Peoples Bancorp Inc. Reports Record Quarterly Net Income

(1)

Peoples' ability to leverage the system upgrade (include the related core operating systems, data systems and products) without complications or difficulties that may otherwise result in the loss of customers, operational problems or one-time costs currently not anticipated to arise in connection with such upgrade;

(2)

the success, impact, and timing of the implementation of Peoples' business strategies, including the successful integration of acquisitions and the expansion of consumer lending activity;

(3)

Peoples' ability to integrate any future acquisitions which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;

(4)

Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders;

(5)

local, regional, national and international economic conditions and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated;

(6)

competitive pressures among financial institutions or from non-financial institutions which may increase significantly, including product and pricing pressures, changes to third-party relationships and revenues, and Peoples' ability to attract, develop and retain qualified professionals;

(7)

changes in the interest rate environment due to economic conditions and/or the fiscal policies of the United States ("U.S.") government and the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which may adversely impact interest rates, interest margins, loan demand and interest rate sensitivity;

(8)

changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans and charge-offs, which may be less favorable than expected and adversely impact the amount of interest income generated;

(9)

adverse changes in the economic conditions and/or activities, including, but not limited to, continued economic uncertainty in the U.S., the European Union (including the uncertainty created by the June 23, 2016 referendum by British voters to exit the European Union), Asia, and other areas, which could decrease sales volumes, add volatility to the global stock markets, and increase loan delinquencies and defaults;

(10)

uncertainty regarding the nature, timing and effect of legislative or regulatory changes or actions, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;

(11)

deterioration in the credit quality of Peoples' loan portfolio, which may adversely impact the provision for loan losses;

(12)

changes in accounting standards, policies, estimates or procedures which may adversely affect Peoples' reported financial condition or results of operations;

(13)

Peoples' assumptions and estimates used in applying critical accounting policies, which may prove unreliable, inaccurate or not predictive of actual results;

(14)

adverse changes in the conditions and trends in the financial markets, including political developments, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities;

(15)

changes in law and policy accompanying the new presidential administration and uncertainty or speculation pending the enactment of such changes;

(16)

Peoples' ability to receive dividends from its subsidiaries;

(17)

Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;

(18)

the impact of minimum capital thresholds established as a part of the implementation of Basel III;

(19)

the impact of larger or similar sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity;

(20)

the costs and effects of regulatory and legal developments, including the outcome of potential regulatory or other governmental inquiries and legal proceedings and results of regulatory examinations;

(21)

Peoples' ability to secure confidential information through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, may prove inadequate, which could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss;

(22)

ability to anticipate and respond to technological changes which can impact Peoples' ability to respond to customer needs and meet competitive demands;

(23)

changes in consumer spending, borrowing and saving habits, whether due to changes in business and economic conditions, legislative or regulatory initiatives, or other factors, which may be different than anticipated;

(24)

the overall adequacy of Peoples' risk management program;

(25)

the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics, cyber attacks, military or terrorist activities or conflicts;

(26)

significant changes in the tax laws, which may adversely affect the fair values of deferred tax assets and obligations of states and political subdivisions held in Peoples' investment securities portfolio; and

(27)

other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. RISK FACTORS" of Peoples' Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

PER COMMON SHARE DATA AND SELECTED RATIOS

Three Months Ended

March 31,

December 31,

March 31,

2017

2016

2016

PER COMMON SHARE:

Earnings per common share:

   Basic

$

0.49

$

0.41

$

0.44

   Diluted

0.48

0.41

0.44

Cash dividends declared per common share

0.20

0.17

0.15

Book value per common share

24.25

23.92

23.60

Tangible book value per common share (a)

16.28

15.89

15.39

Closing stock price at end of period

$

31.66

$

32.46

$

19.54

SELECTED RATIOS:

Return on average stockholders' equity (b)

8.14

%

6.72

%

7.59

%

Return on average tangible stockholders' equity (b) (c)

12.95

%

10.99

%

12.70

%

Return on average assets  (b)

1.04

%

0.87

%

0.98

%

Efficiency ratio (d)

64.89

%

66.87

%

64.26

%

Pre-provision net revenue to total average assets (b)(e)

1.52

%

1.35

%

1.54

%

Net interest margin (b)(f)

3.55

%

3.54

%

3.53

%

Dividend payout ratio

41.25

%

41.70

%

34.37

%

(a)

This amount represents a non-GAAP financial measure since it excludes the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on stockholders' equity.  Additional information regarding the calculation of this ratio is included at the end of this news release.

(b)

Ratios are presented on an annualized basis.

(c)

This amount represents a non-GAAP financial measure since it excludes the after-tax impact of amortization of other intangible assets from earnings and it excludes the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on stockholders' equity.  Additional information regarding the calculation of this ratio is included at the end of this news release.

(d)

Total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total fee-based income.  This amount represents a non-GAAP financial measure since it excludes amortization of other intangible assets, and all gains and/or losses included in earnings, and uses fully tax-equivalent net interest income.  Additional information regarding the calculation of this ratio is included at the end of this news release.

(e)

This ratio represents a non-GAAP financial measure since it excludes the provision for (recovery of) loan losses and all gains and/or losses included in earnings.  This measure is a key metric used by federal bank regulatory agencies in their evaluation of capital adequacy for financial institutions.  Additional information regarding the calculation of this ratio is included at the end of this news release.

(f)

Information presented on a fully tax-equivalent basis.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

March 31,

December 31,

March 31,

(in $000's)

2017

2016

2016

Total interest income

$

29,817

$

29,350

$

28,443

Total interest expense

2,872

2,683

2,676

Net interest income

26,945

26,667

25,767

Provision for loan losses

624

711

955

Net interest income after provision for loan losses

26,321

25,956

24,812

Net gain on investment securities

340

68

96

Net loss on loans held-for-sale and other real estate owned

—

(33)

(1)

Net loss on other assets

(3)

(76)

(30)

Fee-based income:

Insurance income

4,102

2,912

4,498

Trust and investment income

2,682

2,739

2,382

Electronic banking income

2,561

2,486

2,535

Deposit account service charges

2,429

2,663

2,603

Bank owned life insurance

493

503

167

Mortgage banking income

387

452

160

Commercial loan swap fee income

268

79

164

Other income

412

277

545

  Total fee-based income

13,334

12,111

13,054

Non-interest expense:

Salaries and employee benefit costs

15,496

14,552

14,325

Net occupancy and equipment expense

2,713

2,580

2,806

Professional fees

1,610

2,193

1,459

Electronic banking expense

1,514

1,424

1,433

Data processing and software expense

1,142

1,260

749

Amortization of other intangible assets

863

1,007

1,008

Franchise tax expense

583

642

538

FDIC insurance expense

433

193

617

Communication expense

410

531

628

Marketing expense

280

402

398

Foreclosed real estate and other loan expenses

196

319

251

Other non-interest expense

2,091

2,179

2,070

  Total non-interest expense

27,331

27,282

26,282

12,661

10,744

11,649

Income tax expense

3,852

3,336

3,654

    Net income

$

8,809

$

7,408

$

7,995

PER SHARE DATA:

Earnings per common share – Basic

$

0.49

$

0.41

$

0.44

Earnings per common share – Diluted

$

0.48

$

0.41

$

0.44

Cash dividends declared per common share

$

0.20

$

0.17

$

0.15

Weighted-average common shares outstanding – Basic

18,029,991

18,009,056

18,071,746

Weighted-average common shares outstanding – Diluted

18,192,957

18,172,030

18,194,990

Actual common shares outstanding (end of period)

18,270,508

18,200,067

18,157,932

CONSOLIDATED BALANCE SHEETS

March 31,

December 31,

(in $000's)

2017

2016

Assets

Cash and cash equivalents:

  Cash and due from banks

$

56,376

$

58,129

  Interest-bearing deposits in other banks

7,939

8,017

    Total cash and cash equivalents

64,315

66,146

Available-for-sale investment securities, at fair value (amortized cost of

  $782,947 at March 31, 2017 and $777,017 at December 31, 2016)

786,961

777,940

Held-to-maturity investment securities, at amortized cost (fair value of

  $44,161 at March 31, 2017 and $43,227 at December 31, 2016)

44,022

43,144

Other investment securities, at cost

38,371

38,371

    Total investment securities

869,354

859,455

Loans, net of deferred fees and costs

2,249,502

2,224,936

Allowance for loan losses

(18,468)

(18,429)

    Net loans

2,231,034

2,206,507

Loans held for sale

1,842

4,022

Bank premises and equipment, net of accumulated depreciation

53,258

53,616

Bank owned life insurance

60,719

60,225

Goodwill

132,631

132,631

Other intangible assets

12,874

13,387

Other assets

33,249

36,359

    Total assets

$

3,459,276

$

3,432,348

Liabilities

Deposits:

Non-interest-bearing deposits

$

785,047

$

734,421

Interest-bearing deposits

1,917,118

1,775,301

    Total deposits

2,702,165

2,509,722

Short-term borrowings

105,752

305,607

Long-term borrowings

174,506

145,155

Accrued expenses and other liabilities

33,844

36,603

    Total liabilities

3,016,267

2,997,087

Stockholders' Equity

 Preferred stock, no par value, 50,000 shares authorized, no shares issued

   at March 31, 2017 and December 31, 2016

—

—

Common stock, no par value, 24,000,000 shares authorized, 18,941,282 shares

   issued at March 31, 2017 and 18,939,091 shares issued at

   December 31, 2016, including shares in treasury

343,597

344,404

Retained earnings

115,469

110,294

Accumulated other comprehensive income (loss), net of deferred income taxes

392

(1,554)

Treasury stock, at cost, 729,218 shares at March 31, 2017 and

   795,758 shares at December 31, 2016

(16,449)

(17,883)

    Total stockholders' equity

443,009

435,261

    Total liabilities and stockholders' equity

$

3,459,276

$

3,432,348

SELECTED FINANCIAL INFORMATION

March 31,

December 31,

September 30,

June 30,

March 31,

(in $000's, end of period)

2017

2016

2016

2016

2016

Loan Portfolio

Commercial real estate, construction

$

103,317

$

94,726

$

81,080

$

98,993

$

81,381

Commercial real estate, other

730,055

736,023

728,878

708,910

728,199

Commercial and industrial

428,737

422,339

400,042

378,352

367,810

Residential real estate

524,212

535,925

545,161

555,123

565,749

Home equity lines of credit

110,028

111,492

111,196

109,017

107,701

Consumer, indirect

283,762

252,832

230,286

207,116

183,797

Consumer, other

68,670

70,519

71,491

70,065

68,395

Deposit account overdrafts

721

1,080

1,074

1,214

2,083

    Total loans

$

2,249,502

$

2,224,936

$

2,169,208

$

2,128,790

$

2,105,115

Total acquired loans (a)

$

491,819

$

516,832

$

551,021

$

591,967

$

627,819

    Total originated loans

$

1,757,683

$

1,708,104

$

1,618,187

$

1,536,823

$

1,477,296

Deposit Balances

Non-interest-bearing deposits

$

785,047

$

734,421

$

745,468

$

699,695

$

716,202

Interest-bearing deposits:

  Interest-bearing demand accounts

292,187

278,975

270,490

252,119

254,241

  Retail certificates of deposit (b)

353,918

360,464

390,568

385,456

417,043

  Money market deposit accounts

386,999

407,754

411,111

401,828

395,022

  Governmental deposit accounts

330,477

251,671

286,716

300,639

313,904

  Savings accounts

445,720

436,344

438,087

438,952

434,381

  Brokered certificates of deposit (b)

107,817

40,093

33,017

37,636

56,290

    Total interest-bearing deposits

1,917,118

1,775,301

1,829,989

1,816,630

1,870,881

    Total deposits

$

2,702,165

$

2,509,722

$

2,575,457

$

2,516,325

$

2,587,083

Asset Quality

Nonperforming assets (NPAs):

  Loans 90+ days past due and accruing

$

3,006

$

3,771

$

4,161

$

5,869

$

6,746

  Nonaccrual loans

18,293

21,325

19,346

15,582

13,579

    Total nonperforming loans (NPLs)

21,299

25,096

23,507

21,451

20,325

  Other real estate owned (OREO)

677

661

719

679

679

Total NPAs

$

21,976

$

25,757

$

24,226

$

22,130

$

21,004

Criticized loans (c)

101,284

99,182

99,294

106,616

119,368

Classified loans (d)

56,503

57,736

53,755

51,762

57,409

Allowance for loan losses as a percent of NPLs (e)(f)

86.71

%

73.43

%

77.50

%

83.16

%

84.92

%

NPLs as a percent of total loans (e)(f)

0.95

%

1.13

%

1.08

%

1.01

%

0.97

%

NPAs as a percent of total assets (e)(f)

0.64

%

0.75

%

0.72

%

0.66

%

0.64

%

NPAs as a percent of total loans and OREO (e)(f)

0.98

%

1.16

%

1.11

%

1.04

%

1.00

%

Criticized loans as a percent of total loans

4.50

%

4.46

%

4.58

%

5.01

%

5.67

%

Classified loans as a percent of total loans

2.51

%

2.59

%

2.48

%

2.43

%

2.73

%

Allowance for loan losses as a percent of originated

   loans, net of deferred fees and costs (e)

1.05

%

1.08

%

1.13

%

1.16

%

1.17

%

Capital Information (g)

Common Equity Tier 1 risk-based capital ratio

13.05

%

12.91

%

13.04

%

13.03

%

13.10

%

Tier 1 risk-based capital ratio

13.34

%

13.21

%

13.34

%

13.33

%

13.41

%

Total risk-based capital ratio (Tier 1 and Tier 2)

14.27

%

14.11

%

14.24

%

14.23

%

14.29

%

Leverage ratio

9.60

%

9.66

%

9.71

%

9.56

%

9.45

%

Common Equity Tier 1 capital

$

310,856

$

306,506

$

301,222

$

295,148

$

288,787

Tier 1 capital

317,826

313,430

308,099

301,977

295,569

Total capital (Tier 1 and Tier 2)

340,147

334,957

328,948

322,413

314,896

Total risk-weighted assets

$

2,382,874

$

2,373,359

$

2,309,951

$

2,265,022

$

2,203,776

Tangible equity to tangible assets (h)

8.98

%

8.80

%

9.13

%

9.10

%

8.88

%

(a)

Includes all loans acquired in 2012 and thereafter.

(b)

Prior periods reclassified.

(c)

Includes loans categorized as a watch, substandard, or doubtful.

(d)

Includes loans categorized as substandard or doubtful.

(e)

Data presented as of the end of the period indicated.

(f)

Nonperforming loans include loans 90+ days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include nonperforming loans and OREO.

(g)

March 31, 2017 data based on preliminary analysis and subject to revision.

(h)

This ratio represents a non-GAAP financial measure since it excludes the balance sheet impact of intangible assets acquired through acquisitions on both total stockholders' equity and total assets.  Additional information regarding the calculation of this ratio is included at the end of this news release.

PROVISION FOR LOAN LOSSES INFORMATION

Three Months Ended

March 31,

December 31,

March 31,

(in $000's)

2017

2016

2016

Provision for Loan Losses

Provision for loan losses

$

400

$

480

$

858

Provision for checking account overdrafts

224

231

97

  Total provision for loan losses

$

624

$

711

$

955

Net Charge-Offs

Gross charge-offs

$

1,100

$

1,076

$

2,003

Recoveries

515

575

1,530

  Net charge-offs

$

585

$

501

$

473

Net Charge-Offs (Recoveries) by Type

Commercial real estate, other

$

(102)

$

3

$

(1,136)

Commercial and industrial

117

(56)

1,012

Residential real estate

19

(22)

139

Home equity lines of credit

—

(7)

3

Consumer, indirect

277

238

325

Consumer, other

(10)

143

37

Deposit account overdrafts

284

202

93

  Total net charge-offs

$

585

$

501

$

473

As a percent of average gross loans (annualized)

0.11

%

0.09

%

0.09

%

SUPPLEMENTAL INFORMATION

March 31,

December 31,

September 30,

June 30,

March 31,

(in $000's, end of period)

2017

2016

2016

2016

2016

Trust assets under administration
and management

$

1,362,243

$

1,301,509

$

1,292,044

$

1,280,004

$

1,254,824

Brokerage assets under
administration and management

805,361

777,771

754,168

729,519

706,314

Mortgage loans serviced for others

$

399,279

$

398,134

$

389,090

$

380,741

$

383,531

Employees (full-time equivalent)

776

782

799

803

821

CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

Three Months Ended

March 31, 2017

December 31, 2016

March 31, 2016

(in $000's)

Balance

Income/

Expense

Yield/ Cost

Balance

Income/

Expense

Yield/ Cost

Balance

Income/

Expense

Yield/ Cost

Assets

Short-term investments

$

7,415

$

15

0.82

%

$

8,520

$

13

0.61

%

$

12,436

$

16

0.52

%

Investment securities (a)(b)

862,614

5,976

2.77

%

862,355

5,816

2.70

%

875,644

5,926

2.71

%

Loans (b)(c):

Commercial real estate, construction

94,215

993

4.22

%

89,113

889

3.90

%

80,202

781

3.85

%

Commercial real estate, other

734,442

8,423

4.59

%

722,003

8,456

4.58

%

736,036

8,492

4.56

%

Commercial and industrial

433,068

4,545

4.20

%

399,614

4,201

4.11

%

356,375

3,695

4.10

%

Residential real estate (d)

531,457

5,769

4.34

%

547,640

5,938

4.34

%

565,514

6,166

4.36

%

Home equity lines of credit

111,112

1,159

4.23

%

111,417

1,214

4.33

%

106,968

1,190

4.47

%

Consumer, indirect

269,821

2,232

3.35

%

241,290

2,130

3.51

%

173,629

1,634

3.79

%

Consumer, other

70,206

1,218

7.04

%

73,321

1,209

6.76

%

73,015

1,051

6.23

%

Total loans

2,244,321

24,339

4.35

%

2,184,398

24,037

4.34

%

2,091,739

23,009

4.38

%

Allowance for loan losses

(18,585)

(18,254)

(16,845)

Net loans

2,225,736

2,166,144

2,074,894

Total earning assets

3,095,765

30,330

3.93

%

3,037,019

29,866

3.89

%

2,962,974

28,951

3.90

%

Intangible assets

145,546

146,489

149,528

Other assets

205,040

203,011

160,133

Total assets

$

3,446,351

$

3,386,519

$

3,272,635

Liabilities and Equity

Interest-bearing deposits:

Savings accounts

$

439,206

$

59

0.05

%

$

436,733

$

58

0.05

%

$

421,797

$

56

0.05

%

Government deposit accounts

283,605

131

0.19

%

273,263

126

0.18

%

298,685

147

0.20

%

Interest-bearing demand accounts

286,487

78

0.11

%

275,653

65

0.09

%

251,341

45

0.07

%

Money market deposit accounts

398,839

187

0.19

%

407,171

202

0.20

%

398,515

160

0.16

%

Retail certificates of deposit

342,837

726

0.86

%

375,347

807

0.86

%

437,647

827

0.76

%

Brokered certificates of deposits

84,929

306

1.46

%

37,859

151

1.59

%

50,452

366

2.92

%

Total interest-bearing deposits

1,835,903

1,487

0.33

%

1,806,026

1,409

0.31

%

1,858,437

1,601

0.35

%

Short-term borrowings

205,296

251

0.50

%

213,852

207

0.39

%

135,689

87

0.26

%

Long-term borrowings

172,053

1,134

2.66

%

145,677

1,066

2.92

%

113,370

988

3.50

%

Total borrowed funds

377,349

1,385

1.48

%

359,529

1,273

1.41

%

249,059

1,075

1.74

%

Total interest-bearing liabilities

2,213,252

2,872

0.53

%

2,165,555

2,682

0.49

%

2,107,496

2,676

0.51

%

Non-interest-bearing deposits

758,446

743,389

710,297

Other liabilities

35,663

39,337

31,299

Total liabilities

3,007,361

2,948,281

2,849,092

Stockholders' equity

438,990

438,238

423,543

Total liabilities and equity

$

3,446,351

$

3,386,519

$

3,272,635

Net interest income/spread (b)

$

27,458

3.40

%

$

27,184

3.40

%

$

26,275

3.39

%

Net interest margin (b)

3.55

%

3.54

%

3.53

%

(a) Average balances are based on carrying value.

(b) Interest income and yields are presented on a fully tax-equivalent basis using a 35% federal statutory tax rate.

(c) Average balances include nonaccrual and impaired loans.  Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status.  Loan fees included in interest income were immaterial for all periods presented.

(d) Loans held for sale are included in the average loan balance listed.  Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income.

NON-GAAP FINANCIAL MEASURES

The following non-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. The following tables summarize the non-GAAP financial measures derived from amounts reported in Peoples' consolidated financial statements:

Three Months Ended

March 31,

December 31,

March 31,

(in $000's)

2017

2016

2016

Core fee-based income:

Total fee-based income

$

13,334

$

12,111

$

13,054

Plus: System upgrade revenue waived

—

85

—

Core fee-based income

$