Peoples Bancorp Inc. Reports Quarterly Net Income

MARIETTA, Ohio, Oct. 22, 2019 /PRNewswire/ -- Peoples Bancorp Inc. ("Peoples") (Nasdaq: PEBO) today announced results for the quarter ended September 30, 2019.  Net income totaled $14.9 million for the third quarter of 2019, representing earnings per diluted common share of $0.72.  In comparison, earnings per diluted common share were $0.46 for the second quarter of 2019 and $0.65 for the third quarter of 2018.  For the nine months ended September 30, 2019, earnings per diluted common share were $1.91, compared to $1.69 for the nine months ended September 30, 2018.  Acquisition-related costs negatively impacted earnings per diluted common share by $0.01, $0.28 and $0.03 during the third quarter of 2019, the second quarter of 2019 and the third quarter of 2018, respectively, and $0.29 and $0.28 during the first nine months of 2019 and 2018, respectively.

"Earnings were solid for the third quarter of 2019, including growth in non-interest income of 7% compared to the second quarter of 2019.  Credit quality remained strong for the third quarter.  Net interest income remained relatively stable despite a tough rate environment and muted loan growth," said Chuck Sulerzyski, President and Chief Executive Officer.  "Our loan portfolio grew $16.8 million during the quarter, as new originations exceeded payoffs.  Our loan pipeline remains strong.  We continue to focus on driving greater shareholder value through reliable and consistent financial results."  

Note: The comparisons of income statement and balance sheet results between the 2019 and 2018 periods and, to a lesser extent, between the third and second quarters of 2019, were affected by the First Prestonsburg Bancshares Inc. ("First Prestonsburg") acquisition, which closed on April 12, 2019.

Statement of Income Highlights:

• Net interest income declined $295,000, or 1%, compared to the linked quarter and grew $2.4 million, or 7%, compared to the third quarter of 2018.
• Net interest margin was 3.66% for the third quarter of 2019, compared to 3.77% for the linked quarter and 3.68% for the third quarter of 2018.
• The decreases compared to the linked quarter were due to lower yields on loans combined with slightly higher deposit costs, offset by higher earning assets.
• The increase in net interest income compared to the third quarter of 2018, which was impacted by the acquired First Prestonsburg loans and deposits, was driven by higher yields on loans, combined with higher loan balances, partially offset by higher interest expense on deposits.
• Peoples recorded a provision for loan losses of $1.0 million for the third quarter of 2019, compared to $0.6 million for the second quarter of 2019, and $1.3 million for the third quarter of 2018.
• The increase compared to the linked quarter was driven by higher net charge-offs, coupled with the originated loan growth during the quarter. The decline compared to the third quarter of 2018 was primarily due to an increase in the reserve on impaired loans during the third quarter of 2018 of $248,000.
• Net charge-offs for the third quarter of 2019 were $777,000, or 0.11% of average total loans, compared to $208,000, or 0.03% of average total loans, for the linked quarter and $687,000, or 0.10% of average total loans, for the third quarter of 2018.
• Total non-interest income, excluding net gains and losses on investment securities, asset disposals and other transactions, increased $735,000, or 5%, compared to the linked quarter, and $2.0 million, or 14%, compared to the third quarter of 2018.
• The growth compared to the linked quarter was driven by increases in electronic banking income, deposit account service charges, commercial loan swap fee income, and mortgage banking income.
• Compared to the third quarter of 2018, electronic banking income increased 24%, and deposit account service charges were up 22%, while commercial swap fee income more than doubled, and mortgage banking income increased 14%.
• Total non-interest expense declined $5.9 million, or 15%, compared to the linked quarter and grew $2.2 million, or 7%, compared to the third quarter of 2018.
• The decrease in non-interest expense compared to the linked quarter was primarily driven by lower acquisition-related expenses, which totaled $199,000 for the third quarter of 2019, compared to $6.8 million for the second quarter of 2019.
• Compared to the third quarter of 2018, salaries and employee benefit costs were up $1.0 million and electronic banking expense was up $518,000.
• For the third quarter of 2019, the efficiency ratio improved to 61.1%, compared to 73.2% for the linked quarter, and 62.6% for the third quarter of 2018.
• Adjusted to exclude non-core items, the efficiency ratio for the third quarter of 2019 increased to 60.7%, compared to 60.2% for the linked quarter, and improved compared to 60.8% for the third quarter of 2018.
• Peoples generated positive operating leverage for the first nine months of 2019 compared to the first nine months of 2018, as revenue growth of 11% exceeded non-interest expense growth of 9%.

Balance Sheet Highlights:

• Period-end total loan balances increased $16.8 million, or 2% annualized, compared to the end of the linked quarter.
• Originated loan balances increased $48.1 million, or 9% annualized, during the quarter. While loan origination levels were higher than in prior periods, they were largely offset by paydowns during the quarter, primarily in the acquired loans portfolio.
• Compared to September 30, 2018, period-end total loans grew $142.6 million, or 5%, due to a combination of loans acquired from First Prestonsburg and originated loan growth.
• Average loan balances grew $7.3 million, or 1% annualized, compared to the linked quarter. Compared to the third quarter of 2018, average loan balances increased $120.6 million, or 4%.
• Asset quality metrics remained strong during the quarter.
• Delinquency trends remained stable as loans considered current comprised 99.0% of the loan portfolio at both September 30, 2019 and June 30, 2019, compared to 98.6% at March 31, 2019, 98.5% at December 31, 2018, and 98.9% at September 30, 2018.
• Compared to June 30, 2019, classified loans declined $4.1 million, or 7%, and criticized loans increased $3.4 million, or 4%, mostly due to two relationships being downgraded, which were partially offset by upgrades of several loans.
• As a percent of total loans and other real estate owned ("OREO"), nonperforming assets were 0.74% at September 30, 2019, compared to 0.71% at June 30, 2019 and 0.67% at September 30, 2018.
• Period-end total deposit balances were relatively flat compared to June 30, 2019, and increased $316.1 million, or 10%, compared to September 30, 2018.
• Brokered certificates of deposit ("CDs") decreased 20% compared to June 30, 2019, and were primarily replaced by increases in non-interest-bearing, money market and lower-cost interest-bearing demand deposit account balances.
• The increase in deposits compared to September 30, 2018 was driven primarily by the deposits acquired from First Prestonsburg.
• Total demand deposit balances were 39% of total deposits at September 30, 2019, compared to 37% at June 30, 2019 and 38% at September 30, 2018.

Net Interest Income: Net interest income was $35.8 million for the third quarter of 2019, a decrease of $295,000, or 1%, compared to the linked quarter.  Net interest margin was 3.66% for the third quarter of 2019, compared to 3.77% for the linked quarter.  Net interest income remained relatively stable although interest rates declined during the quarter, which impacted the loan and investment portfolios.  Peoples' variable rate commercial loans are subject to changes in the London Interbank Offered Rate and the prime rate, both of which declined during the third quarter of 2019.  The net interest margin was impacted by the lower interest rates received on loans.  At September 30, 2019, average loan balances as a percent of average total earning assets declined to 73.0%, from 73.9% in the linked quarter.  Higher deposit costs were partially offset by lower interest expense on borrowings.

Accretion income, net of amortization expense, from acquisitions was $1.2 million for the third and second quarters of 2019, which added 12 basis points and 13 basis points, respectively, to net interest margin.

Net interest income for the current quarter increased $2.4 million, or 7%, over the third quarter of 2018. Net interest margin decreased 2 basis points compared to 3.68% for the third quarter of 2018.  The increase in net interest income compared to the third quarter of 2018 was driven by higher interest income on loans, due to higher yields on loans, combined with higher loan balances, which were impacted by the acquired First Prestonsburg loans.  The higher interest income on loans was partially offset by an increase in interest expense on deposits due to higher rates paid on deposits, combined with additional interest expense related to the acquired First Prestonsburg deposits.  Net interest margin declined slightly due to higher rates on deposits and borrowings, which more than offset the increase in yields on loans.

Accretion income, net of amortization expense, from acquisitions was $1.2 million for the third quarter of 2019 and $612,000 for the third quarter of 2018, which added 12 basis points and 7 basis points, respectively, to net interest margin.  The increase in net accretion income compared to the third quarter of 2018 was due to the First Prestonsburg acquisition.

For the first nine months of 2019, net interest income grew 11% compared to 2018, and net interest margin grew 5 basis points to 3.74%.  The increases were driven by higher interest income on loans due to a combination of loan growth, which was primarily the result of the First Prestonsburg acquisition in 2019 and the ASB Financial Corp. ("ASB") acquisition in 2018, and higher yields from interest rate increases.  The interest income on loans outpaced interest expense from deposits, which increased primarily due to higher rates paid on deposits, combined with additional interest expense related to the recent acquisitions.  The first nine months of 2018 benefited from proceeds of $588,000 received on an investment security that had been previously written down due to other-than-temporary impairment, which added 2 basis points to net interest margin.  Peoples recorded no similar proceeds during the first nine months of 2019.

Accretion income, net of amortization expense, from acquisitions was $3.1 million for the first nine months of 2019 and $1.7 million for the first nine months of 2018, which added 11 basis points and 7 basis points, respectively, to net interest margin.  The growth in net accretion income compared to the first nine months of 2018 was due to the First Prestonsburg acquisition and, to a lesser extent, the ASB acquisition.

Provision for Loan Losses: The provision for loan losses was $1.0 million for the third quarter of 2019, compared to $626,000 for the linked quarter and $1.3 million for the third quarter of 2018.  Net charge-offs for the third quarter of 2019 were $777,000, or 0.11% of average total loans, compared to $208,000, or 0.03% of average total loans, for the linked quarter and $687,000, or 0.10% of average total loans, for the third quarter of 2018.  The provision for loan losses during the current quarter was driven by higher net charge-offs and originated loan growth.

For the first nine months of 2019, the provision for loan losses was $1.4 million, compared to $4.5 million for the first nine months of 2018.  Net recoveries for the first nine months of 2019 were $22,000, compared to net charge-offs of $3.4 million, or 0.18% of average total loans, for the first nine months of 2018.  The first nine months of 2019 included a $1.8 million recovery recorded on a previously charged-off commercial loan.  The first nine months of 2018 included a charge-off of $827,000 on an acquired commercial loan relationship.

Net Gains and Losses: Net gains and losses include gains and losses on investment securities, asset disposals and other transactions, which are included in non-interest income.  Net gains during the third quarter of 2019 were $19,000, compared to net losses of $350,000 for the linked quarter, and net gains of $12,000 in the third quarter of 2018.  Losses during the linked quarter included $253,000 of write-offs of fixed assets acquired from First Prestonsburg.

For the first nine months of 2019, net losses were $483,000, compared to net losses of $465,000 for the first nine months of 2018.  Net losses during the year-to-date period through September 30, 2019 were driven by the write-offs of fixed assets acquired from First Prestonsburg and market value write-downs related to closed offices that were held for sale.  For the first nine months of 2018, losses were primarily associated with write-offs of fixed assets acquired from ASB of $203,000 and losses on investment securities of $146,000.

Total Non-interest Income, Excluding Net Gains and Losses: Total non-interest income, excluding net gains and losses, for the third quarter of 2019 increased $735,000, or 5%, compared to the linked quarter.  Electronic banking income increased $310,000, or 9%, compared to the linked quarter, driven by usage of debit cards.  Income from deposit account service charges also increased $256,000, or 9%, mainly due to higher overdraft fees.  Commercial loan swap fee income was up $256,000, or 50%, driven by higher customer demand, given the current rate environment.  Also impacting the increase was growth in mortgage banking income of $204,000, or 20%, as there were more sales of residential real estate loans to the secondary market.  These increases were partially offset by a decline of $196,000, or 6%, in trust and investment income, which was mostly due to lower fiduciary income resulting from the seasonal tax return revenue received annually in the second quarter, and a decline of $100,000, or 3%, in insurance income.

Compared to the third quarter of 2018, non-interest income, excluding net gains and losses, grew $2.0 million, or 14%.  All non-interest income categories increased, with the exception of bank owned life insurance and insurance income, which had slight decreases.  Electronic banking income was up $687,000, or 24%, primarily as the result of increased debit card usage, which was positively impacted by the additional cardholders obtained in the First Prestonsburg acquisition.  Income from deposit account service charges, which increased $581,000, or 22%, compared to the prior year quarter, benefited from the additional accounts acquired from First Prestonsburg and a new deposit account fee schedule implemented in March 2019.  Commercial loan swap fee income more than doubled, driven by an increase in customer demand as a result of the current interest rate environment.  Mortgage banking income increased $144,000, or 14%, as there were more sales of residential real estate loans to the secondary market.

For the first nine months of 2019, non-interest income, excluding net gains and losses, grew $4.6 million, or 11%, compared to the same period in the prior year.  Income from deposit account service charges was up $1.4 million, or 19%, compared to a year ago primarily due to the additional accounts from the ASB and First Prestonsburg acquisitions, coupled with changes in fee schedules.  Peoples implemented a new deposit account fee schedule in March of 2019, and it is anticipated that the higher deposit fees associated with the new fee schedule will diminish somewhat over time.  Electronic banking income increased $1.4 million, or 16%, primarily as the result of increased debit card usage, which was positively impacted by the additional cardholders obtained in the First Prestonsburg and ASB acquisitions.  Commercial loan swap fee income increased, driven by an increase in customer demand as a result of the current interest rate environment.  Year-over-year, mortgage banking income increased $612,000, or 26%, due to more sales as the result of the mortgage operation acquired from ASB.  Realized and unrealized gains on equity investment securities increased $620,000 compared to the first nine months of 2018, driven by $787,000 of income related to the sale of restricted Class B Visa stock during the first quarter of 2019.  These increases were partially offset by lower Small Business Administration income, which declined $474,000 compared to the first nine months of 2018 as the result of lower volume.

Total Non-interest Expense: Total non-interest expense declined $5.9 million, or 15%, compared to the linked quarter, and grew $2.2 million, or 7%, compared to the third quarter of 2018.  Core non-interest expense, which excludes acquisition-related expenses and pension settlement charges, increased $688,000, or 2%, compared to the linked quarter, and grew $2.8 million, or 9%, compared to the third quarter of 2018.  For the first nine months of 2019, total non-interest expense increased $8.7 million, or 9%, compared to the first nine months of 2018.  Core non-interest expense for the first nine months of 2019 increased $8.5 million, or 10%, compared to the first nine months of 2018.

The table below summarizes core and total non-interest expense by category.  Core non-interest expense is a non-US GAAP financial measure derived from amounts reported in Peoples' consolidated financial statements.  This non-US GAAP financial measure used by Peoples provides information useful to investors in understanding Peoples' operating performance and trends, and facilitates comparisons with the performance of Peoples' peers.

 

The following three paragraphs discuss changes to core non-interest expense.  Each comparison was affected by core non-interest expenses added beginning in April 2019 following the First Prestonsburg acquisition.

The increase in core non-interest expense compared to the linked quarter was driven by increases in salaries and employee benefit costs, and electronic banking expense, partially offset by declines in Federal Deposit Insurance Corporation ("FDIC") insurance expense and professional fees.  Base salaries were the main contributor to the increase in salaries and employee benefit costs, primarily impacted by merit increases, which included the continued movement towards a $15 per hour minimum wage throughout Peoples' organization, and the employees added from the First Prestonsburg acquisition.  The $15 per hour minimum wage was announced in early 2018 and will be largely implemented by January 1, 2020.  Electronic banking expense was up compared to the linked quarter due to increased usage of debit cards by more customers, combined with an increase in the number of customer accounts and customer usage of mobile and online banking tools, which were impacted by the First Prestonsburg acquisition.  Peoples' FDIC insurance expense netted to zero during the third quarter of 2019, as the deposit insurance fund had reached its target threshold for smaller banks to recognize a credit to their insurance expense.  This resulted in a reversal of Peoples' second quarter 2019 accrued expense, which was offset by the third quarter accrual.  Peoples cannot reasonably anticipate any future recognition of credits, as the deposit insurance fund is analyzed on a quarterly basis, and is the premise for receiving credits.  The decrease in professional fees was mainly the result of additional consulting work performed during the second quarter of 2019.

Core non-interest expense increased compared to the third quarter of 2018 primarily due to higher salaries and employee benefit costs and electronic banking expense, partially offset by a decline in FDIC insurance expense.  Salaries and employee benefit costs were up primarily due to higher base salaries and stock-based compensation.  Base salaries were impacted by merit increases, which included the continued movement towards a $15 per hour minimum wage throughout Peoples' organization, and the employees added from the acquisition of First Prestonsburg.  Electronic banking expense was up compared to the third quarter of 2018 due to increased usage of debit cards by more customers, combined with an increase in the number of customer accounts and customer usage of mobile and online banking tools, which were impacted by the First Prestonsburg acquisition.  FDIC insurance expense declined as a result of Peoples receiving a full credit during the third quarter for the second quarter assessment due to the FDIC meeting the FDIC's target threshold for small banks to recognize the credit.

The increase in core non-interest expense for the first nine months of 2019, compared to the first nine months of 2018, was driven by higher salaries and employee benefit costs, partially offset by a decline in professional fees.  Salaries and employee benefit costs were up primarily due to higher base salaries, medical insurance and stock-based compensation.  Base salaries were impacted by merit increases, which included the continued movement towards a $15 per hour minimum wage throughout Peoples' organization, and the employees added from the First Prestonsburg and ASB acquisitions.  The increase in medical insurance was driven by higher medical claims.  Professional fees declined compared to the first nine months of 2018, mostly due to the impact of legal expenses and consulting work performed during 2018, which was not duplicated in 2019.  Net occupancy and equipment expenses also increased compared to the first nine months of 2018, primarily due to the added facilities obtained in the First Prestonsburg and ASB acquisitions.  Peoples also made investments in technology, which resulted in increased electronic banking expense, and data processing and software expense.

The efficiency ratio for the third quarter of 2019 was 61.1%, compared to 73.2% for the linked quarter, and 62.6% for the third quarter of 2018.  The efficiency ratio decrease compared to the linked quarter was driven by lower acquisition-related expenses. The efficiency ratio, adjusted for non-core items, was 60.7% for the third quarter of 2019, compared to 60.2% for the linked quarter, and 60.8% for the third quarter of 2018.  For the first nine months of 2019, the efficiency ratio was 65.7%, compared to 66.5% for the first nine months of 2018.  Adjusted for non-core items, the efficiency ratio for the first nine months of 2019 was 61.0%, compared to 61.4% for the same period in the prior year.

Income Tax Expense: Income tax expense was $3.3 million for the third quarter of 2019, compared to $2.2 million for the linked quarter and $2.8 million for the third quarter of 2018.  The increases in income tax expense compared to the linked quarter and the third quarter of 2018 were primarily due to higher pre-tax income.

For the first nine months of 2019, Peoples recorded income tax expense of $8.9 million, compared to $6.2 million for the same period in the prior year, and the effective tax rate for the first nine months of 2019 was 18.6%, compared to 16.1% for the first nine months of 2018.  The year-over-year increase in income tax expense was primarily due to higher pre-tax income.  The effective tax rate was higher in 2019 compared to 2018 due to the tax benefit of $195,000 recorded for the vesting of restricted stock during the first nine months of 2019, compared to a tax benefit of $314,000 recorded for the vesting of restricted stock combined with an $805,000 valuation allowance release during the first nine months of 2018.

Loans: Period-end total loan balances at September 30, 2019 increased $16.8 million, or 2% annualized, compared to June 30, 2019.  Originated loan balances were up $48.1 million, or 9% annualized, compared to June 30, 2019.  Loan originations during the third quarter of 2019 were largely offset by paydowns.  The increase compared to June 30, 2019 was driven by residential real estate, and commercial and industrial loan growth of $19.4 million and $8.3 million, respectively.  These increases were partially offset by declines in commercial real estate loans of $12.8 million and construction loans of $4.9 million.

Total loan balances increased $121.5 million, or 6% annualized, compared to December 31, 2018, and $142.6 million, or 5%, compared to September 30, 2018.  The increases were due to a combination of loans acquired from First Prestonsburg and originated loan growth.  Originated loan balances increased $66.6 million, or 4% annualized, compared to December 31, 2018, and $115.1 million, or 5%, compared to September 30, 2018.  Loan originations during the first nine months of 2019 were higher than in recent years for the same period; however, significantly higher loan paydowns experienced during the first nine months of 2019 largely offset the impact of the increased production on loan growth.  Compared to December 31, 2018, commercial loan balances were up $24.1 million, or 2%; residential real estate loans increased $73.2 million, or 12%; and consumer indirect loans were up $16.0 million, or 4%.  Compared to September 30, 2018, residential real estate loans increased $59.1 million, or 10%; commercial loan balances were up $52.1 million, or 3%; and consumer indirect loans were up $26.4 million, or 7%. Quarterly average loan balances grew $7.3 million in the third quarter of 2019 compared to the linked quarter.  Consumer indirect loan balances were up $10.7 million, or 3%, partially offset by a decline in commercial loan balances of $6.1 million.

Compared to the third quarter of 2018, quarterly average loan balances increased $120.6 million, or 4%, driven by the First Prestonsburg acquisition, coupled with originated loan growth.  Average commercial loan balances increased $48.8 million, or 3%, compared to the third quarter of 2018.  Average consumer indirect loans provided growth of $36.1 million, or 9%, compared to the year-ago quarter, and average residential real estate loans increased $33.6 million, or 5%. For the nine months ended September 30, 2019, average gross loan balances increased $226.7 million, or 9%, compared to the same period in the prior year, driven by the recent acquisitions of First Prestonsburg and ASB, coupled with originated loan growth.  Average commercial and industrial loan balances grew $90.8 million, or 18%, while average residential real estate balances grew $63.5 million, or 11%, and average consumer indirect loans were up $51.9 million, or 14%, compared to the first nine months of 2018.

Asset Quality: Although asset quality metrics fluctuated during the quarter, overall asset quality remained strong.  Classified loans, which are those categorized as substandard or doubtful, decreased $4.1 million, or 7%, compared to June 30, 2019, and were up $9.9 million, or 20%, from September 30, 2018.  As a percent of total loans, classified loans were 2.07% at September 30, 2019, compared to 2.23% at June 30, 2019 and 1.81% at September 30, 2018.  The decline in classified loans compared to June 30, 2019 was due to paydowns on several relationships.  Compared to September 30, 2018, the increase in classified loans was largely related to acquired First Prestonsburg loans, coupled with downgrades of two commercial loan relationships during the second quarter of 2019.  Criticized loans, which are those categorized as special mention, substandard or doubtful, increased $3.4 million, or 4%, compared to June 30, 2019, and decreased $18.3 million, or 15%, compared to September 30, 2018.  As a percent of total loans, criticized loans were 3.52% at September 30, 2019, compared to 3.42% at June 30, 2019 and 4.38% at September 30, 2018.  The increase in criticized loans compared to June 30, 2019 was mostly due to two relationships being downgraded, which were partially offset by upgrades of several loans.  Compared to September 30, 2018, the decline in criticized loans was largely due to the upgrade of four commercial relationships, partially offset by acquired First Prestonsburg loans.

Nonperforming assets increased $841,000, or 4%, compared to June 30, 2019, and were up $2.8 million, or 15%, compared to September 30, 2018.  The increase compared to June 30, 2019 was due to several smaller acquired relationships becoming past due more than 90 days, and either still accruing or accreting income.  The increase compared to September 30, 2018 was partially due to acquired loans from First Prestonsburg, which comprised $1.2 million of nonperforming assets at September 30, 2019, with the remainder due to smaller relationships that have become past due and are still accruing.  Nonperforming assets as a percent of total loans and OREO were 0.74% at September 30, 2019, up from 0.71% at June 30, 2019 and 0.67% at September 30, 2018.  Annualized net charge-offs were 0.11% of average total loans for the third quarter of 2019, compared to 0.03% for the linked quarter, and 0.10% for the third quarter of 2018.  For the first nine months of 2019, the annualized net recoveries rate was zero, which reflected recognition of a $1.8 million recovery during the first quarter of 2019.  Annualized net charge-offs were 0.18% of average total loans for the first nine months of 2018, which was higher due to a charge-off of $827,000 on an acquired commercial loan relationship.

At September 30, 2019, the allowance for loan losses increased to $21.6 million, compared to $21.4 million at June 30, 2019 and $19.9 million at September 30, 2018.  The increase in the allowance for loan losses compared to June 30, 2019 and September 30, 2018 was primarily due to originated loan growth during the third quarter of 2019.  The ratio of the allowance for loan losses as a percent of total loans increased to 0.76% at September 30, 2019, compared to 0.75% at June 30, 2019 and 0.73% at September 30, 2018.  The ratio includes all acquired loans, from both First Prestonsburg and previous acquisitions since 2012, of $627.7 million and allowance for acquired loan losses of $514,000.  The increase in the ratio compared to September 30, 2018 was attributable to a combination of loan growth and an increase in the reserve on impaired loans of $234,000.

Deposits: Period-end deposit balances declined $6.4 million, compared to June 30, 2019, and were up $401.7 million, or 14%, compared to December 31, 2018, and $316.1 million, or 10%, compared to September 30, 2018.  Compared to June 30, 2019, higher-rate brokered CDs and retail CDs declined and were offset by increases in non-interest-bearing, money market and lower-cost interest-bearing demand deposit account balances.  Brokered CDs and retail CDs were down $63.9 million, or 20%, and $8.3 million, or 2%, respectively.  Non-interest-bearing deposit account balances increased $34.2 million, or 5%, while money market deposit accounts and interest-bearing demand deposit accounts were up $13.8 million, or 3%, and $12.0 million, or 2%, respectively.  The increase in non-interest-bearing deposit account balances compared to June 30, 2019, was primarily driven by two customer relationships that maintained balances that were higher than at June 30, 2019.  The increases compared to December 31, 2018 and September 30, 2018 were primarily driven by the deposits acquired from First Prestonsburg.

Average deposit balances during the third quarter of 2019 increased $61.5 million, or 2%, compared to the linked quarter, and $335.3 million, or 11%, from the third quarter of 2018.  For the first nine months of 2019, average deposits increased $337.0 million, or 12%, compared to the first nine months of 2018.  Compared to the linked quarter, increases in money market deposit accounts of $20.5 million, retail CDs of $18.0 million, and interest-bearing demand accounts of $14.3 million were partially offset by a decline in brokered CDs of $11.5 million.  Most of the growth compared to the third quarter and first nine months of 2018 was related to the acquired First Prestonsburg deposits.  The increase compared to the third quarter of 2018 was driven by retail CDs growth of $93.1 million, interest-bearing demand deposit growth of $66.5 million, and non-interest-bearing demand deposit growth of $65.2 million.  The increase compared to the first nine months of 2018 was driven by brokered CDs growth of $81.8 million and retail CDs growth of $78.2 million, combined with non-interest-bearing demand deposit growth of $64.8 million.

Total demand deposit accounts comprised 39% of total deposits at September 30, 2019, compared to 37% at June 30, 2019, 40% at December 31, 2018, and 38% at September 30, 2018.

Stockholders' Equity: At September 30, 2019, the tier 1 risk-based capital ratio was 14.45%, compared to 14.41% at June 30, 2019, 13.92% at December 31, 2018, and 13.55% at September 30, 2018.  The common equity tier 1 risk-based capital ratio was 14.19% at September 30, 2019, compared to 14.16% at June 30, 2019, 13.66% at December 31, 2018, and 13.29% at September 30, 2018.  The total risk-based capital ratio was 15.18% at September 30, 2019, compared to 15.14% at June 30, 2019, 14.65% at December 31, 2018, and 14.27% at September 30, 2018.  These capital ratios were impacted by net income earned during the third quarter of 2019, which exceeded dividends declared and paid during the quarter by $7.8 million.  In addition, compared to September 30, 2018, the capital ratios were impacted by the First Prestonsburg acquisition, which created increases in capital and risk-weighted assets.

The book value per share grew to $28.43 at September 30, 2019, compared to $27.98 at June 30, 2019, $26.59 at December 31, 2018, and $25.79 at September 30, 2018.  The tangible book value per share, which excludes goodwill and other intangible assets, was $19.78 at September 30, 2019, compared to $19.44 at June 30, 2019, $18.30 at December 31, 2018, and $17.44 at September 30, 2018.  The ratio of total shareholders' equity to total assets was 13.39% at September 30, 2019, compared to 13.54% at June 30, 2019, 13.03% at December 31, 2018, and 12.60% at September 30, 2018.  The tangible equity to tangible assets ratio, which excludes goodwill and other intangible assets, was 9.71% at September 30, 2019, compared to 9.81% at June 30, 2019, 9.35% at December 31, 2018, and 8.88% at September 30, 2018.  The primary contributor to the increase in the book value and tangible book value per share at September 30, 2019 compared to June 30, 2019, was net income, partially offset by dividends paid.  Compared to December 31, 2018 and September 30, 2018, book value and tangible book value per share increased due to the issuance of common stock associated with the First Prestonsburg acquisition, combined with net income and increases in accumulated other comprehensive income of $14.0 million compared to December 31, 2018, and $21.7 million compared to September 30, 2018, partially offset by dividends paid.  The slight decline in the tangible equity to tangible assets ratio compared to the linked quarter was a result of asset growth, driven by an increase in the investment securities portfolio.

Total shareholders' equity at September 30, 2019 increased $10.0 million, or 2%, compared to June 30, 2019, which was mainly caused by net income of $14.9 million, partially offset by dividends paid of $7.0 million.  Additionally, Peoples repurchased 14,175 of its common shares for a total of $431,000 during the third quarter of 2019. 

Peoples Bancorp Inc. is a diversified financial services holding company with $4.4 billion in total assets, 89 financial service locations, including 79 full-service bank branches, and 86 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 2019 results of operations on October 22, 2019 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-US 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 ("US GAAP").  Management uses these "non-US GAAP" financial measures in its analysis of Peoples' performance and the efficiency of its operations. Management believes that these non-US 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-US GAAP performance measures that may be presented by other companies. Below is a listing of the non-US GAAP financial measures used in this news release:

• Core non-interest expenses are non-US GAAP since they exclude the impact of acquisition-related expenses and pension 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, excluding net gains and losses. This measure is non-US GAAP since it excludes amortization of other intangible assets and all gains and/or losses included in earnings, and uses fully tax-equivalent net interest income.
• Efficiency ratio adjusted for non-core items is calculated as core non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income, excluding net gains and losses. This measure is non-US GAAP since it excludes the impact of acquisition-related expenses and pension settlement charges, the 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-US GAAP since they exclude the impact of goodwill and other intangible assets acquired through acquisitions on both total stockholders' equity and total assets.
• Pre-provision net revenue is defined as net interest income plus total non-interest income, excluding net gains and losses, minus total non-interest expense. This measure is non-US GAAP since it excludes the provision for loan losses and all gains and/or losses included in earnings.
• Return on average assets adjusted for non-core items is calculated as annualized net income (less the impact of the Tax Cuts and Jobs Act on the remeasurement of deferred tax assets and deferred tax liabilities, and the after-tax impact of all gains and/or losses, acquisition-related expenses, and pension settlement charges) divided by average assets. This measure is non-US GAAP since it excludes the impact of the Tax Cuts and Jobs Act on the remeasurement of deferred tax assets and deferred tax liabilities, and the after-tax impact of all gains and/or losses, acquisition-related expenses, and pension settlement charges.
• Return on average tangible stockholders' equity is calculated as annualized net income (less after-tax impact of amortization of other intangible assets) divided by tangible stockholders' equity. This measure is non-US GAAP since it excludes the after-tax impact of amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity.

A reconciliation of these non-US 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-US 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," "project," "goal," "target," "potential," "seek," "intend," 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 US GAAP, Peoples is required to evaluate the impact of subsequent events through the issuance date of its September 30, 2019 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.

 

 

 

 

 

 

 

 

NON-US GAAP FINANCIAL MEASURES (Unaudited)

The following non-US GAAP financial measures used by Peoples provide information useful to investors in understanding Peoples' operating performance and trends, and facilitate comparisons with the performance of Peoples' peers.  Peoples also uses the non-US GAAP financial measures for calculating incentive compensation.  The following tables summarize the non-US GAAP financial measures derived from amounts reported in Peoples' consolidated financial statements:

 

 

 

 

 

 

 

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SOURCE Peoples Bancorp Inc.