MARIETTA, Ohio, Oct. 25, 2016 /PRNewswire/ -- Peoples Bancorp Inc. ("Peoples") (NASDAQ: PEBO) today announced results for the quarter and nine months ended September 30, 2016.  Net income totaled $7.8 million for the third quarter of 2016, representing earnings per diluted common share of $0.43.  Earnings per diluted common share were negatively impacted by $0.02 due to the system upgrade costs of $423,000 incurred during the third quarter of 2016.  In comparison, reported earnings per diluted common share were $0.44 for the second quarter of 2016 and $0.22 for the third quarter of 2015.  Net income was $23.7 million and earnings per diluted common share were $1.31 for the nine months ended September 30, 2016, compared to $8.4 million and $0.47 per diluted common share in 2015.

"We are pleased with the third quarter of 2016 results, with two big achievements being the 8% annualized loan growth reported for the quarter and the positive operating leverage generated," said Chuck Sulerzyski, President and Chief Executive Officer.  "While we have seen steady growth in our indirect lending business all year, which has increased 38% since December 31, 2015, our commercial business was slow to show growth in the first half of the year but reported 8% annualized growth during the third quarter.  Growth in our fee based income provided us with total revenue growth of 3% during the third quarter, while expenses only increased 1%, which included $423,000 of non-core charges associated with our system upgrade that is scheduled for November 7, 2016."

Statement of Operations Highlights:

• Net interest income was relatively flat compared to the linked quarter and increased 2% compared to the third quarter of 2015.
  • Net interest margin was 3.54% for the third quarter of 2016, compared to 3.57% for the linked quarter and 3.55% for the third quarter of 2015.
• Provision for loan losses was $1.1 million for the third quarter of 2016 and was driven primarily by loan growth.
• Total non-interest income grew 9% compared to the linked quarter and 14% compared to the third quarter of 2015, with growth in almost all categories.
• Total non-interest expense was $26.8 million, up slightly compared to the linked quarter.
  • The efficiency ratio was 64.3% for the third quarter of 2016, compared to 65.1% for the second quarter of 2016 and 65.8% in the third quarter of 2015.
  • The efficiency ratio, when adjusted for non-core charges, was 63.3% for the third quarter of 2016, compared to 64.9% for the second quarter of 2016 and 65.3% in the third quarter of 2015.
• Operating leverage was positive for the third quarter, compared to both the linked quarter and the third quarter of 2015, and for the first nine months of 2016 compared to 2015.

Balance Sheet Highlights:

• Period-end total loan balances grew 8% on an annualized basis compared to June 30, 2016 and 6% on an annualized basis compared to December 31, 2015 and September 30, 2015.
  • Indirect loans grew $23.2 million, or 45% annualized, compared to the linked quarter, while total consumer loans grew $16.7 million, or 7% annualized. For the first nine months of 2016, indirect loans grew $63.2 million, or 50% annualized.
  • Commercial and industrial loans increased $21.7 million, or 23% annualized, from the linked quarter as total commercial loans increased $23.7 million, or 8% annualized.
• Asset quality was relatively stable during the quarter.
  • Net charge-offs as a percent of average gross loans were 0.14% annualized for the quarter, compared to 0.03% in the linked quarter and 0.15% in the third quarter of 2015. Year-to-date, net charge-offs were 0.09% of average loans on an annualized basis in 2016 compared to 0.10% in 2015.
  • Criticized loans, which are those categorized as watch, substandard or doubtful, decreased $7.9 million, or 7%, during the quarter.
  • Nonperforming assets increased slightly to 1.11% of total loans and OREO at September 30, 2016 compared to 1.04% at June 30, 2016.
  • Allowance for loan losses increased $1.4 million, or 9%, compared to December 31, 2015.
  • Allowance for loan losses as a percent of originated loans, net of deferred fees and costs, decreased slightly to 1.13% at September 30, 2016, compared to 1.16% at June 30, 2016.
• Period-end total deposit balances increased $42.5 million, or 2%, compared to the linked quarter.
  • Non-interest-bearing deposits increased $45.8 million, or 7%, compared to the linked quarter and, as a percent of total deposits, increased to 29% at September 30, 2016, compared to 28% at June 30, 2016.

Note: The comparison of the income statement and average balance sheet results between the first nine months of 2015 and the first nine months of 2016 was affected by the NB&T Financial Group, Inc. ("NB&T") acquisition, which closed March 6, 2015.

Net Interest Income:
Net interest income was $26.1 million in the third quarter of 2016, a slight decline compared to the linked quarter and a 2% increase over the third quarter of 2015.  The net interest margin for the third quarter of 2016 was 3.54%, compared to 3.57% in the second quarter of 2016 and 3.55% in the third quarter of 2015.  The decrease compared to the second quarter in net interest income was due primarily to the reduced size of the investment portfolio, for which the average balance declined $27.8 million, or 3%.

For the first nine months of 2016, net interest income grew 9% compared to 2015 and net interest margin improved to 3.55% from 3.49%.  The NB&T acquisition and loan growth were the drivers of the increase in interest income.

The accretion income, net of amortization expense, from the acquisitions was $0.8 million for the third quarter of 2016, compared to $0.9 million for the second quarter of 2016 and $1.4 million in the third quarter of 2015, which added 10 basis points, 12 basis points and 18 basis points, respectively, to the net interest margin.  In addition, accretion income, net of amortization expense, from the acquisitions was $2.6 million in the first nine months of 2016 compared to $3.6 million in the first nine months of 2015, and added 12 basis points and 17 basis points, respectively, to net interest margin.

Net interest margin, excluding net accretion income from acquisitions, declined 1 basis point compared to the second quarter of 2016 and improved 7 basis points from the third quarter of 2015.  In the first nine months of 2016, net interest margin, excluding net accretion income from acquisitions, increased 11 basis points compared to 2015.  The changes in net interest margin were the result of the sustained shift in the mix of the balance sheet, for both assets and liabilities, coupled with the restructuring of borrowings during the second quarter of 2016.

Provision for Loan Losses:
The provision for loan losses was $1.1 million in the third quarter of 2016, compared to $0.7 million in the second quarter of 2016 and $5.8 million in the third quarter of 2015.  For the first nine months of 2016, the provision for loan losses totaled $2.8 million compared to $6.9 million in 2015.  Recent loan growth was the main driver of the provision for loan losses recorded during the quarter and the first nine months of 2016.  The provision for loan losses recorded in the third quarter of 2015 was driven primarily by an increase to the specific reserve for a large commercial loan relationship that was charged-off in the fourth quarter of 2015.

Non-interest Income:
Total non-interest income increased $1.2 million, or 9%, compared to the linked quarter, and grew $1.6 million, or 14%, compared to the third quarter of 2015.  The increases compared to the second quarter of 2016 and the third quarter of 2015 were due primarily to increases in commercial loan swap fee income, bank-owned life insurance income and electronic banking income.  Also contributing to the growth compared to the second quarter of 2016 was an increase in deposit account service charges.  The increase compared to the third quarter of 2015 was also impacted by growth in mortgage banking income.  For the first nine months of 2016, total non-interest income increased $3.6 million, or 10%, compared to the first nine months of 2015.  The increase compared to the first nine months of 2015 was due to increases in electronic banking income, trust and investment income, commercial loan swap fee income and bank-owned life insurance income, with a portion of the growth attributable to the NB&T acquisition.

The commercial loan swap fee income, which is included in other non-interest income, was $569,000 for the third quarter of 2016, compared to $263,000 for the second quarter of 2016 and $135,000 for the third quarter of 2015.  For the first nine months of 2016, commercial loan swap fee income was $997,000 compared to $284,000 for the first nine months of 2015.  The increase in bank-owned life insurance income of $238,000 was the result of the additional $35 million of bank-owned life insurance policies that were purchased in the second quarter of 2016.

Non-interest Expense:
Total non-interest expense, on an as reported basis, for the third quarter of 2016 was $26.8 million, compared to $26.5 million for the second quarter of 2016 and $26.1 million for the third quarter of 2015.  Total non-interest expense, adjusted for non-core charges, was $26.4 million for the third quarter of 2016 and the second quarter of 2016, and $25.9 million for the third quarter of 2015.  Beginning in the second quarter of 2016, non-core charges included one-time costs associated with the system upgrade of Peoples' core banking system.  These costs are expected to be approximately $1.4 million for the full year, with $423,000 recorded in the third quarter of 2016 and $90,000 recorded in the second quarter of 2016.

During the third quarter of 2016, salaries and employee benefits increased compared to both the second quarter of 2016 and third quarter of 2015.  The increase in salaries and employee benefits compared to the second quarter of 2016 was due primarily to increased medical costs as a result of higher claims, and higher sales-based and incentive compensation as a result of performance.  The increase in salaries and employee benefits compared to the third quarter of 2015 was due primarily to increased sales-based and incentive compensation as a result of the corporate incentive plan.

For the nine months ended September 30, 2016, reported total non-interest expense was $79.6 million, a decrease of 9% from $87.8 million for the first nine months of 2015.  Total non-interest expense, adjusted for non-core charges, was $79.1 million in the first nine months of 2016, compared to $77.3 million in 2015, with the increase primarily due to the addition of operating expenses from the NB&T acquisition, and an increase in salaries and employee benefits associated with increased sales-based and incentive compensation as a result of the corporate incentive plan.  Peoples' number of full time equivalent employees declined to 799 at September 30, 2016, compared to 803 at June 30, 2016 and 821 at September 30, 2015.

The efficiency ratio for the third quarter of 2016 was 64.3%, compared to 65.1% for the linked quarter and 65.8% for the third quarter of 2015.  For the first nine months of 2016, the efficiency ratio was 64.6% compared to 78.2% in the first nine months of 2015.  The efficiency ratio, when adjusted for non-core charges, was 63.3% for the third quarter of 2016, 64.9% for the linked quarter and 65.3% for the third quarter of 2015.  The lower adjusted efficiency ratio in the third quarter of 2016 compared to the linked quarter and the third quarter of 2015 was primarily due to revenue growth and the continued focus on expense management.  Revenue grew 3% and core expenses grew 1% in the third quarter of 2016 compared to the linked quarter and 6% and 3%, respectively, compared to the third quarter of 2015.  For the first nine months of 2016, the adjusted efficiency ratio was 64.1% compared to 68.5% for the first nine months of 2015, as revenue grew 9% and core expenses increased 2%.

Loans:
For the third quarter of 2016, period-end total loan balances increased $40.4 million, or 8% annualized, compared to June 30, 2016.  Indirect lending continued to be a key component of loan growth, as balances increased $23.2 million, or 45% annualized, during the quarter.  The growth in indirect lending was the result of diversification in the portfolio beyond just automobile loans, as well as the expanded footprint over recent years in southeast and northeast Ohio.  Commercial loans grew $23.7 million, or 8% annualized, with increases of $21.7 million in commercial and industrial loans and $2.0 million in commercial real estate loans during the quarter.

Compared to December 31, 2015, period-end loan balances increased $96.8 million, or 6% annualized.  The growth was primarily the result of indirect lending contributing loan growth of $63.2 million, or 50% annualized.  Commercial and industrial loan balances grew $48.3 million, or 18% annualized.

Period-end total loan balances at September 30, 2016 increased $119.0 million, or 6%, compared to September 30, 2015.  Consumer loans increased $58.1 million, or 6% compared to September 30, 2015, and were driven by higher indirect lending activity.  Commercial loans grew primarily from an increase in commercial and industrial loans of $42.6 million, or 12%, compared to September 30, 2015.

Quarterly average gross loan balances increased $12.0 million, or 2% annualized, compared to the linked quarter, due primarily to indirect lending.  The increase in commercial loan balances previously noted was largely recorded late in the quarter and did not have a significant impact on the quarterly average balances.  Compared to the third quarter of 2015, average gross loans increased $106.7 million, or 5%, largely due to growth in indirect lending and commercial and industrial loans.  During the first nine months of 2016, average gross loan balances grew $200.1 million, or 10%, compared to the first nine months of 2015, primarily due to the NB&T acquisition, higher indirect lending and increased commercial and industrial loan balances.

Indirect lending continued to account for a larger proportion of the consumer loan portfolio, comprising 24% at September 30, 2016, compared to 22% at June 30, 2016, 18% at December 31, 2015 and 17% at September 30, 2015.  In addition, commercial and industrial loan balances comprised 33% of the commercial portfolio at September 30, 2016, compared to 32% at June 30, 2016, 30% at December 31, 2015 and 31% at September 30, 2015.  The recent growth in indirect lending and commercial and industrial loan balances has provided additional diversification to the loan portfolio as they were 11% and 18% of the period-end total loan balance at September 30, 2016, respectively, compared to 8% and 17%, respectively, at December 31, 2015.

Asset Quality:
Asset quality metrics were relatively stable during the third quarter of 2016.  Annualized net charge-offs were 0.14% of average gross loans during the third quarter of 2016, compared to 0.03% in the second quarter of 2016 and 0.15% in the third quarter of 2015.  During the first nine months of 2016, annualized net charge-offs were 0.09% of average gross loans compared to 0.10% in 2015.

Criticized loans, which are those categorized as watch, substandard or doubtful, decreased $7.9 million compared to June 30, 2016, $22.9 million compared to December 31, 2015 and $11.2 million compared to September 30, 2015.  Classified loans, which are those categorized as substandard or doubtful, were relatively stable compared to June 30, 2016, decreased $6.6 million compared to December 31, 2015 and $11.1 million compared to September 30, 2015.

Nonperforming assets increased $2.1 million during the third quarter of 2016 compared to June 30, 2016, due primarily to an increase of $3.8 million in nonaccrual loans, which was partially offset by a decrease of $1.7 million in loans 90+ days past due.  The increase in nonaccrual loans was due primarily to two commercial real estate loans.  Compared to September 30, 2015, nonperforming assets decreased $2.2 million, as nonaccrual loans declined $1.8 million.

At September 30, 2016, the allowance for loan losses increased to $18.2 million, compared to $17.8 million at June 30, 2016, $16.8 million at December 31, 2015 and $23.3 million at September 30, 2015.  The ratio of the allowance for loan losses as a percent of originated loans (which does not include acquired loan balances), net of deferred fees and costs, was 1.13% at September 30, 2016, compared to 1.16% at June 30, 2016, 1.19% at December 31, 2015 and 1.72% at September 30, 2015.  The decline in this ratio compared to June 30, 2016 and December 31, 2015 was primarily due to the continued stabilization of our asset quality metrics.  The decrease compared to September 30, 3015 was due to the build up of reserves on one commercial loan relationship that was fully charged-off in the fourth quarter of 2015.

Deposits:
During the third quarter of 2016, period-end deposits increased $42.5 million, or 2%, attributable to an increase of $45.8 million, or 7%, in non-interest-bearing deposits.  The increase in non-interest-bearing deposits was primarily due to commercial non-interest-bearing deposit balances, which increased $36.0 million, with individual non-interest-bearing deposit balances increasing $12.0 million during the quarter.  Commercial non-interest-bearing deposit balances were impacted by one large customer maintaining a higher than normal balance on September 30, 2016.

Compared to December 31, 2015, period-end deposit balances increased $39.5 million, or 2%, with $27.5 million of the growth in non-interest-bearing deposits and $12.0 million of the growth in interest-bearing deposits.  The growth in non-interest-bearing deposits was attributable to growth of $38.7 million in commercial non-interest-bearing deposit balances.  Interest-bearing deposits grew as a result of all categories increasing except for certificates of deposits, which declined $59.3 million.

Period-end deposits increased $44.6 million, or 2%, compared to September 30, 2015, with $34.2 million of the growth in non-interest-bearing deposits and $10.4 million of the growth in interest-bearing deposits.  Individual and commercial non-interest-bearing deposits each grew $17.4 million.  The growth in interest-bearing deposits was the result of growth in all categories except for certificates of deposit, which decreased $71.7 million, and governmental deposits, which declined $7.2 million.

Non-interest-bearing deposits comprised 29% of total deposits at September 30, 2016, compared to 28% at June 30, 2016, December 31, 2015 and September 30, 2015.

Average deposits for the third quarter of 2016 decreased $24.2 million, or 1%, compared to the linked quarter, with a decline of $16.6 million in non-interest-bearing deposits and $7.6 million in interest-bearing deposits.  Compared to the third quarter of 2015, average deposits increased $12.1 million, with non-interest-bearing deposits increasing $15.2 million and interest-bearing deposits declining $3.1 million.  For the first nine months of 2016, average deposits increased $162.5 million, or 7%, compared to the first nine months of 2015, mainly due to the NB&T acquisition.

Stockholders' Equity:
At September 30, 2016, the tier 1 risk-based capital ratio was 13.34%, compared to 13.33% at June 30, 2016, 13.67% at December 31, 2015 and 13.77% at September 30, 2015.  The total risk-based capital ratio was 14.24% at September 30, 2016, compared to 14.23% at June 30, 2016, 14.54% at December 31, 2015 and 14.97% at September 30, 2015.  These capital ratios were relatively flat compared to the linked quarter.  During the second and third quarters of 2016, no common shares were repurchased under the share repurchase program, compared to 279,770 shares repurchased in the first quarter of 2016.

Peoples Bancorp Inc. is a diversified financial services holding company with $3.4 billion in total assets, 80 locations, including 73 full-service bank branches, and 80 ATMs in Ohio, West Virginia and Kentucky.  Peoples makes available a complete line of banking, investment, insurance and trust solutions through its subsidiaries - Peoples Bank and Peoples Insurance Agency, LLC.  Peoples' common shares are traded on the NASDAQ Global Select Market® under the symbol "PEBO", and Peoples is a member of the Russell 3000 index of U.S. publicly-traded companies.  Learn more about Peoples at www.peoplesbancorp.com. 

Conference Call to Discuss Earnings:
Peoples will conduct a facilitated conference call to discuss third quarter and year-to-date 2016 results of operations today at 11:00 a.m., Eastern Daylight Time, with members of Peoples' executive management participating.  Analysts, media and individual investors are invited to participate in the conference call by calling (866) 890-9285.  A simultaneous webcast of the conference call audio will be available online via the "Investor Relations" section of Peoples' website, www.peoplesbancorp.com.  Participants are encouraged to call or sign in at least 15 minutes prior to the scheduled conference call time to ensure participation and, if required, to download and install the necessary software.  A replay of the call will be available on Peoples' website in the "Investor Relations" section for one year.

Use of Non-GAAP Financial Measures
This news release contains financial information and performance measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP").  Management uses these "non-GAAP" financial measures in its analysis of Peoples' performance and the efficiency of its operations. Management believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and peers. These disclosures should not be viewed as substitutes for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. Below is a listing of the non-GAAP financial measures used in this news release:

• Core non-interest expenses are non-GAAP since they exclude the impact of costs associated with the system upgrade, acquisition-related costs, pension settlement charges, severance charges and legal settlement charges.
• Efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income. This measure is non-GAAP since it excludes amortization of other intangible assets and all gains and/or losses included in earnings, and uses fully tax-equivalent net interest income.
• Tangible assets, tangible equity and tangible book value per common share measures are non-GAAP since they exclude the impact of goodwill and other intangible assets acquired through acquisitions on both total stockholders' equity and total assets and the related amortization from earnings.
• Pre-provision net revenue is defined as net interest income plus total non-interest income minus total non-interest expense. This measure is non-GAAP since it excludes provision for loan losses and all gains and/or losses included in earnings.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included at the end of this news release under the caption of "Non-GAAP Financial Measures".

Safe Harbor Statement:
Certain statements made in this news release regarding Peoples' financial condition, results of operations, plans, objectives, future performance and business, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate", "estimate", "may", "feel", "expect", "believe", "plan", "will", "would", "should", "could" and similar expressions.

These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations.  Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially.  These factors include, but are not limited to:

Peoples encourages readers of this news release to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance.  Peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this news release or to reflect the occurrence of unanticipated events, except as required by applicable legal requirements.  Copies of documents filed with the SEC are available free of charge at the SEC's website at http://www.sec.gov and/or from Peoples' website.

As required by U.S. GAAP, Peoples is required to evaluate the impact of subsequent events through the issuance date of its September 30, 2016 consolidated financial statements as part of its Quarterly Report on Form 10-Q to be filed with the SEC.  Accordingly, subsequent events could occur that may cause Peoples to update its critical accounting estimates and to revise its financial information from that which is contained in this news release.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Peoples Bancorp Inc.