for the executive officers is the same as our goal for operating Peoples:  to create long-term value for our shareholders.  Toward this goal, we have designed and implemented a compensation program for the executive officers to (1) reward them for sustained financial and operating performance and leadership excellence, (2) align their interests with those of the shareholders, (3) attract talent, and (4) encourage strong performers to remain with Peoples for long and productive careers.  The elements of our compensation program consist of salary, annual cash incentive, equity-based incentive compensation, retirement and other benefits, and perquisites and other personal benefits.  We combine the compensation elements for each executive officer in a manner we believe optimizes the executive officer’s contribution to Peoples and the shareholders.

 

Because satisfactory levels of performance were not achieved in 2008, Peoples’ executive officers did not receive payouts on any performance-based compensation plans.  The Compensation Committee believes this illustrates the fact that Peoples’ compensation program for its executive officers continues to be aligned with the interest of the shareholders.

 

 

 

The Committee has determined that base salaries for the executive officers should be competitive with the market median of similarly situated officers of members of the Peer Group.  Depending on individual job performance, the actual base salary for a particular executive officer may be higher or lower than the market median salary for the similarly situated Peer Group executive officer (typically in the range of the 40th to 60th percentile of the Peer Group).  Individual executive officer salary increases are reviewed annually by the Committee and are based on (1) the individual’s overall contribution to Peoples’ performance, (2) the executive officer’s attainment of specific individual business objectives during the preceding year, (3) adjustments, if such changes occur, in the overall responsibilities of the individual, and (4) changes in the Consumer Price Index.  Every two to three years, the Committee engages a compensation consultant to prepare an evaluation of the most recent comparative Peer Group data.  The most recent evaluation was completed in December 2007 by Amalfi Consulting and was used as the basis for 2008 base salaries for Peoples’ executive officers.

 

Specific individual business objectives for 2008 were approved for each executive officer by the Committee on March 3, 2008.  The individual business objectives were designed to complement Peoples’ corporate goals for 2008, which were approved by the Board of Directors on February 14, 2008.  The individual business objectives were both quantitative in nature, such as achieving sales and revenue goals and cost containment, and qualitative in nature, such as the development, management and retention of key staff and the assessment and development of quality products and services.  These objectives are designed to grow core earnings, which will, in turn, promote the long-term interests of Peoples’ shareholders.

 

 Typically, the Committee gathers and analyzes compensation and financial results for companies in the Peer Group for the most recent year to determine the overall competitiveness of the base salaries of Peoples’ current executive officers when compared to those of the Peer Group officers.  In its review of Peer Group 2007 financial data, the Committee determined that Peoples’ financial performance was comparable to or better than the median performance of the Peer Group for return on average assets and efficiency ratio.  In other key performance indicators – such as return on average equity, return on average tangible equity, earnings per common share growth – Peoples underperformed the median performance of the Peer Group.

 

	Return on Average Assets 2007	Return on Average Equity 2007	Return on  Average  Tangible  Equity  2007	EPS Growth Rate 2007	EPS Growth Rate  3 Year	Efficiency Ratio 2007 (*)
Peer Group – Average	1.07%	10.85%	13.94%	-11.12%	-18.63%	60.86%
Peer Group – 25th Percentile	0.83%	8.34%	11.36%	-13.78%	-1.17%	66.50%
Peer Group – 50th Percentile	1.00%	10.44%	15.97%	-5.27%	3.14%	62.04%
Peer Group – 75th Percentile	1.34%	14.72%	17.46%	2.44%	4.80%	56.31%
Peoples Bancorp Inc.	0.98%	9.21%	14.94%	-13.43%	0.58%	57.07%

                                 (*)  A lower number reflects better performance.

In addition, the Committee considered Peoples’ financial performance in 2008.  Due to Peoples’ 2008 financial performance and Peoples’ compensation philosophy and objectives, the Committee did not adjust the base salaries of Peoples’ current executive officers for 2009, except for the base salary of David T. Wesel, as described below.  The Compensation Committee determined that, with the exception of Mr. Wesel, adjustments to current executive officer base salaries were not appropriate due to the fact Peoples’ overall performance did not improve, nor were adjustments in the best interests of Peoples and its shareholders.

 On February 26, 2009, the Committee approved an increase in Mr. Wesel’s base salary in 2009 to $180,000, effective March 1, 2009, as he assumed increased responsibilities in the role of President of Peoples Insurance Agency, Inc., in addition to his previous roles of Executive Vice President of Peoples and President of Peoples Financial Advisors, a division of Peoples Bank.  Mr. Wesel remains an Executive Vice President of Peoples.

As a result of the aforementioned evaluation, the annual base salary for the other executive officers remained unchanged for 2009 as follows:  Mr. Bradley:  $280,000; Ms. Schneeberger: $190,000; Ms. Hill:  $182,000; Mr. Sloane:  $196,000; and Mr. Yazombek:  $220,000.

 

 

 

Executive officers are eligible to earn an annual cash incentive under the Incentive Plan.  The Incentive Plan was developed to reward performance by providing increasing percentages of cash awards for increasing levels of performance and, conversely, to not pay cash incentives if performance goals are not met.  The Incentive Plan is designed to motivate and reward the executive officers for their contributions to business goals that we believe drive our earnings and create shareholder value.

 

 There are three levels of incentive awards under the Incentive Plan: threshold, target and maximum.  Achieving threshold performance results in no payout to the executive officers.  The target incentive award reflects the expected results for the year and is designed to result in total cash compensation (base salary and annul cash incentive) for each officer at the market median of similarly situated officers of the Peer Group for achieving targeted performance.  If exceptional performance is achieved, the maximum incentive award level is paid and is designed to result in total cash compensation at or above the 75th percentile of the Peer Group officers.

 

On February 14, 2008, the Board of Directors established the corporate cash incentive financial goals for 2008, which were comprised of three financial components: (i) Earnings Per Common Share; (ii) Return On Average Equity; and (iii) Efficiency Ratio.  These financial measurements were selected because the Board believed such measurements demonstrate the overall operating performance of Peoples and are widely recognized as industry benchmarks for operating performance, with improvements in these ratios being indicators of enhanced operating performance, which translates into increased shareholder value.  The weightings applied to the Earnings Per Common Share and Return On Average Equity components were 45% each, which reflect results achieved for shareholders.  The Efficiency Ratio was weighted at 10% as it measures the productivity of the organization and gives indications as to its operating effectiveness.  The weightings were determined based on their respective impact on long-term shareholder value.

 

The Board of Directors set the corporate financial goals for 2008 as shown in the table below.  Performance results for 2008 are also shown.

 

	Weighting	Threshold	Target	Maximum	2008 Results
Earnings Per Common Share	45%	$1.96	$2.05	$2.13	$0.72
Return on Average Equity	45%	10.15%	10.50%	10.75%	3.67%
Efficiency Ratio (*)	10%	59.50%	58.50%	57.50%	56.30%

 

                (*)  A lower number reflects better performance.

 

 

The levels of achievement designated as threshold, target and maximum were established based on (1) Peoples’ actual performance in 2007 and (2) projected operating growth taking into account the outlook for the financial services industry for 2008 and overall economic conditions.

 

 

If the corporate target performance goals were achieved, Mr. Bradley, as Peoples’ President and Chief Executive Officer, had the potential to earn a payout of up to 50% of his annual base salary; whereas, each of the other executive officers had the potential to earn a payout of up to 35% of his or her annual base salary.  However, if the financial performance was at threshold or lower but greater than an absolute minimum level of corporate performance as described below, there would have been no payout based on corporate results, although each executive officer would still be eligible for an incentive payout based on his or her individual performance.  Payout to the executive officers for achieving threshold performance or below in any given corporate or individual performance measure is 0% for the given performance measure.

 

Annual individual performance goals for Mr. Bradley, in his capacity as President and Chief Executive Officer, included his effectiveness in strategic planning and implementation of long-range plans, identification of key management personnel, and other leadership-based factors designed to promote shareholder value.  Mr. Bradley’s annual cash incentive was weighted 90% for attainment of the corporate financial goals and 10% for individual performance goals, as determined by the Committee with input from the entire Board of Directors.  The maximum cash payout Mr. Bradley could have received under the Incentive Plan for 2008 performance was 100% of his annual base salary.

 

Annual individual performance goals were also established for each other executive officer, the nature of which differed depending upon the officer’s job responsibilities.  Goals were both quantitative in nature, such as business unit revenue and net income goals, loan portfolio growth, net loan charge-off results and levels of nonperforming loans, and qualitative in nature, such as the development, management and retention of key staff and the assessment and development of quality products and services.  Annual cash incentives for these other executive officers were weighted 75% or 90%, depending on the nature of the position held, for the attainment of the corporate financial goals and the remaining 10% or 25% based on the attainment of specific individual performance goals.  A weighting of 25% was assigned when the individual performance goals were primarily quantitative in nature and a weighting of 10% was assigned when the individual performance goals were primarily qualitative, and therefore more subjective, in nature.  The maximum cash payout which these individuals could have received under the Incentive Plan for 2008 performance was 70% of his or her respective annual base salary.

 

The Committee also has in place an absolute minimum level of corporate performance, which was defined in 2008 as $1.67, or 85% of Peoples’ threshold Earnings Per Common Share goal of $1.96.  Since Peoples did not achieve absolute minimum earnings per share, no executive officer was eligible for a year-end cash incentive payout even though the maximum level of performance relative to the Efficiency Ratio was exceeded.  Additionally, since the absolute minimum performance requirement was not satisfied, no cash incentive was earned for individual performance, even though individual executive officers achieved levels of performance relative to their individual performance goals, although the Committee, solely at their discretion, could have granted individual cash incentives if the executive officer’s individual contribution warranted such payment.

 

If Peoples’ 2008 earnings per share had been between absolute minimum and threshold, then no cash incentives would have been earned from the Earnings Per Common Share or the Return on Average Equity components as the threshold levels of performance for these financial goals were not achieved, although cash incentives and long-term equity incentives would have been earned for corporate results relative to the Efficiency Ratio as the maximum level of performance for this corporate performance goal was exceeded.  Each executive officer would also have been eligible to earn cash incentives and long-term equity incentives based on his/her individual achievements relative to his/her individual performance goals.  (Additionally, an executive officer who is not employed as of the payout date is not eligible to receive the cash incentive payment.)

 

The Committee retains the right to exercise discretion in the awarding of cash incentives absent the attainment of performance goals, or to increase or reduce the size of the payout of cash incentives under the Incentive Plan.  The Committee did not exercise discretion to make any cash incentive awards to the executive officers for 2008 corporate and individual performance.

 

Payout percentages for the various levels of performance are reviewed by the Committee on an annual basis and have not been changed since calendar year 2004.  However, for 2009, the Committee has determined the percentage of base salary for achieving maximum performance will be limited to 75% of the previous maximum payout percentage for each executive officer to reflect the reduced earnings potential for Peoples as a result of challenging economic times.  The Board of Directors approves corporate performance goals on an annual basis.  Cash incentive awards are paid after results for the performance goals are determined.

 

At the end of each year, the extent to which Peoples’ financial performance goals and the individual performance goals have been achieved is measured by the Committee.  A summary of the relative weightings of corporate and individual goals, the total cash incentive payout potential and the actual payouts earned for 2008 performance are shown below.

 

ANNUAL CASH INCENTIVE COMPENSATION

 

Named Executive Officer	Corporate Weighting	Individual Weighting	Total Maximum Incentive Payout Potential (*)	2008 Total Actual Incentive Payout (*)	2008 Annual Cash Incentive Earned
Mark F. Bradley	90%	10%	100%	0.0%	$0
Edward G. Sloane, Jr.	90%	10%	70%	0.0%	$0
Carol A. Schneeberger	90%	10%	70%	0.0%	$0
Joseph S. Yazombek	75%	25%	70%	0.0%	$0
Deborah K. Hill	75%	25%	70%	0.0%	$0
David T. Wesel	75%	25%	70%	0.0%	$0

 

           (*)  Payout calculated as a percentage of base salary.

 

 Executive officers are required to defer 25% of any annual cash incentives earned under the terms of the Incentive Plan.  If the executive officer terminates his or her employment for any reason other than death, disability or retirement prior to the end of the three-year deferral period, the deferred portion of the annual cash incentive is forfeited.  This mandatory deferral is another way to promote retention of key executive officers, as the executive officers must remain with Peoples until the required deferral period lapses or they forfeit that portion of their incentive payout.  Once the mandatory deferral period has lapsed, executive officers may either take a cash distribution or further defer receipt of the cash incentive, as discussed in the following paragraph, based on an election made under the terms of the Incentive Plan prior to the year the cash incentive was earned, until they retire or their employment is terminated.  Interest on the deferred compensation is accrued at a rate equal to 50% of Peoples’ Return on Average Equity achieved during each calendar year throughout the deferral period.  This mandatory deferral further links the long-term economic interests of the executive officers with those of Peoples and its shareholders.

 

In addition to the mandatory 25% deferral, the executive officers also have the option to (1) defer any remaining annual cash incentive compensation to be paid to them and (2) further defer the mandatory amount after the original three-year period has lapsed until they retire or until their employment with Peoples is terminated.  The amount an executive officer elects to voluntarily defer is chosen by the executive officer prior to the beginning of the calendar year in which the cash incentive compensation is earned.  Interest on the deferred compensation is accrued at a rate equal to 50% of Peoples’ Return on Average Equity achieved during each calendar year throughout the deferral period.  This voluntary deferral further links the long-term economic interests of the executive officers with those of Peoples and its shareholders.

 

On February 26, 2009, the Board of Directors established the 2009 corporate cash incentive performance goals for Peoples’ executive officers.  The Board adopted a “balanced scorecard” approach which is comprised of the following components and their corresponding weightings:  (i) Earnings Per Common Share (25% weighting); (ii) Non-Performing Assets as a Percent of Loans and Other Real Estate Owned (20% weighting); (iii) Revenue Growth (10% weighting); (iv) Deposit Growth (10% weighting); (v) Client Service Score (5% weighting); and (vi) a Discretionary Measure (30% weighting).  The Discretionary Measure is unique to each executive officer and consists of quantitative measures such as business unit revenue and net income goals, loan portfolio growth, net loan charge-off results, levels of nonperforming loans, and expense reduction; and qualitative measures, such as the development, management and retention of key staff, the assessment and development of quality products and services and other strategic initiatives.  These measures reflect results achieved for shareholders while ensuring this compensation arrangement does not encourage unnecessary and excessive risk-taking that could threaten the value of the institution by reducing the focus on earnings as emphasized by the weighting in prior years of Earnings Per Share and Return on Average Equity performance objectives.  The absolute minimum level of corporate performance remains in effect for 2009, but the Compensation Committee retains the ability to award cash incentive compensation based on results achieved by the individual executive officer if the absolute minimum level of performance is not achieved.

 

The ARRA executive compensation standards prohibit Peoples from paying or accruing any bonus, retention award or incentive compensation to the five most highly-compensated employees during the Covered Period.  To the extent that the Treasury issues regulations and amends the Securities Purchase Agreement to make this prohibition applicable to these payments, Peoples will take such steps as necessary to comply with the prohibition.

 

 

The Board of Directors set the corporate financial goals for 2008 as shown in the table below.  Performance results for 2008 are also shown.

 

	Weighting	Threshold	Target	Maximum	2008 Results
Earnings Per Common Share	45%	$1.96	$2.05	$2.13	$0.72
Return on Average Equity	45%	10.15%	10.50%	10.75%	3.67%
Efficiency Ratio (*)	10%	59.50%	58.50%	57.50%	56.30%

 

                      (*)  A lower number reflects better performance.

 

 

If the target corporate performance goals were achieved, Mr. Bradley, as Peoples’ President and Chief Executive Officer, had the potential to earn an equity-based award with an economic value of up to 25% of his annual base salary, and the other executive officers had the potential to earn equity-based awards with an economic value of up to 20% of their respective annual base salaries.  The maximum economic value of equity-based awards Mr. Bradley could have earned for 2008 was 50% of his annual base salary, and the maximum economic value of equity-based awards available to the other executive officers was 40% of their respective annual base salaries.  The economic value of equity-based awards to the executive officers for achieving threshold performance or below in any given corporate or individual performance measure is 0% for the given performance measure.

 

The Committee also has in place an absolute minimum level of corporate performance, which was defined in 2008 as $1.67 or 85% of Peoples’ threshold Earnings Per Common Share goal of $1.96.  Since Peoples did not achieve absolute minimum earnings per share, no executive officer was eligible for a year-end incentive payout in the form of an equity-based award for either corporate or individual performance, although the Committee, solely at their discretion, could have granted long-term equity-based incentives if the executive’s individual contribution warranted such awards.  If Peoples’ 2008 earnings per share had been between absolute minimum and threshold, then no long-term equity incentives would have been awarded from the Earnings Per Common Share or the Return on Average Equity components as the threshold levels of performance for these financial goals were not achieved, although long-term equity incentives would have been earned for corporate results relative to the Efficiency Ratio as the maximum level of performance for this corporate performance goal was exceeded.  Each executive officer would also have been eligible to earn cash incentives and long-term equity incentives based on their individual achievements relative to their individual performance goals.  (Additionally, an executive officer who is not employed as of the payout date is not eligible to receive the cash incentive payment.)

 

The Committee retains the right to exercise discretion in awarding equity-based compensation absent the attainment of performance goals, or to increase or reduce the size of any such award.  The Committee did not exercise discretion to grant equity-based awards to the executive officers in 2009 for 2008 corporate and individual performance.

 

Equity-based award percentages for the various levels of performance are reviewed by the Committee on an annual basis and generally do not change from year to year.  These award percentages did not change from 2007 to 2008; however, for 2009, the Committee has determined the percentage of base salary for achieving maximum performance will be limited to 75% of the previous maximum payout percentage for each executive officer to reflect the reduced earnings potential for Peoples as a result of challenging economic times.  The Board of Directors approves corporate performance goals on an annual basis.  Equity-based awards are granted after results for the performance goals are determined.

 

Equity-based awards in the form of SARs settled in Peoples’ common shares have an exercise price of 100% of the fair market value of the underlying common shares on the date of grant.  The Committee’s philosophy in granting equity-based awards is to promote retention through a three-year vesting period and to provide an opportunity for executive officers to own Peoples’ common shares.  This in turn aligns the long-term interests of the executive officers with those of Peoples’ shareholders and provides the executive officers with an added incentive to manage Peoples with a view toward maximizing long-term shareholder value.

 

Equity-based awards are granted with an economic value based on The NASDAQ Global Select Market’s closing price of Peoples’ common shares on the date of the grant.  The Committee approves equity-based grants to the executive officers and other officers.  In the absence of a scheduled Committee meeting, the Board of Directors approves equity-based grants to executive officers and other officers.  This situation occasionally occurs when awards to a single individual are granted as part of a recruitment package.  The grant date is the date of the approval by the Committee or the Board of Directors or the first future date after which all material information has been publicly disclosed, whichever is later, and is tied to Peoples’ trading windows.  In the event of equity-based grants for new hires, the date of grant is the first business date of the month following the new employee’s date of hire.

 

Award economic values are calculated as a percentage of salary and are based on the achievement of pre-established performance goals as discussed above.  Fifty percent of the economic value is awarded in restricted shares, using the closing price of Peoples’ common shares on a specific grant date.  The remaining 50% of the economic value is awarded in SARs to be settled in common shares, using the Black-Scholes value of the SARs as of the award date.  The restriction period for the restricted shares is three years from the grant date.  The SARs have a term of 10 years and are exercisable at the end of the vesting period, which is three years from the grant date.

 

 

LONG-TERM EQUITY-BASED INCENTIVE COMPENSATION

 

Named Executive Officer	Corporate Weighting	Individual Weighting	Total Maximum Economic Value of Potential Equity  Award (*)	Total Economic Value of Equity Award (*)	2008 Restricted Shares Award (number of common shares) Granted	2008 SARs to be Settled in Common Shares Awards (number of common shares) Granted
Mark F. Bradley	90%	10%	50%	0.0%	0	0
Edward G. Sloane, Jr.	90%	10%	40%	0.0%	0	0
Carol A. Schneeberger	90%	10%	40%	0.0%	0	0
Joseph S. Yazombek	75%	25%	40%	0.0%	0	0
Deborah K. Hill	75%	25%	40%	0.0%	0	0
David T. Wesel	75%	25%	40%	0.0%	0	0

 

                                (*)  Payout calculated as a percentage of base salary.

 

Since absolute minimum performance was not achieved during 2008, the Committee did not award equity-based grants to the executive officers in 2009 for 2008 performance.

 

The Committee or the Board of Directors has the authority to accelerate the date on which the SARs may be exercised, or the date of the termination of the restrictions applicable to a restricted share award, if the Committee or the Board of Directors determines that to do so would be in the best interests of Peoples.  Neither the Committee nor the Board of Directors exercised that authority during 2008.

 

On February 26, 2009, the Board of Directors established the 2009 corporate equity incentive performance goals for Peoples’ executive officers.  The Board adopted a “balanced scorecard” approach which is comprised of the following components and corresponding weightings:  (i) Earnings Per Common Share (25% weighting); (ii) Non-Performing Assets as a Percent of Loans and Other Real Estate Owned (20% weighting); (iii) Revenue Growth (10% weighting); (iv) Deposit Growth (10% weighting); (v) Client Service Score (5% weighting); and (vi) a Discretionary Measure (30% weighting).  The Discretionary Measure is unique to each executive officer and consists of quantitative measures such as business unit revenue and net income goals, loan portfolio growth, net loan charge-off results, levels of nonperforming loans, and expense reduction, and qualitative measures, such as the development, management and retention of key staff, the assessment and development of quality products and services and other strategic initiatives.  These measures reflect results achieved for shareholders while ensuring this compensation arrangement does not encourage unnecessary and excessive risk-taking that could threaten the value of the institution by reducing the focus on earnings as emphasized by the weighting in prior years of Earnings Per Share and Return on Average Equity performance objectives.  The absolute minimum level of corporate performance remains in effect for 2009, but the Compensation Committee retains the ability to award long-term equity-based incentive compensation based on results achieved by the individual executive officer if the absolute minimum level of performance is not achieved.

 

The ARRA executive compensation standards prohibit Peoples from paying or accruing any bonus, retention or incentive compensation to certain employees during the Covered Period.  Peoples believes that this prohibition, if applicable, may prevent Peoples from issuing restricted shares and SARs under the terms contemplated by the performance goals established on February 26, 2009.  To the extent that the Treasury amends the Securities Purchase Agreement to make this prohibition application, the Treasury issues regulations describing how Peoples is to comply with this prohibition or Peoples determines this prohibition applies, Peoples will work with its affected employees to take such steps as Peoples deems necessary to comply with the prohibition and adopt administrative and other procedures consistent with the foregoing.

 

 

(d)	The benefit is reduced as follows:

 

 

Ages                      Reduction

60 – 65                   6.66% per year

50 – 60                   3.33% per year

 

 None of the executive officers participate in multiple defined benefit retirement plans.  Under the terms of the Retirement Plan, the executive officers are not granted extra years of credited service.

 

The executive officers are also eligible to participate in Peoples’ 401(k) Plan, on the same basis as other employees.  Peoples matches 100% of the first 3% of an employee’s contribution and then matches 50% of the next 2% that the employee contributes, the sum of which equals the maximum match of 4%.

 

Additionally, the executive officers participate in the Peoples Bancorp Group Term Life Insurance Plan on the same basis as other employees.  Peoples pays the premiums for all associates under this plan.  In the event an executive officer dies, his or her beneficiary will be paid an amount equal to two times the executive officer’s base salary at the time of death, up to a limit of $600,000.

 

The executive officers are also eligible to participate in the medical and dental insurance plans provided by Peoples.  These individuals participate on the same basis as other employees.  The plans are contributory and both the employees and Peoples pay for the cost of the health insurance premiums.

 

 

 

 

Section 162(m) of the Internal Revenue Code prohibits Peoples from claiming a deduction on its federal income tax return for compensation in excess of $1 million paid for a given fiscal year to the chief executive officer (or person acting in that capacity) and the four most highly- compensated officers of Peoples, other than the chief executive officer, serving at the end of Peoples’ fiscal year.  The $1 million compensation deduction limitation does not apply to “performance-based compensation.”  The 2006 Plan complies with Section 162(m) so that any compensation, which may be received by executive officers of Peoples under this plan, will qualify as “performance-based.”  Performance goals were included in the 2006 Plan, which was approved by Peoples’ shareholders on April 13, 2006.

 

The Securities Purchase Agreement requires that Peoples comply with the provisions of Section 162(m)(5) of the Internal Revenue Code.  This provision prohibits Peoples from claiming a deduction on its federal income tax return for compensation in excess of $500,000 paid for a given year to its chief executive officer, its chief financial officer or one of the three most highly-compensated executive officers (other than the chief executive officer and the chief financial officer) whose compensation is required to be disclosed under the applicable SEC Rules.  There is no exception to this prohibition for “performance-based compensation.”  None of Peoples’ executive officers received more than $500,000 of compensation for 2008.

 

 

 

Section 409A of the Internal Revenue Code imposes additional taxes, interest and penalties on nonqualified deferred compensation arrangements that do not satisfy its requirements.  Peoples believes that it is administering its non-qualified deferred compensation arrangements in accordance with the requirements of  Section 409A and has amended its non-qualified deferred compensation arrangements, including the change in control arrangements with its executive officers, to comply with the final regulations issued under Section 409A of the Internal Revenue Code.  Peoples has not realized any material changes to its compensation program as a result of compliance with Section 409A.

 

 

In view of the current economic and financial environment, the Committee has reviewed the design and operation of Peoples’ incentive compensation arrangements with Peoples’ senior risk officers.  This review included the performance goals required to be achieved for threshold, target and maximum levels of cash and equity-based incentive payments, along with the corresponding payout potentials.  The Committee has determined that these arrangements do not provide Peoples’ executives with the incentive to engage in business activities or other behavior that would threaten the value of Peoples or the investments of its shareholders.

 

 

 

(7)

The amounts in column (f) reflect the dollar amount recognized for financial statement reporting purposes for 2008, 2007 and 2006, in accordance with FAS 123(R) for awards pursuant to Peoples’ 2002  Plan and Peoples’ 2006  Plan.  These amounts exclude the impact of estimated forfeitures related to service-based vesting conditions, as required by the SEC.  Assumptions used in the calculation of these amounts are included in the “Notes to the Consolidated Financial Statements, Note 17. Stock-Based Compensation” on pages 82 through 85 of Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2008.  The entire amount of FAS 123(R) expense was recognized (a) in 2006 for stock options granted in 2006 and (b) in 2007 and 2008 for SAR awards to be settled in common shares  made in 2007 and 2008 respectively, in the case of each of Mr. Yazombek and Ms. Schneeberger as they had reached retirement eligibility (50 years of age or older and 10 years of service with Peoples) as of the grant date, since vesting of stock options and SARs to be settled in common shares accelerates upon retirement.  FAS 123(R) expense for Messrs. Bradley and Wesel and Ms. Hill is spread over the respective vesting periods assigned to the stock options and SAR awards to be settled in common shares.  Vesting for all then unvested stock options was accelerated on December 31, 2005; therefore, all FAS 123(R) expense reported for 2006 is related to the stock options granted in 2006, all FAS 123(R) expense reported for 2007 is related to stock options granted in 2006 except as noted above for Mr. Yazombek and Ms. Schneeberger, and SARs to be settled in common shares granted in 2007, and all FAS 123(R) expense reported for 2008 is related to stock options granted in 2006 except as noted above for Mr. Yazombek and Ms. Schneeberger, and SAR to be settled in common shares granted in 2007 except as noted above for Mr. Yazombek and Ms. Schneeberger, and 2008.

 

(8)

The amounts in column (g) represent cash incentives earned under the Incentive Plan, and are reported for the fiscal year with respect to which the cash incentives were earned.  Executive officers did not earn a cash incentive under the Incentive Plan for 2008 fiscal year performance.  Executive officers are required to defer 25% of their cash incentive for a period of three years and have the option to defer any of the remaining cash incentive until they retire or their employment is terminated.  The amounts shown for 2007 include the following deferred portion of the cash incentive earned by each executive officer: (a) Mr. Bradley - $9,562; (b) Ms. Schneeberger - $5,619; (c) Mr. Yazombek - $31,932; and (d) Mr. Wesel - $12,568.  The non-deferred portions of the cash incentives earned for the 2007 fiscal year performance were paid February 22, 2008.  The amounts shown for 2006 include the following deferred portion of the cash incentive earned by each executive officer: (a) Mr. Bradley - $14,187; (b) Ms. Schneeberger - $6,880; and (c) Mr. Yazombek - $42,114.  The non-deferred portions of the cash incentives earned for the 2006 fiscal year performance were paid February 23, 2007.

 

(9)

Amounts in column (h) represent the increase in the actuarial present value of the executive officer’s accumulated benefits under Peoples’ pension plan (the Retirement Plan) determined using assumptions consistent with those used in Peoples’ consolidated financial statements and include amounts that the executive officer may not be entitled to receive because such amounts are not vested.  The amounts shown do not include the decline in the actuarial present value of the accumulated benefit under Peoples’ pension plan in 2007 for: (a) Mr. Bradley - $1,894 and (b) Ms. Schneeberger - $5,598.  Mr. Bradley’s amount also includes $1,359 for 2008, $1,270 for 2007 and $1,163 for 2006 which represents dividends credited in that year on the cumulative amount of directors’ fees deferred in prior years under the terms of the Second Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp Inc. and Subsidiaries.  Mr. Bradley has not been paid a fee for his services as a director of Peoples and Peoples Bank since December 31, 2004.  No amount is included in column (h) for the amount of interest accrued on the cumulative amount of cash incentives deferred by each executive officer under the terms of the Incentive Plan since the rate earned was not above-market or preferential.

 

(10)

All other compensation for each executive officer in 2008 includes: (a) Mr. Bradley - 401(k) Plan company match, dividends on restricted shares, and country club membership; (b) Mr. Sloane – relocation expense in the amount of $14,740, 401(k) Plan company match, dividends on restricted shares, and country club membership; (c) Ms. Schneeberger - 401(k) Plan company match, Executive Health Program, dividends on restricted shares, and expenses associated with a weekend vacation related to Peoples’ appreciation to Ms. Schneeberger for serving as interim Chief Financial Officer and Treasurer from April 2007 to May 2008 (represents the incremental cost to Peoples of weekend vacation); (d) Mr. Yazombek - 401(k) Plan company match, personal use of company provided vehicle, country club membership and Executive Health Program; (e) Ms. Hill - 401(k) Plan company match, personal use of company provided vehicle and dividends on restricted shares; and (f) Mr. Wesel - 401(k) Plan company match, country club membership and dividends on restricted  shares.  All other compensation for each executive officer for 2007 includes: (a) Mr. Bradley - 401(k) Plan company match, country club membership, Executive Health Program, and dividends on restricted shares; (b) Ms. Schneeberger - 401(k) Plan company match and dividends on restricted shares; (c) Mr. Yazombek - 401(k) Plan company match, country club membership, and dividends on restricted shares; (d) Ms. Hill – relocation expense in the amount of $12,873, 401(k) company match and personal use of company provided vehicle; and (e) Mr. Wesel - 401(k) Plan company match, country club membership and dividends on restricted shares.  All other compensation for each executive officers in 2006 includes: (a) Mr. Bradley - 401(k) Plan company match and country club membership; (b) Ms. Schneeberger - 401(k) Plan company match and Executive Health Program; (c) Mr. Yazombek - 401(k) Plan company match, personal use of company provided vehicle, country club membership and Executive Health Program: and (d) Mr. Wesel - 401(k) Plan company match, country club membership and Executive Health Program.

 

 

(6)

Number of restricted shares granted through the 2006 Plan on February 14, 2008, based upon corporate and individual performance for the 2007 fiscal year.  The restriction on the transfer of restricted shares lapses on the third anniversary of the grant date.  In addition, discretionary awards of restricted shares were granted through the 2006 Plan to Mr. Sloane and Ms. Schneeberger as follows:  (a) Mr. Sloane was granted 2,000 restricted shares as a result of his employment with Peoples as to which the restrictions  lapsed with respect to 1,000 restricted shares on December 2, 2008, and will lapse with respect to  1,000 restricted shares on December 2, 2009; and (b) Ms. Schneeberger was granted 2,250 restricted shares as recognition of the additional responsibilities Ms. Schneeberger assumed during her interim service as Chief Financial Officer and Treasurer  as to which the restrictions  lapsed  with respect to 1,125 restricted shares on August 20, 2008,  and  lapsed with respect to 1,125 restricted shares on February 20, 2009. The executive officer has the right to vote the common shares underlying the restricted shares and is entitled to receive dividends paid with respect to the underlying common shares; however, if any dividends are paid in common shares of Peoples, those common shares will be subject to the same restrictions on transfer as the restricted shares with respect to which they were issued.  Refer to the discussion under the caption “Long-Term Equity-Based Incentive Compensation” on page 27 of the “COMPENSATION DISCUSSION AND ANALYSIS” for additional information regarding awards of restricted shares.

 

(7)

Number of SARs to be settled in common shares granted through the 2006 Plan on February 14, 2008.  The SARs have a term of 10 years and become exercisable at the end of the vesting period, which is three years from the grant date.  Refer to the discussion under the caption “Long-Term Equity-Based Incentive Compensation” on page 27   of the “COMPENSATION DISCUSSION AND ANALYSIS” for additional information regarding awards of SARs to be settled in common shares.

 

 

Joseph S. Yazombek	4/1/1999	7,687	-	-	$14.92	4/1/2009	-	-	-	-
	4/27/2000	3,812	-	-	$13.58	4/27/2010	-	-	-	-
	5/9/2002	1,928	-	-	$23.59	5/9/2012	-	-	-	-
	5/9/2002	2,947	-	-	$23.59	5/9/2012	-	-	-	-
	3/27/2003	3,900	-	-	$22.32	3/27/2013	-	-	-	-
	3/27/2003	2,779	-	-	$22.32	3/27/2013	-	-	-	-
	2/10/2005	1,215	-	-	$27.38	2/10/2015	-	-	-	-
	2/9/2006	-	2,388 (3)	-	$28.25	2/9/2016	-	-	-	-
	2/13/2007	-	1,444 (4)	-	$29.25	2/13/2017	-	-	-	-
	2/13/2007	-	-	-	-	-	412 (6)	$7,882	-	-
	2/20/2008	-	-	-	-	-	386 (7)	$7,384	-	-
	2/20/2008	-	1,663 (5)	-	$23.77	2/20/2018	-	-	-	-
Deborah K. Hill	10/1/2007	-	-	-	-	-	1,000 (10)	$19,130	-	-
	10/1/2007	-	3,000	-	$27.99	10/1/2017	-	-	-	-
David T. Wesel	2/16/2004	2,000	-	-	$28.25	2/16/2014	-	-	-	-
	2/10/2005	425	-	-	$27.38	2/10/2015	-	-	-	-
	2/9/2006	-	1,184 (3)	-	$28.25	2/9/2016	-	-	-	-
	2/13/2007	-	1,303 (4)	-	$29.25	2/13/2017	-	-	-	-
	2/13/2007	-	-	-	-	-	372 (6)	$7,116	-	-
	2/20/2008	-	-	-	-	-	431 (7)	$8.245	-	-
	2/20/2008	-	1,857 (5)	-	$23.77	2/20/2018	-	-	-	-

 

(1)	Stock options were granted to the executive officers in years prior to 2006.  Vesting was accelerated on all then unvested stock options as of December 31, 2005.

 

(2)

The amount in these columns would represent the actual SAR and restricted share awards approved by the Compensation Committee in the 2009 fiscal year, with respect to corporate and individual performance for the 2008 fiscal year.  They would be considered “unearned” as they were not granted until after the end of the 2008 fiscal year.  No awards were granted in the 2009 fiscal year with respect to corporate and individual performance for the 2008 fiscal year.  See the “Estimated Future Payouts Under Equity Incentive Plan Awards” columns in the “Grants of Plan-Based Awards for 2008” table for information regarding the range of economic values that had been possible for these awards.

 

(3)	Stock options were granted on February 9, 2006 under Peoples’ 2002 Plan and vested on February 9, 2009.

 

(4)	SARs to be settled in common shares were approved by the Compensation Committee on February 8, 2007 and granted under Peoples’ 2006 Plan on February 13, 2007, and will vest on February 13, 2010.

 

(5)	SARs to be settled in common shares were approved by the Compensation Committee on February 14, 2008 and granted under Peoples’ 2006 Plan on February 20, 2008, and will vest on February 20, 2011.

 

(6)	Restricted shares were approved by the Compensation Committee on February 8, 2007 and granted under Peoples’ 2006 Plan on February 13, 2007, and will vest on February 13, 2010.

 

(7)	Restricted shares were approved by the Compensation Committee on February 14, 2008 and granted under Peoples’ 2006 Plan on February 20, 2008, and will vest on February 20, 2011.

 

(8)	Restricted shares were approved by the Compensation Committee on May 8, 2008 and granted under Peoples’ 2006 Plan on June 2, 2008, and will vest on December 2, 2009.

 

(9)	Restricted shares were approved by the Compensation Committee on February 14, 2008 and granted under Peoples’ 2006 Plan on February 20, 2008, and will vest on February 20, 2009.

 

(10)	Restricted shares were approved by the Board of Directors on August 9, 2007, in absence of a meeting of the Compensation Committee, and will vest on April 1, 2009.

 

 

Name	Plan Name	Number of Years of Credited Service	Present Value of Accumulated Benefit	Payments During Last Fiscal Year
		(#)	($)	($)
		(2)
(a)	(b)	(c)	(d)	(e)

Deborah K. Hill	Retirement Plan	0	-	-
David T. Wesel	Retirement Plan	5	$15,486	-

(1)	Mr. Yazombek and Ms. Schneeberger had reached retirement eligibility (50 years of age or older and 10 years of service with Peoples) as of December 31, 2008.

 

(2)	Years of credited service are equal to the actual years of service, if the executive officer works 1,000 hours in a calendar year.  Mr. Sloane and Ms. Hill became plan participants on January 1, 2009.

 

 

 

 

In the event of the retirement of an executive officer, in addition to the items identified above, he or she would receive the following benefits:

 

·	all previously unvested equity-based awards would vest; and

 

·	all previously unvested mandatory deferrals under the Incentive Plan would vest.

 

 

 

Peoples has entered into amended and restated change in control agreements with all of the executive officers.  Under these agreements, a change in control occurs when one or more of the following events take place:

 

●

a “person” or “group” (as defined in Section 409A of the Internal Revenue Code) acquires ownership of shares of Peoples that, together with shares held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the shares of Peoples;

●

any person or group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or group) ownership of shares of Peoples possessing 35% or more of the total voting power of the shares of Peoples;

●

a majority of the members of Peoples’ Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of Peoples’ Board of Directors prior to the date that such appointments or elections are made; or

●

any person or group acquires (or has acquired) during the 12-month period ending on the date of the most recent acquisition by such person or group, assets from Peoples that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of Peoples immediately prior to such acquisition or acquisitions.

 

Generally, the agreements provide for severance compensation to the executive officers if their employment is terminated by Peoples or its successor for any reason other than cause (defined as gross negligence or gross neglect of duties; commission of a felony or a gross misdemeanor involving moral turpitude; fraud, disloyalty, dishonesty or willful violation of any law or significant policy of Peoples; or issuance of an order by the banking regulators of Peoples for removal of the executive officer) within six months prior to or 24 months after a defined change in control occurs.  In addition, compensation will be paid if the executive officer voluntarily terminates employment during the same periods because of:  (1)  the assignment to the executive officer of any material duties or responsibilities inconsistent with the executive officer’s positions, or a change in the executive officer’s reporting responsibilities, titles, or offices, or any removal of the executive officer from or any failure to re-elect the executive officer to any of such positions, except in connection with the executive officer’s termination of employment for cause, disability, retirement, or as a result of the executive officer’s death; (2) a reduction  in the executive officer’s base salary; (3) the taking of any action by Peoples which would adversely affect the executive officer’s participation in or materially reduce the executive officer’s benefits under any benefit plans; (4) any failure of the Peoples to obtain the assumption of the agreement by any successor as contemplated in Section 3.9 hereof; or (5) geographic relocation of the executive officer to an office location more than 50 miles from the executive officer's current location without the executive officer's consent or without reimbursement of reasonable moving expenses incurred by the executive officer relating to a change of the executive officer’s principal residence in connection with relocation.

 

The executive officer’s base annual compensation for purpose of his or her respective agreement is calculated as the average annualized compensation paid by Peoples, prior to any deferred arrangements, during the most recent five taxable years ending before the date of the change in control, subject to certain adjustments in the event that Section 280G of the Internal Revenue Code is triggered.  For executive officers that have worked for Peoples for less than five years, the average annualized compensation paid by Peoples is calculated for the number of years employed by Peoples.

 

Under the agreements, severance provisions include: (i) a lump sum cash payment of two and one half times base annual compensation for Mr. Bradley and two times base annual compensation for Mses. Hill and Schneeberger, and Messrs. Sloane, Yazombek, and Wesel, in each case payable within 30 days following the executive officer’s termination date with such payment delayed until the first business day of the seventh month following the executive officer’s terminate date if the executive officer is a “specified employee” for purposes of Section 409(A) of the Internal Revenue Code; (ii) continuing participation in life, medical, and dental insurance for 12 months substantially in the form and expense to the executive officer as that received on the date of termination; (iii) the executive officer agreeing not to disclose to others any confidential information; and (iv) the executive officer entering into a non-compete agreement for 12 months immediately following the date of termination.  In the case of Mr. Bradley, the duration of the non-compete agreement and continuing participation in life, medical and dental insurance is 15 months immediately following the date of termination.  The non-compete agreement prohibits the executive officer from directly or indirectly engaging in any business in which Peoples directly or indirectly engages within Peoples’ geographic market.

 

The Securities Purchase Agreement prohibits Peoples from making any golden parachute payments to its executive officers.  Payments under the amended and restated change in control agreements to executive officers may be considered to be golden parachute payments.  Peoples and each executive officer entered into a letter agreement in which the executive officer agreed to amend the compensation and benefits plans of Peoples in which the executive officer participates, including the amended and restated change in control agreements, to the extent necessary to give effect to this prohibition.

 

In addition, the ARRA executive compensation standards prohibit any payment by Peoples to its Senior Executive Officers (as defined in ARRA) and the next five most highly-compensated employees during the Covered Period upon such employees’ departure from Peoples.  Peoples believes that this prohibition, if applicable, would prevent it from making payments to the executive officers under their respective amended and restated change in control agreements as currently in effect.  To the extent that the U.S. Treasury amends the Securities Purchase Agreement to make this prohibition applicable, the U.S. Treasury issues regulations describing how Peoples is to comply with this prohibition or Peoples determines this prohibition applies, Peoples will work with its affected employees to take such steps as Peoples deems necessary to comply with this prohibition and adopt administrative and other procedures consistent with the foregoing.

 

The following table summarizes payments which would have been made to the executive officers if a termination event occurred on December 31, 2008.  Actual amounts to be paid out can only be determined at the time of an executive officer’s separation from Peoples.

 

 

Compensation & Benefits Payable Upon Termination	Voluntary Termination	Early Retirement	Normal Retirement	Involuntary Not for Cause Termination	For Cause Termination	CIC Involuntary or Good Reason Termination	Death or Disability
		(1)
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)
Mark F. Bradley
2.5 times Base Annual Compensation (2)	-	-	-	-	-	$558,279	-
Welfare(2) (3)	-	-	-	-	-	$12,747	-
Deferrals under Incentive  Award Plan	-	-	$24,770	-	-	$24,770	$24,770
Intrinsic Value of Unvested Stock Options & SARs (4)	-	-	$0	-	-	$0	$0
Value of Unvested Restricted Shares	-	-	$17,007	-	-	$17,007	$17,007
Total:	$0	$0	$41,777	$0	$0	$612,803	$41,777

 

Edward G. Sloane
2 times Base Annual Compensation (2)	-	-	-	-	-	$392,000	-
Welfare (2) (3)	-	-	-	-	-	$5,895	-
Deferrals under Incentive  Award Plan	-	-	$0	-	-	$0	$0
Intrinsic Value of Unvested Stock Options & SARs (4)	-	-	$0	-	-	$0	$0
Value of Unvested Restricted Shares	-	-	$19,130	-	-	$19,130	$19,130
Total:	$0	$0	$19,130	$0	$0	$417,025	$19,130

 

Carol A. Schneeberger
2 times Base Annual Compensation (2)	-	-	-	-	-	$403,924	-
Welfare (2) (3)	-	-	-	-	-	$4,338	-
Deferrals under Incentive  Award Plan	-	$13,012	$13,012	-	-	$13,012	$13,012
Intrinsic Value of Unvested Stock Options & SARs (4)	-	$0	$0	-	-	$0	$0
Value of Unvested Restricted Shares	-	$10,292	$10,292	-	-	$10,292	$10,292
Total:	$0	$23,304	$23,304	$0	$0	$431,565	$23,304

 

Joseph S. Yazombek
2 times Base Annual Compensation (2)	-	-	-	-	-	$403,582	-
Welfare (2) (3)	-	-	-	-	-	$1,111	-
Deferrals under Incentive  Award Plan	-	$19,284	$19,284	-	-	$19,284	$19,284
Intrinsic Value of Unvested Stock Options & SARs (4)	-	$0	$0	-	-	$0	$0
Value of Unvested Restricted Shares	-	$15,266	$15,266	-	-	$15,266	$15,266
Total:	$0	$34,550	$34,550	$0	$0	$439,243	$34,550

 

Compensation & Benefits Payable Upon Termination	Voluntary Termination	Early Retirement	Normal Retirement	Involuntary Not for Cause Termination	For Cause Termination	CIC Involuntary or Good Reason Termination	Death or Disability
		(1)
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)

Deborah K. Hill
2 times Base Annual Compensation (2)	-	-	-	-	-	$346,812	-
Welfare (2) (3)	-	-	-	-	-	$2,785	-
Deferrals under Incentive  Award Plan	-	-	$0	-	-	$0	$0
Intrinsic Value of Unvested Stock Options & SARs (4)	-	-	$0	-	-	$0	$0
Value of Unvested Restricted Shares	-	-	$19,130	-	-	$19,130	$19,130
Total:	$0	$0	$19,130	$0	$0	$368,727	$19,130

 

David T. Wesel
2 times Base Annual Compensation (2)	-	-	-	-	-	$239,643	-
Welfare (2) (3)	-	-	-	-	-	$9,793	-
Deferrals under Incentive  Award Plan	-	-	$19,232	-	-	$19,232	$19,232
Intrinsic Value of Unvested Stock Options & SARs (4)	-	-	$0	-	-	$0	$0
Value of Unvested Restricted Shares	-	-	$15,361	-	-	$15,361	$15,361
Total:	$0	$0	$34,593	$0	$0	$284,029	$34,593

 

(1)

Mr. Yazombek and Ms. Schneeberger were eligible to receive the unvested mandatory deferral balance earned through the Incentive Plan, to exercise all unvested stock options and SARs and to have the restrictions on transfer of their unvested restricted shares lapse, if they elected to retire as of December 31, 2008, as they had reached retirement eligibility (50 years of age or older and had at least 10 years of service with Peoples as of December 31, 2008).  Vesting of the unvested mandatory deferral balance and unvested stock options and SARs, and lapsing of the restrictions on transfer applicable to restricted shares accelerate upon retirement.

 

(2)

The ARRA executive compensation standards prohibit Peoples from making any payments to senior executive officers for departure from Peoples for any reason during the Covered Period, except payments for services rendered or benefits accrued.  To the extent that the Treasury issues regulations and/or amends the Securities Purchase Agreement to make this prohibition applicable to payments which may be made under the amended and restated change in control agreements, Peoples will take such steps as are necessary to comply with the prohibition.

 

(3)	Under the terms of the amended and restated change in control agreements, the executive officer continues to participate in life, medical, and dental insurance during the term of his or her non-compete agreement (15 months for Mr. Bradley and 12 months for the other executive officers).

 

(4)	Stock options and SARs do not currently have intrinsic value because the grant price is greater than the closing market price on December 31, 2008 of Peoples’ common shares ($19.13).

 

 

 

Peoples uses a combination of cash and equity-based compensation to attract and retain qualified directors to serve on the Board of Directors.  Director compensation elements are designed to:

 

·	Ensure alignment with long-term shareholder interests;

 

·	Ensure Peoples can attract and retain outstanding director candidates;

 

·	Recognize the substantial time commitments necessary to oversee the affairs of Peoples; and

 

·	Support the independence of thought and action expected of directors.

 

 

The full Board of Directors approves all equity-based awards made to non-employee directors of Peoples while the Compensation Committee approves all equity-based awards made to non-employee directors of Peoples’ subsidiaries.  The grant date for equity-based awards made to non-employee directors of Peoples is the date of the approval by the Board, the date of election or appointment, or the third business day following the date on which all material information has been publicly disclosed, whichever is later.  The grant date for the equity-based awards made to the non-employee directors of  Peoples Bank (only, and not also of Peoples) is the date of the approval by the Compensation Committee, the date of election or appointment, or the third business day following the date on which all material information has been publicly disclosed, whichever is later.  The grant price is the closing price of Peoples’ common shares on The NASDAQ Global Select Market on the grant date.

 

On February 14, 2008, the Board of Directors of Peoples approved the grant of 300 restricted shares to each of the non-employee directors, if still a director, on February 20, 2008.  The non-employee directors who received the restricted share grant were: Carl L. Baker, Jr.; George W. Broughton; Frank L. Christy; Wilford D. Dimit; Richard Ferguson; David L. Mead; Robert W. Price; Theodore P. Sauber; Paul T. Theisen; Joseph H. Wesel; and Thomas J. Wolf.  On the same day, the Board of Directors of Peoples also granted 150 restricted shares of Peoples to those non-employee directors of Peoples Bank who were not also directors of Peoples.  The restrictions on the restricted shares lapsed after a period of six months (i.e., on August 20, 2008).

 

The Compensation Committee has not recommended, and the Board of Directors has not made, any grants of restricted shares to non-employee directors since the February 20, 2008, grant.  In addition, the Board of Directors has decided to not award any equity grants to directors in 2009 in consideration of 2008 financial performance and the decline in Peoples’ stock price.

 

The following summarizes the effect of various termination of service events on the restricted shares granted to the non-employee directors:

 

·	Termination of service as a director of Peoples due to death, disability, or retirement:  The restrictions on the restricted shares lapse and the restricted shares become fully vested on the termination date.

 

·	Termination of service as a director of Peoples for cause or any reason other than retirement, death or disability:  Any non-vested restricted shares are forfeited on the termination date.

 

 

The non-employee directors are also eligible to participate in selected employee benefit programs maintained by Peoples.  These include medical and dental insurance plans and Group Term Life Insurance.  During 2008, Mr. Theisen participated in Peoples’ medical and dental insurance plans pursuant to the terms of a 1998 agreement in which Peoples agreed to pay his medical and dental insurance premiums, which includes the individual and company contributions, as long as he remains a director.  The non-employee directors automatically receive a group term life insurance benefit, the premiums for which are paid by Peoples.  The maximum benefit is $50,000 for directors age 65 or younger.  The maximum benefit decreases by a percentage for each year beyond age 65 until it reaches a maximum payout of $5,000 at age 90.

 

 

(6)

The amounts in column (g) represent $270 in dividends paid on 300 restricted shares awarded on February 13, 2007 and scheduled to vest on August 13, 2010, $135 in dividends paid on 300 restricted shares awarded on February 20, 2008, as to which restrictions lapsed on August 20, 2008, and the amount of Peoples’ 2008 annual payment of premiums for group term life insurance for all directors except Paul T. Theisen, who also participated in Peoples’ medical and dental insurance plan.  Paul T. Theisen’s group term life insurance premium was $38 and his medical and dental premium was $16,295.

 

 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

 

Management has represented to the Audit Committee that Peoples’ audited consolidated financial statements as of and for the fiscal year ended December 31, 2008, were prepared in accordance with US GAAP and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management.

 

In addition, the Audit Committee has discussed and reviewed with Ernst & Young LLP (“E&Y”), Peoples’ independent registered public accounting firm, all communications and other matters required to be discussed by auditing standards generally accepted in the United States, including those described in Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T, and by SEC rules, as well as significant current accounting developments and issues.  The Audit Committee has also reviewed and discussed the audited consolidated financial statements as of and for the fiscal year ended December 31, 2008, with E&Y.

 

The Audit Committee has received from E&Y the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding E&Y’s communications with the Audit Committee concerning independence, and has discussed with E&Y the independence of E&Y.  The Audit Committee has discussed with E&Y any relationships with or services to Peoples or our subsidiaries that may impact E&Y’s independence and objectivity, including the non-audit services rendered by E&Y, and has satisfied itself as to E&Y’s independence.

 

Based on the Audit Committee’s reviews and discussions with management and E&Y, and the Audit Committee’s review of the report of E&Y to the Audit Committee, the Audit Committee recommended to the Board of Directors that Peoples’ audited consolidated financial statements be included in Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for filing with the SEC.

 

Submitted by the Audit Committee of Peoples’ Board of Directors:

Richard Ferguson, Chairman; Carl L. Baker, Jr.; George W. Broughton; David L. Mead; Theodore P. Sauber; and Thomas J. Wolf.

 

 

 

Fees for services rendered by E&Y for each of the 2008 fiscal year and the 2007 fiscal year were:

 

	2008		2007
Audit Fees (1)	$591,300		$558134
Audit-Related Fees (2)	37,500		17,650
Tax Fees (3)	48,400		117,210
Total	$677,200		$692,994

____________________

(1)

Audit Fees pertain to professional services rendered in connection with the audit of Peoples’ annual financial statements and review of financial statements included in Peoples’ Quarterly Reports on Form 10-Q, as well as internal control testing for compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

(2)	Audit-Related Fees pertain to services rendered in connection with statutory audits and accounting consultation.

(3)	Tax Fees pertain to services rendered for tax planning and advice, tax compliance, and assistance with tax audits and appeals.

E&Y did not render any other services during the 2008 fiscal year or the 2007 fiscal year.  All of the services described under “Audit-Related Fees” or “Tax Fees” above were pre-approved by the Audit Committee.

 

 

The Audit Committee has adopted, and the Board of Directors has ratified, an Audit and Non-Audit Services Pre-Approval Policy (the “Pre-Approval Policy”), which sets forth the procedures and conditions pursuant to which services proposed to be performed by the independent registered public accounting firm may be pre-approved.  Proposed services may either be pre-approved without consideration of specific case-by-case services by the Audit Committee (“general pre-approval”), or require the specific pre-approval of the Audit Committee (“specific pre-approval”).  Appendices to the Pre-Approval Policy describe the Audit, Audit-Related, Tax and All Other services that have the general pre-approval of the Audit Committee.  The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee states otherwise.  The Audit Committee will annually review and pre-approve the services that may be provided by the independent registered public accounting firm without obtaining specific pre-approval from the Audit Committee.  The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.

 

The Pre-Approval Policy does not delegate to management the Audit Committee’s responsibilities to pre-approve services performed by the independent registered public accounting firm.  The Audit Committee, however, may delegate pre-approval authority to one or more of its members.  The member(s) to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

 

All requests or applications for services to be provided by the independent registered public accounting firm will be submitted to the Chief Financial Officer of Peoples, and must include a detailed description of the services to be rendered.  The Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee.  The Audit Committee will be informed on a timely basis of any such services rendered by the independent registered public accounting firm.  Services that require specific pre-approval by the Audit Committee will be submitted to the Audit Committee by both the independent registered public accounting firm and the Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.  Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee.

 

The Audit Committee has designated the Auditor of Peoples, as head of the Internal Audit Department (the “Auditor”), to monitor the performance of all services provided by the independent registered public accounting firm and to determine whether such services are in compliance with the Pre-Approval Policy.  The Auditor reports to the Audit Committee on a periodic basis as to the results of this monitoring.  Both the Auditor and management are to immediately report to the Chairman of the Audit Committee any breach of the Pre-Approval Policy that comes to the attention of the Auditor or any member of management.

 

The Audit Committee also reviews the Auditor’s annual internal audit plan to determine whether the plan provides for adequate monitoring of the independent registered public accounting firm’s services.

 

 

NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

The ARRA, more commonly known as the economic stimulus package, was signed into law on February 17, 2009.  In addition to a wide variety of programs intended to stimulate the economy, the ARRA imposes significant new requirements for and restrictions relating to the compensation arrangements of financial institutions that received government funds through TARP, including institutions like Peoples that participated in the Capital Purchase Program prior to the ARRA.  These restrictions apply through the ARRA Covered Period.

One of the new requirements is that any proxy for a meeting of shareholders at which directors are to be elected, which is held during the ARRA Covered Period, permit a non-binding advisory vote by the shareholders on the compensation of the executives of the TARP participant, as described in the participant’s proxy statement.  This is commonly referred to as a “Say-on-Pay” proposal.

As a shareholder, you are being provided with the opportunity to endorse or not endorse Peoples’ executive pay program and policies through the following resolution:

“RESOLVED, that the shareholders approve the compensation of Peoples’ executives, as described in the COMPENSATION DISCUSSION AND ANALYSIS and the tabular and accompanying narrative disclosure contained on pages 20 – 45 in this proxy statement.”

Because your vote is advisory, it will not be binding upon the Board of Directors, overrule any decision made by the Board of Directors, or create or imply any additional fiduciary duty by the Board of Directors.  The Compensation Committee may, however, take into account the outcome of the vote when considering future executive compensation arrangements.

We believe that Peoples’ compensation policies and procedures are reasonable in comparison to both to Peoples’ peer bank holding companies and to Peoples’ performance during 2008.  We also believe that Peoples’ compensation program aligns with the interests of our shareholders in the long-term value of Peoples as well as the components that drive long-term value.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF PROPOSAL NUMBER 3 – NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION

The affirmative vote of a majority of the common shares represented at the Annual Meeting, in person or by proxy, and entitled to vote on the proposal is required to approve, in a non-binding advisory vote, Peoples’ executive compensation disclosed in this proxy statement.  The effect of an abstention is the same as a vote “AGAINST” the proposal.

 

 

As of the date of this proxy statement, the Board of Directors knows of no matter that will be presented for action by the shareholders at the Annual Meeting other than those matters discussed in this proxy statement.  However, if any other matter requiring a vote of the shareholders is properly presented at the Annual Meeting or any adjournment thereof, the individuals acting under the proxies solicited by the Board of Directors will vote and act according to their best judgment in light of the conditions then prevailing, to the extent permitted under applicable law.

 

It is important that your proxy card be completed, signed and returned promptly.  If you do not expect to attend the Annual Meeting in person, please complete, sign and return the accompanying proxy card in the self-addressed envelope furnished herewith.

 

                                                                                       By Order of the Board of Directors,

                                                                                                                                                                                

Mark F. Bradley

President and Chief Executive Officer