Peoples Bancorp Inc. Announces Fourth Quarter and 2009 Results

MARIETTA, Ohio, Jan. 26 /PRNewswire-FirstCall/ -- Peoples Bancorp Inc. ("Peoples") (Nasdaq: PEBO) today announced net income available to common shareholders of $0.7 million for the fourth quarter of 2009, representing diluted earnings per common share of $0.07, compared to a net loss available to common shareholders of $4.6 million and $3.1 million, representing a diluted loss per common share of $0.44 and $0.33, for the third quarter of 2009 and fourth quarter of 2008, respectively.  For the 2009 year, net income available to common shareholders totaled $2.3 million, or $0.22 per diluted common share, in 2009 versus $7.5 million, or $0.72, in 2008.  

Summary points regarding fourth quarter and 2009 results:

• Nonperforming assets declined $3 million, or 6%, to 2.03% of total assets at year-end 2009, from 2.16% at September 30, 2009.  Fourth quarter 2009 net charge-offs also were lower than recent quarters, totaling $5.7 million.  Allowance for loan losses continued to build during the fourth quarter, increasing $1.1 million and resulting in fourth quarter 2009 provision for loan losses of $6.8 million, or 0.63% of average loans.  For 2009, net charge-offs were $21.4 million and allowance for loan losses increased $4.3 million, resulting in provision for loan losses of $25.7 million.
• Peoples recognized non-cash pre-tax other-than-temporary impairment charges of $1.8 million ($1.2 million or $0.11 per common share after-tax) in the fourth quarter of 2009 and $7.7 million ($5.0 million or $0.48 per diluted share) for the year 2009.  These impairment losses related to Peoples' investments in collateralized debt obligation securities and individual bank-issued trust preferred securities.  
• Total Risk-Based Capital ratio was 16.80% at year-end, up from 16.39% at September 30, 2009, and substantially higher than the regulatory minimum amount needed to be considered "well-capitalized".  Tangible common equity increased to 7.22% of tangible assets from 6.21% at December 31, 2008.
• Net interest income and margin remained strong throughout 2009, due to proactive balance sheet management that lowered funding costs and mitigated the impact of historically low market rates on asset yields.
• Non-interest income was consistent with prior periods, totaling $7.8 million for the fourth quarter of 2009 and $32.1 million for the year, as stronger mortgage banking income and debit card revenue offset lower insurance and bank owned life insurance income.  
• Non-interest expenses were contained during the fourth quarter of 2009, with a modest linked quarter increase attributed to the third quarter reversal of incentive plan accruals based primarily on full year corporate results of operations, which decreased third quarter salary and employee benefit costs by $451,000, coupled with $119,000 of additional employee medical benefit plan costs in the fourth quarter.  In 2009, non-interest expense increases were mostly isolated to $3.1 million additional FDIC insurance expense and higher costs associated with problem loans, such as legal and other professional fees.
• Retail deposit balances were up at December 31, 2009, from both the prior quarter-end and year-end, largely a result of higher non-interest-bearing deposits, which grew $11 million, or 23% annualized, in the fourth quarter and $18.0 million, or 10%, for the entire year.
• Gross loan balances continued to be impacted by charge-offs and payoffs on commercial real estate loans during the fourth quarter of 2009, as well as existing residential real estate loans being refinanced and sold to the secondary market as customers responded to attractive long-term, fixed rates.

"The year 2009 was a challenging year for our bottom-line earnings as we worked through asset quality issues caused by the economic downturn that started in 2008," said Mark F. Bradley, President and Chief Executive Officer.  "As we continued our focus on reducing problem loans, we found it necessary to build our allowance for loan losses due to recent charge-off levels. We also took steps to preserve capital and maintain adequate liquidity.  Key successes in 2009 included effective cost control, stable net interest margin, increased revenue and good core deposit growth."

Fourth quarter 2009 net interest income was consistent with the prior quarter at $15.4 million, while net interest margin expanded 5 basis points to 3.50%.  Interest income was challenged by lower reinvestment rates for investment securities in the fourth quarter, coupled with the full quarter's impact of third quarter 2009 commercial loan payoffs.  However, Peoples repaid approximately $48 million of high-cost wholesale funding in the fourth quarter, using excess cash reserves at the Federal Reserve, which lowered interest expense and overall cost of funds.  This action also was a key driver of the improvement in net interest margin during the fourth quarter of 2009.  Year-over-year, fourth quarter net interest income was up 5% and net interest margin expanded 6 basis points, as reductions in funding costs outpaced the decline in interest income from loan payoffs and additional nonaccrual loans.   For the year 2009, net interest income was $61.8 million, up 6% over the prior year, while net interest margin remained relatively unchanged.

"We achieved our strategic goal of replacing higher-cost wholesale funding with lower-cost core deposits throughout 2009," said Edward G. Sloane, Chief Financial Officer and Treasurer.  "Due to this success, we managed to reduce overall funding costs in 2009, which more than offset the impact of lower asset yields.  As we start 2010, we have the balance sheet prepared for the eventual increase in interest rates.  Until that occurs, our ability to retain and grow low-cost deposits and lower funding costs further will be key to maintaining net interest income levels given the current pressure on asset yields."

In the fourth quarter 2009, non-interest income was $7.8 million, matching both the prior quarter and fourth quarter 2008 amounts.  Trust and investment income grew during the fourth quarter of 2009 due to higher managed asset values.  During 2009, total managed assets grew 11%, largely reflecting the general recovery within the global financial markets.  Secondary market loan production remained steady, resulting in higher mortgage banking income.  Fourth quarter electronic banking income, primarily debit card revenue, benefited from continued growth in the volume of transactions completed using debit cards.  Insurance income declined in the fourth quarter, due mostly to lower property and casualty insurance commissions.  In 2009, non-interest income totaled $32.1 million, equaling the prior year.

Non-interest expense totaled $14.6 million for the fourth quarter of 2009, versus $14.1 million for the linked quarter.  This increase was due mostly to the third quarter reversal of accruals associated with Peoples' annual incentive award plan.  Peoples also incurred higher employee medical benefit plan costs and external legal and valuation expenses associated with problem loans in the fourth quarter.  Year-over-year growth in total non-interest expense for both the fourth quarter and full year 2009 was mostly isolated to additional FDIC insurance expense, higher employee medical benefit costs and workout costs for problem loans.

"During the second half of 2009, we intensified our cost control efforts and we will be working to build on that progress in 2010," said Sloane.  "A key to achieving our 2010 operating goals will be reductions in various operating expenses and improvement in overall operating efficiency.  We continue to evaluate opportunities to expand our customer base and grow the company in a disciplined manner considering the value of capital in the current operating environment."

In the fourth quarter of 2009, Peoples recorded a $1.8 million other-than-temporary impairment loss related to two collateralized debt obligation ("CDO") investment securities, consisting mostly of bank-issued trust preferred securities.  Management concluded these investments were total losses based upon its evaluation of the credit quality of the underlying issuers during the fourth quarter and estimation of cash flows to be received from the securities.  After the fourth quarter 2009 impairment charge, the carrying value of Peoples' remaining investment in CDO securities is $1.0 million.  

"The impairment losses recognized in 2009 significantly reduced the level of high risk securities within our investment portfolio," said Sloane.  "At year-end, our analysis indicated that the remaining loss exposure was limited to our $1 million CDO investment, which we consider manageable as we move into 2010."

Peoples' loan balances decreased $16.0 million in the fourth quarter of 2009, to $1.05 billion, reflecting lower commercial real estate and consumer loan balances.  During the fourth quarter, a single $3.4 million nonaccrual commercial real estate loan was paid off, while an unrelated $5.0 million commercial real estate loan was transferred to other real estate owned.  Both of these loans had been identified as impaired and placed on nonaccrual status in 2008.  Also during the fourth quarter, several large commercial construction loans, with total outstanding balances of approximately $40 million, were converted to term commercial mortgage loans.  Throughout 2009, total loan balances fell $52.0 million, primarily reflecting charge-offs and pay downs of commercial loans, plus lower demand due to the economic downturn.  Loan balances also have been impacted by existing residential real estate loans being refinanced and sold to the secondary market due to customer demand for long-term, fixed-rate loans.  As a result, Peoples' serviced loan portfolio has increased 26% since year-end 2008, to $227.8 million at December 31, 2009.

Total nonperforming assets were down $2.7 million to $40.7 million, or 2.03% of total assets, at December 31, 2009, from $43.4 million, or 2.16%, at September 30, 2009.  In 2009, total nonperforming assets were reduced by $1.1 million, or 3%.

"We have been diligent in our efforts to identify and resolve nonperforming assets during 2009," commented Sloane.  "The workout process has been slower than we would like in 2009 due to the weakened commercial real estate market and recessionary economy.  However, the modest reduction in nonperforming assets at year-end 2009 represents good progress towards our goal of improving overall asset quality."

Fourth quarter 2009 net loan charge-offs were $5.7 million, or 2.14% of average loans on an annualized basis, compared to $7.1 million, or 2.57%, and $9.7 million, or 3.45%, for the third quarter of 2009 and fourth quarter of 2008, respectively.  Approximately $4.3 million of the fourth quarter 2009 charge-offs reflect write-downs associated with the workouts of two existing impaired commercial real estate loans.  Peoples' allowance for loan losses increased $1.1 million in the fourth quarter of 2009, to $27.3 million, or 2.59% of total loans, from $26.2 million, or 2.46%, at September 30, 2009.  This increase was primarily attributable to the impact of charge-offs remaining at an elevated level during 2009.  To maintain the adequacy of the allowance for loan losses, Peoples recorded a fourth quarter 2009 provision for loan losses of $6.8 million versus $10.2 million last quarter and $13.4 million in the fourth quarter of 2008.  

In 2009, net loan charge-offs were $21.4 million, or 1.96% of average loans, versus $20.4 million, or 1.83%, in 2008.  The combination of elevated charge-off levels and increases in specific reserves for impaired loans during 2009 necessitated building the allowance for loan losses by $4.3 million in 2009.  Provision for loan losses totaled $25.7 million for 2009 compared to $27.6 million for 2008.

Retail deposit balances grew $18.3 million during the fourth quarter of 2009, with an $11.0 million, or 23% annualized, increase in non-interest-bearing balances comprising the majority of the growth.  Interest-bearing retail deposits increased during the fourth quarter, reflecting higher money market balances due to Peoples offering a highly competitive rate.  At December 31, 2009, total retail deposits were up $28.3 million since year-end 2008.  Non-interest-bearing deposits increased $18.0 million, or 10%, in 2009, while interest-bearing retail deposits grew $10.3 million.  The growth in lower-cost and non-interest-bearing deposits during 2009 was a major contributor to the 20% reduction in borrowed funds, which totaled $345.6 million at year-end 2009.  

At December 31, 2009, Peoples' Tier 1 Common, Total Tier 1 and Total Risk-Based Capital ratios were 10.58%, 15.49% and 16.80%, compared to the well capitalized minimum ratios of 4%, 6% and 10%, respectively.  Since year-end 2008, tangible common equity has increased due mostly to improvement in fair value of Peoples' available-for-sale investment portfolio.  As a result, the ratio of tangible common equity to tangible assets was 7.22% at both December 31, 2009 and September 30, 2009, versus 6.21% at year-end 2008.

"Overall, we are encouraged by 2009 fourth quarter results and a decrease in nonperforming assets, although the continuation of tough economic conditions resulted in additional losses on loans and investments," summarized Bradley.  "Our main priorities for 2010 will include protecting our already strong capital position, maintaining a diverse revenue stream and improving operating efficiency."

Peoples Bancorp Inc. is a diversified financial products and services company with $2.0 billion in assets, 47 locations and 39 ATMs in Ohio, West Virginia and Kentucky.  Peoples makes available a complete line of banking, investment, insurance, and trust solutions through its financial service units – Peoples Bank, National Association; Peoples Financial Advisors (a division of 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 US 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 fourth quarter and 2009 results of operations today at 11:00 a.m., Eastern Standard Time, with members of Peoples' executive management participating.  Analysts, media and individual investors are invited to participate in the conference call by calling (800) 860-2442.  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.

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", "may", "feel", "expect", "believe", "plan", and similar expressions.

These forward-looking statements reflect management's current expectations based on all information available 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: (1) continued deterioration in the credit quality of Peoples' loan portfolio could occur due to a number of factors, such as adverse changes in economic conditions that impair the ability of borrowers to repay their loans, the underlying value of the collateral could prove less valuable than otherwise assumed and assumed cash flows may be less favorable than expected, which may adversely impact the provision for loan losses; (2) competitive pressures among financial institutions or from non-financial institutions, which may increase significantly; (3) changes in the interest rate environment, which may adversely impact interest margins; (4) changes in prepayment speeds, loan originations, and charge-offs, which may be less favorable than expected and adversely impact the amount of interest income generated; (5) general economic conditions and weakening in the economy, specifically the real estate market, either nationally or in the states in which Peoples does business, which may be less favorable than expected; (6) political developments, wars or other hostilities, which may disrupt or increase volatility in securities markets or other economic conditions; (7) legislative or regulatory changes or actions, which may adversely affect the business of Peoples and its subsidiaries; (8) adverse changes in the conditions and trends in the financial markets, which may adversely affect the fair value of securities within Peoples' investment portfolio; (9) Peoples' ability to receive dividends from its subsidiaries; (10) the impact of larger or similar financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples; (11) changes in accounting standards, policies, estimates or procedures, which may impact Peoples' reported financial condition or results of operations; (12) Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity; (13) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity; (14) the costs and effects of regulatory and legal developments, including the outcome of regulatory or other governmental inquiries and legal proceedings and results of regulatory examinations; and (15) 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 ("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, 2008, as updated by the disclosure under the heading "ITEM 1A. RISK FACTORS" of Peoples' Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.  

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 filing date of its December 31, 2009 consolidated financial statements on Form 10-K 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 which is contained in release.

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' financial statements:

SOURCE Peoples Bancorp Inc.