UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016March 31, 2017
OR
|
| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____ to ____
Commission File Number: 0-16772
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| | | | | | | | |
PEOPLES BANCORP INC. |
(Exact name of Registrant as specified in its charter) |
Ohio | | | | 31-0987416 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
138 Putnam Street, P. O.P.O. Box 738, Marietta, Ohio | | | | 45750 |
(Address of principal executive offices) | | | | (Zip Code) |
Registrant’s telephone number, including area code: | | | | (740) 373-3155 |
| | Not Applicable | | |
| | (Former name, former address and former fiscal year, if changed since last report) | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
| | | | |
Large accelerated filer o | Accelerated filer x | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o | Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo x
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 18,195,65818,270,693 common shares, without par value, at OctoberApril 26, 2016.2017.
PART I
ITEM 1. FINANCIAL STATEMENTS
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
| | | September 30, 2016 | December 31, 2015 | March 31, 2017 | December 31, 2016 |
(Dollars in thousands) |
Assets | | |
Cash and due from banks | $ | 54,745 |
| $ | 53,663 |
| $ | 56,376 |
| $ | 58,129 |
|
Interest-bearing deposits in other banks | 13,090 |
| 17,452 |
| 7,939 |
| 8,017 |
|
Total cash and cash equivalents | 67,835 |
| 71,115 |
| 64,315 |
| 66,146 |
|
Available-for-sale investment securities, at fair value (amortized cost of $743,878 at September 30, 2016 and $780,304 at December 31, 2015) | 762,143 |
| 784,701 |
| |
Held-to-maturity investment securities, at amortized cost (fair value of $45,145 at September 30, 2016 and $45,853 at December 31, 2015) | 43,662 |
| 45,728 |
| |
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 $44,146 at March 31, 2017 and $43,227 at December 31, 2016) | | 44,022 |
| 43,144 |
|
Other investment securities, at cost | 38,443 |
| 38,401 |
| 38,371 |
| 38,371 |
|
Total investment securities | 844,248 |
| 868,830 |
| 869,354 |
| 859,455 |
|
Loans, net of deferred fees and costs | 2,169,208 |
| 2,072,440 |
| 2,249,502 |
| 2,224,936 |
|
Allowance for loan losses | (18,219 | ) | (16,779 | ) | (18,468 | ) | (18,429 | ) |
Net loans | 2,150,989 |
| 2,055,661 |
| 2,231,034 |
| 2,206,507 |
|
Loans held for sale | 4,715 |
| 1,953 |
| 1,842 |
| 4,022 |
|
Bank premises and equipment, net | 54,854 |
| 53,487 |
| 53,258 |
| 53,616 |
|
Bank owned life insurance | | 60,719 |
| 60,225 |
|
Goodwill | 132,631 |
| 132,631 |
| 132,631 |
| 132,631 |
|
Other intangible assets | 14,374 |
| 16,986 |
| 12,874 |
| 13,387 |
|
Other assets | 93,939 |
| 58,307 |
| 33,249 |
| 36,359 |
|
Total assets | $ | 3,363,585 |
| $ | 3,258,970 |
| $ | 3,459,276 |
| $ | 3,432,348 |
|
Liabilities | | |
Non-interest-bearing deposits | $ | 745,468 |
| $ | 717,939 |
| |
Interest-bearing deposits | 1,829,989 |
| 1,818,005 |
| |
Deposits: | | |
Non-interest-bearing | | $ | 785,047 |
| $ | 734,421 |
|
Interest-bearing | | 1,917,118 |
| 1,775,301 |
|
Total deposits | 2,575,457 |
| 2,535,944 |
| 2,702,165 |
| 2,509,722 |
|
Short-term borrowings | 162,807 |
| 160,386 |
| 105,752 |
| 305,607 |
|
Long-term borrowings | 147,563 |
| 113,670 |
| 174,506 |
| 145,155 |
|
Accrued expenses and other liabilities | 37,121 |
| 29,181 |
| 33,844 |
| 36,603 |
|
Total liabilities | 2,922,948 |
| 2,839,181 |
| 3,016,267 |
| 2,997,087 |
|
Stockholders’ equity | | |
Preferred stock, no par value, 50,000 shares authorized, no shares issued at September 30, 2016 and December 31, 2015 | — |
| — |
| |
Common stock, no par value, 24,000,000 shares authorized, 18,936,214 shares issued at September 30, 2016 and 18,931,200 shares issued at December 31, 2015, including shares in treasury | 343,954 |
| 343,948 |
| |
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 | 105,975 |
| 90,790 |
| 115,469 |
| 110,294 |
|
Accumulated other comprehensive income (loss), net of deferred income taxes | 8,547 |
| (359 | ) | 392 |
| (1,554 | ) |
Treasury stock, at cost, 794,857 shares at September 30, 2016 and 586,686 shares at December 31, 2015 | (17,839 | ) | (14,590 | ) | |
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 | 440,637 |
| 419,789 |
| 443,009 |
| 435,261 |
|
Total liabilities and stockholders’ equity | $ | 3,363,585 |
| $ | 3,258,970 |
| $ | 3,459,276 |
| $ | 3,432,348 |
|
See Notes to the Unaudited Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, | | September 30, | March 31, |
(Dollars in thousands, except per share data) | 2016 | 2015 | | 2016 | 2015 | 2017 | 2016 |
Interest income: | | | | |
Interest and fees on loans | $ | 23,493 |
| $ | 22,870 |
| | $ | 69,850 |
| $ | 64,176 |
| $ | 24,299 |
| $ | 22,966 |
|
Interest and dividends on taxable investment securities | 4,456 |
| 4,484 |
| | 13,875 |
| 13,400 |
| 4,709 |
| 4,681 |
|
Interest on tax-exempt investment securities | 771 |
| 800 |
| | 2,332 |
| 2,202 |
| 794 |
| 780 |
|
Other interest income | 10 |
| 24 |
| | 37 |
| 125 |
| 15 |
| 16 |
|
Total interest income | 28,730 |
| 28,178 |
| | 86,094 |
| 79,903 |
| 29,817 |
| 28,443 |
|
Interest expense: | | | | |
Interest on deposits | 1,427 |
| 1,539 |
| | 4,531 |
| 4,716 |
| 1,487 |
| 1,601 |
|
Interest on short-term borrowings | 109 |
| 42 |
| | 301 |
| 108 |
| 251 |
| 87 |
|
Interest on long-term borrowings | 1,071 |
| 1,061 |
| | 3,064 |
| 3,331 |
| 1,134 |
| 988 |
|
Total interest expense | 2,607 |
| 2,642 |
| | 7,896 |
| 8,155 |
| 2,872 |
| 2,676 |
|
Net interest income | 26,123 |
| 25,536 |
| | 78,198 |
| 71,748 |
| 26,945 |
| 25,767 |
|
Provision for loan losses | 1,146 |
| 5,837 |
| | 2,828 |
| 6,859 |
| 624 |
| 955 |
|
Net interest income after provision for loan losses | 24,977 |
| 19,699 |
| | 75,370 |
| 64,889 |
| 26,321 |
| 24,812 |
|
Other income: | | | | |
Non-interest income: | | |
Insurance income | 3,137 |
| 3,275 |
| | 10,934 |
| 10,870 |
| 4,102 |
| 4,498 |
|
Trust and investment income | | 2,682 |
| 2,382 |
|
Electronic banking income | | 2,561 |
| 2,535 |
|
Deposit account service charges | 2,833 |
| 2,922 |
| | 7,999 |
| 8,065 |
| 2,429 |
| 2,603 |
|
Electronic banking income | 2,765 |
| 2,241 |
| | 7,867 |
| 6,533 |
| |
Trust and investment income | 2,692 |
| 2,497 |
| | 7,850 |
| 7,088 |
| |
Commercial loan swap fee income | 569 |
| 135 |
| | 997 |
| 284 |
| |
Bank owned life insurance income | 491 |
| 174 |
| | 911 |
| 428 |
| 493 |
| 167 |
|
Mortgage banking income | 427 |
| 212 |
| | 852 |
| 927 |
| 387 |
| 160 |
|
Net gain on investment securities | | 340 |
| 96 |
|
Commercial loan swap fee income | | 268 |
| 164 |
|
Net loss on asset disposals and other transactions | (224 | ) | (51 | ) | | (1,024 | ) | (1,290 | ) | (3 | ) | (31 | ) |
Net (loss) gain on investment securities | (1 | ) | 62 |
| | 862 |
| 673 |
| |
Other non-interest income | 624 |
| 450 |
| | 1,549 |
| 1,145 |
| 412 |
| 545 |
|
Total other income | 13,313 |
| 11,917 |
| | 38,797 |
| 34,723 |
| |
Other expenses: | | | | |
Total non-interest income | | 13,671 |
| 13,119 |
|
Non-interest expenses: | | |
Salaries and employee benefit costs | 14,584 |
| 13,572 |
| | 42,881 |
| 45,493 |
| 15,496 |
| 14,325 |
|
Net occupancy and equipment expense | 2,768 |
| 2,840 |
| | 8,155 |
| 8,273 |
| 2,713 |
| 2,806 |
|
Professional fees | 1,661 |
| 1,287 |
| | 5,243 |
| 5,542 |
| 1,610 |
| 1,459 |
|
Electronic banking expense | 1,650 |
| 1,408 |
| | 4,568 |
| 3,852 |
| 1,514 |
| 1,433 |
|
Data processing and software expense | | 1,142 |
| 749 |
|
Amortization of other intangible assets | 1,008 |
| 1,127 |
| | 3,023 |
| 2,944 |
| 863 |
| 1,008 |
|
Data processing and software expense | 741 |
| 910 |
| | 2,503 |
| 2,670 |
| |
Franchise tax expense | | 583 |
| 538 |
|
FDIC insurance expense | 549 |
| 562 |
| | 1,706 |
| 1,516 |
| 433 |
| 617 |
|
Franchise tax expense | 529 |
| 502 |
| | 1,550 |
| 1,552 |
| |
Communication expense | 518 |
| 628 |
| | 1,730 |
| 1,722 |
| 410 |
| 628 |
|
Marketing expense | | 280 |
| 398 |
|
Foreclosed real estate and other loan expenses | 189 |
| 159 |
| | 540 |
| 1,031 |
| 196 |
| 251 |
|
Marketing expense | 380 |
| 459 |
| | 1,192 |
| 2,175 |
| |
Other non-interest expense | 2,265 |
| 2,658 |
| | 6,538 |
| 11,034 |
| 2,091 |
| 2,070 |
|
Total other expenses | 26,842 |
| 26,112 |
| | 79,629 |
| 87,804 |
| |
Total non-interest expenses | | 27,331 |
| 26,282 |
|
Income before income taxes | 11,448 |
| 5,504 |
| | 34,538 |
| 11,808 |
| 12,661 |
| 11,649 |
|
Income tax expense | 3,656 |
| 1,370 |
| | 10,789 |
| 3,450 |
| 3,852 |
| 3,654 |
|
Net income | $ | 7,792 |
| $ | 4,134 |
| | $ | 23,749 |
| $ | 8,358 |
| $ | 8,809 |
| $ | 7,995 |
|
Earnings per common share - basic | $ | 0.43 |
| $ | 0.23 |
| | $ | 1.31 |
| $ | 0.48 |
| $ | 0.49 |
| $ | 0.44 |
|
Earnings per common share - diluted | $ | 0.43 |
| $ | 0.22 |
| | $ | 1.31 |
| $ | 0.47 |
| $ | 0.48 |
| $ | 0.44 |
|
Weighted-average number of common shares outstanding - basic | 17,993,443 |
| 18,127,131 |
| | 18,015,249 |
| 17,357,034 |
| 18,029,991 |
| 18,071,746 |
|
Weighted-average number of common shares outstanding - diluted | 18,110,710 |
| 18,271,979 |
| | 18,123,660 |
| 17,487,642 |
| 18,192,957 |
| 18,194,990 |
|
Cash dividends declared | $ | 2,912 |
| $ | 2,759 |
| | $ | 8,564 |
| $ | 7,789 |
| $ | 3,634 |
| $ | 2,748 |
|
Cash dividends declared per common share | $ | 0.16 |
| $ | 0.15 |
| | $ | 0.47 |
| $ | 0.45 |
| $ | 0.20 |
| $ | 0.15 |
|
See Notes to the Unaudited Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
|
| | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2016 | 2015 | | 2016 | 2015 |
Net income | $ | 7,792 |
| $ | 4,134 |
| | $ | 23,749 |
| $ | 8,358 |
|
Other comprehensive (loss) income: | | | | | |
Available-for-sale investment securities: | | | | | |
Gross unrealized holding (loss) gain arising in the period | (4,068 | ) | 7,171 |
| | 14,681 |
| 9,458 |
|
Related tax benefit (expense) | 1,424 |
| (2,509 | ) | | (5,139 | ) | (3,309 | ) |
Less: reclassification adjustment for net (loss) gain included in net income | (1 | ) | 62 |
| | 862 |
| 673 |
|
Related tax expense | — |
| (22 | ) | | (302 | ) | (236 | ) |
Net effect on other comprehensive (loss) income | (2,643 | ) | 4,622 |
| | 8,982 |
| 5,712 |
|
Defined benefit plans: | | | | | |
Net (loss) gain arising during the period | — |
| (167 | ) | | — |
| 340 |
|
Related tax benefit (expense) | — |
| 58 |
| | — |
| (119 | ) |
Amortization of unrecognized loss and service cost on benefit plans | 21 |
| 26 |
| | 66 |
| 88 |
|
Related tax expense | (9 | ) | (9 | ) | | (22 | ) | (30 | ) |
Recognition of loss due to settlement and curtailment | — |
| 82 |
| | — |
| 454 |
|
Related tax expense | — |
| (29 | ) | | — |
| (159 | ) |
Net effect on other comprehensive income (loss) | 12 |
| (39 | ) | | 44 |
| 574 |
|
Cash flow hedges: | | | | | |
Net gain (loss) arising during the period | 68 |
| — |
| | (184 | ) | — |
|
Related tax (expense) benefit | (24 | ) | — |
| | 64 |
| — |
|
Net effect on other comprehensive income (loss) | 44 |
| — |
| | (120 | ) | — |
|
Total other comprehensive (loss) income, net of tax expense | (2,587 | ) | 4,583 |
| | 8,906 |
| 6,286 |
|
Total comprehensive income | $ | 5,205 |
| $ | 8,717 |
| | $ | 32,655 |
| $ | 14,644 |
|
|
| | | | | | |
| Three Months Ended |
| March 31, |
(Dollars in thousands) | 2017 | 2016 |
Net income | $ | 8,809 |
| $ | 7,995 |
|
Other comprehensive income: | | |
Available-for-sale investment securities: | | |
Gross unrealized holding gain arising in the period | 3,412 |
| 12,329 |
|
Related tax expense | (1,194 | ) | (4,316 | ) |
Less: reclassification adjustment for gain included in net income | 340 |
| 96 |
|
Related tax expense | (119 | ) | (34 | ) |
Net effect on other comprehensive income | 1,997 |
| 7,951 |
|
Defined benefit plans: | | |
Net gain arising during the period | 1 |
| — |
|
Related tax expense | — |
| — |
|
Amortization of unrecognized loss and service cost on benefit plans | 23 |
| — |
|
Related tax expense | (8 | ) | — |
|
Net effect on other comprehensive income | 16 |
| — |
|
Cash flow hedges: | | |
Net loss arising during the period | (103 | ) | — |
|
Related tax benefit | 36 |
| — |
|
Net effect on other comprehensive loss | (67 | ) | — |
|
Total other comprehensive income, net of tax expense | 1,946 |
| 7,951 |
|
Total comprehensive income | $ | 10,755 |
| $ | 15,946 |
|
See Notes to the Unaudited Consolidated Financial Statements
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
| | | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| Common Shares | Retained Earnings | Treasury Stock | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) |
Balance, December 31, 2015 | $ | 343,948 |
| $ | 90,790 |
| $ | (359 | ) | $ | (14,590 | ) | $ | 419,789 |
| |
Balance, December 31, 2016 | | $ | 344,404 |
| $ | 110,294 |
| $ | (1,554 | ) | $ | (17,883 | ) | $ | 435,261 |
|
Net income | — |
| 23,749 |
| — |
| — |
| 23,749 |
| — |
| 8,809 |
| — |
| — |
| 8,809 |
|
Other comprehensive income, net of tax | — |
| — |
| 8,906 |
| — |
| 8,906 |
| — |
| — |
| 1,946 |
| — |
| 1,946 |
|
Cash dividends declared | — |
| (8,564 | ) | — |
| — |
| (8,564 | ) | — |
| (3,634 | ) | — |
| — |
| (3,634 | ) |
Reissuance of treasury stock for common share awards | (1,297 | ) | — |
| — |
| 1,297 |
| — |
| |
Tax expense from exercise of stock options | (3 | ) | — |
| — |
| — |
| (3 | ) | |
Exercise of stock options | | (6 | ) | — |
| — |
| 6 |
| — |
|
Reissuance of treasury stock for common awards | | (1,559 | ) | — |
| — |
| 1,559 |
| — |
|
Reissuance of treasury stock for deferred compensation plan for Boards of Directors | — |
| — |
| — |
| 232 |
| 232 |
| — |
| — |
| — |
| 1 |
| 1 |
|
Repurchase of common shares in connection with employee incentive and director compensation plans | — |
| — |
| — |
| (369 | ) | (369 | ) | |
Common shares repurchased under share repurchase program | — |
| — |
| — |
| (4,965 | ) | (4,965 | ) | |
Repurchase of common shares in connection with employee incentive plan and for Boards of Directors compensation plan | | — |
| — |
| — |
| (288 | ) | (288 | ) |
Common shares issued under dividend reinvestment plan | 326 |
| — |
| — |
| — |
| 326 |
| 128 |
| — |
| — |
| — |
| 128 |
|
Common shares issued under compensation plan for Boards of Directors | (18 | ) | — |
| — |
| 263 |
| 245 |
| 37 |
| — |
| — |
| 91 |
| 128 |
|
Common shares issued under employee stock purchase plan | (11 | ) | — |
| — |
| 293 |
| 282 |
| 25 |
| — |
| — |
| 65 |
| 90 |
|
Stock-based compensation expense | 1,009 |
| — |
| — |
| — |
| 1,009 |
| 568 |
| — |
| — |
| — |
| 568 |
|
Balance, September 30, 2016 | $ | 343,954 |
| $ | 105,975 |
| $ | 8,547 |
| $ | (17,839 | ) | $ | 440,637 |
| |
Balance, March 31, 2017 | | $ | 343,597 |
| $ | 115,469 |
| $ | 392 |
| $ | (16,449 | ) | $ | 443,009 |
|
See Notes to the Unaudited Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | Nine Months Ended | Three Months Ended |
| September 30, | March 31, |
(Dollars in thousands) | 2016 | 2015 | 2017 | 2016 |
Net cash provided by operating activities | $ | 42,195 |
| $ | 31,096 |
| $ | 13,386 |
| $ | 16,826 |
|
Investing activities: | | |
Available-for-sale investment securities: | | |
Purchases | (95,481 | ) | (155,043 | ) | (41,088 | ) | (35,810 | ) |
Proceeds from sales | 30,622 |
| 49,918 |
| 555 |
| 981 |
|
Proceeds from principal payments, calls and prepayments | 93,172 |
| 95,107 |
| 32,064 |
| 26,627 |
|
Held-to-maturity investment securities: | | |
Purchases | | (1,310 | ) | — |
|
Proceeds from principal payments | 1,747 |
| 1,712 |
| 336 |
| 750 |
|
Net increase in loans | (94,149 | ) | (43,102 | ) | (23,528 | ) | (31,933 | ) |
Net expenditures for premises and equipment | (4,893 | ) | (7,049 | ) | |
Proceeds from sales of other real estate owned | 148 |
| 509 |
| |
Investment in bank owned life insurance | (35,000 | ) | — |
| |
Net expenditures for bank premises and equipment | | (490 | ) | (2,660 | ) |
(Increase in) proceeds from sales of other real estate owned | | (16 | ) | 141 |
|
Business acquisitions, net of cash received | (244 | ) | 97,277 |
| (450 | ) | (244 | ) |
Investment in limited partnership and tax credit funds | (2,954 | ) | (108 | ) | |
Net cash (used in) provided by investing activities | (107,032 | ) | 39,221 |
| |
Return of investment in limited partnership and tax credit funds | | 634 |
| 12 |
|
Net cash used in investing activities | | (33,293 | ) | (42,136 | ) |
Financing activities: | | |
Net increase in non-interest-bearing deposits | 27,529 |
| 92,628 |
| |
Net increase (decrease) in interest-bearing deposits | 12,040 |
| (123,889 | ) | |
Net increase in short-term borrowings | 2,421 |
| 40,888 |
| |
Net increase (decrease) in non-interest-bearing deposits | | 50,626 |
| (1,737 | ) |
Net increase in interest-bearing deposits | | 141,809 |
| 52,905 |
|
Net decrease in short-term borrowings | | (199,855 | ) | (25,318 | ) |
Proceeds from long-term borrowings | 55,000 |
| — |
| 30,000 |
| — |
|
Payments on long-term borrowings | (21,899 | ) | (69,666 | ) | (701 | ) | (460 | ) |
Cash dividends paid | (8,215 | ) | (7,426 | ) | (3,518 | ) | (2,645 | ) |
Purchase of treasury stock under share repurchase program | (4,965 | ) | — |
| — |
| (4,965 | ) |
Repurchase of common shares in connection with employee incentive and director compensation plans to be held as treasury stock | (369 | ) | (628 | ) | |
Repurchase of common shares in connection with employee incentive plan and compensation plan for Boards of Directors to be held as treasury stock | | (288 | ) | (292 | ) |
Proceeds from issuance of common shares | 15 |
| — |
| 3 |
| 6 |
|
Excess tax benefit from share-based payment awards | — |
| 63 |
| |
Net cash provided by (used in) financing activities | 61,557 |
| (68,030 | ) | |
Net (decrease) increase in cash and cash equivalents | (3,280 | ) | 2,287 |
| |
Excess tax expense from share-based payment awards | | — |
| (3 | ) |
Net cash provided by financing activities | | 18,076 |
| 17,491 |
|
Net decrease in cash and cash equivalents | | (1,831 | ) | (7,819 | ) |
Cash and cash equivalents at beginning of period | 71,115 |
| 61,454 |
| 66,146 |
| 71,115 |
|
Cash and cash equivalents at end of period | $ | 67,835 |
| $ | 63,741 |
| $ | 64,315 |
| $ | 63,296 |
|
See Notes to the Unaudited Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying Unaudited Consolidated Financial Statements of Peoples Bancorp Inc. and its subsidiaries ("Peoples" refers to Peoples Bancorp Inc. and its consolidated subsidiaries collectively, except where the context indicates the reference relates solely to Peoples Bancorp Inc.) have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not contain all of the information and footnotes required by US GAAP for annual financial statements and should be read in conjunction with Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 20152016 (“20152016 Form 10-K”).
The accounting and reporting policies followed in the presentation of the accompanying Unaudited Consolidated Financial Statements are consistent with those described in Note 1 of the Notes to the Consolidated Financial Statements included in Peoples’ 20152016 Form 10-K, as updated by the information contained in this Form 10-Q. Management has evaluated all significant events and transactions that occurred after September 30, 2016March 31, 2017 for potential recognition or disclosure in these consolidated financial statements. In the opinion of management, these consolidated financial statements reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Such adjustments are normal and recurring in nature. All significant intercompany accounts and transactions have been eliminated. The Consolidated Balance Sheet at December 31, 2015,2016, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 20152016 Form 10-K.
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year, due in part to seasonal variations and unusual or infrequently occurring items. Peoples’ insurance income includes performance-based insurance commissions that are recognized by Peoples when received, which typically occurs, for the most part, during the first quarter of each year. For the three months ended March 31, 2017 and 2016, the amount of performance-based insurance commissions recognized totaled $1.3 million and $1.6 million, respectively.
New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by Peoples as of the required effective dates. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on Peoples' financial statements taken as a whole.
In August 2016, the FASB issuedMarch, Accounting Standards Update ("ASU") 2016-152017-08 - StatementReceivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required and it is not expected to have a material impact on Peoples' results of Cash Flowsoperations.
March, ASU 2017-07 - Compensation - Retirement Benefits (Topic 230)715): ClassificationImproving the Presentation of Certain Cash ReceiptsNet Periodic Pension Cost and Cash Payments.Net Periodic Postretirement Benefit Cost. The update addresses eight specific cash flow issues withamendments in this ASU require that an employer disaggregate the objectiveservice cost component from the other components of reducingnet benefit cost. The amendments will improve the existing diversityconsistency, transparency, and usefulness of financial information and will be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Peoples will adopt this new accounting guidance as required and it will have no impact on Peoples' results of operations as the accrual for pension plan benefits for all participants was frozen as of March 1, 2011.
March, ASU 2017-06 - Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting (a consensus of the Emerging Issues Task Force). This ASU is to provide clarity to preparers and auditors and relates primarily to the reporting of an employee benefit plan's interest in practice.a master trust. The amendments in the ASU clarify presentation requirements for an employee benefit plan's interest in a master trust and require more detailed disclosures of the employee benefit plan's interest in the master trust and will be effective for interim and annual reporting periods beginning after December 15, 2018 (effective
January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required, and and it is not expected to have a material impact on Peoples' results of operations.
January, ASU 2017-04 - Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This newASU is to simplify how an entity is required to test goodwill for impairment by eliminating the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). The adoption of thePeoples will adopt this new accounting guidance as required, and it is not expected to have a material effectimpact on Peoples' statementresults of cash flow.operations.
January, ASU 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill and consideration. In June 2016,a separate ASU (Phase 2 of the project) that is expected to be issued shortly after this ASU, the FASB provides clarifying guidance for partial sales or transfers of assets within the scope of Subtopic 610-20 and the corresponding accounting for retained interest, and this will be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' results of operations.
May, ASU 2014-09 - Revenue from Contracts with Customers (Topic 606). There are many aspects of this new accounting guidance that are still being interpreted and the FASB has issued updates to certain aspects of the guidance to address implementation issues. The FASB issued updates in March, April, May and December of 2016 clarifying several areas of the guidance. These clarifications included:
•Principal versus agent considerations,
•Collectibility, sales tax and non-cash consideration, practical expedients for contract modifications and
completed contracts,
•Identification of performance obligations, and
•Licensing implementation guidance.
This accounting guidance can be implemented using either a full retrospective method or a modified retrospective approach. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Early adoption is permitted but only for interim and annual reporting periods beginning after December 15, 2016. Peoples will adopt this new accounting guidance in 2018, as required, and anticipates implementing the new accounting guidance using the modified retrospective approach. The modified retrospective approach uses a cumulative-effect adjustment to retained earnings to reflect uncompleted contracts in the initial application of the guidance. Peoples is currently evaluating revenue streams and contracts to determine the impact of the new accounting guidance. Based on Peoples’ evaluation to date, it does not expect the adoption of this accounting guidance to have a significant impact on Peoples’ financial condition or quarterly or annual results of operations; however, the review is ongoing. Peoples will continue to evaluate the impact of this accounting guidance, including any additional guidance issued, during the completion of this internal assessment.
June, ASU 2016-13 - Financial Instruments - CreditInstruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The revisedThis accounting guidance replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Under the CECL model, Peoples will remove allbe required to present certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity debt securities, at the net amount expected to be collected.
The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current US GAAP, which delays recognition thresholds anduntil it is probable a loss has been incurred. Accordingly, Peoples expects that the adoption of the CECL model will require a company to recognize anmaterially affect how the allowance for creditloan losses is determined and could require significant increases to the allowance for loan losses. Moreover, the CECL model may create more volatility in the level of Peoples' allowance for loan losses. If required to materially increase the level of allowance for loan losses for the difference between the amortized cost basisany reason, such increase could adversely affect Peoples' business, financial condition and results of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument's contractual life. It also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. Thisoperations.
The new accounting guidanceCECL standard will bebecome effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples is currently evaluating the impact of adopting the new accounting guidance on Peoples' consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12 - Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. This accounting guidance can be implemented using either a retrospective method or a cumulative-effect approach. This accounting guidance provides clarification of the collectibility criterion and when revenue would be recognized for certain contracts. This new accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1, 2019, for Peoples). Management's preliminary analysis suggests that the adoption of the new accounting guidance is not expected toCECL model will have a material effect on Peoples' financial condition or results of operations. There are many aspectsstatements and expects to recognize a one-time cumulative-effect adjustment to the provision as of the new accounting guidance that are still being interpreted, and the FASB has recently issued and proposed updates to certain aspectsbeginning of the guidance. Therefore, the results of Peoples' preliminary analysis of the materiality of the adoption offirst reporting period in which the new accounting guidance may change based on the conclusions reached as to the application of the new accounting guidance.standard is effective, consistent with regulatory expectations set forth in interagency
In March 2016,guidance issued at the FASB issuedend of 2016. Peoples has not yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on Peoples' financial condition or results of operations.
March, ASU 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The objectiveamendment in this ASU requires all excess income tax benefits or tax deficiencies of the simplification initiative isstock awards to identify, evaluate, and improve areas of US GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification involve several aspects of the accounting for share-based payment transactions, includingrecognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax consequences, classification of awardswithholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as either equity or liabilities, and classification on the statement of cash flows. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value are to be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equitythey occur. Peoples adopted this pronouncement as of the beginning of the period in which the accounting guidance is adopted. For public entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' results of operations.
In March 2016, the FASB issued ASU 2016-08 - Revenue from Contracts with Customers (Topic 606) which amended the accounting guidance issued by the FASB in May 2014 that revised the criteria for determining when to recognize revenue from contracts with customers and expanded disclosure requirements. The amendment defers the effective date by one year (reflected below). This accounting guidance can be implemented using either a retrospective method or a cumulative-effect approach. This new accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1, 2019, for Peoples). Early adoption is permitted but only for interim and annual reporting periods beginning after December 15, 2016. Peoples has elected to implement the new accounting guidance using a cumulative-effect approach2017, and will adopt this new accounting guidance as required. Management's preliminary analysis suggests thatcontinue using an estimated forfeiture rate. In the first quarter of 2017, Peoples recorded a tax benefit of $104,000 associated with the adoption of this amendment for the new accounting guidance is not expected to have a material effect on Peoples' financial conditiontax benefit of awards that settled or results of operations. There are many aspects ofvested in the new accounting guidance that are still being interpreted, and the FASB has recently issued and proposed updates to certain aspects of the accounting guidance. Therefore, the results of Peoples' preliminary analysis of the materiality of the adoption of the new accounting guidance may change based on the conclusions reached as to the application of the new accounting guidance.quarter.
In March 2016, the FASB issued ASU 2016-06 - Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The amendment is intended to resolve the diversity in practice by assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to the debt instrument hosts, which is one of the criteria for bifurcating an embedded derivative. When a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise the call (put) option is related to interest rates or credit risks. For public entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Peoples is currently evaluating the impact of adopting the new accounting guidance on Peoples' consolidated financial statements, but it is not expected to have a material impact.
In February 2016, the FASB issued ASU 2016-02 - Leases (Topic 842). The amendment was issued to improve the financial reporting of leasing activities and provide a faithful representation of leasing transactions and improve understanding and comparability of a lessee's financial statements. Under the new accounting guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. The ASU will require both finance and operating leases to be recognized on the balance sheet. The ASU will affect all companies and organizations that lease real estate. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (effective January 1, 2019, for Peoples). Peoples will adopt this new accounting guidance as required, but it is not expected to have a material impact on Peoples' consolidated financial statements.
In January, 2016 the FASB issued ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendment in this ASU is intended to enhance the reporting model for financial instruments to provide users of financial statements with more useful information. The new ASUamendment requires equity investments to be measured at fair value with changes in fair value recognized in net income. However, a reporting organization may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment (if any), from observable price changes in orderly transactions for similar investments of the same issuer. The ASU is effective for fiscal years beginning after December 15, 20192017 (effective January 1, 2020,2018 for Peoples). Peoples is currently evaluating the impact of adopting the new accounting guidance on Peoples' consolidated financial statements which may result in an impact to the income statement on a quarterly and annual basis, as market rates fluctuate. Peoples will adopt this accounting guidance as required.
Note 2. Fair Value of Financial Instruments
Available-for-sale securities measured at fair value on a recurring basis were comprised of the following:
| | | | Fair Value Measurements at Reporting Date Using | | Fair Value Measurements at Reporting Date Using |
(Dollars in thousands) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
Fair Value | September 30, 2016 | | |
March 31, 2017 | | |
Obligations of: | | |
States and political subdivisions | | $ | 114,712 |
| $ | — |
| $ | 114,712 |
| $ | — |
|
Residential mortgage-backed securities | | 640,299 |
| — |
| 640,299 |
| — |
|
Commercial mortgage-backed securities | | 16,424 |
| — |
| 16,424 |
| — |
|
Bank-issued trust preferred securities | | 4,964 |
| — |
| 4,964 |
| — |
|
Equity securities | | 10,562 |
| 10,339 |
| 223 |
| — |
|
Total available-for-sale securities | | $ | 786,961 |
| $ | 10,339 |
| $ | 776,622 |
| $ | — |
|
December 31, 2016 | | |
Obligations of: | | |
U.S. government sponsored agencies | $ | 1,001 |
| $ | — |
| $ | 1,001 |
| $ | — |
| $ | 1,000 |
| $ | — |
| $ | 1,000 |
| $ | — |
|
States and political subdivisions | 117,839 |
| — |
| 117,839 |
| — |
| 117,230 |
| — |
| 117,230 |
| — |
|
Residential mortgage-backed securities | 607,452 |
| — |
| 607,452 |
| — |
| 626,567 |
| — |
| 626,567 |
| — |
|
Commercial mortgage-backed securities | 23,283 |
| — |
| 23,283 |
| — |
| 19,291 |
| — |
| 19,291 |
| — |
|
Bank-issued trust preferred securities | 4,783 |
| — |
| 4,783 |
| — |
| 4,899 |
| — |
| 4,899 |
| — |
|
Equity securities | 7,785 |
| 7,569 |
| 216 |
| — |
| 8,953 |
| 8,734 |
| 219 |
| — |
|
Total available-for-sale securities | $ | 762,143 |
| $ | 7,569 |
| $ | 754,574 |
| $ | — |
| $ | 777,940 |
| $ | 8,734 |
| $ | 769,206 |
| $ | — |
|
December 31, 2015 | | |
Obligations of: | | |
U.S. government sponsored agencies | $ | 2,966 |
| $ | — |
| $ | 2,966 |
| $ | — |
| |
States and political subdivisions | 114,726 |
| — |
| 114,726 |
| — |
| |
Residential mortgage-backed securities | 632,293 |
| — |
| 632,293 |
| — |
| |
Commercial mortgage-backed securities | 23,845 |
| — |
| 23,845 |
| — |
| |
Bank-issued trust preferred securities | 4,635 |
| — |
| 4,635 |
| — |
| |
Equity securities | 6,236 |
| 6,024 |
| 212 |
| — |
| |
Total available-for-sale securities | $ | 784,701 |
| $ | 6,024 |
| $ | 778,677 |
| $ | — |
| |
Held-to-maturity securities reported at fair value were comprised of the following:
| | | | Fair Value at Reporting Date Using | | Fair Value at Reporting Date Using |
(Dollars in thousands) | | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs |
Fair Value | (Level 1) | (Level 2) | (Level 3) | Fair Value | (Level 1) | (Level 2) | (Level 3) |
September 30, 2016 | | |
March 31, 2017 | | |
Obligations of: | | |
States and political subdivisions | $ | 4,285 |
| $ | — |
| $ | 4,285 |
| $ | — |
| $ | 4,049 |
| $ | — |
| $ | 4,049 |
| $ | — |
|
Residential mortgage-backed securities | 35,205 |
| — |
| 35,205 |
| — |
| 34,754 |
| — |
| 34,754 |
| — |
|
Commercial mortgage-backed securities | 5,655 |
| — |
| 5,655 |
| — |
| 5,343 |
| — |
| 5,343 |
| — |
|
Total held-to-maturity securities | $ | 45,145 |
| $ | — |
| $ | 45,145 |
| $ | — |
| $ | 44,146 |
| $ | — |
| $ | 44,146 |
| $ | — |
|
December 31, 2015 | | |
December 31, 2016 | | |
Obligations of: | | |
States and political subdivisions | $ | 4,221 |
| $ | — |
| $ | 4,221 |
| $ | — |
| $ | 4,041 |
| $ | — |
| $ | 4,041 |
| $ | — |
|
Residential mortgage-backed securities | 35,196 |
| — |
| 35,196 |
| — |
| 33,762 |
| — |
| 33,762 |
| — |
|
Commercial mortgage-backed securities | 6,436 |
| — |
| 6,436 |
| — |
| 5,424 |
| — |
| 5,424 |
| — |
|
Total held-to-maturity securities | $ | 45,853 |
| $ | — |
| $ | 45,853 |
| $ | — |
| $ | 43,227 |
| $ | — |
| $ | 43,227 |
| $ | — |
|
The fair values used by Peoples are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1 inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on a non-recurring basis included the following:
Impaired Loans: Impaired loans are measured and reported at fair value when the amounts to be received are less than the carrying value of the loans. One of the allowable methods for determining the amount of impairment is estimating fair value using the fair value of the collateral for collateral-dependent loans. Management’s determination of the fair value for these loans uses a market approach representing the estimated net proceeds to be received from the sale of the collateral based on observable market prices or market value provided by independent, licensed or certified appraisers (Level 2 inputs). At September 30, 2016,March 31, 2017, impaired loans with an aggregate outstanding principal balance of $44.7$37.0 million were measured and reported at a fair value of $36.8$30.8 million. For the three and nine months ended September 30, 2016,March 31, 2017, Peoples recognized $58,000 and $63,000$163,000 of lossesgains on impaired loans, respectively, through the allowance for loan losses.losses, due to several loans paying off during the first quarter 2017.
The following table presents the fair values of financial assets and liabilities carried on Peoples’ Unaudited Consolidated Balance Sheets, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
(Dollars in thousands) | Carrying Amount | Fair Value | | Carrying Amount | Fair Value | Carrying Amount | Fair Value | | Carrying Amount | Fair Value |
Financial assets: | | | | | | |
Cash and cash equivalents | $ | 67,835 |
| $ | 67,835 |
| | $ | 71,115 |
| $ | 71,115 |
| $ | 64,315 |
| $ | 64,315 |
| | $ | 66,146 |
| $ | 66,146 |
|
Investment securities | 844,248 |
| 845,731 |
| | 868,830 |
| 868,955 |
| 869,354 |
| 869,478 |
| | 859,455 |
| 859,538 |
|
Loans (1) | 2,155,704 |
| 2,127,828 |
| | 2,057,614 |
| 2,018,482 |
| 2,232,876 |
| 2,183,426 |
| | 2,210,529 |
| 2,152,544 |
|
Financial liabilities: | | | | | | |
Deposits | $ | 2,575,457 |
| $ | 2,579,379 |
| | $ | 2,535,944 |
| $ | 2,540,131 |
| $ | 2,702,165 |
| $ | 2,704,590 |
| | $ | 2,509,722 |
| $ | 2,512,647 |
|
Short-term borrowings | 162,807 |
| 162,807 |
| | 160,386 |
| 160,386 |
| 105,752 |
| 105,745 |
| | 305,607 |
| 305,607 |
|
Long-term borrowings | 147,563 |
| 151,912 |
| | 113,670 |
| 117,299 |
| 174,506 |
| 174,207 |
| | 145,155 |
| 145,106 |
|
Cash flow hedges (2) | 219 |
| 219 |
| | — |
| — |
| 1,646 |
| 1,646 |
| | 1,779 |
| 1,779 |
|
(1) Includes loans held for sale
(2) For additional information, see Note 10.9. Financial Instruments with Off-Balance Sheet Risk
The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include cash and cash equivalents, demand and other non-maturity deposits, and overnight borrowings. Peoples used the following methods and assumptions in estimating the fair value of the following financial instruments:
Loans: The fair value of portfolio loans assumes sale of the notes to a third-party financial investor. Accordingly, this value is not necessarily the value to Peoples if the notes were held to maturity. Peoples considered interest rate, credit and market factors in estimating the fair value of loans (Level 3 inputs). In the current whole loan market, financial investors are generally requiring a much higher rate of return than the return inherent in loans if held to maturity given the lack of market liquidity. This divergence accounts for the majority of the difference in carrying amount over fair value.
Deposits: The fair value of fixed maturity certificates of deposit is estimated using a discounted cash flow calculation based on current rates offered for deposits of similar remaining maturities (Level 2 inputs).
Long-term Borrowings: The fair value of long-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2 inputs).
Cash flow hedges: The fair value of cashCash flow hedges isare recognized in the Unaudited Consolidated Balance Sheets at their fair value. The fair value for derivative instruments is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters (Level 2 inputs).
Bank premises and equipment, customer relationships, deposit base, banking center networks, and other information required to compute Peoples’ aggregate fair value are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of Peoples.
Note 3. Investment Securities
Available-for-sale
The following table summarizes Peoples' available-for-sale investment securities:
| | (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2016 | | |
March 31, 2017 | | |
Obligations of: | | |
States and political subdivisions | | $ | 112,774 |
| $ | 2,121 |
| $ | (183 | ) | $ | 114,712 |
|
Residential mortgage-backed securities | | 646,503 |
| 3,840 |
| (10,044 | ) | 640,299 |
|
Commercial mortgage-backed securities | | 16,511 |
| 33 |
| (120 | ) | 16,424 |
|
Bank-issued trust preferred securities | | 5,176 |
| 87 |
| (299 | ) | 4,964 |
|
Equity securities | | 1,983 |
| 8,645 |
| (66 | ) | 10,562 |
|
Total available-for-sale securities | | $ | 782,947 |
| $ | 14,726 |
| $ | (10,712 | ) | $ | 786,961 |
|
December 31, 2016 | | |
Obligations of: | | |
U.S. government sponsored agencies | $ | 998 |
| $ | 3 |
| $ | — |
| $ | 1,001 |
| $ | 1,000 |
| $ | — |
| $ | — |
| $ | 1,000 |
|
States and political subdivisions | 113,530 |
| 4,309 |
| — |
| 117,839 |
| 115,657 |
| 1,836 |
| (263 | ) | 117,230 |
|
Residential mortgage-backed securities | 599,589 |
| 10,037 |
| (2,174 | ) | 607,452 |
| 633,802 |
| 3,758 |
| (10,993 | ) | 626,567 |
|
Commercial mortgage-backed securities | 22,658 |
| 625 |
| — |
| 23,283 |
| 19,337 |
| 41 |
| (87 | ) | 19,291 |
|
Bank-issued trust preferred securities | 5,163 |
| 47 |
| (427 | ) | 4,783 |
| 5,169 |
| 91 |
| (361 | ) | 4,899 |
|
Equity securities | 1,940 |
| 5,914 |
| (69 | ) | 7,785 |
| 2,052 |
| 6,969 |
| (68 | ) | 8,953 |
|
Total available-for-sale securities | $ | 743,878 |
| $ | 20,935 |
| $ | (2,670 | ) | $ | 762,143 |
| $ | 777,017 |
| $ | 12,695 |
| $ | (11,772 | ) | $ | 777,940 |
|
December 31, 2015 | | |
Obligations of: | | |
U.S. government sponsored agencies | $ | 2,908 |
| $ | 58 |
| $ | — |
| $ | 2,966 |
| |
States and political subdivisions | 111,283 |
| 3,487 |
| (44 | ) | 114,726 |
| |
Residential mortgage-backed securities | 635,504 |
| 4,905 |
| (8,116 | ) | 632,293 |
| |
Commercial mortgage-backed securities | 23,770 |
| 119 |
| (44 | ) | 23,845 |
| |
Bank-issued trust preferred securities | 5,146 |
| — |
| (511 | ) | 4,635 |
| |
Equity securities | 1,693 |
| 4,627 |
| (84 | ) | 6,236 |
| |
Total available-for-sale securities | $ | 780,304 |
| $ | 13,196 |
| $ | (8,799 | ) | $ | 784,701 |
| |
Peoples' investment in equity securities was comprised largely of common stocks issued by various unrelated bank holding companies at both September 30, 2016March 31, 2017 and December 31, 2015.2016. At September 30, 2016,March 31, 2017, there were no securities of a single issuer that exceeded 10% of stockholders' equity.
The gross gains and gross losses realized by Peoples from sales of available-for-sale securities for the periods ended September 30March 31 were as follows:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, | | September 30, | March 31, |
(Dollars in thousands) | 2016 | 2015 | | 2016 | 2015 | 2017 | 2016 |
Gross gains realized | $ | — |
| $ | 94 |
| | $ | 863 |
| $ | 726 |
| $ | 340 |
| $ | 96 |
|
Gross losses realized | 1 |
| 32 |
| | 1 |
| 53 |
| — |
| — |
|
Net (loss)/gain realized | $ | (1 | ) | $ | 62 |
| | $ | 862 |
| $ | 673 |
| |
Net gain realized | | $ | 340 |
| $ | 96 |
|
The cost of investment securities sold, and any resulting gain or loss, was based on the specific identification method and recognized as of the trade date.
The following table presents a summary of available-for-sale investment securities that had an unrealized loss:
| | | Less than 12 Months | | 12 Months or More | | Total | Less than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
September 30, 2016 | | | | | | | | |
Obligations of: | | | | | | | | |
Residential mortgage-backed securities | $ | 119,144 |
| $ | 693 |
| 29 |
| | $ | 47,071 |
| $ | 1,481 |
| 21 |
| | $ | 166,215 |
| $ | 2,174 |
| |
Bank-issued trust preferred securities | — |
| — |
| — |
| | 2,571 |
| 427 |
| 3 |
| | 2,571 |
| 427 |
| |
Equity securities | — |
| — |
| — |
| | 107 |
| 69 |
| 1 |
| | 107 |
| 69 |
| |
Total | $ | 119,144 |
| $ | 693 |
| 29 |
| | $ | 49,749 |
| $ | 1,977 |
| 25 |
| | $ | 168,893 |
| $ | 2,670 |
| |
December 31, 2015 | | | | | | | | |
March 31, 2017 | | | | | | | | |
Obligations of: | | | | | | | | | | | | | | |
States and political subdivisions | $ | 7,662 |
| $ | 38 |
| 8 |
| | $ | 213 |
| $ | 6 |
| 1 |
| | $ | 7,875 |
| $ | 44 |
| $ | 9,795 |
| $ | 183 |
| 11 |
| | $ | — |
| $ | — |
| — |
| | $ | 9,795 |
| $ | 183 |
|
Residential mortgage-backed securities | 303,549 |
| 3,902 |
| 76 |
| | 102,090 |
| 4,214 |
| 33 |
| | 405,639 |
| 8,116 |
| 434,098 |
| $ | 7,728 |
| 110 |
| | 42,922 |
| $ | 2,316 |
| 23 |
| | 477,020 |
| 10,044 |
|
Commercial mortgage-backed securities | 6,682 |
| 44 |
| 3 |
| | — |
| — |
| — |
| | 6,682 |
| 44 |
| 13,158 |
| 120 |
| 5 |
| | — |
| — |
| — |
| | 13,158 |
| 120 |
|
Bank-issued trust preferred securities | 2,129 |
| 19 |
| 1 |
| | 2,506 |
| 492 |
| 3 |
| | 4,635 |
| 511 |
| — |
| — |
| — |
| | 2,699 |
| 299 |
| 3 |
| | 2,699 |
| 299 |
|
Equity securities | 438 |
| 15 |
| 2 |
| | 106 |
| 69 |
| 1 |
| | 544 |
| 84 |
| 252 |
| 1 |
| 1 |
| | 112 |
| 65 |
| 1 |
| | 364 |
| 66 |
|
Total | $ | 320,460 |
| $ | 4,018 |
| 90 |
| | $ | 104,915 |
| $ | 4,781 |
| 38 |
| | $ | 425,375 |
| $ | 8,799 |
| $ | 457,303 |
| $ | 8,032 |
| 127 |
| | $ | 45,733 |
| $ | 2,680 |
| 27 |
| | $ | 503,036 |
| $ | 10,712 |
|
December 31, 2016 | | | | | | | | |
Obligations of: | | | | | | | | |
States and political subdivisions | | $ | 23,501 |
| $ | 263 |
| 28 |
| | $ | — |
| $ | — |
| — |
| | $ | 23,501 |
| $ | 263 |
|
Residential mortgage-backed securities | | 427,088 |
| 8,495 |
| 108 |
| | 46,631 |
| 2,498 |
| 22 |
| | 473,719 |
| 10,993 |
|
Commercial mortgage-backed securities | | 7,770 |
| 87 |
| 4 |
| | — |
| — |
| — |
| | 7,770 |
| 87 |
|
Bank-issued trust preferred securities | | — |
| — |
| — |
| | 2,637 |
| 361 |
| 3 |
| | 2,637 |
| 361 |
|
Equity securities | | 263 |
| 3 |
| 1 |
| | 110 |
| 65 |
| 1 |
| | 373 |
| 68 |
|
Total | | $ | 458,622 |
| $ | 8,848 |
| 141 |
| | $ | 49,378 |
| $ | 2,924 |
| 26 |
| | $ | 508,000 |
| $ | 11,772 |
|
Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair value on a quarterly basis. At September 30, 2016,March 31, 2017, management concluded no individual securities were other-than-temporarily impaired since Peoples did not have the intent to sell, nor was it more likely than not that Peoples would be required to sell, any of the securities with an unrealized loss prior to recovery. Further, the unrealized losses at both September 30, 2016March 31, 2017 and December 31, 20152016 were largely attributable to changes in market interest rates and spreads since the securities were purchased.
At September 30, 2016,March 31, 2017, approximately 99%97% of the mortgage-backed securities with a market value that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1%3%, or twofour positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. BothTwo of these twothe four positions had a fair value of less than 90% of their book value, with an aggregate book and fair value of $0.7 million and $0.5$0.4 million, respectively. Management analyzed the underlying credit quality of these securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low number of loans remaining in these securities.
Furthermore, the unrealized losses with respect to the three bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at September 30, 2016March 31, 2017 were primarily attributable to the floating-rate nature of those investments, the current interest rate environment and spreads within that sector.
The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at September 30, 2016March 31, 2017. The weighted-average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. Rates are calculated on a fully tax-equivalent basis using a 35% federal income tax rate.
| | (Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | | |
Obligations of: | | |
U.S. government sponsored agencies | $ | 998 |
| $ | — |
| $ | — |
| $ | — |
| $ | 998 |
| |
States and political subdivisions | 675 |
| 14,577 |
| 29,022 |
| 69,256 |
| 113,530 |
| $ | 675 |
| $ | 14,635 |
| $ | 29,497 |
| $ | 67,967 |
| $ | 112,774 |
|
Residential mortgage-backed securities | 3 |
| 14,449 |
| 35,568 |
| 549,569 |
| 599,589 |
| 14 |
| 18,719 |
| 38,758 |
| 589,012 |
| 646,503 |
|
Commercial mortgage-backed securities | — |
| 3,257 |
| 16,035 |
| 3,366 |
| 22,658 |
| — |
| 3,235 |
| 11,613 |
| 1,663 |
| 16,511 |
|
Bank-issued trust preferred securities | — |
| — |
| — |
| 5,163 |
| 5,163 |
| — |
| — |
| 2,178 |
| 2,998 |
| 5,176 |
|
Equity securities | | 1,940 |
| | 1,983 |
|
Total available-for-sale securities | $ | 1,676 |
| $ | 32,283 |
| $ | 80,625 |
| $ | 627,354 |
| $ | 743,878 |
| $ | 689 |
| $ | 36,589 |
| $ | 82,046 |
| $ | 661,640 |
| $ | 782,947 |
|
Fair value | | |
Obligations of: | | |
U.S. government sponsored agencies | $ | 1,001 |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,001 |
| |
States and political subdivisions | 679 |
| 14,923 |
| 29,954 |
| 72,283 |
| 117,839 |
| $ | 681 |
| $ | 14,783 |
| $ | 30,015 |
| $ | 69,233 |
| $ | 114,712 |
|
Residential mortgage-backed securities | 4 |
| 14,449 |
| 36,254 |
| 556,745 |
| 607,452 |
| 14 |
| 18,493 |
| 38,858 |
| 582,934 |
| 640,299 |
|
Commercial mortgage-backed securities | — |
| 3,372 |
| 16,524 |
| 3,387 |
| 23,283 |
| — |
| 3,269 |
| 11,507 |
| 1,648 |
| 16,424 |
|
Bank-issued trust preferred securities | — |
| — |
| — |
| 4,783 |
| 4,783 |
| — |
| — |
| 2,266 |
| 2,698 |
| 4,964 |
|
Equity securities | | 7,785 |
| | 10,562 |
|
Total available-for-sale securities | $ | 1,684 |
| $ | 32,744 |
| $ | 82,732 |
| $ | 637,198 |
| $ | 762,143 |
| $ | 695 |
| $ | 36,545 |
| $ | 82,646 |
| $ | 656,513 |
| $ | 786,961 |
|
Total weighted-average yield | 2.98 | % | 3.17 | % | 2.95 | % | 2.65 | % | 2.72 | % | 5.37 | % | 2.83 | % | 3.06 | % | 2.64 | % | 2.71 | % |
Held-to-Maturity
The following table summarizes Peoples’ held-to-maturity investment securities:
| | (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2016 | | |
March 31, 2017 | | |
Obligations of: | | |
States and political subdivisions | $ | 3,823 |
| $ | 462 |
| $ | — |
| $ | 4,285 |
| $ | 3,818 |
| $ | 231 |
| $ | — |
| $ | 4,049 |
|
Residential mortgage-backed securities | 34,203 |
| 1,030 |
| (28 | ) | 35,205 |
| 34,812 |
| 446 |
| (504 | ) | 34,754 |
|
Commercial mortgage-backed securities | 5,636 |
| 19 |
| — |
| 5,655 |
| 5,392 |
| — |
| (49 | ) | 5,343 |
|
Total held-to-maturity securities | $ | 43,662 |
| $ | 1,511 |
| $ | (28 | ) | $ | 45,145 |
| $ | 44,022 |
| $ | 677 |
| $ | (553 | ) | $ | 44,146 |
|
December 31, 2015 | | |
December 31, 2016 | | |
Obligations of: | | |
States and political subdivisions | $ | 3,831 |
| $ | 394 |
| $ | (4 | ) | $ | 4,221 |
| $ | 3,820 |
| $ | 221 |
| $ | — |
| $ | 4,041 |
|
Residential mortgage-backed securities | 35,367 |
| 363 |
| (534 | ) | 35,196 |
| 33,858 |
| 432 |
| (528 | ) | 33,762 |
|
Commercial mortgage-backed securities | 6,530 |
| — |
| (94 | ) | 6,436 |
| 5,466 |
| — |
| (42 | ) | 5,424 |
|
Total held-to-maturity securities | $ | 45,728 |
| $ | 757 |
| $ | (632 | ) | $ | 45,853 |
| $ | 43,144 |
| $ | 653 |
| $ | (570 | ) | $ | 43,227 |
|
There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for the three or nine months ended September 30, 2016March 31, 2017 and 2015.2016.
The following table presents a summary of held-to-maturity investment securities that had an unrealized loss:
| | | Less than 12 Months | | 12 Months or More | | Total | Less than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
September 30, 2016 | | | | | | | | |
Obligations of: | | | | | | | | |
Residential mortgage-backed securities | $ | 9,053 |
| $ | 7 |
| 1 |
| | $ | 1,001 |
| $ | 21 |
| 1 |
| | $ | 10,054 |
| $ | 28 |
| |
Total | $ | 9,053 |
| $ | 7 |
| 1 |
| | $ | 1,001 |
| $ | 21 |
| 1 |
| | $ | 10,054 |
| $ | 28 |
| |
December 31, 2015 | | | | | | | | |
Obligations of: | | | | | | | | |
States and political subdivisions | $ | — |
| $ | — |
| — |
| | $ | 319 |
| $ | 4 |
| 1 |
| | $ | 319 |
| $ | 4 |
| |
March 31, 2017 | | | | | | | | |
Residential mortgage-backed securities | 3,706 |
| 89 |
| 2 |
| | 10,040 |
| 445 |
| 2 |
| | 13,746 |
| 534 |
| $ | 12,878 |
| $ | 449 |
| 3 |
| | $ | 951 |
| $ | 55 |
| 1 |
| | $ | 13,829 |
| $ | 504 |
|
Commercial mortgage-backed securities | 540 |
| 4 |
| 1 |
| | 5,895 |
| 90 |
| 1 |
| | 6,435 |
| 94 |
| 5,343 |
| 49 |
| 1 |
| | — |
| — |
| — |
| | 5,343 |
| 49 |
|
Total | $ | 4,246 |
| $ | 93 |
| 3 |
| | $ | 16,254 |
| $ | 539 |
| 4 |
| | $ | 20,500 |
| $ | 632 |
| $ | 18,221 |
| $ | 498 |
| 4 |
| | $ | 951 |
| $ | 55 |
| 1 |
| | $ | 19,172 |
| $ | 553 |
|
December 31, 2016 | | | | | | | | |
Residential mortgage-backed securities | | $ | 12,139 |
| $ | 476 |
| 3 |
| | $ | 963 |
| $ | 52 |
| 1 |
| | $ | 13,102 |
| $ | 528 |
|
Commercial mortgage-backed securities | | 5,424 |
| 42 |
| 1 |
| | — |
| — |
| — |
| | 5,424 |
| 42 |
|
Total | | $ | 17,563 |
| $ | 518 |
| 4 |
| | $ | 963 |
| $ | 52 |
| 1 |
| | $ | 18,526 |
| $ | 570 |
|
The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at September 30, 2016March 31, 2017. The weighted-average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. Rates are calculated on a fully tax-equivalent basis using a 35% federal income tax rate.
| | (Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | | |
Obligations of: | | |
States and political subdivisions | $ | — |
| $ | 320 |
| $ | 977 |
| $ | 2,526 |
| $ | 3,823 |
| $ | — |
| $ | 317 |
| $ | 2,979 |
| $ | 522 |
| $ | 3,818 |
|
Residential mortgage-backed securities | — |
| — |
| 4,638 |
| 29,565 |
| 34,203 |
| — |
| — |
| 5,912 |
| 28,900 |
| 34,812 |
|
Commercial mortgage-backed securities | — |
| — |
| — |
| 5,636 |
| 5,636 |
| — |
| — |
| — |
| 5,392 |
| 5,392 |
|
Total held-to-maturity securities | $ | — |
| $ | 320 |
| $ | 5,615 |
| $ | 37,727 |
| $ | 43,662 |
| $ | — |
| $ | 317 |
| $ | 8,891 |
| $ | 34,814 |
| $ | 44,022 |
|
Fair value | | |
Obligations of: | | |
States and political subdivisions | $ | — |
| $ | 328 |
| $ | 1,123 |
| $ | 2,834 |
| $ | 4,285 |
| $ | — |
| $ | 322 |
| $ | 3,174 |
| $ | 553 |
| $ | 4,049 |
|
Residential mortgage-backed securities | — |
| — |
| 4,824 |
| 30,381 |
| 35,205 |
| — |
| — |
| 5,943 |
| 28,811 |
| 34,754 |
|
Commercial mortgage-backed securities | — |
| — |
| — |
| 5,655 |
| 5,655 |
| — |
| — |
| — |
| 5,343 |
| 5,343 |
|
Total held-to-maturity securities | $ | — |
| $ | 328 |
| $ | 5,947 |
| $ | 38,870 |
| $ | 45,145 |
| $ | — |
| $ | 322 |
| $ | 9,117 |
| $ | 34,707 |
| $ | 44,146 |
|
Total weighted-average yield | — | % | 3.14 | % | 2.24 | % | 2.86 | % | 2.78 | % | — | % | 3.14 | % | 2.33 | % | 2.93 | % | 2.81 | % |
Other Securities
Peoples' other investment securities on the Unaudited Consolidated Balance Sheet consist largely of shares of the Federal Home Loan Bank of Cincinnati (the “FHLB”) and the Federal Reserve Bank of Cleveland (the "FRB").
Pledged Securities
Peoples had pledged available-for-sale investment securities with carrying values of $529.0565.3 million and $495.5517.9 million at September 30, 2016March 31, 2017 and December 31, 20152016, respectively, and held-to-maturity investment securities with carrying values of $20.219.8 million and $21.420.0 million at September 30, 2016March 31, 2017 and December 31, 20152016, respectively, to secure public and trust department deposits, and repurchase agreements in accordance with federal and state requirements. Peoples also pledged available-for-sale investment securities with carrying values of $9.88.8 million and $11.19.2 million at September 30, 2016March 31, 2017 and December 31, 20152016, respectively, and held-to-maturity securities with carrying values of $22.521.9 million and $23.3$22.2 million at September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively, to secure additional borrowing capacity at the FHLB and the FRB.
Note 4. Loans
Peoples' loan portfolio consists of various types of loans originated primarily as a result of lending opportunities within Peoples' primary market areas of northeastern, central, southwestern and southeastern Ohio, west central West Virginia, and northeastern Kentucky. Acquired loans consist of loans purchased in 2012 or thereafter in a business combination. The major classifications of loan balances, excluding loans held for sale, were as follows:
| | (Dollars in thousands) | September 30, 2016 | December 31, 2015 | March 31, 2017 | December 31, 2016 |
Originated loans: | | |
Commercial real estate, construction | $ | 70,838 |
| $ | 63,785 |
| $ | 93,886 |
| $ | 84,626 |
|
Commercial real estate, other | 507,842 |
| 471,184 |
| 535,474 |
| 531,557 |
|
Commercial real estate | 578,680 |
| 534,969 |
| 629,360 |
| 616,183 |
|
Commercial and industrial | 351,340 |
| 288,130 |
| 384,548 |
| 378,131 |
|
Residential real estate | 306,374 |
| 288,783 |
| 308,153 |
| 307,490 |
|
Home equity lines of credit | 83,412 |
| 74,176 |
| 85,512 |
| 85,617 |
|
Consumer, indirect | 229,334 |
| 165,320 |
| 283,106 |
| 252,024 |
|
Consumer, other | 67,973 |
| 61,813 |
| 66,283 |
| 67,579 |
|
Consumer | 297,307 |
| 227,133 |
| 349,389 |
| 319,603 |
|
Deposit account overdrafts | 1,074 |
| 1,448 |
| 721 |
| 1,080 |
|
Total originated loans | $ | 1,618,187 |
| $ | 1,414,639 |
| $ | 1,757,683 |
| $ | 1,708,104 |
|
Acquired loans: | | |
Commercial real estate, construction | $ | 10,242 |
| $ | 12,114 |
| $ | 9,431 |
| $ | 10,100 |
|
Commercial real estate, other | 221,036 |
| 265,092 |
| 194,581 |
| 204,466 |
|
Commercial real estate | 231,278 |
| 277,206 |
| 204,012 |
| 214,566 |
|
Commercial and industrial | 48,702 |
| 63,589 |
| 44,189 |
| 44,208 |
|
Residential real estate | 238,787 |
| 276,772 |
| 216,059 |
| 228,435 |
|
Home equity lines of credit | 27,784 |
| 32,253 |
| 24,516 |
| 25,875 |
|
Consumer, indirect | 952 |
| 1,776 |
| 656 |
| 808 |
|
Consumer, other | 3,518 |
| 6,205 |
| 2,387 |
| 2,940 |
|
Consumer | 4,470 |
| 7,981 |
| 3,043 |
| 3,748 |
|
Total acquired loans | $ | 551,021 |
| $ | 657,801 |
| $ | 491,819 |
| $ | 516,832 |
|
Loans, net of deferred fees and costs | $ | 2,169,208 |
| $ | 2,072,440 |
| $ | 2,249,502 |
| $ | 2,224,936 |
|
Peoples has acquired various loans through business combinations for which there was, at acquisition, evidence of deterioration of credit quality since origination, and for which it was probable that all contractually required payments would not be collected. The carrying amounts of these loans included in the loan balances above are summarized as follows:
| | (Dollars in thousands) | September 30, 2016 | December 31, 2015 | March 31, 2017 | December 31, 2016 |
Commercial real estate, other | $ | 11,391 |
| $ | 16,893 |
| $ | 9,949 |
| $ | 11,476 |
|
Commercial and industrial | 2,567 |
| 3,040 |
| 1,506 |
| 1,573 |
|
Residential real estate | 24,212 |
| 27,155 |
| 21,945 |
| 23,306 |
|
Consumer | 94 |
| 193 |
| 59 |
| 76 |
|
Total outstanding balance | $ | 38,264 |
| $ | 47,281 |
| $ | 33,459 |
| $ | 36,431 |
|
Net carrying amount | $ | 28,292 |
| $ | 35,064 |
| $ | 23,955 |
| $ | 26,524 |
|
Changes in the accretable yield for purchased credit impaired loans for the ninethree months ended September 30, 2016March 31, 2017 were as follows:
|
| | | |
(Dollars in thousands) | Accretable Yield |
Balance, December 31, 2015 | $ | 7,042 |
|
Reclassification from nonaccretable to accretable | 2,014 |
|
Accretion | (1,430 | ) |
Balance, September 30, 2016 | $ | 7,626 |
|
Peoples completed semi-annual re-estimations of cash flows on acquired purchased credit impaired loans in February and August of 2016. The above reclassification from nonaccretable to accretable was related to the re-estimation of cash flows on the acquired purchased credit impaired loan portfolios, coupled with the loans performing better than expected. The majority of the reclassification related to prepayment speeds decreasing in the residential portfolio, resulting in higher total expected cash flows. In 2017, Peoples will complete the re-estimation of cash flows on acquired purchased credit impaired loans on an as needed basis and, in any event, at least annually in August. |
| | | |
(Dollars in thousands) | Accretable Yield |
Balance, December 31, 2016 | $ | 7,132 |
|
Accretion | (461 | ) |
Balance, March 31, 2017 | $ | 6,671 |
|
Cash flows expected to be collected on acquired purchased credit impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly the principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary.
Peoples pledges certain loans secured by 1-4 family and multifamily residential mortgages under a blanket collateral agreement to secure borrowings from the FHLB. The amount of such pledged loans totaled $538.7$503.2 million and $554.8542.5 million at September 30, 2016March 31, 2017 and December 31, 20152016, respectively. Peoples also pledges commercial loans to secure borrowings with the FRB. The outstanding balances of these loans totaled $159.9$140.3 million and $195.5152.0 million at September 30, 2016March 31, 2017 and December 31, 20152016, respectively.
Nonaccrual and Past Due Loans
A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or not such loan is considered past due.
The recorded investments in loans on nonaccrual status and loans delinquent for 90 days or more and accruing were as follows:
| | | Nonaccrual Loans | | Loans 90+ Days Past Due and Accruing | Nonaccrual Loans | | Loans 90+ Days Past Due and Accruing |
(Dollars in thousands) | September 30, 2016 | December 31, 2015 | | September 30, 2016 | December 31, 2015 | March 31, 2017 | December 31, 2016 | | March 31, 2017 | December 31, 2016 |
Originated loans: | | | | | | |
Commercial real estate, construction | $ | 855 |
| $ | 921 |
| | $ | — |
| $ | — |
| $ | 819 |
| $ | 826 |
| | $ | — |
| $ | — |
|
Commercial real estate, other | 9,982 |
| 7,041 |
| | — |
| — |
| 8,137 |
| 9,934 |
| | — |
| — |
|
Commercial real estate | $ | 10,837 |
| $ | 7,962 |
| | $ | — |
| $ | — |
| 8,956 |
| 10,760 |
| | — |
| — |
|
Commercial and industrial | 1,468 |
| 480 |
| | — |
| 680 |
| 1,251 |
| 1,712 |
| | 848 |
| — |
|
Residential real estate | 3,722 |
| 3,057 |
| | 34 |
| 169 |
| 3,380 |
| 3,778 |
| | 142 |
| 183 |
|
Home equity lines of credit | 273 |
| 321 |
| | 199 |
| — |
| 310 |
| 383 |
| | 76 |
| — |
|
Consumer, indirect | 30 |
| 34 |
| | 82 |
| — |
| 211 |
| 130 |
| | 61 |
| 10 |
|
Consumer, other | 5 |
| 58 |
| | — |
| 1 |
| 2 |
| 11 |
| | — |
| — |
|
Consumer | $ | 35 |
| $ | 92 |
| | $ | 82 |
| $ | 1 |
| 213 |
| 141 |
| | 61 |
| 10 |
|
Total originated loans | $ | 16,335 |
| $ | 11,912 |
| | $ | 315 |
| $ | 850 |
| $ | 14,110 |
| $ | 16,774 |
| | $ | 1,127 |
| $ | 193 |
|
Acquired loans: | | | | | | |
Commercial real estate, other | 780 |
| 469 |
| | 1,636 |
| 2,425 |
| $ | 1,314 |
| $ | 1,609 |
| | $ | 456 |
| $ | 1,506 |
|
Commercial and industrial | 281 |
| 247 |
| | 452 |
| 1,306 |
| 298 |
| 390 |
| | 510 |
| 387 |
|
Residential real estate | 1,713 |
| 798 |
| | 1,758 |
| 1,353 |
| 2,338 |
| 2,317 |
| | 878 |
| 1,672 |
|
Home equity lines of credit | 232 |
| 98 |
| | — |
| 35 |
| 230 |
| 231 |
| | 35 |
| — |
|
Consumer, indirect | | — |
| — |
| | — |
| 13 |
|
Consumer, other | 5 |
| 7 |
| | — |
| — |
| 3 |
| 4 |
| | — |
| — |
|
Consumer | | 3 |
| 4 |
| | — |
| 13 |
|
Total acquired loans | $ | 3,011 |
| $ | 1,619 |
| | $ | 3,846 |
| $ | 5,119 |
| $ | 4,183 |
| $ | 4,551 |
| | $ | 1,879 |
| $ | 3,578 |
|
Total loans | $ | 19,346 |
| $ | 13,531 |
| | $ | 4,161 |
| $ | 5,969 |
| $ | 18,293 |
| $ | 21,325 |
| | $ | 3,006 |
| $ | 3,771 |
|
During the first quarter of 2017, Peoples' nonaccrual loans and loans 90+ days past due and accruing declined largely due to several payoffs on larger relationships during the quarter.
The following table presents the aging of the recorded investment in past due loans:
| | | Loans Past Due | | Current Loans | Total Loans | Loans Past Due | | Current Loans | Total Loans |
(Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total | | 30 - 59 days | 60 - 89 days | 90 + Days | Total | |
September 30, 2016 | | | | |
March 31, 2017 | | | | |
Originated loans: | | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| $ | 855 |
| $ | 855 |
| | $ | 69,983 |
| $ | 70,838 |
| $ | — |
| $ | — |
| $ | 819 |
| $ | 819 |
| | $ | 93,067 |
| $ | 93,886 |
|
Commercial real estate, other | 726 |
| 1,032 |
| 9,381 |
| 11,139 |
| | 496,703 |
| 507,842 |
| 1,958 |
| 81 |
| 7,495 |
| 9,534 |
| | 525,940 |
| 535,474 |
|
Commercial real estate | $ | 726 |
| $ | 1,032 |
| $ | 10,236 |
| $ | 11,994 |
| | $ | 566,686 |
| $ | 578,680 |
| 1,958 |
| 81 |
| 8,314 |
| 10,353 |
| | 619,007 |
| 629,360 |
|
Commercial and industrial | 1,083 |
| 412 |
| 1,415 |
| 2,910 |
| | 348,430 |
| 351,340 |
| 560 |
| 113 |
| 2,049 |
| 2,722 |
| | 381,826 |
| 384,548 |
|
Residential real estate | 2,043 |
| 1,094 |
| 1,694 |
| 4,831 |
| | 301,543 |
| 306,374 |
| 4,285 |
| 797 |
| 1,051 |
| 6,133 |
| | 302,020 |
| 308,153 |
|
Home equity lines of credit | 153 |
| 46 |
| 318 |
| 517 |
| | 82,895 |
| 83,412 |
| 198 |
| 31 |
| 158 |
| 387 |
| | 85,125 |
| 85,512 |
|
Consumer, indirect | 945 |
| 184 |
| 82 |
| 1,211 |
| | 228,123 |
| 229,334 |
| 1,107 |
| 344 |
| 193 |
| 1,644 |
| | 281,462 |
| 283,106 |
|
Consumer, other | 291 |
| 96 |
| — |
| 387 |
| | 67,586 |
| 67,973 |
| 339 |
| 44 |
| — |
| 383 |
| | 65,900 |
| 66,283 |
|
Consumer | $ | 1,236 |
| $ | 280 |
| $ | 82 |
| $ | 1,598 |
| | $ | 295,709 |
| $ | 297,307 |
| 1,446 |
| 388 |
| 193 |
| 2,027 |
| | 347,362 |
| 349,389 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| | 1,074 |
| 1,074 |
| — |
| — |
| — |
| — |
| | 721 |
| 721 |
|
Total originated loans | $ | 5,241 |
| $ | 2,864 |
| $ | 13,745 |
| $ | 21,850 |
| | $ | 1,596,337 |
| $ | 1,618,187 |
| $ | 8,447 |
| $ | 1,410 |
| $ | 11,765 |
| $ | 21,622 |
| | $ | 1,736,061 |
| $ | 1,757,683 |
|
Acquired loans: | | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | 10,242 |
| $ | 10,242 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | 9,431 |
| $ | 9,431 |
|
Commercial real estate, other | 623 |
| 294 |
| 2,293 |
| 3,210 |
| | 217,826 |
| 221,036 |
| 380 |
| 89 |
| 894 |
| 1,363 |
| | 193,218 |
| 194,581 |
|
Commercial real estate | $ | 623 |
| $ | 294 |
| $ | 2,293 |
| $ | 3,210 |
| | $ | 228,068 |
| $ | 231,278 |
| 380 |
| 89 |
| 894 |
| 1,363 |
| | 202,649 |
| 204,012 |
|
Commercial and industrial | 188 |
| 59 |
| 733 |
| 980 |
| | 47,722 |
| 48,702 |
| 251 |
| 79 |
| 709 |
| 1,039 |
| | 43,150 |
| 44,189 |
|
Residential real estate | 1,269 |
| 1,804 |
| 2,511 |
| 5,584 |
| | 233,203 |
| 238,787 |
| 4,322 |
| 970 |
| 2,116 |
| 7,408 |
| | 208,651 |
| 216,059 |
|
Home equity lines of credit | 54 |
| 156 |
| 178 |
| 388 |
| | 27,396 |
| 27,784 |
| 64 |
| 101 |
| 212 |
| 377 |
| | 24,139 |
| 24,516 |
|
Consumer, indirect | 27 |
| — |
| — |
| 27 |
| | 925 |
| 952 |
| — |
| — |
| — |
| — |
| | 656 |
| 656 |
|
Consumer, other | 32 |
| 14 |
| — |
| 46 |
| | 3,472 |
| 3,518 |
| 47 |
| 1 |
| — |
| 48 |
| | 2,339 |
| 2,387 |
|
Consumer | $ | 59 |
| $ | 14 |
| $ | — |
| $ | 73 |
|
| $ | 4,397 |
| $ | 4,470 |
| 47 |
| 1 |
| — |
| 48 |
|
| 2,995 |
| 3,043 |
|
Total acquired loans | $ | 2,193 |
| $ | 2,327 |
| $ | 5,715 |
| $ | 10,235 |
| | $ | 540,786 |
| $ | 551,021 |
| $ | 5,064 |
| $ | 1,240 |
| $ | 3,931 |
| $ | 10,235 |
| | $ | 481,584 |
| $ | 491,819 |
|
Total loans | $ | 7,434 |
| $ | 5,191 |
| $ | 19,460 |
| $ | 32,085 |
| | $ | 2,137,123 |
| $ | 2,169,208 |
| $ | 13,511 |
| $ | 2,650 |
| $ | 15,696 |
| $ | 31,857 |
| | $ | 2,217,645 |
| $ | 2,249,502 |
|
| | | Loans Past Due | | Current Loans | Total Loans | Loans Past Due | | Current Loans | Total Loans |
(Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total | | 30 - 59 days | 60 - 89 days | 90 + Days | Total | |
December 31, 2015 | | | | |
December 31, 2016 | | | | |
Originated loans: | | | | | | |
Commercial real estate, construction | $ | 913 |
| $ | — |
| $ | 8 |
| $ | 921 |
| | $ | 62,864 |
| $ | 63,785 |
| $ | — |
| $ | — |
| $ | 826 |
| $ | 826 |
| | $ | 83,800 |
| $ | 84,626 |
|
Commercial real estate, other | 7,260 |
| 1,258 |
| 379 |
| 8,897 |
| | 462,287 |
| 471,184 |
| 1,420 |
| 225 |
| 9,305 |
| 10,950 |
| | 520,607 |
| 531,557 |
|
Commercial real estate | $ | 8,173 |
| $ | 1,258 |
| $ | 387 |
| $ | 9,818 |
| | $ | 525,151 |
| $ | 534,969 |
| 1,420 |
| 225 |
| 10,131 |
| 11,776 |
| | 604,407 |
| 616,183 |
|
Commercial and industrial | 1,437 |
| 215 |
| 767 |
| 2,419 |
| | 285,711 |
| 288,130 |
| 1,305 |
| 700 |
| 1,465 |
| 3,470 |
| | 374,661 |
| 378,131 |
|
Residential real estate | 3,124 |
| 1,105 |
| 1,263 |
| 5,492 |
| | 283,291 |
| 288,783 |
| 7,288 |
| 1,019 |
| 1,895 |
| 10,202 |
| | 297,288 |
| 307,490 |
|
Home equity lines of credit | 161 |
| 7 |
| 104 |
| 272 |
| | 73,904 |
| 74,176 |
| 316 |
| 45 |
| 248 |
| 609 |
| | 85,008 |
| 85,617 |
|
Consumer, indirect | 790 |
| 168 |
| — |
| 958 |
| | 164,362 |
| 165,320 |
| 2,080 |
| 273 |
| 77 |
| 2,430 |
| | 249,594 |
| 252,024 |
|
Consumer, other | 597 |
| 82 |
| 32 |
| 711 |
| | 61,102 |
| 61,813 |
| 346 |
| 38 |
| — |
| 384 |
| | 67,195 |
| 67,579 |
|
Consumer | $ | 1,387 |
| $ | 250 |
| $ | 32 |
| $ | 1,669 |
|
| $ | 225,464 |
| $ | 227,133 |
| 2,426 |
| 311 |
| 77 |
| 2,814 |
|
| 316,789 |
| 319,603 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| | 1,448 |
| 1,448 |
| — |
| — |
| — |
| — |
| | 1,080 |
| 1,080 |
|
Total originated loans | $ | 14,282 |
| $ | 2,835 |
| $ | 2,553 |
| $ | 19,670 |
| | $ | 1,394,969 |
| $ | 1,414,639 |
| $ | 12,755 |
| $ | 2,300 |
| $ | 13,816 |
| $ | 28,871 |
| | $ | 1,679,233 |
| $ | 1,708,104 |
|
Acquired loans: | | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| $ | 40 |
| $ | 40 |
| | $ | 12,074 |
| $ | 12,114 |
| $ | — |
| $ | — |
| $ | 40 |
| $ | 40 |
| | $ | 10,060 |
| $ | 10,100 |
|
Commercial real estate, other | 1,592 |
| 352 |
| 2,730 |
| 4,674 |
| | 260,418 |
| 265,092 |
| 1,220 |
| 208 |
| 2,271 |
| 3,699 |
| | 200,767 |
| 204,466 |
|
Commercial real estate | $ | 1,592 |
| $ | 352 |
| $ | 2,770 |
| $ | 4,714 |
| | $ | 272,492 |
| $ | 277,206 |
| 1,220 |
| 208 |
| 2,311 |
| 3,739 |
| | 210,827 |
| 214,566 |
|
Commercial and industrial | 177 |
| 232 |
| 1,553 |
| 1,962 |
| | 61,627 |
| 63,589 |
| 148 |
| 3 |
| 777 |
| 928 |
| | 43,280 |
| 44,208 |
|
Residential real estate | 4,910 |
| 2,480 |
| 1,745 |
| 9,135 |
| | 267,637 |
| 276,772 |
| 5,918 |
| 2,496 |
| 2,974 |
| 11,388 |
| | 217,047 |
| 228,435 |
|
Home equity lines of credit | 318 |
| 20 |
| 95 |
| 433 |
| | 31,820 |
| 32,253 |
| 208 |
| 65 |
| 178 |
| 451 |
| | 25,424 |
| 25,875 |
|
Consumer, indirect | 23 |
| — |
| — |
| 23 |
| | 1,753 |
| 1,776 |
| 4 |
| — |
| — |
| 4 |
| | 804 |
| 808 |
|
Consumer, other | 67 |
| 31 |
| — |
| 98 |
| | 6,107 |
| 6,205 |
| 51 |
| — |
| 13 |
| 64 |
| | 2,876 |
| 2,940 |
|
Consumer | $ | 90 |
| $ | 31 |
| $ | — |
| $ | 121 |
| | $ | 7,860 |
| $ | 7,981 |
| 55 |
| — |
| 13 |
| 68 |
| | 3,680 |
| 3,748 |
|
Total acquired loans | $ | 7,087 |
| $ | 3,115 |
| $ | 6,163 |
| $ | 16,365 |
| | $ | 641,436 |
| $ | 657,801 |
| $ | 7,549 |
| $ | 2,772 |
| $ | 6,253 |
| $ | 16,574 |
| | $ | 500,258 |
| $ | 516,832 |
|
Total loans | $ | 21,369 |
| $ | 5,950 |
| $ | 8,716 |
| $ | 36,035 |
| | $ | 2,036,405 |
| $ | 2,072,440 |
| $ | 20,304 |
| $ | 5,072 |
| $ | 20,069 |
| $ | 45,445 |
| | $ | 2,179,491 |
| $ | 2,224,936 |
|
During the first quarter of 2017, Peoples' delinquency trends improved compared to December 31, 2016, as total loans past due declined in both the originated and acquired loan portfolios.
Credit Quality Indicators
As discussed in Note 1 of the Notes to the Consolidated Financial Statements included in Peoples' 20152016 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk grading matrix using a scale of 1 to 8. A description of the general characteristics of the risk grades used by Peoples is as follows:
“Pass” (grades 1 through 4): Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the loan if required, for any weakness that may exist.
“Watch” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned” classification.Mentioned.” Loans in this category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and/or reliance on thea secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the loan or in Peoples' credit position.
“Substandard” (grade 6): Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or of the collateral pledged, if any. Loans so classified have one or more well-defined weaknesses that jeopardize the orderly repayment of the loan. They are characterized by the distinct possibility that Peoples will sustain some loss if the deficiencies are not corrected.
“Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of
certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification of the loan as an estimated loss is deferred until its more exact status may be determined.
“Loss” (grade 8): Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean thea loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for loan losses are taken in the period in which the loan becomes uncollectible. Consequently, Peoples typically does not maintain a recorded investment in loans within this category.
Consumer loans and other smaller-balance loans are evaluated and categorized as “substandard”, “doubtful” or “loss” based upon the regulatory definition of these classes and consistent with regulatory requirements. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as being “not rated”.
The following table summarizes the risk category of loans within Peoples' loan portfolio based upon the most recent analysis performed:
| | | Pass Rated (Grades 1 - 4) | Watch (Grade 5) | Substandard (Grade 6) | Doubtful (Grade 7) | Not Rated | Total Loans | Pass Rated (Grades 1 - 4) | Watch (Grade 5) | Substandard (Grade 6) | Doubtful (Grade 7) | Not Rated | Total Loans |
(Dollars in thousands) |
September 30, 2016 | | |
March 31, 2017 | | |
Originated loans: | | |
Commercial real estate, construction | $ | 69,517 |
| $ | — |
| $ | 855 |
| $ | — |
| $ | 466 |
| $ | 70,838 |
| $ | 84,061 |
| $ | 8,489 |
| $ | 819 |
| $ | — |
| $ | 517 |
| $ | 93,886 |
|
Commercial real estate, other | 483,190 |
| 9,242 |
| 15,410 |
| — |
| — |
| 507,842 |
| 509,865 |
| 11,725 |
| 13,884 |
| — |
| — |
| 535,474 |
|
Commercial real estate | $ | 552,707 |
| $ | 9,242 |
| $ | 16,265 |
| $ | — |
| $ | 466 |
| $ | 578,680 |
| 593,926 |
| 20,214 |
| 14,703 |
| — |
| 517 |
| 629,360 |
|
Commercial and industrial | 319,634 |
| 24,178 |
| 7,512 |
| — |
| 16 |
| 351,340 |
| 356,912 |
| 10,600 |
| 16,999 |
| — |
| 37 |
| 384,548 |
|
Residential real estate | 20,577 |
| 1,066 |
| 12,975 |
| 359 |
| 271,397 |
| 306,374 |
| 19,641 |
| 916 |
| 11,802 |
| 600 |
| 275,194 |
| 308,153 |
|
Home equity lines of credit | 545 |
| — |
| 138 |
| — |
| 82,729 |
| 83,412 |
| 555 |
| — |
| — |
| — |
| 84,957 |
| 85,512 |
|
Consumer, indirect | 141 |
| — |
| — |
| — |
| 229,193 |
| 229,334 |
| 68 |
| 12 |
| — |
| — |
| 283,026 |
| 283,106 |
|
Consumer, other | 141 |
| — |
| — |
| — |
| 67,832 |
| 67,973 |
| 51 |
| — |
| — |
| — |
| 66,232 |
| 66,283 |
|
Consumer | $ | 282 |
| $ | — |
| $ | — |
| $ | — |
| $ | 297,025 |
| $ | 297,307 |
| 119 |
| 12 |
| — |
| — |
| 349,258 |
| 349,389 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| 1,074 |
| 1,074 |
| — |
| — |
| — |
| — |
| 721 |
| 721 |
|
Total originated loans | $ | 893,745 |
| $ | 34,486 |
| $ | 36,890 |
| $ | 359 |
| $ | 652,707 |
| $ | 1,618,187 |
| $ | 971,153 |
| $ | 31,742 |
| $ | 43,504 |
| $ | 600 |
| $ | 710,684 |
| $ | 1,757,683 |
|
Acquired loans: | | |
Commercial real estate, construction | $ | 10,242 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 10,242 |
| $ | 9,377 |
| $ | — |
| $ | 53 |
| $ | — |
| $ | 1 |
| $ | 9,431 |
|
Commercial real estate, other | 197,552 |
| 10,086 |
| 13,328 |
| 69 |
| 1 |
| 221,036 |
| 172,698 |
| 12,155 |
| 9,727 |
| — |
| 1 |
| 194,581 |
|
Commercial real estate | $ | 207,794 |
| $ | 10,086 |
| $ | 13,328 |
| $ | 69 |
| $ | 1 |
| $ | 231,278 |
| 182,075 |
| 12,155 |
| 9,780 |
| — |
| 2 |
| 204,012 |
|
Commercial and industrial | 46,650 |
| 318 |
| 1,538 |
| 196 |
| — |
| 48,702 |
| 42,749 |
| 257 |
| 1,183 |
| — |
| — |
| 44,189 |
|
Residential real estate | 17,023 |
| 649 |
| 1,375 |
| — |
| 219,740 |
| 238,787 |
| 14,854 |
| 627 |
| 1,436 |
| — |
| 199,142 |
| 216,059 |
|
Home equity lines of credit | 245 |
| — |
| — |
| — |
| 27,539 |
| 27,784 |
| 144 |
| — |
| — |
| — |
| 24,372 |
| 24,516 |
|
Consumer, indirect | 72 |
| — |
| — |
| — |
| 880 |
| 952 |
| 44 |
| — |
| — |
| — |
| 612 |
| 656 |
|
Consumer, other | $ | 59 |
| $ | — |
| $ | — |
| $ | — |
| $ | 3,459 |
| $ | 3,518 |
| 48 |
| — |
| — |
| — |
| 2,339 |
| 2,387 |
|
Consumer | $ | 131 |
| $ | — |
| $ | — |
| $ | — |
| $ | 4,339 |
| $ | 4,470 |
| 92 |
| — |
| — |
| — |
| 2,951 |
| 3,043 |
|
Total acquired loans | $ | 271,843 |
| $ | 11,053 |
| $ | 16,241 |
| $ | 265 |
| $ | 251,619 |
| $ | 551,021 |
| $ | 239,914 |
| $ | 13,039 |
| $ | 12,399 |
| $ | — |
| $ | 226,467 |
| $ | 491,819 |
|
Total loans | $ | 1,165,588 |
| $ | 45,539 |
| $ | 53,131 |
| $ | 624 |
| $ | 904,326 |
| $ | 2,169,208 |
| $ | 1,211,067 |
| $ | 44,781 |
| $ | 55,903 |
| $ | 600 |
| $ | 937,151 |
| $ | 2,249,502 |
|
| | | Pass Rated (Grades 1 - 4) | Watch (Grade 5) | Substandard (Grade 6) | Doubtful (Grade 7) | Not Rated | Total Loans | Pass Rated (Grades 1 - 4) | Watch (Grade 5) | Substandard (Grade 6) | Doubtful (Grade 7) | Not Rated | Total Loans |
(Dollars in thousands) |
December 31, 2015 | | |
December 31, 2016 | | |
Originated loans: | | |
Commercial real estate, construction | $ | 62,225 |
| $ | — |
| $ | 913 |
| $ | — |
| $ | 647 |
| $ | 63,785 |
| $ | 73,423 |
| $ | — |
| $ | 826 |
| $ | — |
| $ | 10,377 |
| $ | 84,626 |
|
Commercial real estate, other | 434,868 |
| 18,710 |
| 17,595 |
| — |
| 11 |
| 471,184 |
| 505,029 |
| 11,855 |
| 14,673 |
| — |
| — |
| 531,557 |
|
Commercial real estate | $ | 497,093 |
| $ | 18,710 |
| $ | 18,508 |
| $ | — |
| $ | 658 |
| $ | 534,969 |
| 578,452 |
| 11,855 |
| 15,499 |
| — |
| 10,377 |
| 616,183 |
|
Commercial and industrial | 259,183 |
| 23,601 |
| 5,344 |
| — |
| 2 |
| 288,130 |
| 346,791 |
| 15,210 |
| 16,130 |
| — |
| — |
| 378,131 |
|
Residential real estate | 21,903 |
| 1,168 |
| 12,282 |
| 187 |
| 253,243 |
| 288,783 |
| 47,336 |
| 957 |
| 12,828 |
| 304 |
| 246,065 |
| 307,490 |
|
Home equity lines of credit | 785 |
| — |
| 175 |
| — |
| 73,216 |
| 74,176 |
| 465 |
| — |
| 135 |
| — |
| 85,017 |
| 85,617 |
|
Consumer, indirect | 94 |
| — |
| 3 |
| — |
| 165,223 |
| 165,320 |
| 15 |
| 13 |
| — |
| — |
| 251,996 |
| 252,024 |
|
Consumer, other | 114 |
| — |
| — |
| — |
| 61,699 |
| 61,813 |
| 50 |
| — |
| — |
| — |
| 67,529 |
| 67,579 |
|
Consumer | $ | 208 |
| $ | — |
| $ | 3 |
| $ | — |
| $ | 226,922 |
| $ | 227,133 |
| 65 |
| 13 |
| — |
| — |
| 319,525 |
| 319,603 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| 1,448 |
| 1,448 |
| — |
| — |
| — |
| — |
| 1,080 |
| 1,080 |
|
Total originated loans | $ | 779,172 |
| $ | 43,479 |
| $ | 36,312 |
| $ | 187 |
| $ | 555,489 |
| $ | 1,414,639 |
| $ | 973,109 |
| $ | 28,035 |
| $ | 44,592 |
| $ | 304 |
| $ | 662,064 |
| $ | 1,708,104 |
|
Acquired loans: | | |
Commercial real estate, construction | $ | 12,114 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 12,114 |
| $ | 10,046 |
| $ | — |
| $ | 54 |
| $ | — |
| $ | — |
| $ | 10,100 |
|
Commercial real estate, other | 233,630 |
| 13,866 |
| 17,521 |
| 75 |
| — |
| 265,092 |
| 181,781 |
| 12,475 |
| 10,210 |
| — |
| — |
| 204,466 |
|
Commercial real estate | $ | 245,744 |
| $ | 13,866 |
| $ | 17,521 |
| $ | 75 |
| $ | — |
| $ | 277,206 |
| 191,827 |
| 12,475 |
| 10,264 |
| — |
| — |
| 214,566 |
|
Commercial and industrial | 56,077 |
| 3,078 |
| 4,238 |
| 196 |
| — |
| 63,589 |
| 42,809 |
| 227 |
| 978 |
| 194 |
| — |
| 44,208 |
|
Residential real estate | 18,027 |
| 1,409 |
| 1,786 |
| — |
| 255,550 |
| 276,772 |
| 17,170 |
| 709 |
| 1,404 |
| — |
| 209,152 |
| 228,435 |
|
Home equity lines of credit | 316 |
| — |
| — |
| — |
| 31,937 |
| 32,253 |
| 202 |
| — |
| — |
| — |
| 25,673 |
| 25,875 |
|
Consumer, indirect | 130 |
| — |
| — |
| — |
| 1,646 |
| 1,776 |
| 51 |
| — |
| — |
| — |
| 757 |
| 808 |
|
Consumer, other | 126 |
| — |
| — |
| — |
| 6,079 |
| 6,205 |
| 53 |
| — |
| — |
| — |
| 2,887 |
| 2,940 |
|
Consumer | $ | 256 |
| $ | — |
| $ | — |
| $ | — |
| $ | 7,725 |
| $ | 7,981 |
| 104 |
| — |
| — |
| — |
| 3,644 |
| 3,748 |
|
Total acquired loans | $ | 320,420 |
| $ | 18,353 |
| $ | 23,545 |
| $ | 271 |
| $ | 295,212 |
| $ | 657,801 |
| $ | 252,112 |
| $ | 13,411 |
| $ | 12,646 |
| $ | 194 |
| $ | 238,469 |
| $ | 516,832 |
|
Total loans | $ | 1,099,592 |
| $ | 61,832 |
| $ | 59,857 |
| $ | 458 |
| $ | 850,701 |
| $ | 2,072,440 |
| $ | 1,225,221 |
| $ | 41,446 |
| $ | 57,238 |
| $ | 498 |
| $ | 900,533 |
| $ | 2,224,936 |
|
In the first quarter of 2017, Peoples' classified loans, which are loans categorized as substandard or doubtful, declined compared to December 31, 2016, mostly due to loan payoffs.
Impaired Loans
The following table summarizes loans classified as impaired:
| | | Unpaid Principal Balance | Recorded Investment | Total Recorded Investment | | Average Recorded Investment | Interest Income Recognized | Unpaid Principal Balance | Recorded Investment | Total Recorded Investment | | Average Recorded Investment | Interest Income Recognized |
| With Allowance | Without Allowance | Related Allowance | With Allowance | Without Allowance | Related Allowance |
(Dollars in thousands) |
September 30, 2016 | | |
March 31, 2017 | | |
Commercial real estate, construction | $ | 925 |
| $ | — |
| $ | 898 |
| $ | 898 |
| $ | — |
| $ | 927 |
| $ | 1 |
| $ | 916 |
| $ | — |
| $ | 859 |
| $ | 859 |
| $ | — |
| $ | 863 |
| $ | 2 |
|
Commercial real estate, other | 21,497 |
| 7,878 |
| 13,370 |
| 21,248 |
| 1,164 |
| 18,950 |
| 530 |
| 18,437 |
| 5,288 |
| 11,881 |
| 17,169 |
| 462 |
| 17,258 |
| 315 |
|
Commercial real estate | $ | 22,422 |
| $ | 7,878 |
| $ | 14,268 |
| $ | 22,146 |
| $ | 1,164 |
| $ | 19,877 |
| $ | 531 |
| 19,353 |
| 5,288 |
| 12,740 |
| 18,028 |
| 462 |
| 18,121 |
| 317 |
|
Commercial and industrial | 4,064 |
| 2,832 |
| 1,075 |
| 3,907 |
| 506 |
| 3,722 |
| 164 |
| 7,077 |
| 2,587 |
| 910 |
| 3,497 |
| 449 |
| 3,009 |
| 33 |
|
Residential real estate | 30,087 |
| 428 |
| 28,770 |
| 29,198 |
| 122 |
| 28,745 |
| 978 |
| 27,349 |
| 592 |
| 25,498 |
| 26,090 |
| 139 |
| 26,032 |
| 575 |
|
Home equity lines of credit | 1,248 |
| — |
| 1,241 |
| 1,241 |
| — |
| 1,002 |
| 59 |
| 1,784 |
| 67 |
| 1,712 |
| 1,779 |
| 16 |
| 1,339 |
| 40 |
|
Consumer, indirect | 209 |
| — |
| 199 |
| 199 |
| — |
| 126 |
| 17 |
| 234 |
| 68 |
| 166 |
| 234 |
| 24 |
| 206 |
| 4 |
|
Consumer, other | 295 |
| — |
| 291 |
| 291 |
| — |
| 244 |
| 38 |
| 125 |
| 2 |
| 121 |
| 123 |
| 2 |
| 111 |
| 3 |
|
Consumer | $ | 504 |
| $ | — |
| $ | 490 |
| $ | 490 |
| $ | — |
| $ | 370 |
| $ | 55 |
| 359 |
| 70 |
| 287 |
| 357 |
| 26 |
| 317 |
| 7 |
|
Total | $ | 58,325 |
| $ | 11,138 |
| $ | 45,844 |
| $ | 56,982 |
| $ | 1,792 |
| $ | 53,716 |
| $ | 1,787 |
| $ | 55,922 |
| $ | 8,604 |
| $ | 41,147 |
| $ | 49,751 |
| $ | 1,092 |
| $ | 48,818 |
| $ | 972 |
|
December 31, 2015 | | |
December 31, 2016 | | |
Commercial real estate, construction | $ | 957 |
| $ | — |
| $ | 957 |
| $ | 957 |
| $ | — |
| $ | 227 |
| $ | 3 |
| $ | 894 |
| $ | — |
| $ | 866 |
| $ | 866 |
| $ | — |
| $ | 913 |
| $ | 3 |
|
Commercial real estate, other | 23,430 |
| 6,396 |
| 12,772 |
| 19,168 |
| 1,363 |
| 13,070 |
| 815 |
| 20,029 |
| 7,474 |
| 12,227 |
| 19,701 |
| 803 |
| 18,710 |
| 700 |
|
Commercial real estate | $ | 24,387 |
| $ | 6,396 |
| $ | 13,729 |
| $ | 20,125 |
| $ | 1,363 |
| $ | 13,297 |
| $ | 818 |
| 20,923 |
| 7,474 |
| 13,093 |
| 20,567 |
| 803 |
| 19,623 |
| 703 |
|
Commercial and industrial | 5,670 |
| 1,224 |
| 4,130 |
| 5,354 |
| 351 |
| 4,049 |
| 246 |
| 7,289 |
| 2,732 |
| 1,003 |
| 3,735 |
| 585 |
| 3,386 |
| 125 |
|
Residential real estate | 31,304 |
| 370 |
| 28,834 |
| 29,204 |
| 106 |
| 26,785 |
| 1,354 |
| 27,703 |
| 138 |
| 27,393 |
| 27,531 |
| 24 |
| 27,455 |
| 1,419 |
|
Home equity lines of credit | 425 |
| — |
| 419 |
| 419 |
| — |
| 325 |
| 18 |
| 908 |
| — |
| 908 |
| 908 |
| — |
| 717 |
| 44 |
|
Consumer, indirect | 118 |
| — |
| 103 |
| 103 |
| — |
| 84 |
| — |
| 220 |
| — |
| 224 |
| 224 |
| — |
| 136 |
| 16 |
|
Consumer, other | 265 |
| — |
| 195 |
| 195 |
| — |
| 210 |
| 28 |
| 130 |
| — |
| 130 |
| 130 |
| — |
| 138 |
| 13 |
|
Consumer | $ | 383 |
| $ | — |
| $ | 298 |
| $ | 298 |
| $ | — |
| $ | 294 |
| $ | 28 |
| 350 |
| — |
| 354 |
| 354 |
| — |
| 274 |
| 29 |
|
Total | $ | 62,169 |
| $ | 7,990 |
| $ | 47,410 |
| $ | 55,400 |
| $ | 1,820 |
| $ | 44,750 |
| $ | 2,464 |
| $ | 57,173 |
| $ | 10,344 |
| $ | 42,751 |
| $ | 53,095 |
| $ | 1,412 |
| $ | 51,455 |
| $ | 2,320 |
|
At September 30, 2016,March 31, 2017, Peoples' impaired loans shown in the table above included loans that were classified as troubled debt restructurings ("TDRs").
In assessing whether or not a borrower is experiencing financial difficulties, Peoples considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the borrower is currently in payment default on any of the borrower's debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the borrower has declared or is in the process of declaring bankruptcy; and (iv) the borrower's projected cash flow is insufficient to satisfy contractual payments due under the original terms of the loan without a modification.
Peoples considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by Peoples include the borrower's ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to the unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by Peoples generally include one or more modifications to the terms of the loan, such as (i) a reduction in the interest rate for the remaining life of the loan, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new loans with similar risk, (iii) a temporary period of interest-only payments, and (iv) a reduction in the contractual payment amount for either a short period or the remaining term of the loan.
The following table summarizes the loans that were modified as a TDR during the three and nine months ended September 30:March 31:
|
| | | | | | | | | | | |
| | Three Months Ended |
| | Recorded Investment (1) |
(Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
March 31, 2017 | | | |
Originated loans: | | | |
Residential real estate | 2 |
| $ | 105 |
| $ | 105 |
| $ | 105 |
|
Home equity lines of credit | 3 |
| 226 |
| 226 |
| 225 |
|
Consumer, indirect | 4 |
| 80 |
| 80 |
| 80 |
|
Consumer, other | 2 |
| 9 |
| 9 |
| 9 |
|
Consumer | 6 |
| 89 |
| 89 |
| 89 |
|
Total originated loans | 11 |
| $ | 420 |
| $ | 420 |
| $ | 419 |
|
Acquired loans: | | | |
Commercial real estate, other | 2 |
| $ | 271 |
| $ | 271 |
| $ | 271 |
|
Residential real estate | 2 |
| 126 |
| 126 |
| 126 |
|
Home equity lines of credit | 4 |
| 294 |
| 294 |
| 326 |
|
Consumer, other | 1 |
| 9 |
| 9 |
| 9 |
|
Total acquired loans | 9 |
| $ | 700 |
| $ | 700 |
| $ | 732 |
|
March 31, 2016 | | | |
Originated loans: | | | |
Commercial and industrial | 4 |
| $ | 701 |
| $ | 701 |
| $ | 703 |
|
Residential real estate | 2 |
| 83 |
| 83 |
| 83 |
|
Consumer, other | 5 |
| 46 |
| 46 |
| 46 |
|
Total originated loans | 11 |
| $ | 830 |
| $ | 830 |
| $ | 832 |
|
Acquired loans: | | | |
Residential real estate | 6 |
| $ | 399 |
| $ | 401 |
| $ | 400 |
|
Home equity lines of credit | 1 |
| 12 |
| 12 |
| 12 |
|
Consumer, other | 2 |
| 4 |
| 4 |
| 4 |
|
Total acquired loans | 9 |
| $ | 415 |
| $ | 417 |
| $ | 416 |
|
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. |
|
| | | | | | | | | | | |
| | Three Months Ended |
| | Recorded Investment (1) |
(Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
September 30, 2016 | | | |
Originated loans: | | | |
Residential real estate | 2 |
| $ | 75 |
| $ | 75 |
| $ | 75 |
|
Home equity lines of credit | 3 |
| 23 |
| 23 |
| 23 |
|
Consumer, indirect | 7 |
| 78 |
| 78 |
| 78 |
|
Consumer, other | 3 |
| 34 |
| 34 |
| 34 |
|
Consumer | 10 |
| $ | 112 |
| $ | 112 |
| $ | 112 |
|
Total originated loans | 15 |
| $ | 210 |
| $ | 210 |
| $ | 210 |
|
Acquired loans: | | | |
Commercial real estate, other | 1 |
| $ | 224 |
| $ | 224 |
| $ | 224 |
|
Residential real estate | 2 |
| 141 |
| 141 |
| 141 |
|
Total acquired loans | 3 |
| $ | 365 |
| $ | 365 |
| $ | 365 |
|
September 30, 2015 | | | |
Originated loans: | | | |
Commercial real estate, other | 2 |
| $ | 128 |
| $ | 128 |
| $ | 128 |
|
Commercial and industrial | 4 |
| 13,670 |
| 13,670 |
| 13,658 |
|
Residential real estate | 2 |
| 73 |
| 73 |
| 73 |
|
Home equity lines of credit | 2 |
| 78 |
| 78 |
| 77 |
|
Consumer, indirect | 2 |
| 31 |
| 31 |
| 31 |
|
Total originated loans | 12 |
| $ | 13,980 |
| $ | 13,980 |
| $ | 13,967 |
|
Acquired loans: | | | |
Commercial real estate, other | 1 |
| $ | 24 |
| $ | 24 |
| $ | 24 |
|
Residential real estate | 1 |
| 34 |
| 33 |
| 33 |
|
Home equity lines of credit | 1 |
| 8 |
| 8 |
| 8 |
|
Total acquired loans | 3 |
| $ | 66 |
| $ | 65 |
| $ | 65 |
|
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. |
|
| | | | | | | | | | | |
| | Nine Months Ended |
| | Recorded Investment (1) |
(Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
September 30, 2016 | | | | |
Originated loans: | | | | |
Commercial real estate, other | 1 |
| $ | 57 |
| $ | 57 |
| $ | 56 |
|
Commercial and industrial | 6 |
| 716 |
| 724 |
| 685 |
|
Residential real estate | 5 |
| 173 |
| 173 |
| 173 |
|
Home equity lines of credit | 3 |
| 23 |
| 23 |
| 23 |
|
Consumer, indirect | 9 |
| 107 |
| 107 |
| 107 |
|
Consumer, other | 5 |
| 46 |
| 46 |
| 46 |
|
Consumer | 14 |
| $ | 153 |
| $ | 153 |
| $ | 153 |
|
Total originated loans | 29 |
| $ | 1,122 |
| $ | 1,130 |
| $ | 1,090 |
|
Acquired loans: | | | | |
Commercial real estate, other | 1 |
| $ | 223 |
| $ | 223 |
| $ | 223 |
|
Residential real estate | 11 |
| 927 |
| 929 |
| 923 |
|
Home equity lines of credit | 3 |
| 179 |
| 179 |
| 173 |
|
Consumer, indirect | 2 |
| 8 |
| 8 |
| 8 |
|
Consumer, other | 3 |
| 17 |
| 17 |
| 17 |
|
Consumer | 5 |
| $ | 25 |
| $ | 25 |
| $ | 25 |
|
Total acquired loans | 20 |
| $ | 1,354 |
| $ | 1,356 |
| $ | 1,344 |
|
September 30, 2015 | | | | |
Originated loans: | | | | |
Commercial real estate, other | 2 |
| $ | 128 |
| $ | 128 |
| $ | 128 |
|
Commercial and industrial | 4 |
| 13,670 |
| 13,670 |
| 13,658 |
|
Residential real estate | 4 |
| 257 |
| 256 |
| 167 |
|
Home equity lines of credit | 11 |
| 387 |
| 387 |
| 378 |
|
Consumer, indirect | 4 |
| 45 |
| 42 |
| 41 |
|
Total originated loans | 25 |
| $ | 14,487 |
| $ | 14,483 |
| $ | 14,372 |
|
Acquired loans: | | | | |
Commercial real estate, other | 1 |
| $ | 24 |
| $ | 24 |
| $ | 24 |
|
Residential real estate | 1 |
| 34 |
| 33 |
| 33 |
|
Home equity lines of credit | 1 |
| 8 |
| 8 |
| 8 |
|
Total acquired loans | 3 |
| $ | 66 |
| $ | 65 |
| $ | 65 |
|
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. |
The following table presents those loans for the ninethree months ended September 30March 31 that were modified as a TDR during the last twelve months that subsequently defaulted (i.e., 90 days or more past due following a modification.)modification:
| | | September 30, 2016 | | September 30, 2015 | March 31, 2017 | | March 31, 2016 |
(Dollars in thousands) | Number of Contracts | Recorded Investment (1) | Impact on the Allowance for Loan Losses | | Number of Contracts | Recorded Investment (1) | Impact on the Allowance for Loan Losses | Number of Contracts | Recorded Investment (1) | Impact on the Allowance for Loan Losses | | Number of Contracts | Recorded Investment (1) | Impact on the Allowance for Loan Losses |
Originated loans: | | | | | | |
Commercial real estate, other | 1 |
| 243 |
| $ | — |
| | — |
| — |
| — |
| |
Commercial and industrial | 1 |
| 173 |
| $ | — |
| | — |
| — |
| — |
| |
Total | 2 |
| 416 |
| — |
| | — |
| $ | — |
| $ | — |
| |
Acquired loans: | | | | | | | | | |
Commercial and industrial | — |
| $ | — |
| $ | — |
| | 2 |
| 196 |
| — |
| |
Residential real estate | | 1 |
| 73 |
| — |
| | — |
| — |
| — |
|
Total | — |
| $ | — |
| $ | — |
| | 2 |
| $ | 196 |
| $ | — |
| 1 |
| 73 |
| — |
| | — |
| $ | — |
| $ | — |
|
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. |
Peoples did not have any acquired loans that were modified as a TDR during the last twelve months that subsequently defaulted. Peoples had no additional commitments to lend additional funds to the related debtors whose terms have been modified in a TDR.
Allowance for Originated Loan Losses
Changes in the allowance for originated loan losses for the ninethree months ended September 30March 31 were as follows:
| | (Dollars in thousands) | Commercial Real Estate | Commercial and Industrial | Residential Real Estate | Home Equity Lines of Credit | Consumer | Deposit Account Overdrafts | Total | Commercial Real Estate | Commercial and Industrial | Residential Real Estate | Home Equity Lines of Credit | Consumer Indirect | Consumer Other | Deposit Account Overdrafts | Total |
Balance, January 1, 2016 | $ | 7,076 |
| $ | 5,382 |
| $ | 1,257 |
| $ | 732 |
| $ | 1,971 |
| $ | 121 |
| $ | 16,539 |
| |
Balance, January 1, 2017 | | $ | 7,172 |
| $ | 6,353 |
| $ | 982 |
| $ | 688 |
| $ | 2,312 |
| $ | 518 |
| $ | 171 |
| $ | 18,196 |
|
Charge-offs | (12 | ) | (1,017 | ) | (524 | ) | (58 | ) | (1,899 | ) | (544 | ) | (4,054 | ) | — |
| (117 | ) | (108 | ) | (3 | ) | (483 | ) | (40 | ) | (349 | ) | (1,100 | ) |
Recoveries | 1,199 |
| 250 |
| 193 |
| 33 |
| 910 |
| 148 |
| 2,733 |
| 102 |
| — |
| 89 |
| 3 |
| 206 |
| 50 |
| 65 |
| 515 |
|
Net recoveries (charge-offs) | 1,187 |
| (767 | ) | (331 | ) | (25 | ) | (989 | ) | (396 | ) | (1,321 | ) | 102 |
| (117 | ) | (19 | ) | — |
| (277 | ) | 10 |
| (284 | ) | (585 | ) |
(Recovery of) provision for loan losses | (773 | ) | 1,075 |
| 194 |
| (21 | ) | 1,850 |
| 418 |
| 2,743 |
| (208 | ) | 298 |
| 182 |
| (13 | ) | 374 |
| (90 | ) | 224 |
| 767 |
|
Balance, September 30, 2016 | $ | 7,490 |
| $ | 5,690 |
| $ | 1,120 |
| $ | 686 |
| $ | 2,832 |
| $ | 143 |
| $ | 17,961 |
| |
Balance, March 31, 2017 | | $ | 7,066 |
| $ | 6,534 |
| $ | 1,145 |
| $ | 675 |
| $ | 2,409 |
| $ | 438 |
| $ | 111 |
| $ | 18,378 |
|
| | |
Period-end amount allocated to: | Period-end amount allocated to: | | Period-end amount allocated to: | |
Loans individually evaluated for impairment | $ | 1,164 |
| $ | 506 |
| $ | 122 |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,792 |
| $ | 462 |
| $ | 449 |
| $ | 139 |
| $ | 16 |
| 24 |
| $ | 2 |
| $ | — |
| $ | 1,092 |
|
Loans collectively evaluated for impairment | 6,326 |
| 5,184 |
| 998 |
| 686 |
| 2,832 |
| 143 |
| 16,169 |
| 6,604 |
| 6,085 |
| 1,006 |
| 659 |
| 2,385 |
| 436 |
| 111 |
| 17,286 |
|
Ending balance | $ | 7,490 |
| $ | 5,690 |
| $ | 1,120 |
| $ | 686 |
| $ | 2,832 |
| $ | 143 |
| $ | 17,961 |
| $ | 7,066 |
| $ | 6,534 |
| $ | 1,145 |
| $ | 675 |
| $ | 2,409 |
| $ | 438 |
| $ | 111 |
| $ | 18,378 |
|
| | |
Balance, January 1, 2015 | $ | 9,825 |
| $ | 4,036 |
| $ | 1,627 |
| $ | 694 |
| $ | 1,587 |
| $ | 112 |
| $ | 17,881 |
| |
Balance, January 1, 2016 | | $ | 7,076 |
| $ | 5,382 |
| $ | 1,257 |
| $ | 732 |
| $ | 1,934 |
| $ | 37 |
| $ | 121 |
| $ | 16,539 |
|
Charge-offs | (181 | ) | (426 | ) | (537 | ) | (116 | ) | (869 | ) | (566 | ) | (2,695 | ) | — |
| (1,012 | ) | (150 | ) | (10 | ) | (507 | ) | (115 | ) | (163 | ) | (1,957 | ) |
Recoveries | 90 |
| 94 |
| 206 |
| 107 |
| 567 |
| 134 |
| 1,198 |
| 1,164 |
| — |
| 29 |
| 7 |
| 182 |
| 78 |
| 70 |
| 1,530 |
|
Net charge-offs | (91 | ) | (332 | ) | (331 | ) | (9 | ) | (302 | ) | (432 | ) | (1,497 | ) | |
Net recoveries (charge-offs) | | 1,164 |
| (1,012 | ) | (121 | ) | (3 | ) | (325 | ) | (37 | ) | (93 | ) | (427 | ) |
(Recovery of) provision for loan losses | (2,297 | ) | 7,783 |
| (117 | ) | 92 |
| 518 |
| 474 |
| 6,453 |
| (748 | ) | 925 |
| 122 |
| 4 |
| (2 | ) | 549 |
| 97 |
| 947 |
|
Balance, September 30, 2015 | $ | 7,437 |
| $ | 11,487 |
| $ | 1,179 |
| $ | 777 |
| $ | 1,803 |
| $ | 154 |
| $ | 22,837 |
| |
Balance, March 31, 2016 | | $ | 7,492 |
| $ | 5,295 |
| $ | 1,258 |
| $ | 733 |
| $ | 1,607 |
| $ | 549 |
| $ | 125 |
| $ | 17,059 |
|
| | |
Period-end amount allocated to: | Period-end amount allocated to: | | Period-end amount allocated to: | |
Loans individually evaluated for impairment | $ | 7 |
| $ | 7,193 |
| $ | 4 |
| $ | — |
| $ | — |
| $ | — |
| $ | 7,204 |
| $ | 1,294 |
| $ | 453 |
| $ | 103 |
| $ | — |
| — |
| $ | — |
| $ | — |
| $ | 1,850 |
|
Loans collectively evaluated for impairment | 7,430 |
| 4,294 |
| 1,175 |
| 777 |
| 1,803 |
| 154 |
| 15,633 |
| 6,198 |
| 4,842 |
| 1,155 |
| 733 |
| 1,607 |
| 549 |
| 125 |
| 15,209 |
|
Ending balance | $ | 7,437 |
| $ | 11,487 |
| $ | 1,179 |
| $ | 777 |
| $ | 1,803 |
| $ | 154 |
| $ | 22,837 |
| $ | 7,492 |
| $ | 5,295 |
| $ | 1,258 |
| $ | 733 |
| $ | 1,607 |
| $ | 549 |
| $ | 125 |
| $ | 17,059 |
|
The reduction in the allowance for loan losses allocatedat March 31, 2017 was relatively flat compared to commercial and industrial recordedDecember 31, 2016, as loan growth during the first nine months of 2016 compared to the same period of 2015 was driven by a decrease in the allowance needed for loans individually evaluated for impairment whichquarter was offset partially by loan growth. The changesthe improvements in the residential real estate, home equity linesnonperforming loans.
Allowance for Acquired Loan Losses
Acquired loans are recorded at their fair value as of the acquisition date with no valuation allowance, and monitored for changes in credit quality and subsequent increases or decreases in expected cash flows. Decreases in expected cash flows of acquired credit impaired loans are recognized as an impairment, with the amount of the expected loss included in management's evaluation of the appropriateness of the allowance for loan losses. The methods utilized to estimate the required allowance for loan losses for nonimpaired acquired loans are similar to those utilized for originated loans; however, Peoples records a provision for loan losses only when the computed allowance exceeds the remaining fair value adjustment. AsDuring the first quarter of September 30, 2016, the expected cash flows for2017, Peoples recorded a recovery of loan losses that was related to an acquired purchased credit impaired loans had decreased from those as ofloan that was paid off during the respective acquisition dates, resulting in Peoples recording provision for loan losses with respect to those acquired loans.
quarter.
The following table presents activity in the allowance for loan losses for acquired loans for the ninethree months ended September 30:March 31:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
(Dollars in thousands) | September 30, 2016 | September 30, 2015 | | September 30, 2016 | September 30, 2015 | March 31, 2017 | March 31, 2016 |
Purchased credit impaired loans: | | | | |
Balance, beginning of period | $ | 197 |
| $ | — |
| | $ | 240 |
| $ | — |
| $ | 233 |
| $ | 240 |
|
Charge-offs | (16 | ) | — |
| | (67 | ) | — |
| — |
| (46 | ) |
Recoveries | — |
| — |
| | — |
| — |
| — |
| — |
|
Net charge-offs (recoveries) | (16 | ) | — |
| | (67 | ) | — |
| |
Provision for loan losses | 77 |
| 303 |
| | 85 |
| 303 |
| |
Balance, September 30 | $ | 258 |
| $ | 303 |
| | $ | 258 |
| $ | 303 |
| |
Net charge-offs | | — |
| (46 | ) |
(Recovery of) provision for loan losses | | (143 | ) | 8 |
|
Balance, March 31 | | $ | 90 |
| $ | 202 |
|
Note 5. Goodwill and Other Intangible Assets
Prior to 2016, Peoples performed its annual goodwill impairment test as of June 30. During 2016, Peoples changed its method in applying the accounting principle and will be completing the annual goodwill impairment test as of October 1 in 2016 and annually on that date thereafter. This voluntary change is preferable as it aligns the goodwill impairment testing with the preparation of the underlying data used in the annual test, including financial and strategic information that is prepared late in the year. This change is not intended to delay, accelerate or avoid any impairment charges. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require application of significant estimates and assumptions with the use of hindsight. Accordingly the change will be applied prospectively.
Note 6.5. Long-Term Borrowings
The following table summarizes Peoples' long-term borrowings:
| | | September 30, 2016 | December 31, 2015 | March 31, 2017 | December 31, 2016 |
(Dollars in thousands) | Balance | Weighted- Average Rate | Balance | Weighted- Average Rate | Balance | Weighted- Average Rate | Balance | Weighted- Average Rate |
FHLB putable, non-amortizing, fixed-rate advances | $ | 70,000 |
| 2.49 | % | $ | 50,000 |
| 3.32 | % | $ | 100,000 |
| 2.16 | % | $ | 70,000 |
| 2.49 | % |
Callable national market repurchase agreements | 40,000 |
| 3.63 | % | 40,000 |
| 3.63 | % | 40,000 |
| 3.63 | % | 40,000 |
| 3.63 | % |
FHLB amortizing, fixed-rate advances | 30,743 |
| 2.02 | % | 16,934 |
| 2.69 | % | 27,581 |
| 2.01 | % | 28,282 |
| 2.01 | % |
Junior subordinated debt securities | 6,877 |
| 2.34 | % | 6,736 |
| 1.83 | % | 6,970 |
| 2.60 | % | 6,924 |
| 2.45 | % |
Unamortized debt issuance costs | (57 | ) | — | % | — |
| — | % | (45 | ) | — | % | (51 | ) | — | % |
Total long-term borrowings | $ | 147,563 |
| 2.69 | % | $ | 113,670 |
| 3.25 | % | $ | 174,506 |
| 2.49 | % | $ | 145,155 |
| 2.71 | % |
The putable, non-amortizing, fixed-rate FHLB advances have original maturities ranging from two to eleventwenty years that may be repaid prior to maturity, subject to termination fees. The FHLB has the option, solely at its discretion, to terminate the advanceseach advance after the initial fixed rate periods ranging from three months to five years, requiring full repayment of the advances by Peoples, prior to the stated maturity. If an advance is terminated prior to maturity, the FHLB will offer Peoples replacement funding at the then-prevailing rate on an advance product then offered by the FHLB, subject to normal FHLB credit and collateral requirements. These advances require monthly interest payments, with no repayment of principal until the earlier of either an option exercise by the FHLB or the stated maturity. The amortizing, fixed-rate FHLB advances have a fixed rate for the term of the loan, with maturities ranging from two to fifteen years. These advances require monthly principal and interest payments, with some having a constant prepayment rate requiring an additional principal payment annually. These advances are not eligible for optional prepayment prior to maturity.
Peoples continually evaluates the overall balance sheet position given the interest rate environment. During the second quarter of 2016, Peoples executed transactions to take advantage of the low interest rates, which included:
Peoples restructured $20.0 million of borrowings that had a weighted-average rate of 2.97%, resulting in a $700,000 loss. Peoples replaced these borrowings with a long-term FHLB advance, which has an interest rate of 2.17% and matures in 2026.
Peoples borrowed an additional $35.0 million of long-term FHLB amortizing advances, which had interest rates ranging from 1.08% to 1.40%, and mature between 2019 and 2031.
Peoples entered into three forward starting interest rate swaps during the second quarter of 2016 to obtain short-term borrowings at fixed rates, with interest rates ranging from 1.49% to 1.56%, which become effective in 2018 and mature between 2023 and 2025. These swaps will replace $30.0 million in borrowings that mature in 2018, which have interest rates ranging from 3.65% to 3.92%.
Additional information regarding Peoples' interest rate swaps can be found in Note 10 of the Notes to the Unaudited Consolidated Financial Statements.
Peoples' callable national market repurchase agreements consist of agreements with unrelated financial service companies and have original maturities ranging from five to ten years. In general, these agreements may not be terminated by Peoples prior to maturity without incurring additional costs. The callable national market repurchase agreements contain call option features, in which the buyer has the right, at its discretion, to terminate the repurchase agreement after an initial period ranging from three months to five years. After the initial call period, the buyer has a one-time option to terminate the repurchase agreement. If the buyer exercises its option, Peoples would be required to repay the repurchase agreement in whole at the quarterly date. As of March 31, 2017, Peoples' callable national market repurchase agreements had no remaining call options. Peoples is required to make quarterly interest payments.
On
Peoples continually evaluates the overall balance sheet position given the interest rate environment. During the first quarter of 2017, Peoples borrowed an additional $30.0 million of long-term FHLB non-amortizing advances, which had interest rates ranging from 1.20% to 1.46% and mature between 2018 and 2019.
The amortizing, fixed-rate FHLB advances have a fixed rate for the term of each advance, with maturities ranging from ten to twenty years. These advances require monthly principal and interest payments, with some having a constant prepayment rate requiring an additional principal payment annually. These advances are not eligible for optional prepayment prior to maturity.
Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps were designated as cash flow hedges and involved the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of March 6, 2015,31, 2017, Peoples acquired NB&T Financial Group, Inc. ("NB&T"), which included the assumption of Fixed/Floating Rate Junior Subordinated Debt Securities due in 2037 (the "junior subordinated debt securities"). At the acquisition date, junior subordinated debt securitieshad seven interest rate swaps with a fairnotional value of $6.6$60.0 million were heldassociated with Peoples' cash outflows for various FHLB advances. The swaps become effective in a statutory trust whose common securities were wholly-owned by NB&T. The sole assets2018, roughly to coincide with the maturity of existing FHLB advances and their expected replacement dates.
Additional information regarding Peoples' interest rate swaps can be found in Note 9 of the statutory trust are the junior subordinated debt securities and related payments. The junior subordinated debt securities and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee of the obligations of the statutory trust under the Capital Securities held by third-party investors. Distributions on the Capital Securities are payable at the annual rate of 1.50% over the 3-month LIBOR. Distributions on the Capital Securities are included in interest expense inNotes to the Unaudited Consolidated Financial Statements. These securities are considered Tier I capital (with certain limitations applicable) under current regulatory guidelines. The junior subordinated debt securities are subject to mandatory redemption, in whole or in part, upon repayment of the Capital Securities at maturity or their earlier redemption at the liquidation amount. Subject to prior approval of the Federal Reserve, the Capital Securities are redeemable prior to the maturity date of September 6, 2037, and are redeemable at par. Since September 6, 2012, the Capital Securities have been redeemable at par. Distributions on the Capital Securities can be deferred from time to time for a period not to exceed 20 consecutive semi-annual periods.
On March 4, 2016, Peoples entered into a Credit Agreement (the "RJB Credit Agreement"), with Raymond James Bank, N.A. ("Raymond James") which provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $15 million (the "RJB Loan Commitment") for the purpose of: (i) to the extent that any amounts remained outstanding, paying off the then outstanding $15 million revolving credit loan to Peoples, (ii) making acquisitions; (iii) making stock repurchases; (iv) working capital needs; and (v) other general corporate purposes. On March 4, 2016, Peoples paid fees of $70,600, representing 0.47% of the RJB Loan Commitment.
The RJB Credit Agreement is unsecured. However, the RJB Credit Agreement contains negative covenants which preclude Peoples from: (i) taking any action which could, directly or indirectly, decrease Peoples' ownership (alone or together with any of Peoples' subsidiaries) interest in Peoples Bank (Peoples' Ohio state-chartered subsidiary bank) or any of Peoples Bank's subsidiaries to a level below the percentage of equity interests held as of March 4, 2016; (ii) taking any action to or allowing Peoples Bank or any of Peoples Bank's subsidiaries to take any action to directly or indirectly create, assume, incur, suffer or permit to exist any pledge, encumbrance, security interest, assignment, lien or charge of any kind or character on the equity interests of Peoples Bank or any of Peoples Bank's subsidiaries; or (iii) taking any action to or allow Peoples Bank or any of Peoples Bank's subsidiaries to sell, transfer, issue, reissue or exchange, or grant any option with respect to, any equity interest of Peoples Bank or any of Peoples Bank's subsidiaries. There are also negative covenants limiting the actions which may be taken with respect to the authorization or issuance of additional shares of any class of equity interests of Peoples Bank or any of Peoples Bank's subsidiaries or the grant to any person other than Raymond James Bank of any proxy for existing equity interests of Peoples Bank or any of Peoples Bank's subsidiaries.
The RJB Credit Agreement contains covenants which are usual and customary for comparable transactions. In addition to the negative covenants affecting the equity interests of Peoples Bank and Peoples Bank's subsidiaries discussed above, under the RJB Credit Agreement, the following covenants must be complied with:
| |
(a) | neither Peoples nor any of its subsidiaries may create, incur or suffer to exist additional indebtedness with an aggregate principal amount which exceeds $10 million at any time outstanding, subject to specific negotiated carve-outs; |
| |
(b) | neither Peoples nor any of its subsidiaries may be a party to certain material transactions (such as mergers or consolidations with third parties, liquidations or dissolutions, sales of assets, acquisitions, investments and sale/leaseback transactions), subject to transactions in the ordinary course of the banking business of Peoples Bank and new investments in an aggregate amount not exceeding $10 million being permitted as well as specific negotiated carve-outs; |
Peoples Bank and new investments in an aggregate amount not exceeding $10 million being permitted as well as specific negotiated carve-outs;
| |
(c) | neither Peoples nor any of its subsidiaries may voluntarily prepay, defease, purchase, redeem, retire or otherwise acquire any subordinated indebtedness issued by them;them, subject to specific negotiated carve-outs and the consent of Raymond James Bank;James; and |
| |
(d) | neither Peoples nor any of its subsidiaries may make any Restricted Payments (as defined in the RJB Credit Agreement), except that, to the extent legally permissible, (i) any subsidiary may declare and pay dividends to Peoples or a wholly-owned subsidiary of Peoples and (ii) Peoples may declare and pay dividends on its common shares provided that no event of default exists before or after giving effect to the dividend and Peoples is in compliance (on a pro forma basis) with the financial covenants specified in the RJB Credit Agreement, after giving effect to the dividend. |
Peoples and Peoples Bank are also required to satisfy certain financial covenants including:
| |
(i) | Peoples (on a consolidated basis) and Peoples Bank must be “well capitalized” at all times, as defined and determined by the applicable governmental authority having jurisdiction over Peoples or Peoples Bank; |
| |
(ii) | Peoples (on a consolidated basis) and Peoples Bank must maintain a Total risk-based capital ratio (as defined by the applicable governmental authority having regulatory authority over Peoples or Peoples Bank) of at least 12.50% as of the last day of any fiscal quarter; |
| |
(iii) | Peoples Bank must maintain a ratio of “Non-Performing Assets” to “Tangible Primary Capital” of not more than 20% as of the last day of any fiscal quarter; |
| |
(iv) | Peoples Bank must maintain a ratio of “Loan Loss Reserves” to “Non-Performing Loans” of not less than 70% at all times; and |
| |
(v) | Peoples (on a consolidated basis) must maintain a “Fixed Charge Coverage Ratio” that equals or exceeds 1.25 to 1.00 as of the end of each fiscal quarter, with the items used in this ratio being determined on a trailing four-fiscal quarter basis. |
The aggregate minimum annual retirements of long-term borrowings in future periods are as follows:
| | (Dollars in thousands) | Balance | Weighted-Average Rate | Balance | Weighted-Average Rate |
Three months ending December 31, 2016 | $ | 2,408 |
| 2.08 | % | |
Year ending December 31, 2017 | 5,545 |
| 1.77 | % | |
Nine months ending December 31, 2017 | | $ | 4,894 |
| 1.72 | % |
Year ending December 31, 2018 | 64,970 |
| 3.54 | % | 74,971 |
| 3.23 | % |
Year ending December 31, 2019 | 13,508 |
| 1.27 | % | 33,508 |
| 1.38 | % |
Year ending December 31, 2020 | 10,564 |
| 2.03 | % | 10,564 |
| 2.03 | % |
Year ending December 31, 2021 | | 6,979 |
| 1.47 | % |
Thereafter | 50,568 |
| 2.26 | % | 43,590 |
| 2.43 | % |
Total long-term borrowings | $ | 147,563 |
| 2.69 | % | $ | 174,506 |
| 2.49 | % |
Note 7.6. Stockholders’ Equity
The following table details the progression in Peoples’ common shares and treasury stock during the ninethree months ended September 30, 2016March 31, 2017:
| | | Common Shares | Treasury Stock | Common Shares | Treasury Stock |
Shares at December 31, 2015 | 18,931,200 |
| 586,686 |
| |
Shares at December 31, 2016 | | 18,939,091 |
| 795,758 |
|
Changes related to stock-based compensation awards: | | |
Release of restricted common shares | — |
| 13,892 |
| — |
| 7,359 |
|
Cancellation of restricted common shares | (10,654 | ) | 1,000 |
| (1,674 | ) | 540 |
|
Grant of restricted common shares | — |
| (56,000 | ) | — |
| (69,007 | ) |
Grant of common shares | — |
| (350 | ) | — |
| (266 | ) |
Changes related to deferred compensation plan for Boards of Directors: | | |
Purchase of treasury stock | — |
| 6,291 |
| — |
| 1,781 |
|
Reissuance of treasury stock | — |
| (12,012 | ) | — |
| (71 | ) |
Common shares repurchased under share repurchase program | — |
| 279,770 |
| |
Common shares issued under dividend reinvestment plan | 15,668 |
| — |
| 3,865 |
| — |
|
Common shares issued under compensation plan for Boards of Directors | — |
| (11,450 | ) | — |
| (4,015 | ) |
Common shares issued under employee stock purchase plan | — |
| (12,970 | ) | — |
| (2,861 | ) |
Shares at September 30, 2016 | 18,936,214 |
| 794,857 |
| |
Shares at March 31, 2017 | | 18,941,282 |
| 729,218 |
|
Under its Amended Articles of Incorporation, Peoples is authorized to issue up to 50,000 preferred shares, in one or more series, having such voting powers, designations, preferences, rights, qualifications, limitations and restrictions as determined by Peoples' Board of Directors. At September 30, 2016March 31, 2017, Peoples had no preferred shares issued or outstanding.
Accumulated Other Comprehensive Income (Loss)
The following table details the change in the components of Peoples’ accumulated other comprehensive income (loss) for the ninethree months ended September 30, 2016March 31, 2017:
| | (Dollars in thousands) | Unrealized Gain on Securities | Unrecognized Net Pension and Postretirement Costs | Unrealized Loss on Cash Flow Hedge | Accumulated Other Comprehensive Income (Loss) | Unrealized Gain on Securities | Unrecognized Net Pension and Postretirement Costs | Unrealized Loss on Cash Flow Hedge | Accumulated Other Comprehensive Income (Loss) |
Balance, December 31, 2015 | $ | 2,869 |
| $ | (3,228 | ) | $ | — |
| $ | (359 | ) | |
Balance, December 31, 2016 | | $ | 581 |
| $ | (3,321 | ) | $ | 1,186 |
| $ | (1,554 | ) |
Reclassification adjustments to net income: | |
|
| |
|
|
Realized gain on sale of securities, net of tax | (560 | ) | — |
| — |
| (560 | ) | (221 | ) | — |
| — |
| (221 | ) |
Other comprehensive income (loss), net of reclassifications and tax | 9,542 |
| 44 |
| (120 | ) | 9,466 |
| 2,218 |
| 16 |
| (67 | ) | 2,167 |
|
Balance, September 30, 2016 | $ | 11,851 |
| $ | (3,184 | ) | $ | (120 | ) | $ | 8,547 |
| |
Balance, March 31, 2017 | | $ | 2,578 |
| $ | (3,305 | ) | $ | 1,119 |
| $ | 392 |
|
Note 8.7. Employee Benefit Plans
Peoples sponsors a noncontributory defined benefit pension plan that covers substantially all employees hired before January 1, 2010. The plan provides retirement benefits based on an employee’s years of service and compensation. For employees hired before January 1, 2003, the amount of postretirement benefit is based on the employee’s average monthly compensation over the highest five consecutive years out of the employee’s last ten years with Peoples while an eligible employee. For employees hired on or after January 1, 2003, the amount of postretirement benefit is based on 2% of the employee’s annual compensation plus accrued interest. Effective January 1, 2010, the pension plan was closed to new entrants. Effective March 1, 2011, the accrual of pension plan benefits for all participants was frozen. Peoples recognized this freeze as a curtailment as of December 31, 2010 and March 1, 2011, under the terms of the pension plan. Peoples also provides post-retirement health and life insurance benefits to former employees and directors. Only those individuals who
retired before January 27, 2012 were eligible for life insurance benefits. As of January 1, 2011, all retirees who desire to
participate in the Peoples Bank medical plan do so by electing COBRA, which provides up to 18 months of coverage; retirees over the age of 65 also have the option to pay to participate in a group Medicare supplemental plan. Peoples’ policy is to fund the cost of the health benefits as they arise.
The following tables detail the components of the net periodic cost for the plans:
| | | Pension Benefits | Pension Benefits |
| Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, | | September 30, | March 31, |
(Dollars in thousands) | 2016 | 2015 | | 2016 | 2015 | 2017 | 2016 |
Interest cost | $ | 110 |
| $ | 111 |
| | $ | 329 |
| $ | 335 |
| $ | 113 |
| $ | 110 |
|
Expected return on plan assets | (123 | ) | (122 | ) | | (369 | ) | (373 | ) | (138 | ) | (100 | ) |
Amortization of net loss | 23 |
| 28 |
| | 71 |
| 92 |
| 25 |
| — |
|
Settlement of benefit obligation | — |
| 82 |
| | — |
| 454 |
| |
Net periodic cost | $ | 10 |
| $ | 99 |
| | $ | 31 |
| $ | 508 |
| $ | — |
| $ | 10 |
|
| | | Postretirement Benefits | Postretirement Benefits |
| Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, | | September 30, | March 31, |
(Dollars in thousands) | 2016 | 2015 | | 2016 | 2015 | 2017 | 2016 |
Interest cost | $ | 1 |
| $ | 2 |
| | $ | 3 |
| $ | 4 |
| $ | 1 |
| $ | 1 |
|
Amortization of net loss | (2 | ) | (2 | ) | | (5 | ) | (4 | ) | |
Amortization of net gain | | (2 | ) | (1 | ) |
Net periodic benefit | $ | (1 | ) | $ | — |
| | $ | (2 | ) | $ | — |
| $ | (1 | ) | $ | — |
|
There were no settlement charges recorded in the threefirst quarter of 2017 or nine months ended September 30, 2016 under the noncontributory defined benefit pension plan.
Note 9.8. Earnings Per Common Share
The calculations of basic and diluted earnings per common share were as follows:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, | | September 30, | March 31, |
(Dollars in thousands, except per share data) | 2016 | 2015 | | 2016 | 2015 | 2017 | 2016 |
Distributed earnings allocated to common shareholders | $ | 2,879 |
| $ | 2,727 |
| | $ | 8,471 |
| $ | 7,696 |
| $ | 3,604 |
| $ | 2,740 |
|
Undistributed earnings allocated to common shareholders | 4,881 |
| 1,375 |
| | 15,189 |
| 574 |
| 5,162 |
| 5,255 |
|
Net earnings allocated to common shareholders | $ | 7,760 |
| $ | 4,102 |
| | $ | 23,660 |
| $ | 8,270 |
| $ | 8,766 |
| $ | 7,995 |
|
| | | | |
Weighted-average common shares outstanding | 17,993,443 |
| 18,127,131 |
| | 18,015,249 |
| 17,357,034 |
| 18,029,991 |
| 18,071,746 |
|
Effect of potentially dilutive common shares | 117,267 |
| 144,848 |
| | 108,411 |
| 130,608 |
| 162,966 |
| 123,244 |
|
Total weighted-average diluted common shares outstanding | 18,110,710 |
| 18,271,979 |
| | 18,123,660 |
| 17,487,642 |
| 18,192,957 |
| 18,194,990 |
|
| | | | |
Earnings per common share: | | | | |
Basic | $ | 0.43 |
| $ | 0.23 |
| | $ | 1.31 |
| $ | 0.48 |
| $ | 0.49 |
| $ | 0.44 |
|
Diluted | $ | 0.43 |
| $ | 0.22 |
| | $ | 1.31 |
| $ | 0.47 |
| $ | 0.48 |
| $ | 0.44 |
|
| | | | |
Anti-dilutive shares excluded from calculation: | | | | |
Restricted shares, stock options and stock appreciation rights | 18,604 |
| 42,832 |
| | 24,461 |
| 47,831 |
| 455 |
| 32,806 |
|
Note 10.9. Financial Instruments with Off-Balance Sheet Risk
Derivatives and Hedging Activities - Risk Management Objective of Using Derivatives
Peoples is exposed to certain risks arising from both its business operations and economic conditions. Peoples principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Peoples manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, Peoples enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or expected cash amounts, the value of which are determined by interest rates. Peoples’ derivative financial instruments are used to manage differences in the amount, timing, and duration of Peoples' known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. Peoples also has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in Peoples' assets or liabilities. Peoples manages a matched book with respect to its derivative financial instruments in order to minimize its net risk exposure resulting from such transactions.
Fair Values of Derivative Instruments on the Balance Sheet
Peoples' fair value of the derivative financial instrumentinstruments was $6.9$5.1 million in an asset position and $7.1$3.5 million in a liability position at September 30, 2016,March 31, 2017, and there was $3.1$5.0 million in an asset position and $3.1$3.2 million in a liability position at December 31, 2015.2016.
Cash Flow Hedges of Interest Rate Risk
Peoples' objectives in using interest rate derivatives are to add stability to interest income and expense, and to manage its exposure to interest rate movements. To accomplish this objective, in the second quarter of 2016, Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps were designated as cash flow hedges and involved the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of September 30, 2016,March 31, 2017, Peoples had threeseven interest rate swaps with a notional value of $30$60.0 million million associated with Peoples' cash outflows for various FHLB advances.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of theeach derivative is initially reported in accumulated other comprehensive income ("AOCI") (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. Peoples assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transaction.
Peoples hedged its exposure to the variability in future cash flows for forecasted transactions over a maximum period of 2519 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments). Peoples entered into threethe seven interest rate swap contracts, described above, whereby Peoples will pay a fixed rate of interest for up to seventen years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The received floating rate component is intended to offset the rate on the rolling three-month FHLB advances that will be used to fund the transaction.
Amounts reported in AOCI related to derivatives will be reclassified to interest income or expense as interest payments are made or received on Peoples' variable-rate assets or liabilities. During the quarters ended September 30, 2016,March 31, 2017, and June 30,December 31, 2016, Peoples had no reclassifications to interest expense. During the next twelve months, Peoples estimates that no interest expense amount will be reclassified.
The amount of accumulated other comprehensive pre-tax income for Peoples' cash flow hedges was $68,000 for the three months ended September 30, 2016 and the amount of accumulated other comprehensive pre-tax loss was $184,000 for the nine months ended September 30, 2016.$1.7 million at March 31, 2017. There were no pre-tax net losses recorded for the three and nine months ended September 30, 2015.March 31, 2017. Additionally, Peoples had no reclassifications to earnings in the three or nine months ended September 30, 2016March 31, 2017 or September 30, 2015.December 31, 2016.
Non-Designated Hedges
Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010. Under this program, Peoples provides its customer with a fixed-rate loan while creating a variable-rate asset for Peoples by the customer entering into an interest rate swap with Peoples on terms that match the loan. Peoples offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative. Peoples had interest rate swaps associated with commercial loans with a notional value of $238.6$284.9 million and fair value of $6.9$3.4 million of equally offsetting assets and liabilities at September 30, 2016March 31, 2017 and a notional value of $144.4$247.3 million and fair value of $3.1$3.2 million of equally
offsetting assets and liabilities at December 31, 2015.2016. These interest rate swaps did not have a material impact on Peoples' results of operation or financial condition.
Note 11.10. Stock-Based Compensation
Under the Peoples Bancorp Inc. Second Amended and Restated 2006 Equity Plan (the "2006 Equity Plan"), Peoples may grant, among other awards, nonqualified stock options, incentive stock options, restricted stock awards, stock appreciation rights ("SARs") and unrestricted share awards to employees and non-employee directors. The total number of common shares available under the 2006 Equity Plan is 1,081,260. The maximum number of common shares that can be issued for incentive stock options is 800,000 common shares. Prior to 2007, Peoples granted nonqualified and incentive stock options to employees and nonqualified stock options to non-employee directors under the 2006 Equity Plan and predecessor plans. Since 2009, Peoples has granted restricted common shares to employees and restricted common shares to non-employee directors subject to the terms and conditions prescribed by the 2006 Equity Plan. In general, common shares issued in connection with stock-based awards are issued from treasury shares to the extent available. If no treasury shares are available, common shares are issued from authorized but unissued common shares.
Stock Options
Under the provisions of the 2006 Equity Plan and predecessor stock option plans, the exercise price per share of any stock option granted may not be less than the grant date fair market value of the underlying common shares. All stock options granted to both employees and non-employee directors expire ten years from the date of grant. The most recent stock option grants to employees and non-employee directors occurred in 2006. The stock options granted to employees vested three years after the grant date, while the stock options granted to non-employee directors vested six months after the grant date. The following table summarizesAs of March 31, 2017, Peoples has no outstanding stock options; however, Peoples does have the changesright to Peoples'grant stock options forin the nine months ended future.September 30, 2016:
|
| | | | | | | | | | | | | |
| | Number of Common Shares Subject to Options | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Life | | Aggregate Intrinsic Value |
Outstanding at January 1 | | 20,310 |
| | $ | 28.83 |
| | | | |
Expired | | 20,310 |
| | 28.83 |
| | | | |
Outstanding at September 30 | | — |
| | $ | — |
| | 0.0 years | | $ | — |
|
Exercisable at September 30 | | — |
| | $ | — |
| | 0.0 years | | $ | — |
|
Stock Appreciation Rights
SARs granted to employees have an exercise price equal to the fair market value of Peoples’ common shares on the date of grant and will be settled using common shares of Peoples. Additionally, the SARs granted to employees vested three years after the grant date and are to expire ten years from the date of grant. The most recent grant of SARs occurred in 2008. The following table summarizes the changes to Peoples' SARs for the ninethree months ended September 30, 2016March 31, 2017:
|
| | | | | | | | | | | | | |
| | Number of Common Shares Subject to SARs | | Weighted- Average Exercise Price | | Weighted-Average Remaining Contractual Life | | Aggregate Intrinsic Value |
Outstanding at January 1 | | 17,748 |
| | $ | 25.86 |
| | | | |
Forfeited | | 3,194 |
| | 26.67 |
| | | | |
Outstanding at September 30 | | 14,554 |
| | $ | 25.60 |
| | 0.8 years | | $ | 8,817 |
|
Exercisable at September 30 | | 14,554 |
| | $ | 25.60 |
| | 0.8 years | | $ | 8,817 |
|
The following table summarizes Peoples' SARs outstanding at September 30, 2016:
|
| | | |
Exercise Price | Number of Common Shares Subject to SARs Outstanding & Exercisable | Weighted- Average Remaining Contractual Life |
$23.26 | 2,000 |
| 0.8 years |
$23.77 | 7,508 |
| 1.2 years |
$29.25 | 5,046 |
| 0.3 years |
Total | 14,554 |
| 0.8 years |
|
| | | | | | | | | | | | | |
| | Number of Common Shares Subject to SARs | | Weighted- Average Exercise Price | | Weighted-Average Remaining Contractual Life | | Aggregate Intrinsic Value |
Outstanding at January 1 | | 2,338 |
| | $ | 27.37 |
| | | | |
Exercised | | 2,024 |
| | 27.93 |
| | | | |
Outstanding at March 31 | | 314 |
| | $ | 23.77 |
| | 0.9 years | | $ | 2,477 |
|
Exercisable at March 31 | | 314 |
| | $ | 23.77 |
| | 0.9 years | | $ | 2,477 |
|
Restricted Common Shares
Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-employee directors. In general, the restrictions on restricted common shares awarded to non-employee directors expire after six months, while the restrictions on restricted common shares awarded to employees expire after periods ranging from one to three years. In the first quarter of 2016,2017, Peoples granted an aggregate of 35,50061,457 restricted common shares subject to performance-based vesting to officers and key employees with restrictions that will lapse three years after the grant date provided that in order for the restricted common shares to vest in full, Peoples must have reported positive net income and maintained a well capitalized status by regulatory standards for each of the three fiscal years preceding the vesting date. InDuring the secondfirst quarter of 2016 and the third quarter of 2016,2017, Peoples granted, to certain key employees, an aggregate of 20,5004,250 restricted common shares subject to time-based vesting with restrictions that will lapse three years after the grant date. Peoples also granted, to non-employee directors, an aggregate of 3,300 restricted common shares subject to time-based vesting with restrictions that will lapse six months after the grant date.
The following table summarizes the changes to Peoples’ restricted common shares for the ninethree months ended September 30, 2016:March 31, 2017:
| | | Time-Based Vesting | | Performance-Based Vesting | Time-Based Vesting | | Performance-Based Vesting |
| Number of Common Shares | Weighted-Average Grant Date Fair Value | | Number of Common Shares | Weighted-Average Grant Date Fair Value | Number of Common Shares | Weighted-Average Grant Date Fair Value | | Number of Common Shares | Weighted-Average Grant Date Fair Value |
Outstanding at January 1 | 30,734 |
| $ | 21.76 |
| | 158,763 |
| $ | 22.86 |
| 40,316 |
| $ | 21.85 |
| | 142,415 |
| $ | 21.95 |
|
Awarded | 20,500 |
| 21.88 |
| | 35,500 |
| 17.86 |
| 7,550 |
| 31.36 |
| | 61,457 |
| 32.42 |
|
Released | 334 |
| 21.52 |
| | 41,028 |
| 21.74 |
| — |
| — |
| | 21,050 |
| 21.74 |
|
Forfeited | 2,000 |
| 21.92 |
| | 9,654 |
| 22.67 |
| 300 |
| 31.05 |
| | 1,914 |
| 24.67 |
|
Outstanding at September 30 | 48,900 |
| $ | 21.81 |
| | 143,581 |
| $ | 21.95 |
| |
Outstanding at March 31 | | 47,566 |
| $ | 23.30 |
| | 180,908 |
| $ | 25.50 |
|
For the nine months ended September 30,As of March 31, 2017 and March 31, 2016, the total intrinsic value offor restricted common shares released was $0.7 million compared to $1.7 million at September 30, 2015.$0.7 million.
Stock-Based Compensation
Peoples recognizes stock-based compensation expense, which is included as a component of Peoples' salaries and employee benefit costs, based on the estimated fair value of the awards on the grant date. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized for each period:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, | | September 30, | March 31, |
(Dollars in thousands) | 2016 | 2015 | | 2016 | 2015 | 2017 | 2016 |
Total stock-based compensation expense | $ | 346 |
| $ | 405 |
| | $ | 1,009 |
| $ | 1,432 |
| $ | 568 |
| $ | 338 |
|
Recognized tax benefit | (121 | ) | (142 | ) | | (353 | ) | (501 | ) | (199 | ) | (118 | ) |
Net expense recognized | $ | 225 |
| $ | 263 |
| | $ | 656 |
| $ | 931 |
| $ | 369 |
| $ | 220 |
|
Total unrecognized stock-based compensation expense related to unvested awards was $1.82.6 million at September 30, 2016March 31, 2017, which will be recognized over a weighted-average period of 1.72.1 years.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the Unaudited Consolidated Financial Statements and the Management’s Discussion and Analysis that follows:
|
| | | | | | | | | | | | | |
| At or For the Three Months Ended | | At or For the Nine Months Ended |
| September 30, | | September 30, |
| 2016 | 2015 | | 2016 | 2015 |
SIGNIFICANT RATIOS (a) | | | | | |
Return on average stockholders' equity | 7.07 | % | 3.89 | % | | 7.36 | % | 2.78 | % |
Return on average assets | 0.93 | % | 0.51 | % | | 0.96 | % | 0.36 | % |
Net interest margin | 3.54 | % | 3.55 | % | | 3.55 | % | 3.49 | % |
Efficiency ratio (b) | 64.33 | % | 65.81 | % | | 64.56 | % | 78.18 | % |
Pre-provision net revenue to total average assets (c) | 1.53 | % | 1.40 | % | | 1.52 | % | 0.84 | % |
Average stockholders' equity to average assets | 13.19 | % | 13.12 | % | | 13.05 | % | 13.10 | % |
Average loans to average deposits | 83.50 | % | 79.70 | % | | 82.39 | % | 79.64 | % |
Investment securities as percentage of total assets (d) | 25.10 | % | 27.20 | % | | 25.10 | % | 27.20 | % |
Dividend payout ratio | 37.37 | % | 66.74 | % | | 36.06 | % | 93.19 | % |
ASSET QUALITY RATIOS (a) | | | | | |
Nonperforming loans as a percent of total loans (d)(e) | 1.08 | % | 1.21 | % | | 1.08 | % | 1.21 | % |
Nonperforming assets as a percent of total assets (d)(e) | 0.72 | % | 0.82 | % | | 0.72 | % | 0.82 | % |
Nonperforming assets as a percent of total loans and other real estate owned (d)(e) | 1.11 | % | 1.29 | % | | 1.11 | % | 1.29 | % |
Allowance for loan losses as a percent of originated loans, net of deferred fees and costs (d) | 1.13 | % | 1.72 | % | | 1.13 | % | 1.72 | % |
Allowance for loan losses as a percent of nonperforming loans (d)(e) | 77.50 | % | 93.68 | % | | 77.50 | % | 93.68 | % |
Provision for loan losses as a percent of average total loans | 0.21 | % | 1.14 | % | | 0.18 | % | 0.48 | % |
Net charge-offs as a percentage of average total loans (annualized) | 0.14 | % | 0.15 | % | | 0.09 | % | 0.09 | % |
CAPITAL RATIOS (a)(d) | |
| | | | |
Common Equity Tier 1 risk-based capital (f) | 13.04 | % | 13.46 | % | | 13.04 | % | 13.46 | % |
Tier 1 | 13.34 | % | 13.77 | % | | 13.34 | % | 13.77 | % |
Total (Tier 1 and Tier 2) | 14.24 | % | 14.97 | % | | 14.24 | % | 14.97 | % |
Tier 1 leverage | 9.71 | % | 9.57 | % | | 9.71 | % | 9.57 | % |
Tangible equity to tangible assets (g) | 9.13 | % | 8.88 | % | | 9.13 | % | 8.88 | % |
PER COMMON SHARE DATA (a) | | | | | |
Earnings per common share – basic | $ | 0.43 |
| $ | 0.23 |
| | $ | 1.31 |
| $ | 0.48 |
|
Earnings per common share – diluted | 0.43 |
| 0.22 |
| | 1.31 |
| 0.47 |
|
Cash dividends declared per common share | 0.16 |
| 0.15 |
| | 0.47 |
| 0.45 |
|
Book value per common share (d) | 24.22 |
| 23.08 |
| | 24.22 |
| 23.08 |
|
Tangible book value per common share (d)(g) | $ | 16.14 |
| $ | 14.86 |
| | $ | 16.14 |
| $ | 14.86 |
|
Weighted-average number of common shares outstanding – basic | 17,993,443 |
| 18,127,131 |
| | 18,015,249 |
| 17,357,034 |
|
Weighted-average number of common shares outstanding – diluted | 18,110,710 |
| 18,271,979 |
| | 18,123,660 |
| 17,487,642 |
|
Common shares outstanding at end of period | 18,195,986 |
| 18,400,809 |
| | 18,195,986 |
| 18,400,809 |
|
|
| | | | | | |
| At or For the Three Months Ended |
| March 31, |
| 2017 | 2016 |
PER COMMON SHARE DATA | | |
Earnings per common share – basic | $ | 0.49 |
| $ | 0.44 |
|
Earnings per common share – diluted | 0.48 |
| 0.44 |
|
Cash dividends declared per common share | 0.20 |
| 0.15 |
|
Book value per common share (a) | 24.25 |
| 23.60 |
|
Tangible book value per common share (a)(b) | $ | 16.28 |
| $ | 15.39 |
|
Weighted-average number of common shares outstanding – basic | 18,029,991 |
| 18,071,746 |
|
Weighted-average number of common shares outstanding – diluted | 18,192,957 |
| 18,194,990 |
|
Common shares outstanding at end of period | 18,270,508 |
| 18,157,932 |
|
Closing stock price at end of period | $ | 31.66 |
| $ | 19.54 |
|
SIGNIFICANT RATIOS | | |
Return on average stockholders' equity (c) | 8.14 | % | 7.59 | % |
Return on average tangible stockholders' equity (c)(d) | 12.95 | % | 12.70 | % |
Return on average assets (c) | 1.04 | % | 0.98 | % |
Average stockholders' equity to average assets | 12.74 | % | 12.94 | % |
Average loans to average deposits | 86.51 | % | 81.43 | % |
Net interest margin (c)(e) | 3.55 | % | 3.53 | % |
Efficiency ratio (f) | 64.89 | % | 64.26 | % |
Pre-provision net revenue to total average assets (c)(g) | 1.52 | % | 1.54 | % |
Dividend payout ratio | 41.25 | % | 34.37 | % |
Investment securities as percentage of total assets (a) | 25.13 | % | 26.87 | % |
ASSET QUALITY RATIOS | | |
Nonperforming loans as a percent of total loans (a)(h) | 0.95 | % | 0.97 | % |
Nonperforming assets as a percent of total assets (a)(h) | 0.64 | % | 0.64 | % |
Nonperforming assets as a percent of total loans and other real estate owned ("OREO") (a)(h) | 0.98 | % | 1.00 | % |
Criticized loans as a percent of total loans (a)(i) | 4.50 | % | 5.67 | % |
Classified loans as a percent of total loans (a)(j) | 2.51 | % | 2.73 | % |
Allowance for loan losses as a percent of originated loans, net of deferred fees and costs (a) | 1.05 | % | 1.17 | % |
Allowance for loan losses as a percent of nonperforming loans (a)(h) | 86.71 | % | 84.92 | % |
Provision for loan losses as a percent of average total loans | 0.11 | % | 0.18 | % |
Net charge-offs as a percentage of average total loans (c) | 0.11 | % | 0.09 | % |
CAPITAL RATIOS (a) | |
| |
Common Equity Tier 1 (k) | 13.05 | % | 13.10 | % |
Tier 1 | 13.34 | % | 13.41 | % |
Total (Tier 1 and Tier 2) | 14.27 | % | 14.29 | % |
Tier 1 leverage | 9.60 | % | 9.45 | % |
Tangible equity to tangible assets (b) | 8.98 | % | 8.88 | % |
| |
(a) | ForData presented as of the nine months ended September 30, 2015,end of the acquisition of NB&T is reflected beginning March 6, 2015.period indicated. |
| |
(b) | These amounts represent non-GAAP financial measures since they exclude other intangible assets and goodwill. Additional information regarding the calculation of these measures can be found under the caption “Capital/Stockholders’ Equity”. |
| |
(c) | Ratios are presented on an annualized basis. |
| |
(d) | These amounts represent non-GAAP financial measures since they exclude the after-tax impact of amortization of other intangible assets from earnings and exclude the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on stockholders' equity. Additional information regarding the calculation of these non-GAAP financial measures can be found under the caption “Return on Average Tangible Stockholders' Equity Ratio”. |
| |
(e) | Information presented on a fully tax-equivalent basis. |
| |
(f) | Total othernon-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income (which excludes(excluding all gains or losses on investment securities, asset disposals and other transactions)losses). Additional information regarding the calculation of these non-GAAP financial measures can be found under the caption “Efficiency Ratio”. |
| |
(c)(g) | These amounts represent non-GAAP financial measures since they exclude the provision for loan losses and all gains and losses included in earnings. Additional information regarding the calculation of these measures can be found under the caption “Pre-Provision Net Revenue”. |
| |
(d) | Data presented as of the end of the period indicated. |
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(e)(h) | Nonperforming loans include loans 90 days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include nonperforming loans and other real estate owned. |
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(f)(i) | Includes loans categorized as watch, substandard or doubtful. |
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(j) | Includes loans categorized as substandard or doubtful. |
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(k) | Peoples' capital conservation buffer was 6.24%6.27% at September 30,March 31, 2017 and 6.29% at March 31, 2016, compared to 2.50% for the fully phased-in capital conservation buffer required by January 1, 2019. |
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(g) | These amounts represent non-GAAP financial measures since they exclude other intangible assets and goodwill. Additional information regarding the calculation of these measures can be found under the caption “Capital/Stockholders’ Equity”. |
Forward-Looking Statements
Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Words such as “anticipates”, “estimate”, “may”, “feel”, “expect”, “believes”, “plans”, “will”, “would”, “should”,“anticipates,” “estimate,” “may,” “feel,” “expect,” “believes,” “plans,” “will,” “would,” “should,” “could” and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. Factors that might cause such a difference include, but are not limited to:
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(1) | Peoples' ability to completeleverage the system upgrade and conversion of Peoples' core banking system (including(include the related core operating systems, data systems and a majority of the 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 conversion;upgrade; |
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(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; |
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(3) | Peoples' ability to integrate any future acquisitions which may be unsuccessful, or may be more difficult, time-consuming or costly than expected; |
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(4) | Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders; |
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(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; |
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(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; |
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(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; |
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(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; |
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(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 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; |
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(10) | uncertainty regarding the nature, timing and effect of legislative or regulatory changes or actions, promulgated and to be promulgated thereunder by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, (the "FDIC"), the Office of the Comptroller of the Currency, 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 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;
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(11) | deterioration in the credit quality of Peoples' loan portfolio, which may adversely impact the provision for loan losses; |
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(12) | changes in accounting standards, policies, estimates or procedures which may adversely affect Peoples' reported financial condition or results of operations; |
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(13) | Peoples' assumptions and estimates used in applying critical accounting policies, which may prove unreliable, inaccurate or not predictive of actual results; |
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(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; |
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(15) | changes in law and policy accompanying the new presidential administration and uncertainty or speculation pending the enactment of such changes; |
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(16) | Peoples' ability to receive dividends from its subsidiaries; |
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(16)(17) | Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity; |
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(17)(18) | the impact of minimum capital thresholds established as a part of the implementation of Basel III; |
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(18)(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; |
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(19)(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; |
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(20)(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; |
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(21)(22) | ability to anticipate and respond to technological changes which can impact Peoples' ability to respond to customer needs and meet competitive demands; |
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(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; |
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(24) | the overall adequacy of Peoples' risk management program; |
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(22)(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, cyberattacks,cyber attacks, military or terrorist activities or conflicts; |
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(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 |
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(23)(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, 20152016 ("Peoples' 20152016 Form 10-K"). |
All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections. Additionally, Peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the filing date of this Form 10-Q or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements. Copies of documents
filed with the SEC are available free of charge at the SEC’s website at www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section.
This discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ 20152016 Form 10-K, as well as the Unaudited Consolidated Financial Statements, Notes to the Unaudited Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q.
Business Overview
The following discussion and analysis of Peoples’ Unaudited Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations.
Peoples offers diversified financial products and services through 8076 financial service locations, including 7367 full-service bank branches, and 8075 Automated Teller Machines ("ATMs") in northeastern, central, southwestern and southeastern Ohio, west central West Virginia and northeastern Kentucky through its financial service units – Peoples Bank and Peoples Insurance Agency, LLC ("Peoples Insurance"), a subsidiary of Peoples Bank. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI") and, the Federal Reserve Bank of Cleveland.Cleveland and the Federal Deposit Insurance Corporation ("FDIC"). Peoples Bank is also subject to regulations of the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and the FDIC.services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which itPeoples Insurance may do business.
Peoples’ products and services include traditional banking products, such as deposit accounts, lending products and trust services. Peoples provides services through traditional offices, ATMs, mobile banking for consumers and telephone and internet-based banking. Peoples also offers a complete array of insurance products and makes available custom-tailored
fiduciary, employee benefit plan and asset management services. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer.broker-dealer located at Peoples Bank's offices.
Critical Accounting Policies
The accounting and reporting policies of Peoples conform to US GAAP and to general practices within the financial services industry. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Consolidated Financial Statements, and Management’s Discussion and Analysis at September 30, 2016,March 31, 2017, which were unchanged from the policies disclosed in Peoples’ 20152016 Form 10-K.
Summary of Recent Transactions and Events
The following is a summary of recent transactions and events that have impacted or are expected to impact Peoples’ results of operations or financial condition:
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◦ | On March 31, 2017, Peoples closed four full-service bank branches. The closures included two Ohio offices located in Belpre and Wilmington, and two West Virginia offices located in Huntington and Point Pleasant. Peoples continues to evaluate the branch structure in an effort to optimize efficiency. |
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◦ | On January 31, 2017, Peoples Insurance acquired a third-party insurance administration company with annual net revenue of $0.4 million located in Piketon, Ohio. The acquisition did not materially impact Peoples' financial position, results of operations or cash flows. |
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◦ | On January 27, 2017, Peoples entered into two $10.0 million forward starting interest rate swaps, which will become effective in 2018 and mature between 2025 and 2027, with interest rates ranging from 2.47% to 2.53%. For additional information regarding Peoples' interest rate swaps, refer to Note 9 Financial Instruments with Off-Balance Sheet Risk. |
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◦ | In the fourth quarter of 2016, Peoples will be upgradingconverted its core banking system (including ancillary systems as well as hardware, operating system, application software and data center locations). The conversion resulted in a pre-tax combined revenue and expense impact of $1.3 million, or $0.05 in earnings per diluted share, for the related operating systems, data systems and products). Peoples anticipates one-time costs associated with the upgrade of approximately $1.4 million.full year. The costs recorded in the fourth quarter, third quarter and second quarter of 2016 were $700,000, $423,000 and $90,000, respectively, withrespectively. Deposit account service charges were impacted by the remaining costs expectedsystem conversion as Peoples granted waivers of $85,000 related to be recordedaccount services charges in the fourth quarter of 2016. The core banking system upgrade will supportremainder of the $1.3 million |
recorded in the fourth quarter of 2016 was in various expense categories, primarily in other non-interest expense, professional fees, and salaries and employee benefit costs.
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◦ | During the fourth quarter of 2016, Peoples entered into two $5.0 million forward starting interest rate swaps, which become effective in 2018 and mature in 2022 and 2026, with interest rates of 1.56% and 1.83%. For additional information regarding Peoples' future growth, and will provide efficiencies for the back-office areas.interest rate swaps, refer to Note 9 Financial Instruments with Off-Balance Sheet Risk. |
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◦ | Peoples continually evaluates the overall balance sheet position given the interest rate environment. During the second quarter of 2016, Peoples executed the following transactions to take advantage of the low interest rates, which included: |
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▪ | Peoples restructured $20.0 million of FHLB borrowings that had a weighted-average rate of 2.97%, resulting in a $700,000 loss. Peoples replaced these borrowings with a long-term FHLB advance, which has an interest rate of 2.17% and matures in 2026. |
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▪ | Peoples borrowed an additional $35.0 million of long-term FHLB amortizing advances, which had interest rates ranging from 1.08% to 1.40%, and mature between 2019 and 2031. |
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▪ | Peoples entered into three $10.0 million forward starting interest rate swaps, to obtain short-term borrowings at fixed rates, with interest rates ranging from 1.49% to 1.56%, which become effective in 2018 and mature between 2023 and 2025. These swaps will replace $30.0 million in FHLB advances that mature in 2018, which have2025, with interest rates ranging from 3.65%1.49% to 3.92%1.56%. For additional information regarding Peoples' interest rate swaps, refer to Note 9 Financial Instruments with Off-Balance Sheet Risk. |
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◦ | On June 8, 2016, Peoples purchased an additional $35.0 million in bank owned life insurance ("BOLI"). The additional bank owned life insurance added $326,000 in non-interest income in the first quarter of 2017 compared to the first quarter of 2016. |
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◦ | During the second quarter ofOn March 4, 2016, Peoples sold $28.9 million of available-for-sale securitiesentered into a Credit Agreement (the "RBJ Credit Agreement") with Raymond James, which provides Peoples with a weighted average yieldrevolving line of 2.14%,credit in the maximum aggregate principal amount of $15 million, for the purpose of: (i) to the extent that any amounts remained then outstanding, paying off the $15 million revolving line of credit to Peoples pursuant to the U.S. Bank Loan Agreement; (ii) making acquisitions; (iii) making stock repurchases; (iv) working capital needs; and (v) other general corporate purposes. On March 4, 2016, Peoples paid upfront fees for the establishment of a gainrevolving line of $767,000.credit agreement of $70,600, representing 0.47% of the loan commitment under the RJB Credit Agreement. |
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◦ | Effective March 2, 2016, Peoples terminated the loan agreement with U.S. Bank National Association dated as of December 18, 2012, as amended (the "U.S. Bank Loan Agreement"). As of the termination date, Peoples had no outstanding borrowings under the U.S. Bank Loan Agreement. Peoples paid an immaterial non-usage fee in connection with the termination of the U.S. Bank Loan Agreement. |
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◦ | On March 4, 2016, Peoples entered into a Credit Agreement (the "RBJ Credit Agreement") with Raymond James Bank, N.A., which provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $15 million, for the purpose of: (i) to the extent that any amounts remained then outstanding, paying off the $15 million revolving line of credit to Peoples pursuant to the U.S. Bank Loan Agreement; (ii) making acquisitions; (iii) making stock repurchases; (iv) working capital needs; and (v) other general corporate purposes. On March 4, 2016, Peoples paid fees of $70,600, representing 0.47% of the loan commitment under the RJB Credit Agreement. |
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◦ | On January 6, 2016, Peoples Bank acquired a small financial advisory book of business in Marietta, Ohio for total cash consideration of $0.5 million, and recorded $0.5 million of customer relationship intangibles. The acquisition did not materially impact Peoples' financial position, results of operations or cash flows. |
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◦ | On July 24, 2015, Peoples repaid the $12.0 million term loan then outstanding under the U.S. Bank Loan Agreement. There were no early termination fees associated with the repayment. The revolving credit loan commitment available under the U.S. Bank Loan Agreement remained outstanding until the March 2, 2016 termination date of the U.S. Bank Loan Agreement. |
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◦ | At the close of business on March 6, 2015, Peoples completed the acquisition of NB&T and the 22 full-service offices of its wholly owned subsidiary, The National Bank and Trust Company, in southwestern Ohio. Under the terms of the merger agreement, Peoples paid 0.9319 in Peoples' common shares and $7.75 in cash for each common share of NB&T, or total consideration of $102.7 million. The acquisition added $384.6 million of loans and $629.5 million of deposits at the acquisition date. |
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◦ | In the three and nine months ended September 30, 2015, Peoples recorded $0.1 million and $9.9 million of non-core acquisition expenses, respectively. For the nine months ended September 30, 2015, non-core acquisition charges included $4.3 million of salaries and employee benefit costs, $3.9 million of other non-interest expense, and $1.7 million of professional fees, respectively. |
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◦ | Peoples' net interest income and net interest margin are impacted by changes in market interest rates based upon actions taken by the Federal Reserve Board, either directly or through its Open Market Committee. These actions include changing its target Federal Funds Rate (the interest rate at which banks lend money to each other), Discount Rate (the interest rate charged to banks for money borrowed from the Federal Reserve Bank) and longer-term market interest rates (primarily U.S. Treasury securities). Longer-term market interest rates also are affected by the demand for U.S. Treasury securities. The resulting changes in the yield curve slope have a direct impact on reinvestment rates for Peoples' earning assets. |
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◦ | Market participants have been speculating on when theThe Federal Reserve might follow up its December 2015raised the benchmark federal funds rate increase with more tightening of monetary policy.by 25 basis points in March 2017. Additional rate increases wereare widely anticipated in early 2016.2017. However, global developments might have dampened these expectations. In JuneGeopolitical tensions between the US and North Korea, ongoing instability in the Middle East, and the possibility of 2016,more European nations following Great Britain voters opted to exitand exiting the European Union which caused a spikeare all potentially significant situations that could negatively impact the market. Discouraging earnings reports and certain economic releases in market volatility. Also, it is estimated that over $10 trillionthe first quarter of 2017 could also cause the Federal Reserve to pause its effort to tighten monetary policy further in sovereign debt is now trading at negative yields.2017. Peoples is closely monitoring interest rates, both foreign and domestic, and potential impacts to Peoples' operations. |
The impact of these transactions and events, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis.Analysis of Financial Condition and Results of Operations.
EXECUTIVE SUMMARY
Peoples recorded net income for the quarter ended September 30, 2016March 31, 2017 of $7.8$8.8 million, or $0.43$0.48 per diluted common share, compared to $4.1 million, or $0.22 per diluted common share, a year ago and net income of $8.0 million, or $0.44 per diluted common share, infor the secondfirst quarter of 2016 and net income of $7.4 million, or $0.41 per diluted common share, for the fourth quarter of 2016. On a year-to-date basis,The increase in net income was $23.7 million, or $1.31 per diluted share, compared to $8.4 million, or $0.47 per diluted share, for the same period in 2015. The increases in earnings for all periods werefirst quarter of 2016 was related to the increases inhigher net interest income and othertotal non-interest income, offset partially by an increase in total non-interest expense. During the first quarter of 2017, Peoples recorded total revenue of $40.6 million compared to $38.9 million for the first quarter of 2016 and a decrease in expenses.$38.8 million for the fourth quarter of 2016. Total non-interest expense during the first quarter of 2017 was $27.3 million compared to $26.3 million for the first quarter of 2016 and $27.3 million for the fourth quarter of 2016. The efficiency ratio was 64.89% for the first quarter of 2017 compared to 64.26% for the first quarter of 2016 and 66.87% for the fourth quarter of 2016.
Net interest income was $26.1$26.9 million in the first quarter of 2017, a 5% increase compared to $25.8 million for the thirdfirst quarter of 2016, and a 1% increase compared to $25.5$26.7 million for the thirdfourth quarter of 20152016. Net interest margin was relatively stable and $26.3 million for the secondfirst quarter of 2017 was 3.55%, compared to 3.53% in the first quarter of 2016 while net interest margin wasand 3.54%, 3.55% and 3.57%, respectively. For in the nine months ended September 30, 2016,fourth quarter of 2016. The increase in net interest income was $78.2 million, compared to $71.7 million for the same period in 2015, while net interest margin was 3.55% and 3.49%, respectively.
The slight decline in net interest margin from priorboth periods was drivendue primarily by decreases in the yield on investments and loans offset partially by decreases in the cost of funds. to loan growth.
The accretion income, net of amortization expense, from the acquisitions added 10 basis pointswas $829,000 for the first quarter of 2017, compared to net interest margin$951,000 in the thirdfirst quarter of 2016 compared to 18and $874,000 for the fourth quarter of 2016, which added 11 basis points, for the third quarter of 2015 and 12 basis points for the linked quarter. On a year-to-date basis, accretion income, net of amortization expense, from acquisitions added 12and 11 basis points, respectively, to the net interest margin for the first nine months of 2016 compared to 17 basis points for the first nine months of 2015. For the first nine months ended September 30, 2016, the higher net interest margin was 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.margin.
Peoples' provision for loan losses for the three months ended September 30, 2016March 31, 2017 was $1.1$0.6 million, compared to $5.8$1.0 million for the thirdfirst quarter of 20152016 and $0.7 million for the secondfourth quarter of 2016. For the first nine months of 2016, the provision for loan losses totaled $2.8 million compared to $6.9 million in the same period of 2015. Recent loan growth was the main driver of the provision for loan losses recorded during the third quarter and the nine months of 2016. The provision for loan losses recorded in the thirdfirst quarter of 20152017 was primarily driven primarily by an increase to the specific reserveloan growth, and was partially offset by improvements in asset quality. The provision for a large commercial loan relationship that was charged-offlosses recorded in the first and fourth quarterquarters of 2015.2016 was largely due to loan growth experienced during the quarters. The ratio of the allowance for loan losses as a percent of originated loans, was 1.13%net of deferred fees and costs, decreased to 1.05% at September 30,March 31, 2017, from 1.17% at March 31, 2016 down slightly from 1.16%and 1.08% at June 30, 2016. Asset quality metrics were relatively stable during the third quarterDecember 31, 2016. Annualized net charge-offs were 0.14%0.11% of average grosstotal loans during the thirdfirst quarter of 2017, compared to 0.09% in the first and fourth quarters of 2016.
Asset quality during the quarter improved. Criticized loans, which are those loans categorized as watch, substandard or doubtful, were relatively flat during the quarter. Nonperforming loans declined $3.8 million, or 15%, compared to December 31, 2016, as several payoffs on larger relationships were received during the quarter. Nonperforming loans as a percent of total loans were 0.95% at March 31, 2017 compared to 0.97% at March 31, 2016, and 1.13% at December 31, 2016.
Total non-interest income for the first quarter of 2017 increased $0.6 million, or 4%, compared to first quarter of 2016, compared to 0.15% in the third quarter of 2015 and 0.03% in the linked quarter. During the
first nine months of 2016, annualized net charge-offs were 0.09% of average gross loans compared to 0.10% in the same period of 2015.
For the third quarter of 2016, total other income increased $1.4$1.6 million, or 12%, compared to third quarter of 2015, and $0.09 million, or 8%13%, from the linked quarter. The increasesincrease compared to the thirdfirst quarter of 2015 and the linked quarter were2016 was primarily due primarily to increases in commercial loan swap fee income, BOLI income and electronic bankinghigher bank owned life insurance income. Also contributing to the growthThe increase of $326,000 compared to the linkedfirst quarter of 2016 was an increasea result of additional polices that were purchased late in the second quarter of 2016. Compared to the first quarter of 2016, trust and investment income and mortgage banking income also increased, and were offset by declines in insurance income and deposit account service charges. The increase compared to the thirdlinked quarter was due largely to annual performance-based insurance commissions, which, for the most part, are recognized in the first quarter of 2015 includedeach year.
Total non-interest expense for the growth of mortgage banking income. For the nine months ended September 30, 2016, total other income increased $4.1 million, or 12%, primarily due to increases in electronic banking income, trust and investment income, commercial loan swap fee income and BOLI income, with a portion of the growth attributable to the NB&T acquisition. The increase in BOLI income was the result of the additional $35.0 million of BOLI policies that were purchased in the secondfirst quarter of 2016.
Total other expenses for2017 was $27.3 million, compared to $26.3 million during the thirdfirst quarter of 2016 were $26.8 million, compared to $26.1 million during the third quarter of 2015 and $26.5$27.3 million for the secondlinked quarter of 2016. Total other expenses increased from the third quarterThe increase of 2015 due largely to increased$1.2 million, or 8%, in salaries and employee benefit costs coupled with an increase in professional fees duringcompared to the third quarter of 2016. Beginning in the secondfirst quarter of 2016 was due primarily to: (i) increased incentive compensation, which is tied to the corporate incentive plan; (ii) increased health insurance costs, which were a result of higher claims; and (iii) higher stock-based compensation. The increase in stock-based compensation was partially due to the annual stock grant that was tied to the performance level achieved with respect to the 2016 corporate incentive plan, for which common shares were granted in the first quarter of 2017. The increase of $0.9 million, or 6%, in salaries and employee benefit costs compared to the fourth quarter of 2016 was due primarily to health insurance costs, which was the result of higher claims, and higher stock-based compensation. The fourth quarter of 2016 included $0.7 million of non-core charges, includedwhich were one-time costs associated with the system upgrade of PeoplesPeoples' core banking system (including the related operating systems, data systems and products). These costs are expected to be approximately $1.4 millionthat occurred on November 7, 2016.
Peoples' efficiency ratio for the full yearfirst quarter of 2016. During2017 was 64.89%, compared to 64.26% for the second and thirdfirst quarter of 2016 these non-core charges were $90,000 and $423,000, respectively.
During66.87% for the third quarter of 2016, salaries and employee benefits increased compared to both the third quarter of 2015 and second quarter of 2016.linked quarter. The slight 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. The increase in salaries and employee benefits compared to the secondfirst 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.
For the first nine months ended September 30, 2016, other expense was $79.6 million, a decrease of 9% from $87.8 million for the first nine months of 2015.increase in total non-interest expense. The decline was largely due to acquisition expenses from the NB&T acquisition recognized in the first nine months of 2015. 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.
Peoples' efficiency ratio calculated as total other expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus non-interest income for the third quarter of 2016 was 64.33%, compared to 65.81% for the third quarter of 2015 and 65.08% for the linked quarter. The lower efficiency ratios in the periods reported were primarily due to continued revenue growth and the focus on expense management. Revenue grew 6% and core expenses grew 3% compared to the third quarter of 2015 and 3% and 2%, respectively, compared to the linked quarter of 2016. For the first nine months of 2016, the efficiency ratio was 64.56% compared to 78.18% for the first nine months of 2015. The improvement in the efficiency ratio during the first nine months of 2016 versus the same period in 2015 was primarilylargely due to increased revenues coupled with decreaseshigher revenue, offset partially by increases in expenses.total non-interest expense.
At September 30, 2016,March 31, 2017, total assets were $3.4$3.46 billion, up $104.6compared to $3.43 billion, at December 31, 2016. The $26.9 million or 3%, from year-end 2015. The increase was primarily the result of increasesgrowth in loan balances, net of deferred fees and costs, of $96.8$24.6 million, or 5%, and an increase4%
annualized. Indirect consumer lending continued to be a key component of loan growth as balances increased $30.9 million, or 49% annualized, during the first quarter of 2017. The growth in BOLI, offset partially by a decrease in investment securities. The increase in loans was driven primarily by growth of $66.7 million inindirect consumer loan balances coupledincluded diversification in the portfolio beyond automobile loans, including recreational vehicles and motorcycles. Commercial loans grew $9.0 million, or 3% annualized, with a $48.3 million increase in commercial and industrial loans. The decrease in investment securities was due primarily toloans growing $6.4 million, or 6% annualized, during the sale of $28.9 million of available-for-sale securities for a gain of $767,000 in the secondfirst quarter of 2016 coupled with the decrease in fair market value at September 30, 2016.
2017. Quarterly average gross loan balances increased $12.0$59.9 million, or 2%11.0% annualized, compared to the linked quarter, due primarily to indirect lending. The increaseincreases 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,loans and higher indirect lending and commercial and industrial loan balances.consumer loans.
Total liabilities were $2.9$3.02 billion at September 30, 2016,March 31, 2017, up $83.8$19.2 million since year-end 2015.December 31, 2016. The increase in liabilities during the first quarter of 2017 was primarily due to a 2%an increase in deposits of $192.4 million, or $39.5 million, coupled with8%, offset partially by a 13%, or $36.3 million, increasedecline in total borrowed funds.borrowings of $170.5 million, or 38%. Total non-interest-bearing deposits increased 4%,$50.6 million, or $27.5 million,7%, and interest-bearing deposits increased 1%$141.8 million, or 8%, or $12.0 million, fromcompared to December 31, 2015.2016. The growth in interest-bearing deposits was primarily the result of growthincreases in all categories except forbrokered certificates of deposits and governmental deposits. Governmental deposit which decreased $59.3 million.
Duringbalances are typically higher in the thirdfirst quarter of 2016, period-end deposits increased $42.5 million, attributableeach year compared to an increase of $45.8 million in non-interest-bearing deposits.other quarters. The increase in non-interest-bearingnon-interest bearing deposits was primarilypartially due to the increase in one commercial non-interest-bearing deposit balances, which increased $36.0 million, whilecustomer's account, with the remaining increase in both commercial and individual non-interest-bearing deposit balances increased $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.accounts.
Non-interest-bearing deposits comprised 29% of total deposits at September 30, 2016,March 31, 2017, compared to 28% at each of June 30,March 31, 2016 and 29% at December 31, 2015 and September 30, 2015.
Average deposits for the third quarter of 2016 decreased $24.2 million 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.2016.
At September 30, 2016,March 31, 2017, total stockholders' equity was $440.6$443.0 million, up $20.8an increase of $7.7 million, sinceor 2%, compared to December 31, 2015.2016. Regulatory capital ratios remained significantly higher than "well capitalized" minimums. Peoples' tier 1 common risk-based capital ratio was 13.04%13.05% at September 30, 2016,March 31, 2017, versus 13.03% at June 30, 2016, 13.36%12.91% at December 31, 20152016 and 13.45%13.10% at September 30, 2015,March 31, 2016, while the tier 1 risk-basedtotal capital ratio was 13.34% at September 30, 2016,March 31, 2017, compared to 13.33% at June 30, 2016, 13.67%13.21% at December 31, 20152016 and 13.77%13.41% at September 30, 2015.March 31, 2016. The total risk-based capital ratio was 14.24%14.27% at September 30, 2016,March 31, 2017, compared to 14.23% at June 30, 2016, 14.54%14.11% at December 31, 20152016 and 14.97%14.29% at September 30, 2015.March 31, 2016. In addition, Peoples' tangible equity to tangible asset ratio was 9.13%8.98%, and tangible book value per common share was $16.14$16.28 at September 30, 2016,March 31, 2017, versus 8.69%8.80% and $14.68$15.89, respectively, at December 31, 2015, respectively. The slight decline in Peoples' capital ratios from December 31, 2015, was due primarily to an increase in risk-weighted assets, which was the result of growth in loan balances, BOLI and low income housing investments, coupled with stock repurchases in the first quarter of 2016, totaling $5.0 million.2016.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Federal Reserve Board’s monetary policy, the level and degree of pricing competition for both loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities.
The following tables detail Peoples’ average balance sheets for the periods presented:
| | | For the Three Months Ended | For the Three Months Ended |
| September 30, 2016 | | June 30, 2016 | | September 30, 2015 | March 31, 2017 | | December 31, 2016 | | March 31, 2016 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 8,663 |
| $ | 10 |
| 0.46 | % | | $ | 9,073 |
| $ | 11 |
| 0.49 | % | | $ | 34,093 |
| $ | 21 |
| 0.24 | % | $ | 7,415 |
| $ | 15 |
| 0.82 | % | | $ | 8,520 |
| $ | 13 |
| 0.61 | % | | $ | 12,436 |
| $ | 16 |
| 0.52 | % |
Long-term investments | — |
| — |
| — | % | | — |
| — |
| — | % | | 1,261 |
| 3 |
| 0.94 | % | |
Investment Securities (1): | | | | | | | | | | | | | | | | |
Taxable | 736,677 |
| 4,500 |
| 2.44 | % | | 765,153 |
| 4,783 |
| 2.50 | % | | 742,486 |
| 4,530 |
| 2.44 | % | 748,835 |
| 4,754 |
| 2.54 | % | | 748,126 |
| 4,594 |
| 2.46 | % | | 763,136 |
| 4,726 |
| 2.48 | % |
Nontaxable (2) | 112,589 |
| 1,186 |
| 4.21 | % | | 111,893 |
| 1,201 |
| 4.29 | % | | 113,577 |
| 1,231 |
| 4.34 | % | 113,779 |
| 1,222 |
| 4.30 | % | | 114,229 |
| 1,222 |
| 4.28 | % | | 112,508 |
| 1,200 |
| 4.27 | % |
Total investment securities | 849,266 |
| 5,686 |
| 2.68 | % | | 877,046 |
| 5,984 |
| 2.73 | % | | 856,063 |
| 5,761 |
| 2.69 | % | 862,614 |
| 5,976 |
| 2.77 | % | | 862,355 |
| 5,816 |
| 2.70 | % | | 875,644 |
| 5,926 |
| 2.71 | % |
Loans (2)(3): | | | | | | | | | | | | | | | | |
Commercial real estate, construction | 93,353 |
| 915 |
| 3.84 | % | | 91,510 |
| 871 |
| 3.77 | % | | 70,264 |
| 762 |
| 4.24 | % | 94,215 |
| 993 |
| 4.22 | % | | 89,113 |
| 889 |
| 3.90 | % | | 80,202 |
| 781 |
| 3.85 | % |
Commercial real estate, other | 707,269 |
| 8,362 |
| 4.63 | % | | 721,714 |
| 8,341 |
| 4.57 | % | | 719,679 |
| 8,478 |
| 4.61 | % | 734,442 |
| 8,423 |
| 4.59 | % | | 722,003 |
| 8,456 |
| 4.58 | % | | 736,036 |
| 8,492 |
| 4.56 | % |
Commercial and industrial | 378,053 |
| 3,855 |
| 3.99 | % | | 373,220 |
| 4,017 |
| 4.26 | % | | 342,672 |
| 3,559 |
| 4.06 | % | 433,068 |
| 4,545 |
| 4.20 | % | | 399,614 |
| 4,201 |
| 4.11 | % | | 356,375 |
| 3,695 |
| 4.10 | % |
Residential real estate (4) | 554,039 |
| 6,070 |
| 4.38 | % | | 562,565 |
| 6,106 |
| 4.34 | % | | 570,623 |
| 6,283 |
| 4.40 | % | |
Residential real estate | | 531,457 |
| 5,769 |
| 4.34 | % | | 547,640 |
| 5,938 |
| 4.34 | % | | 565,514 |
| 6,166 |
| 4.36 | % |
Home equity lines of credit | 110,232 |
| 1,246 |
| 4.50 | % | | 107,919 |
| 1,203 |
| 4.48 | % | | 104,941 |
| 1,277 |
| 4.83 | % | 111,112 |
| 1,159 |
| 4.23 | % | | 111,417 |
| 1,214 |
| 4.33 | % | | 106,968 |
| 1,190 |
| 4.47 | % |
Consumer | 291,047 |
| 3,083 |
| 4.21 | % | | 265,072 |
| 2,890 |
| 4.39 | % | | 219,143 |
| 2,559 |
| 4.63 | % | |
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 | 2,133,993 |
| 23,531 |
| 4.35 | % | | 2,122,000 |
| 23,428 |
| 4.39 | % | | 2,027,322 |
| 22,918 |
| 4.46 | % | 2,244,321 |
| 24,339 |
| 4.35 | % | | 2,184,398 |
| 24,037 |
| 4.34 | % | | 2,091,739 |
| 23,009 |
| 4.38 | % |
Less: Allowance for loan losses | (17,787 | ) | | | | (17,362 | ) | | | | (17,982 | ) | | | (18,585 | ) | | | | (18,254 | ) | | | | (16,845 | ) | | |
Net loans | 2,116,206 |
| 23,531 |
| 4.39 | % | | 2,104,638 |
| 23,428 |
| 4.43 | % | | 2,009,340 |
| 22,918 |
| 4.50 | % | 2,225,736 |
| 24,339 |
| 4.39 | % | | 2,166,144 |
| 24,037 |
| 4.38 | % | | 2,074,894 |
| 23,009 |
| 4.41 | % |
Total earning assets | 2,974,135 |
| 29,227 |
| 3.89 | % | | 2,990,757 |
| 29,423 |
| 3.92 | % | | 2,900,757 |
| 28,703 |
| 3.92 | % | 3,095,765 |
| 30,330 |
| 3.93 | % | | 3,037,019 |
| 29,866 |
| 3.89 | % | | 2,962,974 |
| 28,951 |
| 3.90 | % |
Intangible assets | 147,466 |
| | | | 148,464 |
| | | | 151,206 |
| | | 145,546 |
| | | | 146,489 |
| | | | 149,528 |
| | |
Other assets | 203,035 |
| | | | 167,435 |
| | | | 157,730 |
| | | 205,040 |
| | | | 203,011 |
| | | | 160,133 |
| | |
Total assets | $ | 3,324,636 |
| | | | $ | 3,306,656 |
| | | | $ | 3,209,693 |
| | | $ | 3,446,351 |
| | | | $ | 3,386,519 |
| | | | $ | 3,272,635 |
| | |
Deposits: | | | | | | | | | | | | | | | | |
Savings accounts | $ | 439,464 |
| $ | 59 |
| 0.05 | % | | $ | 438,368 |
| $ | 58 |
| 0.05 | % | | $ | 410,131 |
| $ | 56 |
| 0.05 | % | $ | 439,206 |
| $ | 59 |
| 0.05 | % | | $ | 436,733 |
| $ | 58 |
| 0.05 | % | | $ | 421,797 |
| $ | 56 |
| 0.05 | % |
Governmental deposit accounts | 311,650 |
| 152 |
| 0.19 | % | | 302,852 |
| 146 |
| 0.19 | % | | 301,178 |
| 161 |
| 0.21 | % | 283,605 |
| 131 |
| 0.19 | % | | 273,263 |
| 126 |
| 0.18 | % | | 298,685 |
| 147 |
| 0.20 | % |
Interest-bearing demand accounts | 264,182 |
| 61 |
| 0.09 | % | | 251,773 |
| 46 |
| 0.07 | % | | 235,145 |
| 47 |
| 0.08 | % | 286,487 |
| 78 |
| 0.11 | % | | 275,653 |
| 65 |
| 0.09 | % | | 251,341 |
| 45 |
| 0.07 | % |
Money market accounts | 400,749 |
| 175 |
| 0.17 | % | | 400,286 |
| 165 |
| 0.17 | % | | 395,547 |
| 158 |
| 0.16 | % | 398,839 |
| 187 |
| 0.19 | % | | 407,171 |
| 202 |
| 0.20 | % | | 398,515 |
| 160 |
| 0.16 | % |
Brokered deposits | 17,832 |
| 163 |
| 3.64 | % | | 29,542 |
| 273 |
| 3.73 | % | | 34,883 |
| 328 |
| 3.73 | % | 84,929 |
| 306 |
| 1.46 | % | | 37,859 |
| 151 |
| 1.59 | % | | 50,452 |
| 366 |
| 2.92 | % |
Retail certificates of deposit | 412,466 |
| 817 |
| 0.79 | % | | 431,075 |
| 815 |
| 0.76 | % | | 472,516 |
| 789 |
| 0.66 | % | 342,837 |
| 726 |
| 0.86 | % | | 375,347 |
| 807 |
| 0.86 | % | | 437,647 |
| 827 |
| 0.76 | % |
Total interest-bearing deposits | 1,846,343 |
| 1,427 |
| 0.31 | % | | 1,853,896 |
| 1,503 |
| 0.33 | % | | 1,849,400 |
| 1,539 |
| 0.33 | % | 1,835,903 |
| 1,487 |
| 0.33 | % | | 1,806,026 |
| 1,409 |
| 0.31 | % | | 1,858,437 |
| 1,601 |
| 0.35 | % |
Borrowed Funds: | | | | | | | | | | | | | | | | |
Short-term FHLB advances | 73,413 |
| 79 |
| 0.43 | % | | 71,165 |
| 75 |
| 0.42 | % | | 9,413 |
| 5 |
| 0.21 | % | 134,411 |
| 221 |
| 0.67 | % | | 142,033 |
| 176 |
| 0.49 | % | | 57,956 |
| 54 |
| 0.38 | % |
Retail repurchase agreements | 70,401 |
| 30 |
| 0.17 | % | | 71,723 |
| 30 |
| 0.17 | % | | 89,583 |
| 37 |
| 0.17 | % | 70,885 |
| 30 |
| 0.17 | % | | 71,819 |
| 31 |
| 0.17 | % | | 77,733 |
| 33 |
| 0.17 | % |
Total short-term borrowings | 143,814 |
| 109 |
| 0.30 | % | | 142,888 |
| 105 |
| 0.29 | % | | 98,996 |
| 42 |
| 0.17 | % | 205,296 |
| 251 |
| 0.50 | % | | 213,852 |
| 207 |
| 0.39 | % | | 135,689 |
| 87 |
| 0.26 | % |
Long-term FHLB advances | 100,938 |
| 594 |
| 2.34 | % | | 71,686 |
| 534 |
| 3.00 | % | | 69,821 |
| 548 |
| 3.11 | % | 125,154 |
| 661 |
| 2.14 | % | | 98,830 |
| 585 |
| 2.35 | % | | 66,631 |
| 524 |
| 3.18 | % |
Wholesale repurchase agreements | 40,000 |
| 371 |
| 3.71 | % | | 40,000 |
| 367 |
| 3.67 | % | | 40,000 |
| 371 |
| 3.71 | % | 40,000 |
| 363 |
| 3.63 | % | | 40,000 |
| 371 |
| 3.71 | % | | 40,000 |
| 367 |
| 3.67 | % |
Other borrowings | 6,794 |
| 106 |
| 6.11 | % | | 6,741 |
| 104 |
| 6.10 | % | | 9,656 |
| 142 |
| 5.75 | % | 6,899 |
| 110 |
| 6.38 | % | | 6,847 |
| 110 |
| 6.29 | % | | 6,739 |
| 97 |
| 5.76 | % |
Total long-term borrowings | 147,732 |
| 1,071 |
| 2.89 | % | | 118,427 |
| 1,005 |
| 3.40 | % | | 119,477 |
| 1,061 |
| 3.54 | % | 172,053 |
| 1,134 |
| 2.66 | % | | 145,677 |
| 1,066 |
| 2.92 | % | | 113,370 |
| 988 |
| 3.50 | % |
Total borrowed funds | 291,546 |
| 1,180 |
| 1.61 | % | | 261,315 |
| 1,110 |
| 1.70 | % | | 218,473 |
| 1,103 |
| 2.01 | % | 377,349 |
| 1,385 |
| 1.48 | % | | 359,529 |
| 1,273 |
| 1.41 | % | | 249,059 |
| 1,075 |
| 1.74 | % |
Total interest-bearing liabilities | 2,137,889 |
| 2,607 |
| 0.49 | % | | 2,115,211 |
| 2,613 |
| 0.50 | % | | 2,067,873 |
| 2,642 |
| 0.51 | % | 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 | 709,432 |
| | | | 726,066 |
| | | | 694,277 |
| | | 758,446 |
| | | | 743,389 |
| | | | 710,297 |
| | |
Other liabilities | 38,709 |
| |
| | | 35,307 |
| |
| | | 26,433 |
| |
| | 35,663 |
| |
| | | 39,337 |
| |
| | | 31,299 |
| |
| |
Total liabilities | 2,886,030 |
| | | | 2,876,584 |
| | |
| 2,788,583 |
| | | 3,007,361 |
| | | | 2,948,281 |
| | |
| 2,849,092 |
| | |
Total stockholders’ equity | 438,606 |
| |
| | | 430,072 |
| |
| | | 421,110 |
| |
| | 438,990 |
| |
| | | 438,238 |
| |
| | | 423,543 |
| |
| |
Total liabilities and stockholders’ equity | $ | 3,324,636 |
| |
| | | $ | 3,306,656 |
| |
| | | $ | 3,209,693 |
| |
| | $ | 3,446,351 |
| |
| | | $ | 3,386,519 |
| |
| | | $ | 3,272,635 |
| |
| |
Interest rate spread | | $ | 26,620 |
| 3.40 | % | | | $ | 26,810 |
| 3.42 | % | | | $ | 26,061 |
| 3.41 | % | | $ | 27,458 |
| 3.40 | % | | | $ | 27,184 |
| 3.40 | % | | | $ | 26,275 |
| 3.39 | % |
Net interest margin | Net interest margin | 3.54 | % | | | 3.57 | % | | | 3.55 | % | Net interest margin | 3.55 | % | | | 3.54 | % | | | 3.53 | % |
|
| | | | | | | | | | | | | | | | | |
| For the Nine Months Ended |
| September 30, 2016 | | September 30, 2015 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 10,052 |
| $ | 37 |
| 0.49 | % | | $ | 63,670 |
| $ | 115 |
| 0.24 | % |
Other long-term investments | — |
| — |
| — | % | | 1,317 |
| 10 |
| 1.02 | % |
Investment Securities (1): | | | | | | | |
Taxable | 754,922 |
| 14,010 |
| 2.47 | % | | 713,386 |
| 13,537 |
| 2.53 | % |
Nontaxable (2) | 112,331 |
| 3,588 |
| 4.26 | % | | 104,474 |
| 3,389 |
| 4.33 | % |
Total investment securities | 867,253 |
| 17,598 |
| 2.71 | % | | 817,860 |
| 16,926 |
| 2.76 | % |
Loans (2) (3): | | | | | | | |
Commercial real estate, construction | 88,373 |
| 2,566 |
| 3.81 | % | | 58,353 |
| 1,887 |
| 4.26 | % |
Commercial real estate, other | 721,620 |
| 25,195 |
| 4.59 | % | | 685,543 |
| 23,666 |
| 4.55 | % |
Commercial and industrial | 369,248 |
| 11,568 |
| 4.12 | % | | 320,793 |
| 10,140 |
| 4.17 | % |
Residential real estate (4) | 560,681 |
| 18,341 |
| 4.36 | % | | 549,582 |
| 18,234 |
| 4.42 | % |
Home equity lines of credit | 108,380 |
| 3,639 |
| 4.49 | % | | 97,881 |
| 3,367 |
| 4.60 | % |
Consumer | 267,673 |
| 8,658 |
| 4.32 | % | | 203,684 |
| 7,020 |
| 4.61 | % |
Total loans | 2,115,975 |
| 69,967 |
| 4.41 | % | | 1,915,836 |
| 64,314 |
| 4.45 | % |
Less: Allowance for loan losses | (17,333 | ) | | | | (17,930 | ) | | |
Net loans | 2,098,642 |
| 69,967 |
| 4.41 | % | | 1,897,906 |
| 64,314 |
| 4.49 | % |
Total earning assets | 2,975,947 |
| 87,602 |
| 3.90 | % | | 2,780,753 |
| 81,365 |
| 3.88 | % |
Intangible assets | 148,482 |
| | | | 141,754 |
| | |
Other assets | 175,909 |
| | | | 145,957 |
| | |
Total assets | $ | 3,300,338 |
| | | | $ | 3,068,464 |
| | |
Deposits: | | | | | | | |
Savings accounts | $ | 433,233 |
| $ | 173 |
| 0.05 | % | | $ | 381,717 |
| $ | 154 |
| 0.05 | % |
Governmental deposit accounts | 304,422 |
| 444 |
| 0.19 | % | | 273,768 |
| 450 |
| 0.22 | % |
Interest-bearing demand accounts | 255,796 |
| 151 |
| 0.08 | % | | 217,220 |
| 134 |
| 0.08 | % |
Money market accounts | 399,853 |
| 500 |
| 0.17 | % | | 381,238 |
| 456 |
| 0.16 | % |
Brokered deposits | 27,049 |
| 751 |
| 3.71 | % | | 37,130 |
| 1,034 |
| 3.72 | % |
Retail certificates of deposit | 432,515 |
| 2,512 |
| 0.78 | % | | 469,010 |
| 2,488 |
| 0.71 | % |
Total interest-bearing deposits | 1,852,868 |
| 4,531 |
| 0.33 | % | | 1,760,083 |
| 4,716 |
| 0.36 | % |
Borrowed Funds: | | | | | | | |
Short-term FHLB advances | 67,533 |
| 208 |
| 0.41 | % | | 5,436 |
| 8 |
| 0.20 | % |
Retail repurchase agreements | 73,275 |
| 93 |
| 0.17 | % | | 81,304 |
| 100 |
| 0.16 | % |
Total short-term borrowings | 140,808 |
| 301 |
| 0.29 | % | | 86,740 |
| 108 |
| 0.17 | % |
Long-term FHLB advances | 79,829 |
| 1,653 |
| 2.77 | % | | 87,154 |
| 1,718 |
| 2.64 | % |
Wholesale repurchase agreements | 40,000 |
| 1,104 |
| 3.68 | % | | 40,000 |
| 1,100 |
| 3.67 | % |
Other borrowings | 6,758 |
| 307 |
| 5.97 | % | | 15,205 |
| 513 |
| 4.45 | % |
Total long-term borrowings | 126,587 |
| 3,064 |
| 3.23 | % | | 142,359 |
| 3,331 |
| 3.13 | % |
Total borrowed funds | 267,395 |
| 3,365 |
| 1.68 | % | | 229,099 |
| 3,439 |
| 2.00 | % |
Total interest-bearing liabilities | 2,120,263 |
| 7,896 |
| 0.50 | % | | 1,989,182 |
| 8,155 |
| 0.55 | % |
Non-interest-bearing deposits | 715,244 |
| | | | 645,553 |
| | |
Other liabilities | 34,062 |
| |
| | | 31,625 |
| |
| |
Total liabilities | 2,869,569 |
| | | | 2,666,360 |
| |
| |
|
Total stockholders’ equity | 430,769 |
| |
| | | 402,104 |
| |
| |
Total liabilities and stockholders’ equity | $ | 3,300,338 |
| |
| | | $ | 3,068,464 |
| |
| |
Interest rate spread | | $ | 79,706 |
| 3.40 | % | | | $ | 73,210 |
| 3.33 | % |
Net interest margin | 3.55 | % | | | | 3.49 | % |
| |
(1) | Average balances are based on carrying value. |
| |
(2) | Interest income and yields are presented on a fully tax-equivalent basis using a 35% federal tax rate. |
| |
(3) | Average balances include nonaccrual, impaired loans and impaired loans.loans held for sale. 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. |
| |
(4) |
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. |
The following table provides an analysis of the changes in FTE net interest income:
| | | | | | | Nine Months Ended | | | |
| | | | | September 30, 2016 | | | |
| Three Months Ended September 30, 2016 Compared to | | Compared to | Three Months Ended March 31, 2017 Compared to |
(Dollars in thousands) | June 30, 2016 | | September 30, 2015 | | September 30, 2015 | December 31, 2016 | | March 31, 2016 |
Increase (decrease) in: | Rate | Volume | Total (1) | | Rate | Volume | Total (1) | | Rate | Volume | Total (1) | Rate | Volume | Total (1) | | Rate | Volume | Total (1) |
INTEREST INCOME: | | | | | | | | |
Short-term investments | $ | — |
| $ | (1 | ) | $ | (1 | ) | | $ | 61 |
| $ | (72 | ) | $ | (11 | ) | | $ | 99 |
| $ | (177 | ) | $ | (78 | ) | $ | 11 |
| $ | (9 | ) | $ | 2 |
| | $ | 30 |
| $ | (31 | ) | $ | (1 | ) |
Other long-term investments | — |
| — |
| — |
| | (1 | ) | (2 | ) | (3 | ) | | (5 | ) | (5 | ) | (10 | ) | — |
| — |
| — |
| | — |
| — |
| — |
|
Investment Securities (2): | | | | | | | | |
Taxable | (108 | ) | (175 | ) | (283 | ) | | 34 |
| (64 | ) | (30 | ) | | 397 |
| 76 |
| 473 |
| 156 |
| 4 |
| 160 |
| | 422 |
| (394 | ) | 28 |
|
Nontaxable | (56 | ) | 41 |
| (15 | ) | | (34 | ) | (11 | ) | (45 | ) | | 160 |
| 39 |
| 199 |
| 19 |
| (19 | ) | — |
| | 8 |
| 14 |
| 22 |
|
Total investment income | (164 | ) | (134 | ) | (298 | ) | | — |
| (75 | ) | (75 | ) | | 557 |
| 115 |
| 672 |
| 175 |
| (15 | ) | 160 |
| | 430 |
| (380 | ) | 50 |
|
Loans (2): | | | | | | | | | | | | | |
Commercial real estate, construction | 21 |
| 23 |
| 44 |
| | (409 | ) | 562 |
| 153 |
| | (320 | ) | 999 |
| 679 |
| 61 |
| 43 |
| 104 |
| | 74 |
| 138 |
| 212 |
|
Commercial real estate, other | 500 |
| (479 | ) | 21 |
| | 179 |
| (295 | ) | (116 | ) | | 195 |
| 1,334 |
| 1,529 |
| (2 | ) | (31 | ) | (33 | ) | | 54 |
| (123 | ) | (69 | ) |
Commercial and industrial | (476 | ) | 314 |
| (162 | ) | | (387 | ) | 683 |
| 296 |
| | (199 | ) | 1,627 |
| 1,428 |
| 68 |
| 276 |
| 344 |
| | 84 |
| 766 |
| 850 |
|
Residential real estate | 270 |
| (306 | ) | (36 | ) | | (31 | ) | (182 | ) | (213 | ) | | (359 | ) | 466 |
| 107 |
| 45 |
| (214 | ) | (169 | ) | | (27 | ) | (370 | ) | (397 | ) |
Home equity lines of credit | 5 |
| 38 |
| 43 |
| | (312 | ) | 281 |
| (31 | ) | | (131 | ) | 403 |
| 272 |
| (49 | ) | (6 | ) | (55 | ) | | (235 | ) | 204 |
| (31 | ) |
Consumer | (593 | ) | 786 |
| 193 |
| | (1,326 | ) | 1,850 |
| 524 |
| | (705 | ) | 2,343 |
| 1,638 |
| |
Consumer, indirect | | (522 | ) | 624 |
| 102 |
| | (1,138 | ) | 1,736 |
| 598 |
|
Consumer, other | | 211 |
| (202 | ) | 9 |
| | 398 |
| (231 | ) | 167 |
|
Total loan income | (273 | ) | 376 |
| 103 |
| | (2,286 | ) | 2,899 |
| 613 |
| | (1,519 | ) | 7,172 |
| 5,653 |
| (188 | ) | 490 |
| 302 |
| | (790 | ) | 2,120 |
| 1,330 |
|
Total interest income | (437 | ) | 241 |
| (196 | ) | | (2,226 | ) | 2,750 |
| 524 |
| | (868 | ) | 7,105 |
| 6,237 |
| (2 | ) | 466 |
| 464 |
| | (330 | ) | 1,709 |
| 1,379 |
|
INTEREST EXPENSE: | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | |
Savings accounts | 1 |
| — |
| 1 |
| | (5 | ) | 8 |
| 3 |
| | (2 | ) | 21 |
| 19 |
| 1 |
| — |
| 1 |
| | 1 |
| 2 |
| 3 |
|
Government deposit accounts | — |
| 6 |
| 6 |
| | (38 | ) | 29 |
| (9 | ) | | (71 | ) | 65 |
| (6 | ) | 2 |
| 3 |
| 5 |
| | (8 | ) | (8 | ) | (16 | ) |
Interest-bearing demand accounts | 13 |
| 2 |
| 15 |
| | 8 |
| 6 |
| 14 |
| | (9 | ) | 26 |
| 17 |
| 11 |
| 2 |
| 13 |
| | 26 |
| 7 |
| 33 |
|
Money market accounts | 10 |
| — |
| 10 |
| | 15 |
| 2 |
| 17 |
| | 21 |
| 23 |
| 44 |
| (10 | ) | (5 | ) | (15 | ) | | 27 |
| — |
| 27 |
|
Brokered certificates of deposit | (6 | ) | (104 | ) | (110 | ) | | (8 | ) | (157 | ) | (165 | ) | | (4 | ) | (279 | ) | (283 | ) | (80 | ) | 235 |
| 155 |
| | (875 | ) | 815 |
| (60 | ) |
Retail certificates of deposit | 131 |
| (129 | ) | 2 |
| | 495 |
| (467 | ) | 28 |
| | 296 |
| (272 | ) | 24 |
| 28 |
| (109 | ) | (81 | ) | | 509 |
| (610 | ) | (101 | ) |
Total deposit cost | 149 |
| (225 | ) | (76 | ) | | 467 |
| (579 | ) | (112 | ) | | 231 |
| (416 | ) | (185 | ) | (48 | ) | 126 |
| 78 |
| | (320 | ) | 206 |
| (114 | ) |
Borrowed funds: | | | | | | | | | | | | | |
Short-term borrowings | 3 |
| 1 |
| 4 |
| | 21 |
| 46 |
| 67 |
| | 18 |
| 175 |
| 193 |
| 103 |
| (59 | ) | 44 |
| | 61 |
| 103 |
| 164 |
|
Long-term borrowings | (586 | ) | 652 |
| 66 |
| | (685 | ) | 695 |
| 10 |
| | 344 |
| (611 | ) | (267 | ) | (303 | ) | 371 |
| 68 |
| | (834 | ) | 980 |
| 146 |
|
Total borrowed funds cost | (583 | ) | 653 |
| 70 |
| | (664 | ) | 741 |
| 77 |
| | 362 |
| (436 | ) | (74 | ) | (200 | ) | 312 |
| 112 |
| | (773 | ) | 1,083 |
| 310 |
|
Total interest expense | (434 | ) | 428 |
| (6 | ) | | (197 | ) | 162 |
| (35 | ) | | 593 |
| (852 | ) | (259 | ) | (248 | ) | 438 |
| 190 |
| | (1,093 | ) | 1,289 |
| 196 |
|
Net interest income | $ | (3 | ) | $ | (187 | ) | $ | (190 | ) | | $ | (2,029 | ) | $ | 2,588 |
| $ | 559 |
| | $ | (1,461 | ) | $ | 7,957 |
| $ | 6,496 |
| $ | 246 |
| $ | 28 |
| $ | 274 |
| | $ | 763 |
| $ | 420 |
| $ | 1,183 |
|
(1)The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the
relationship of the dollar amounts of the changes in each.
(2)Interest income and yields are presented on a fully tax-equivalent basis using a 35% federal tax rate.
Net interest margin, which is calculated by dividing fully tax-equivalent ("FTE") net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert
tax-exempt income earned on obligations of states and political subdivisions to the pre-tax equivalent of taxable income using a 35% federal tax rate.
The following table details the calculation of FTE net interest income:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | June 30, 2016 | September 30, 2015 | | September 30, | March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) | | 2016 | 2015 |
Net interest income, as reported | $ | 26,123 |
| $ | 26,308 |
| $ | 25,536 |
| | $ | 78,198 |
| $ | 71,748 |
| $ | 26,945 |
| $ | 26,667 |
| $ | 25,767 |
|
Taxable equivalent adjustments | 497 |
| 502 |
| 525 |
| | 1,508 |
| 1,462 |
| 513 |
| 517 |
| 508 |
|
Fully tax-equivalent net interest income | $ | 26,620 |
| $ | 26,810 |
| $ | 26,061 |
| | $ | 79,706 |
| $ | 73,210 |
| $ | 27,458 |
| $ | 27,184 |
| $ | 26,275 |
|
Net interest income declined slightly ingrew 1% compared to the thirdfourth quarter of 2016, mostly dueand 5% compared to lower income from investment securities. Net interest margin for the thirdfirst quarter of 2016, was 3.54% comparedwhile net interest margin grew 1 basis point and 2 basis points, respectively. The increases in net interest income and net interest margin were largely due to 3.55% forloan growth, coupled with deposit growth and reductions in wholesale borrowings. During the thirdfirst quarter of 2015 and 3.57% in the second quarter of 2016. During the third quarter of 2016,2017, net interest income and net interest margin benefited from normal accretion income, net of amortization expense, of $0.8 million$829,000 related primarily to the acquired loans purchased in 2012 or thereafter in a business combination,combinations, which added 1011 basis points to net interest margin, compared to $0.9 million,$874,000, or 1211 basis points, during the linked quarter and $1.4 million,$951,000, or 1812 basis points, during the prior year thirdfirst quarter.
The netDuring the first quarter of 2017, compared to both the fourth quarter of 2016 and the first quarter of 2016, increases in earning asset yields outpaced higher funding costs. Recent increases in interest margin, excludingrates led to the impacthigher investment securities yield compared to both the fourth quarter and the first quarter of amortization and accretion from2016. Average loan balances increased $59.9 million during the acquisitions completed, decreased by 1 basis pointfirst quarter of 2017, compared to the linked quarter. Funding costs decreased 1 basis pointfourth quarter of 2016, and were up $152.6 million compared to the linked quarter and 2 basis points from the thirdfirst quarter of 2015. Peoples continues to execute its strategy of replacing higher-cost funding with low-cost deposits.2016.
Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this discussion. Additional information regarding Peoples' interest rate risk and the potential impact of interest rate changes on Peoples' results of operations and financial condition can be found later in this discussion under the caption "Interest"FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity".
Provision for Loan Losses
The following table details Peoples’ provision for loan losses:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | June 30, 2016 | September 30, 2015 | | September 30, | March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) | | 2016 | 2015 |
Loan losses | 978 |
| 575 |
| 5,635 |
| | 2,410 |
| 6,385 |
| $ | 400 |
| $ | 480 |
| $ | 858 |
|
Checking account overdrafts | $ | 168 |
| $ | 152 |
| $ | 202 |
| | $ | 418 |
| $ | 474 |
| 224 |
| 231 |
| 97 |
|
Provision for loan losses | $ | 1,146 |
| $ | 727 |
| $ | 5,837 |
| | $ | 2,828 |
| $ | 6,859 |
| $ | 624 |
| $ | 711 |
| $ | 955 |
|
As a percentage of average total loans (a) | 0.21 | % | 0.14 | % | 1.14 | % | | 0.18 | % | 0.48 | % | 0.11 | % | 0.13 | % | 0.18 | % |
(a) Presented on an annualized basis | | | | |
The provision for loan losses recorded represents the amount needed to maintain the adequacy of the allowance for loan losses based on management’s quarterly analysis of the loan portfolio and procedural methodology that estimates the amount of probable credit losses. This process considers various factors that affect losses, such as changes in Peoples’ loan quality, historical loss experience and current economic conditions. The provisions recordedDuring the first quarter of 2017, provision for loan losses was driven by loan growth, which was partially offset by improvements in the current quarter and linked quarter were primarily due to loan growth.asset quality. The provision for loan losses recorded duringin the thirdfourth quarter of 20152016 and the first quarter of 2016 was primarilylargely due to increased loan growth, an increase in criticized loans and an increase in a specific reserve related to one commercial relationship. During the first nine months of 2016, net charge-offs remained below the long-term historical average of 20 to 30 basis points.growth.
Additional information regarding changes in the allowance for loan losses and loan credit quality can be found later in this discussion under the caption “Allowance“FINANCIAL CONDITION - Allowance for Loan Losses”.
Net Loss on Asset Disposals and Other Transactions
The following table details the net loss on asset disposals and other transactions recognized by Peoples:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | June 30, 2016 | September 30, 2015 | | September 30, | March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) | | 2016 | 2015 |
Net loss on other real estate owned | $ | — |
| $ | — |
| $ | (50 | ) | | $ | (1 | ) | $ | (131 | ) | $ | — |
| $ | (33 | ) | $ | (1 | ) |
Net loss on debt extinguishment | — |
| (707 | ) | — |
| | (707 | ) | (520 | ) | |
Net gain (loss) on bank premises and equipment | 1 |
| (97 | ) | (1 | ) | | (126 | ) | (639 | ) | |
Net (loss) gain on other | (225 | ) | 35 |
| — |
| | (190 | ) | — |
| |
Net loss on bank premises and equipment | | (3 | ) | (62 | ) | (30 | ) |
Net loss on other | | — |
| (14 | ) | — |
|
Net loss on asset disposals and other transactions | $ | (224 | ) | $ | (769 | ) | $ | (51 | ) |
| $ | (1,024 | ) | $ | (1,290 | ) | $ | (3 | ) | $ | (109 | ) | $ | (31 | ) |
The net loss on other during the third quarter of 2016 was related to the write-down of a tax investment. The net loss on debt extinguishment during the second quarter of 2016 was related to the prepayment of $20.0 million of FHLB advances. The net loss on bank premises and equipment during the secondfirst quarter of 2016 was due mainly to the closingsale of a leased officetwo closed branches. The loss on bank premises and relatedequipment recorded during the fourth quarter of 2016 was primarily due to the disposal of leasehold improvements.assets that were no longer in use. The net loss on other real estate owned ("OREO") during the thirdfourth quarter of 20152016 was due primarily to the sale of onetwo OREO property andproperties during the write-off of another OREO property. During the first nine months of 2015, the net loss on debt extinguishment was due to Peoples recognizing a loss from the prepayment of several FHLB advances and the loss on bank premises and equipment was due to asset write-offs associated with the NB&T acquisition, write-off of obsolete fixed assets and the write-down of a closed office location that was available for sale.quarter.
Non-Interest Income
Insurance income comprised the largest portion of thirdthe first quarter 20162017 total non-interest income. The following table details Peoples' insurance income:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | June 30, 2016 | September 30, 2015 | | September 30, | March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) | | 2016 | 2015 |
Property and casualty insurance commissions | $ | 2,579 |
| $ | 2,672 |
| $ | 2,678 |
| | $ | 7,699 |
| $ | 7,755 |
| $ | 2,242 |
| $ | 2,365 |
| $ | 2,448 |
|
Performance-based commissions | 91 |
| 49 |
| 116 |
| | 1,720 |
| 1,609 |
| 1,306 |
| 22 |
| 1,580 |
|
Life and health insurance commissions | 420 |
| 479 |
| 436 |
| | 1,318 |
| 1,291 |
| 410 |
| 415 |
| 419 |
|
Credit life and A&H insurance commissions | 12 |
| 9 |
| 12 |
| | 30 |
| 39 |
| 8 |
| 5 |
| 9 |
|
Other fees and charges | 35 |
| 90 |
| 33 |
| | 167 |
| 176 |
| 136 |
| 105 |
| 42 |
|
Insurance income | $ | 3,137 |
| $ | 3,299 |
| $ | 3,275 |
| | $ | 10,934 |
| $ | 10,870 |
| $ | 4,102 |
| $ | 2,912 |
| $ | 4,498 |
|
The decreaseincrease in revenueinsurance income for the thirdfirst quarter of 20162017 compared to the linked quarter was mainly due mainly to higher performance-based commissions. The majority of performance-based commissions typically are recorded annually in the first quarter and are based on a decline incombination of factors, such as loss experience of insurance policies sold, production volumes, and overall financial performance of the individual insurance carriers.
Peoples' trust and investment income continues to be based primarily upon the value of assets insured by Peoples' clients, which results in lower premiums to the clients and lower commissionunder management, with additional income to Peoples.
Deposit account service charges continued to comprise a sizable portion of Peoples' non-interest income.generated from transaction commissions. The following table details Peoples' deposit account service charges:tables detail Peoples’ trust and investment income and related assets under administration and management:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2016 | June 30, 2016 | September 30, 2015 | | September 30, |
(Dollars in thousands) | | 2016 | 2015 |
Overdraft and non-sufficient funds fees | $ | 2,105 |
| $ | 1,895 |
| $ | 2,264 |
| | $ | 5,806 |
| $ | 6,173 |
|
Account maintenance fees | 605 |
| 585 |
| 581 |
| | 1,751 |
| 1,553 |
|
Other fees and charges | 123 |
| 83 |
| 77 |
| | 442 |
| 339 |
|
Deposit account service charges | $ | 2,833 |
| $ | 2,563 |
| $ | 2,922 |
| | $ | 7,999 |
| $ | 8,065 |
|
The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Peoples typically experiences a lower volume of overdraft and |
| | | | | | | | | |
| Three Months Ended |
| March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) |
Fiduciary | $ | 1,873 |
| $ | 1,917 |
| $ | 1,661 |
|
Brokerage | 809 |
| 822 |
| 721 |
|
Trust and investment income | $ | 2,682 |
| $ | 2,739 |
| $ | 2,382 |
|
non-sufficient funds fees annually in |
| | | | | | | | | | | | | | | |
| March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
(Dollars in thousands) |
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 |
|
Total assets under administration and management | $ | 2,167,604 |
| $ | 2,079,280 |
| $ | 2,046,212 |
| $ | 2,009,523 |
| $ | 1,961,138 |
|
Quarterly average | $ | 2,122,036 |
| $ | 2,053,121 |
| $ | 2,031,378 |
| $ | 1,992,856 |
| $ | 1,935,108 |
|
Trust and investment income increased 13% compared to the first quarter attributable to customers receiving income tax refunds, while volumes generally increase in the fourth quarter in connection with the holiday shopping season.of 2016, and was driven by quality cross-selling of products and additional retirement plan services business.
Peoples' electronic banking services include ATM and debit cards, direct deposit services, internet and mobile banking, and remote deposit capture, which serve as alternative delivery channels to traditional sales offices for providing services to clients. During the third quarter
Deposit account service charges continued to comprise a sizable portion of 2016, compared to the prior year third quarter, electronic banking income grew 23% and has grown 20% in the nine months of 2016 compared to the nine months of 2015. The continued growth was primarily due to the increased volume of debit card transactions and ATM surcharges, due partly to the NB&T acquisition.
Peoples' trust and investment revenue continues to be based primarily upon the value of assets under management, with additional income generated from transaction commissions.total non-interest income. The following tables detail Peoples’ trust and investment income and related assets under management:table details Peoples' deposit account service charges:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2016 | June 30, 2016 | September 30, 2015 | | September 30, |
(Dollars in thousands) | | 2016 | 2015 |
Fiduciary | $ | 1,851 |
| $ | 1,989 |
| $ | 1,780 |
| | $ | 5,501 |
| $ | 5,110 |
|
Brokerage | 841 |
| 787 |
| 717 |
| | 2,349 |
| 1,978 |
|
Trust and investment income | $ | 2,692 |
| $ | 2,776 |
| $ | 2,497 |
| | $ | 7,850 |
| $ | 7,088 |
|
|
| | | | | | | | | |
| Three Months Ended |
| March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) |
Overdraft and non-sufficient funds fees | $ | 1,614 |
| $ | 2,043 |
| $ | 1,806 |
|
Account maintenance fees | 536 |
| 509 |
| 561 |
|
Other fees and charges | 279 |
| 111 |
| 236 |
|
Deposit account service charges | $ | 2,429 |
| $ | 2,663 |
| $ | 2,603 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2016 | June 30, 2016 | March 31, 2015 | December 31, 2015 | September 30, 2015 |
(Dollars in thousands) |
Trust assets under management | $ | 1,292,044 |
| $ | 1,280,004 |
| $ | 1,254,824 |
| $ | 1,275,253 |
| $ | 1,261,112 |
|
Brokerage assets under management | 754,168 |
| 729,519 |
| 706,314 |
| 664,153 |
| 621,242 |
|
Total managed assets | $ | 2,046,212 |
| $ | 2,009,523 |
| $ | 1,961,138 |
| $ | 1,939,406 |
| $ | 1,882,354 |
|
Quarterly average | $ | 2,031,378 |
| $ | 1,992,856 |
| $ | 1,935,108 |
| $ | 1,928,308 |
| $ | 1,926,070 |
|
The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Peoples typically experiences a lower volume of overdraft and non-sufficient funds fees annually in the first quarter attributable to customers receiving income tax refunds.Mortgage banking income for the first quarter of 2017 increased 61%142% from the first quarter of 2016 and decreased 14% compared to the linked quarter,quarter. The fluctuation of income was due to higher customer demand for long-term fixed-rate real estate loans which increasedincrease or decrease sales of residential real estate loans into the secondary market. Peoples sold approximately $22.9$13.6 million of loans to the secondary market in the thirdfirst quarter of 2017, compared to $6.0 million in the first quarter of 2016 compared to $8.5 million in the third quarter of 2015 and $15.7$22.4 million in the linked quarter. In the first nine months of 2016, Peoples sold approximately $44.6 million of loans to the secondary market compared to $41.1 million in the first nine months of 2015.
Non-Interest Expense
Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | June 30, 2016 | September 30, 2015 | | September 30, | March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) | | 2016 | 2015 |
Base salaries and wages | $ | 9,782 |
| $ | 9,820 |
| $ | 9,778 |
| | $ | 29,439 |
| $ | 32,131 |
| $ | 10,067 |
| $ | 9,983 |
| $ | 9,837 |
|
Sales-based and incentive compensation | 2,501 |
| 2,006 |
| 1,422 |
| | 6,310 |
| 4,975 |
| 2,099 |
| 2,442 |
| 1,803 |
|
Employee benefits | 1,492 |
| 1,347 |
| 1,471 |
| | 4,387 |
| 4,686 |
| 1,927 |
| 1,355 |
| 1,548 |
|
Stock-based compensation | 346 |
| 325 |
| 405 |
| | 1,009 |
| 1,432 |
| 568 |
| 323 |
| 338 |
|
Deferred personnel costs | (453 | ) | (519 | ) | (499 | ) | | (1,397 | ) | (1,186 | ) | (360 | ) | (382 | ) | (425 | ) |
Payroll taxes and other employment costs | 916 |
| 993 |
| 995 |
| | 3,133 |
| 3,455 |
| 1,195 |
| 831 |
| 1,224 |
|
Salaries and employee benefit costs | $ | 14,584 |
| $ | 13,972 |
| $ | 13,572 |
| | $ | 42,881 |
| $ | 45,493 |
| $ | 15,496 |
| $ | 14,552 |
| $ | 14,325 |
|
Full-time equivalent employees: | | |
| | | | |
|
Actual at end of period | 799 |
| 803 |
| 821 |
| | 799 |
| 821 |
| 776 |
| 782 |
| 821 |
|
Average during the period | 798 |
| 813 |
| 825 |
| | 809 |
| 791 |
| 780 |
| 788 |
| 817 |
|
For the three months ended September 30, 2016, salariesSalaries and employee benefit costs for the first quarter of 2017 increased $1.0 millioncompared to both the fourth quarter of 2016 and the first quarter of 2016. The increase in employee benefits costs compared to the prior year thirdfourth quarter and $612,000 fromof 2016 was due primarily to increased health insurance costs, which was the linked quarter.result of higher claims. The increases from the prior year third quarter and the linked quarter related to increasesincrease in sales-based and incentivestock-based compensation was largely due largely to the annual stock grant that was tied to the performance level achieved with respect to 2016 corporate incentive plan. The decrease fromawards, for which the prior year-to-date period related to severance and retention payouts associated withcommon shares were granted in the NB&T acquisition which were included in base salaries and wages in 2015.first quarter of 2017.
Peoples' net occupancy and equipment expense was comprised of the following:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | June 30, 2016 | September 30, 2015 | | September 30, | March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) | | 2016 | 2015 |
Depreciation | $ | 1,337 |
| $ | 1,197 |
| $ | 1,240 |
| | $ | 3,773 |
| $ | 3,341 |
| $ | 1,243 |
| $ | 1,306 |
| $ | 1,239 |
|
Repairs and maintenance costs | 589 |
| 574 |
| 766 |
| | 1,814 |
| 2,195 |
| 672 |
| 531 |
| 652 |
|
Net rent expense | 244 |
| 239 |
| 203 |
| | 712 |
| 636 |
| 219 |
| 189 |
| 229 |
|
Property taxes, utilities and other costs | 598 |
| 571 |
| 631 |
| | 1,856 |
| 2,101 |
| 579 |
| 554 |
| 686 |
|
Net occupancy and equipment expense | $ | 2,768 |
| $ | 2,581 |
| $ | 2,840 |
| | $ | 8,155 |
| $ | 8,273 |
| $ | 2,713 |
| $ | 2,580 |
| $ | 2,806 |
|
Net occupancy and equipment expense decreased in the first quarter of 2017 from the first quarter of 2016 due to lower property taxes due to the reassessed value of properties.
Professional fees increased $374,000 duringfor the thirdfirst quarter of 20162017 decreased $583,000, or 27%, from the linked quarter mainly due to the decrease of fees related to the system upgrade recorded in the fourth quarter of 2016.
Data processing and software expense increased $393,000, or 52%, compared to the prior year thirdfirst quarter butand declined $118,000, or 9%, from the linked quarter. The decrease in data processing and software expense during the first quarter of 2017 compared to the linked quarter was primarily due to costs incurred for the system upgrade completed in the fourth quarter of 2016. The increase in data processing and software expense during the first quarter of 2017 compared to the first quarter of 2016 was due to increased monthly fees related to additional capabilities that are now available to customers.
Communication expense decreased $462,000$218,000, or 35%, from the prior year first quarter and $121,000, or 23%, from the linked quarter. The decreases relate to the continued consolidation of traditional phone lines to a method of transmitting all voice traffic over the internet.
FDIC insurance assessment expense increased $240,000 from the linked quarter. The increase in professional fees during the third quarter of 2016 compared to the prior year third quarter was mostly due to higher legal expenses, while the decrease from the linked quarter was related to annual trust client tax preparation, fees for outsourced services and the completionresult of a consulting agreementthe FDIC Insurance Fund's reserve ratio reaching 1.15% effective June 30, 2016, which resulted in reduced FDIC insurance expense in the secondfourth quarter of 2016. Professional feesThe FDIC insurance assessment expense decreased $299,000 for the first nine months of 2016 compared to the prior year-to-date, as a result of acquisition-related activities in the first nine months of 2015 compared to no such activities in the first nine months of 2016.
Electronic banking expense, which is comprised of bankcard, internet and mobile banking costs, has increased from the prior year thirdfirst quarter and the linked quarter, and from the prior year-to-date period. The increases from the prior periods were largely relateddue to a higher volume of transactions completed by customers and additional services provided. The increase in the electronic banking expense was directionally consistent with the growth in electronic banking income.
Marketing expense decreased $983,000 from the prior year-to-date period, which was related to the timingreduction of the NB&T acquisition and additional marketing campaigns in the new market areas.
Foreclosed real estate and other loan expenses decreased $491,000 from prior year-to-date, largely due to the timing of loan originations and the related deferral of the loan origination costs.
Other non-interest expense decreased $4.5 million for the first nine months in 2016 compared to the first nine months in 2015. The decrease was driven by $3.7 million of acquisition-related costs incurred in the 2015 period, compared to none in the 2016 period.assessment rate.
Income Tax Expense (Benefit)
For the ninethree months ended September 30, 2016,March 31, 2017, Peoples recorded income tax expense of $10.8$3.9 million, for an effective tax rate of 31.2%30.4%. Peoples' current estimate of the effective tax rate for the entire year of 2016 is between 30.0% and 32.0%2017 will be approximately 31.0%. In comparison, Peoples recorded an income tax expense of $3.5$3.7 million for the same period in 2015, which included the tax impact of acquisition-related costs that are not tax deductible of approximately $165,000,2016, for an effective tax rate of 29.2%31.4%. The lower effective
Peoples adopted the ASU 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting as of January 1, 2017. In the first quarter of 2017, Peoples recorded a tax ratebenefit of $104,000 associated with the adoption of this amendment for the tax benefit of awards that settled or vested in 2015 was due primarily to lower book income in 2015 compared to 2016.the quarter.
Pre-Provision Net Revenue
Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income (excluding all gains or losses) minus total othernon-interest expenses and, therefore, excludes the provision for (recovery of) loan losses and all gains andand/or losses included in earnings. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital.
The following table provides a reconciliation of this non-GAAP financial measure to the amounts reported for income before taxes in Peoples' consolidated financial statementsUnaudited Consolidated Financial Statements for the periods presented: | | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | June 30, 2016 | September 30, 2015 | | September 30, | March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) | | 2016 | 2015 |
Pre-Provision Net Revenue: | | | | |
Income before income taxes | $ | 11,448 |
| $ | 11,441 |
| $ | 5,504 |
| | $ | 34,538 |
| $ | 11,808 |
| $ | 12,661 |
| $ | 10,744 |
| $ | 11,649 |
|
Add: provision for loan losses | 1,146 |
| 727 |
| 5,837 |
| | 2,828 |
| 6,859 |
| 624 |
| 711 |
| 955 |
|
Add: loss on debt extinguishment | — |
| 707 |
| — |
| | 707 |
| 520 |
| |
Add: net loss on loans held-for-sale and OREO | — |
| — |
| 50 |
| | 1 |
| 131 |
| — |
| 33 |
| 1 |
|
Add: net loss on securities transactions | 1 |
| — |
| — |
| | 1 |
| — |
| |
Add: net loss on other assets | 224 |
| 97 |
| 1 |
| | 351 |
| 639 |
| 3 |
| 76 |
| 30 |
|
Less: net gain on securities transactions | — |
| 767 |
| 62 |
| | 863 |
| 673 |
| 340 |
| 68 |
| 96 |
|
Less: gain on other assets | — |
| 35 |
| — |
| | 35 |
| — |
| |
Pre-provision net revenue | $ | 12,819 |
| $ | 12,170 |
| $ | 11,330 |
| | $ | 37,528 |
| $ | 19,284 |
| $ | 12,948 |
| $ | 11,496 |
| $ | 12,539 |
|
Total average assets | $ | 3,324,636 |
| $ | 3,306,656 |
| $ | 3,209,693 |
| | $ | 3,300,338 |
| $ | 3,068,464 |
| $ | 3,446,351 |
| $ | 3,386,519 |
| $ | 3,272,635 |
|
Pre-provision net revenue to total average assets (a) | 1.53 | % | 1.48 | % | 1.40 | % | | 1.52 | % | 0.84 | % | 1.52 | % | 1.35 | % | 1.54 | % |
(a) Presented on an annualized basis. | | | | |
PPNR for the thirdfirst quarter of 20162017 was higher than the linked quarter of 2016 and slightly higher than the thirdfirst quarter of 20152016. The increase in the first quarter of 2017 from the prior periods were largely due largelyto revenue fluctuation.
Core Non-Interest Income and Expense
Core non-interest income and expense are financial measures used to evaluate Peoples' recurring revenue and expense streams. These measures are non-GAAP since they exclude the impact of system conversion revenue and costs, acquisition-related costs, pension settlement charges, search firm fees and legal settlement charges.
The following tables provide reconciliations of these non-GAAP measures to the increased revenue. PPNRamounts reported in Peoples' Unaudited Consolidated Financial Statements for the first nine monthsperiods presented:
|
| | | | | | | | | |
| Three Months Ended |
| March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) |
Core non-interest income: | | | |
Total non-interest income | $ | 13,334 |
| $ | 12,111 |
| $ | 13,054 |
|
Plus: system conversion revenue waived | — |
| 85 |
| — |
|
Core non-interest income | $ | 13,334 |
| $ | 12,196 |
| $ | 13,054 |
|
|
| | | | | | | | | |
| Three Months Ended |
| March 31, 2017 | December 31, 2016 | March 31, 2016 |
(Dollars in thousands) |
Core non-interest expense: | | | |
Total non-interest expense | $ | 27,331 |
| $ | 27,282 |
| $ | 26,282 |
|
Less: system conversion costs | — |
| 746 |
| — |
|
Core non-interest expense | $ | 27,331 |
| $ | 26,536 |
| $ | 26,282 |
|
Efficiency Ratio
The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total othernon-interest expenses (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income.income (excluding all gains and losses). This measure is non-GAAP since it excludes amortization of other intangible assets and all gains and/or losses included in earnings, and uses FTE net interest income.
The following table provides a reconciliation of this non-GAAP financial measure to the amounts reported in Peoples' consolidated financial statementsConsolidated Financial Statements for the periods presented:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | June 30, 2016 | September 30, 2015 | | September 30, | March 31, 2017 | December 31, 2016 | March 31, 2016 |
(in $000’s) | | 2016 | 2015 |
(Dollars in thousands) | | March 31, 2017 | December 31, 2016 | March 31, 2016 |
| | | |
Efficiency ratio: | | | | |
Total other expenses | $ | 26,842 |
| $ | 26,505 |
| $ | 26,112 |
| | $ | 79,629 |
| $ | 87,804 |
| |
Less: Amortization of intangible assets | $ | 1,008 |
| $ | 1,007 |
| $ | 1,127 |
| | $ | 3,023 |
| $ | 2,944 |
| |
Adjusted total other expense | 25,834 |
| 25,498 |
| 24,985 |
| | 76,606 |
| 84,860 |
| |
Total non-interest expense | | $ | 27,331 |
| $ | 27,282 |
| $ | 26,282 |
|
Less: Amortization of other intangible assets | | 863 |
| 1,007 |
| 1,008 |
|
Adjusted total non-interest expense | | $ | 26,468 |
| $ | 26,275 |
| $ | 25,274 |
|
Total non-interest income | 13,538 |
| 12,367 |
| 11,906 |
| | 38,959 |
| 35,340 |
| 13,334 |
| 12,111 |
| 13,054 |
|
Net interest income | 26,123 |
| 26,308 |
| 25,536 |
| | 78,198 |
| 71,748 |
| $ | 26,945 |
| $ | 26,667 |
| $ | 25,767 |
|
Add: Fully tax-equivalent adjustment | $ | 497 |
| $ | 502 |
| $ | 525 |
| | $ | 1,508 |
| $ | 1,462 |
| 513 |
| 517 |
| 508 |
|
Net interest income on a fully taxable-equivalent basis | $ | 26,620 |
| $ | 26,810 |
| $ | 26,061 |
| | $ | 79,706 |
| $ | 73,210 |
| $ | 27,458 |
| $ | 27,184 |
| $ | 26,275 |
|
| | | | |
Adjusted revenue | $ | 40,158 |
| $ | 39,177 |
| $ | 37,967 |
| | $ | 118,665 |
| $ | 108,550 |
| $ | 40,792 |
| $ | 39,295 |
| $ | 39,329 |
|
| | | | |
Efficiency ratio | 64.33 | % | 65.08 | % | 65.81 | % | | 64.56 | % | 78.18 | % | 64.89 | % | 66.87 | % | 64.26 | % |
Core non-interest expenses | | $ | 27,331 |
| $ | 26,536 |
| $ | 26,282 |
|
Less: Amortization of other intangible assets | | 863 |
| 1,007 |
| 1,008 |
|
Adjusted non-interest expense | | $ | 26,468 |
| $ | 25,529 |
| $ | 25,274 |
|
Core non-interest income | | $ | 13,334 |
| $ | 12,196 |
| $ | 13,054 |
|
Net interest income on fully taxable-equivalent basis | | $ | 27,458 |
| $ | 27,184 |
| $ | 26,275 |
|
Adjusted core revenue | | 40,792 |
| 39,380 |
| 39,329 |
|
Efficiency ratio adjusted for non-core items | | 64.89 | % | 64.83 | % | 64.26 | % |
The decreasesdecrease in the efficiency ratio infrom the periods disclosed above wereprior year first quarter was primarily due to increased revenues and the continued focus on expense management. The efficiency ratio had a slight increase for the first quarter of 2017 compared to the first quarter of 2016, due primarily to the increase in total non-interest expense.
Management continues to targetis targeting an efficiency ratio of 65%62%-64% for the full year of 2017, absent acquisition-related costs and other non-core charges, such as pension settlement charges.
Return on Average Tangible Stockholders' Equity
The return on average tangible stockholders' equity ratio is a key financial measure used to monitor performance. The return on tangible stockholders' equity is calculated as net income (less after-tax impact of amortization of other intangible assets) divided by tangible stockholders' equity. This measure is non-GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity.
|
| | | | | | | | | | | | | | | |
| At or For the Three Months Ended |
(Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Annualized Net Income Excluding Amortization of Other Intangible Assets: |
Net income | $ | 8,809 |
| $ | 7,408 |
| $ | 7,792 |
| $ | 7,962 |
| $ | 7,995 |
|
Add: amortization of other intangible assets | 863 |
| 1,007 |
| 1,008 |
| 1,007 |
| 1,008 |
|
Less: tax effect (at 35% tax rate) of amortization of other intangible assets | 302 |
| 352 |
| 353 |
| 352 |
| 353 |
|
Net income excluding amortization of other intangible assets | $ | 9,370 |
| $ | 8,063 |
| $ | 8,447 |
| $ | 8,617 |
| $ | 8,650 |
|
Days in the quarter | 90 |
| 92 |
| 92 |
| 91 |
| 91 |
|
Days in the year | 365 |
| 366 |
| 366 |
| 366 |
| 366 |
|
Annualized net income | $ | 35,725 |
| $ | 29,471 |
| $ | 30,999 |
| $ | 32,023 |
| $ | 32,156 |
|
Annualized net income excluding amortization of other intangible assets | $ | 38,001 |
| $ | 32,077 |
| $ | 33,604 |
| $ | 34,657 |
| $ | 34,790 |
|
Average Tangible Stockholders' Equity: |
Total average stockholders' equity | $ | 438,990 |
| $ | 438,238 |
| $ | 438,606 |
| $ | 430,072 |
| $ | 423,543 |
|
Less: average goodwill and other intangible assets | 145,546 |
| 146,489 |
| 147,466 |
| 148,464 |
| 149,528 |
|
Average tangible stockholders' equity | $ | 293,444 |
| $ | 291,749 |
| $ | 291,140 |
| $ | 281,608 |
| $ | 274,015 |
|
Return on Average Stockholders' Equity Ratio: | | | | | |
Annualized net income | $ | 35,725 |
| $ | 29,471 |
| $ | 30,999 |
| $ | 32,023 |
| $ | 32,156 |
|
Average stockholders' equity | $ | 438,990 |
| $ | 438,238 |
| $ | 438,606 |
| $ | 430,072 |
| $ | 423,543 |
|
Return on average stockholders' equity | 8.14 | % | 6.72 | % | 7.07 | % | 7.45 | % | 7.59 | % |
Return on Average Tangible Stockholders' Equity Ratio: |
Annualized net income excluding amortization of other intangible assets | $ | 38,001 |
| $ | 32,077 |
| $ | 33,604 |
| $ | 34,657 |
| $ | 34,790 |
|
Average tangible stockholders' equity | $ | 293,444 |
| $ | 291,749 |
| $ | 291,140 |
| $ | 281,608 |
| $ | 274,015 |
|
Return on average tangible stockholders' equity | 12.95 | % | 10.99 | % | 11.54 | % | 12.31 | % | 12.70 | % |
FINANCIAL CONDITION
Cash and Cash Equivalents
At September 30, 2016,March 31, 2017, Peoples' interest-bearing deposits in other banks decreased slightly from December 31, 2015, as excess2016. The total cash was utilized to fund loan growth. Theseand cash equivalent balances included $6.0$3.1 million of excess cash reserves being maintained at the Federal Reserve Bank at September 30, 2016,March 31, 2017, compared to $5.0 million at June 30, 2016 and $8.7$4.4 million at December 31, 2015.2016. The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan balances.
Through the first ninethree months of 2017, Peoples' total cash and cash equivalents decreased $1.8 million and $13.4 million, respectively. Peoples' net cash used in investing activities of $33.3 million exceeded cash provided by financing and operating activities of $18.1 million. Peoples' investing activities reflected purchases of $41.1 million in available-for-sale investments and a net increase of $23.5 million in loans, which were partially offset by $32.1 million in net proceeds from principal payments, calls and prepayments on available-for-sale investment securities. Financing activities included a net
increase of $192.4 million in deposits which was offset partially by a net decrease of $169.9 million in borrowings and $3.5 million of cash dividends paid.
Through the first three months of 2016, Peoples' total cash and cash equivalents decreased $3.3$7.8 million as net cash used in investing activities of $107.0was $42.1 million, which exceeded cash provided by financing and operating activities of $61.6$17.5 million and $42.2$16.8 million, respectively. Peoples' investing activities reflected a $94.1$31.9 million net increase in loans and $35.0 million in BOLI, offset partially by $30.1 million in net proceeds from investment activities. The net proceeds from the investment portfolio reflected sales and principal payments, which outpaced purchases.loans. Financing activities included a net increase in borrowingsdeposits of $35.5$51.2 million, and an increase of $39.6 million in deposits which were offset partially by cash dividends paid of $8.2 million and the purchase of $5.0 million of treasury stock.
Through the first nine months of 2015, Peoples' total cash and cash equivalents increased $2.3 million, as cash provided by operating and investing activities of $31.1 million and $39.2 million, respectively, exceeded cash used in financing activities totaling $68.0 million. The increase in cash provided by Peoples investing activities was primarily due to the $97.3 million contributed by the NB&T acquisition. Peoples financing activities reflected declines of $31.3 million in deposits and net payments of $28.8$25.3 million on long-termshort-term borrowings.
Further information regarding the management of Peoples' liquidity position can be found later in this discussion under “Interest Rate Sensitivity and Liquidity.”
Investment Securities
The following table provides information regarding Peoples’ investment portfolio:
| | (Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Available-for-sale securities, at fair value: | Available-for-sale securities, at fair value: | | Available-for-sale securities, at fair value: | |
Obligations of: | | |
U.S. government sponsored agencies | $ | 1,001 |
| $ | 1,000 |
| $ | 2,004 |
| $ | 2,966 |
| $ | 2,993 |
| $ | — |
| $ | 1,000 |
| $ | 1,001 |
| $ | 1,000 |
| $ | 2,004 |
|
States and political subdivisions | 117,839 |
| 114,826 |
| 114,328 |
| 114,726 |
| 115,249 |
| 114,712 |
| 117,230 |
| 117,839 |
| 114,826 |
| 114,328 |
|
Residential mortgage-backed securities | 607,452 |
| 620,819 |
| 650,674 |
| 632,293 |
| 639,327 |
| 640,299 |
| 626,567 |
| 607,452 |
| 620,819 |
| 650,674 |
|
Commercial mortgage-backed securities | 23,283 |
| 23,789 |
| 24,258 |
| 23,845 |
| 24,348 |
| 16,424 |
| 19,291 |
| 23,283 |
| 23,789 |
| 24,258 |
|
Bank-issued trust preferred securities | 4,783 |
| 4,536 |
| 4,330 |
| 4,635 |
| 4,776 |
| 4,964 |
| 4,899 |
| 4,783 |
| 4,536 |
| 4,330 |
|
Equity securities | 7,785 |
| 7,648 |
| 6,600 |
| 6,236 |
| 6,592 |
| 10,562 |
| 8,953 |
| 7,785 |
| 7,648 |
| 6,600 |
|
Total fair value | $ | 762,143 |
| $ | 772,618 |
| $ | 802,194 |
| $ | 784,701 |
| $ | 793,285 |
| $ | 786,961 |
| $ | 777,940 |
| $ | 762,143 |
| $ | 772,618 |
| $ | 802,194 |
|
Total amortized cost | $ | 743,878 |
| $ | 750,305 |
| $ | 785,544 |
| $ | 780,304 |
| $ | 780,609 |
| $ | 782,947 |
| $ | 777,017 |
| $ | 743,878 |
| $ | 750,305 |
| $ | 785,544 |
|
Net unrealized gain | $ | 18,265 |
| $ | 22,313 |
| $ | 16,650 |
| $ | 4,397 |
| $ | 12,676 |
| $ | 4,014 |
| $ | 923 |
| $ | 18,265 |
| $ | 22,313 |
| $ | 16,650 |
|
Held-to-maturity securities, at amortized cost: | Held-to-maturity securities, at amortized cost: | | Held-to-maturity securities, at amortized cost: | |
Obligations of: |
|
|
| |
|
|
| |
States and political subdivisions | $ | 3,823 |
| $ | 3,826 |
| $ | 3,828 |
| $ | 3,831 |
| $ | 3,833 |
| $ | 3,818 |
| $ | 3,820 |
| $ | 3,823 |
| $ | 3,826 |
| $ | 3,828 |
|
Residential mortgage-backed securities | 34,203 |
| 34,678 |
| 35,005 |
| 35,367 |
| 35,712 |
| 34,812 |
| 33,858 |
| 34,203 |
| 34,678 |
| 35,005 |
|
Commercial mortgage-backed securities | 5,636 |
| 5,802 |
| 6,033 |
| 6,530 |
| 6,854 |
| 5,392 |
| 5,466 |
| 5,636 |
| 5,802 |
| 6,033 |
|
Total amortized cost | $ | 43,662 |
| $ | 44,306 |
| $ | 44,866 |
| $ | 45,728 |
| $ | 46,399 |
| $ | 44,022 |
| $ | 43,144 |
| $ | 43,662 |
| $ | 44,306 |
| $ | 44,866 |
|
Other investment securities, at cost | $ | 38,443 |
| $ | 38,402 |
| $ | 38,402 |
| $ | 38,401 |
| $ | 38,496 |
| $ | 38,371 |
| $ | 38,371 |
| $ | 38,443 |
| $ | 38,402 |
| $ | 38,402 |
|
Total investment portfolio: |
|
| |
|
| |
Amortized cost | $ | 787,540 |
| $ | 794,611 |
| $ | 830,410 |
| $ | 826,032 |
| $ | 827,008 |
| $ | 865,340 |
| $ | 858,532 |
| $ | 825,983 |
| $ | 833,013 |
| $ | 868,812 |
|
Carrying value | $ | 844,248 |
| $ | 855,326 |
| $ | 885,462 |
| $ | 868,830 |
| $ | 878,180 |
| $ | 869,354 |
| $ | 859,455 |
| $ | 844,248 |
| $ | 855,326 |
| $ | 885,462 |
|
The decline in available-for-saleIn the first quarter of 2017, the carrying value of investment securities duringincreased $9.9 million from the thirdlinked quarter, due primarily to purchases of 2016, compared to at June 30, 2016, was due to principal paydowns outpacing the reinvestment of cash into the portfolio,$42.4 million coupled with declinesthe increase in market values.
At September 30, 2016, the investment portfolio was 25.1%$3.1 million, offset partially by principal payments, calls and prepayments of total assets, compared to 27.2% a year ago. In recent quarters, Peoples has maintained the size of the held-to-maturity securities portfolio, for which the unrealized gain or loss does not directly impact stockholders' equity, in contrast to the impact from the available-for-sale securities portfolio.$32.4 million.
Peoples' investment in residential and commercial mortgage-backed securities largely consists of securities either guaranteed by the U.S. government or issued by U.S. government sponsored agencies, such as Fannie Mae and Freddie Mac. The remaining portions of Peoples' mortgage-backed securities consist of securities issued by other entities, including other financial institutions, which are not guaranteed by the U.S. government.
The amount of these “non-agency” securities included in the residential mortgage-backed securities totals above was as follows:
| | (Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Total fair value | $ | 3,288 |
| $ | 3,640 |
| $ | 4,046 |
| $ | 4,201 |
| $ | 6,556 |
| $ | 2,702 |
| $ | 2,991 |
| $ | 3,288 |
| $ | 3,640 |
| $ | 4,046 |
|
Total amortized cost | $ | 3,499 |
| $ | 3,843 |
| $ | 4,244 |
| $ | 4,331 |
| $ | 6,546 |
| $ | 2,916 |
| $ | 3,206 |
| $ | 3,499 |
| $ | 3,843 |
| $ | 4,244 |
|
Net unrealized (loss) gain | $ | (211 | ) | $ | (203 | ) | $ | (198 | ) | $ | (130 | ) | $ | 10 |
| |
Net unrealized loss | | $ | (214 | ) | $ | (215 | ) | $ | (211 | ) | $ | (203 | ) | $ | (198 | ) |
Management continues to reinvest the principal runoff from the non-agency securities intoin U.S. agency investments, which accounted for the decline in the past year. At September 30, 2016,March 31, 2017, Peoples' non-agency portfolio consisted entirely of first lien residential mortgages, with nearly all of the underlying loans in these securities originated prior to 2004 and possessing fixed interest rates. Management continues to monitor the non-agency portfolio closely for leading indicators of increasing stress and will continue to be proactive in taking actions to mitigate such risk when necessary.
Additional information regarding Peoples' investment portfolio can be found in Note 3 of the Notes to the Unaudited Consolidated Financial Statements.
Loans
The following table provides information regarding outstanding loan balances: |
| | | | | | | | | | | | | | | |
(Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Gross originated loans: | | | | | |
Commercial real estate, construction | $ | 93,886 |
| $ | 84,626 |
| $ | 70,838 |
| $ | 88,672 |
| $ | 69,499 |
|
Commercial real estate, other | 535,474 |
| 531,557 |
| 507,842 |
| 468,404 |
| 471,998 |
|
Commercial real estate | 629,360 |
| 616,183 |
| 578,680 |
| 557,076 |
| 541,497 |
|
Commercial and industrial | 384,548 |
| 378,131 |
| 351,340 |
| 322,512 |
| 308,649 |
|
Residential real estate | 308,153 |
| 307,490 |
| 306,374 |
| 304,275 |
| 302,512 |
|
Home equity lines of credit | 85,512 |
| 85,617 |
| 83,412 |
| 80,049 |
| 76,959 |
|
Consumer, indirect | 283,106 |
| 252,024 |
| 229,334 |
| 205,980 |
| 182,428 |
|
Consumer, other | 66,283 |
| 67,579 |
| 67,973 |
| 65,717 |
| 63,168 |
|
Consumer | 349,389 |
| 319,603 |
| 297,307 |
| 271,697 |
| 245,596 |
|
Deposit account overdrafts | 721 |
| 1,080 |
| 1,074 |
| 1,214 |
| 2,083 |
|
Total originated loans | $ | 1,757,683 |
| $ | 1,708,104 |
| $ | 1,618,187 |
| $ | 1,536,823 |
| $ | 1,477,296 |
|
Gross acquired loans (a): | | | | | |
Commercial real estate, construction | $ | 9,431 |
| $ | 10,100 |
| $ | 10,242 |
| $ | 10,321 |
| $ | 11,882 |
|
Commercial real estate, other | 194,581 |
| 204,466 |
| 221,036 |
| 240,506 |
| 256,201 |
|
Commercial real estate | 204,012 |
| 214,566 |
| 231,278 |
| 250,827 |
| 268,083 |
|
Commercial and industrial | 44,189 |
| 44,208 |
| 48,702 |
| 55,840 |
| 59,161 |
|
Residential real estate | 216,059 |
| 228,435 |
| 238,787 |
| 250,848 |
| 263,237 |
|
Home equity lines of credit | 24,516 |
| 25,875 |
| 27,784 |
| 28,968 |
| 30,742 |
|
Consumer, indirect | 656 |
| 808 |
| 952 |
| 1,136 |
| 1,369 |
|
Consumer, other | 2,387 |
| 2,940 |
| 3,518 |
| 4,348 |
| 5,227 |
|
Consumer | 3,043 |
| 3,748 |
| 4,470 |
| 5,484 |
| 6,596 |
|
Total acquired loans | $ | 491,819 |
| $ | 516,832 |
| $ | 551,021 |
| $ | 591,967 |
| $ | 627,819 |
|
Total loans | $ | 2,249,502 |
| $ | 2,224,936 |
| $ | 2,169,208 |
| $ | 2,128,790 |
| $ | 2,105,115 |
|
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 |
Gross originated loans: | | | | | |
Commercial real estate, construction | $ | 70,838 |
| $ | 88,672 |
| $ | 69,499 |
| $ | 63,785 |
| $ | 68,798 |
|
Commercial real estate, other | 507,842 |
| 468,404 |
| 471,998 |
| 471,184 |
| 429,120 |
|
Commercial real estate | 578,680 |
| 557,076 |
| 541,497 |
| 534,969 |
| 497,918 |
|
Commercial and industrial | 351,340 |
| 322,512 |
| 308,649 |
| 288,130 |
| 288,697 |
|
Residential real estate | 306,374 |
| 304,275 |
| 302,512 |
| 288,783 |
| 282,863 |
|
Home equity lines of credit | 83,412 |
| 80,049 |
| 76,959 |
| 74,176 |
| 71,620 |
|
Consumer, indirect | 229,334 |
| 205,980 |
| 182,428 |
| 165,320 |
| 152,110 |
|
Consumer, other | 67,973 |
| 65,717 |
| 63,168 |
| 61,813 |
| 61,284 |
|
Consumer | 297,307 |
| 271,697 |
| 245,596 |
| 227,133 |
| 213,394 |
|
Deposit account overdrafts | 1,074 |
| 1,214 |
| 2,083 |
| 1,448 |
| 1,317 |
|
Total originated loans | $ | 1,618,187 |
| $ | 1,536,823 |
| $ | 1,477,296 |
| $ | 1,414,639 |
| $ | 1,355,809 |
|
Gross acquired loans: | | | | | |
Commercial real estate, construction | $ | 10,242 |
| $ | 10,321 |
| $ | 11,882 |
| $ | 12,114 |
| $ | 12,278 |
|
Commercial real estate, other | 221,036 |
| 240,506 |
| 256,201 |
| 265,092 |
| 281,510 |
|
Commercial real estate | 231,278 |
| 250,827 |
| 268,083 |
| 277,206 |
| 293,788 |
|
Commercial and industrial | 48,702 |
| 55,840 |
| 59,161 |
| 63,589 |
| 68,759 |
|
Residential real estate | 238,787 |
| 250,848 |
| 263,237 |
| 276,772 |
| 288,269 |
|
Home equity lines of credit | 27,784 |
| 28,968 |
| 30,742 |
| 32,253 |
| 34,147 |
|
Consumer, indirect | 952 |
| 1,136 |
| 1,369 |
| 1,776 |
| 1,883 |
|
Consumer, other | 3,518 |
| 4,348 |
| 5,227 |
| 6,205 |
| 7,590 |
|
Consumer | 4,470 |
| 5,484 |
| 6,596 |
| 7,981 |
| 9,473 |
|
Total acquired loans (a) | $ | 551,021 |
| $ | 591,967 |
| $ | 627,819 |
| $ | 657,801 |
| $ | 694,436 |
|
Total loans | $ | 2,169,208 |
| $ | 2,128,790 |
| $ | 2,105,115 |
| $ | 2,072,440 |
| $ | 2,050,245 |
|
Percent of loans to total loans: | | | | | |
Commercial real estate, construction | 3.7 | % | 4.7 | % | 3.9 | % | 3.7 | % | 4.0 | % |
Commercial real estate, other | 33.8 | % | 33.2 | % | 34.5 | % | 35.5 | % | 34.5 | % |
Commercial real estate | 37.5 | % | 37.9 | % | 38.4 | % | 39.2 | % | 38.5 | % |
Commercial and industrial | 18.4 | % | 17.8 | % | 17.5 | % | 17.0 | % | 17.4 | % |
Residential real estate | 25.1 | % | 26.1 | % | 26.9 | % | 27.3 | % | 27.9 | % |
Home equity lines of credit | 5.1 | % | 5.1 | % | 5.1 | % | 5.1 | % | 5.2 | % |
Consumer, indirect | 10.6 | % | 9.7 | % | 8.8 | % | 8.0 | % | 7.5 | % |
Consumer, other | 3.3 | % | 3.3 | % | 3.2 | % | 3.3 | % | 3.4 | % |
Consumer | 13.9 | % | 13.0 | % | 12.0 | % | 11.3 | % | 10.9 | % |
Deposit account overdrafts | — | % | 0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % |
Total percentage | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Residential real estate loans being serviced for others | $ | 389,090 |
| $ | 380,741 |
| $ | 383,531 |
| $ | 390,398 |
| $ | 387,200 |
|
50
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Percent of loans to total loans: | | | | | |
Commercial real estate, construction | 4.6 | % | 4.3 | % | 3.7 | % | 4.7 | % | 3.9 | % |
Commercial real estate, other | 32.4 | % | 33.0 | % | 33.8 | % | 33.2 | % | 34.5 | % |
Commercial real estate | 37.0 | % | 37.3 | % | 37.5 | % | 37.9 | % | 38.4 | % |
Commercial and industrial | 19.1 | % | 19.0 | % | 18.4 | % | 17.8 | % | 17.5 | % |
Residential real estate | 23.3 | % | 24.1 | % | 25.1 | % | 26.1 | % | 26.9 | % |
Home equity lines of credit | 4.9 | % | 5.0 | % | 5.1 | % | 5.1 | % | 5.1 | % |
Consumer, indirect | 12.6 | % | 11.4 | % | 10.6 | % | 9.7 | % | 8.8 | % |
Consumer, other | 3.1 | % | 3.2 | % | 3.3 | % | 3.3 | % | 3.2 | % |
Consumer | 15.7 | % | 14.6 | % | 13.9 | % | 13.0 | % | 12.0 | % |
Deposit account overdrafts | — | % | — | % | — | % | 0.1 | % | 0.1 | % |
Total percentage | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Residential real estate loans being serviced for others | $ | 399,279 |
| $ | 398,134 |
| $ | 389,090 |
| $ | 380,741 |
| $ | 383,531 |
|
| |
(a) | Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 and thereafter. |
For the third quarter of 2016, period-end total loan balances increased $40.4 million, or 8% annualized, compared to at June 30, 2016. Period-end total loan balances increased $119.0$24.6 million, or 6%,4% annualized, compared to September 30, 2015.December 31, 2016. Indirect consumer lending balances continued to be a key component of loan growth, as theybalances increased $23.2$30.9 million, or 45%49% annualized, duringcompared to the fourth quarter of 2016. The growth in indirect consumer lending included diversification in the portfolio beyond automobile loans, including recreational vehicles and for the nine months ended 2016, indirect loans grew $63.2 million, or 50% annualized.motorcycles. Commercial loans grew $23.7$9.0 million, or 8%3% annualized, during the quarter, with the majority of the increase being in commercial and industrial loans which grew $21.7growing $6.4 million, or 23%6% annualized, fromcompared to the linked quarter. Indirect lendingfourth quarter of 2016.
Compared to March 31, 2016, period-end loan balances increased $144.4 million, or 7%. The growth was primarily the result of indirect consumer loan growth of $100.0 million, or 54%. Commercial and industrial loan balances grew $60.9 million, or 17%. At March 31, 2017, indirect consumer loan balances comprised a larger portion13% of the consumertotal loan portfolio, as it was 24% at September 30, 2016, compared to 22% at June 30, 2016, 18%11% at December 31, 20152016 and 17%9% at September 30, 2015. In addition,March 31, 2016, while commercial and industrial loan balances comprised 33%19% of the commercialtotal loan portfolio at September 30, 2016,March 31, 2017, compared to 32% at June 30, 2016, 30%19% at December 31, 20152016 and 31%18% at
September 30, 2015. The recent growth in indirect lending and commercial and industrial loan balances has provided additional diversification to the loan portfolio. March 31, 2016.
Loan Concentration
Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 10% of Peoples' total loan portfolio.
Loans secured by commercial real estate, including commercial construction loans, continue to comprise the largest portion of Peoples' loan portfolio. The following table provides information regarding the largest concentrations of commercial real estate loans within the loan portfolio at September 30, 2016March 31, 2017:
| | (Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total | Outstanding Balance | Loan Commitments | Total Exposure | % of Total |
Commercial real estate, construction: | | | | |
Apartment complexes | $ | 29,048 |
| $ | 49,731 |
| $ | 78,779 |
| 44.4 | % | $ | 38,177 |
| $ | 36,027 |
| $ | 74,204 |
| 32.7 | % |
Mixed commercial use facilities: | |
|
|
| |
Owner occupied | 7,173 |
| 3,180 |
| 10,353 |
| 5.8 | % | |
Non-owner occupied | 4,342 |
| 8,802 |
| 13,144 |
| 7.4 | % | |
Total mixed commercial use facilities | 11,515 |
| 11,982 |
| 23,497 |
| 13.2 | % | |
Mixed commercial use facilities | | 13,105 |
| 27,880 |
| $ | 40,985 |
| 18.1 | % |
Office buildings | | 1,139 |
| 30,500 |
| 31,639 |
| 14.0 | % |
Assisted living facilities and nursing homes | | 7,102 |
| 4,722 |
| 11,824 |
| 5.2 | % |
Light industrial | | 10,192 |
| 752 |
| 10,944 |
| 4.8 | % |
Land development | — |
| 10,650 |
| 10,650 |
| 6.0 | % | 6,582 |
| 2,537 |
| 9,119 |
| 4.0 | % |
Residential property | 6,816 |
| 2,985 |
| 9,801 |
| 5.5 | % | 2,719 |
| 4,733 |
| 7,452 |
| 3.3 | % |
Assisted living facilities and nursing homes | 4,926 |
| 4,758 |
| 9,684 |
| 5.5 | % | |
Light industrial | 9,072 |
| — |
| 9,072 |
| 5.1 | % | |
Lodging and lodging related | 4,049 |
| — |
| 4,049 |
| 2.3 | % | |
Other | 15,654 |
| 16,135 |
| 31,789 |
| 18.0 | % | 24,301 |
| 24,787 |
| 40,497 |
| 17.9 | % |
Total commercial real estate, construction | $ | 81,080 |
| $ | 96,241 |
| $ | 177,321 |
| 100.0 | % | $ | 103,317 |
| $ | 131,938 |
| $ | 226,664 |
| 100.0 | % |
| | (Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total | Outstanding Balance | Loan Commitments | Total Exposure | % of Total |
Commercial real estate, other: | | | | |
Office buildings and complexes: | | | | | | |
Owner occupied | $ | 31,988 |
| $ | 956 |
| $ | 32,944 |
| 4.4 | % | $ | 35,770 |
| $ | 2,281 |
| $ | 38,051 |
| 5.0 | % |
Non-owner occupied | 47,028 |
| 971 |
| 47,999 |
| 6.3 | % | 41,823 |
| 929 |
| 42,752 |
| 5.6 | % |
Total office buildings and complexes | 79,016 |
| 1,927 |
| 80,943 |
| 10.7 | % | 77,593 |
| 3,210 |
| 80,803 |
| 10.6 | % |
Apartment complexes | 70,924 |
| 269 |
| 71,193 |
| 9.4 | % | 65,620 |
| 291 |
| 65,911 |
| 8.7 | % |
Retail facilities: | | | | |
Owner occupied | | 20,420 |
| 535 |
| 20,955 |
| 2.8 | % |
Non-owner occupied | | 32,827 |
| 1,319 |
| 34,146 |
| 4.5 | % |
Total retail facilities | | 53,247 |
| 1,854 |
| 55,101 |
| 7.3 | % |
Mixed commercial use facilities: | | | | |
Owner occupied | 30,173 |
| 780 |
| 30,953 |
| 4.1 | % | 25,582 |
| 727 |
| 26,309 |
| 3.5 | % |
Non-owner occupied | 21,489 |
| 260 |
| 21,749 |
| 2.9 | % | 22,654 |
| 249 |
| 22,903 |
| 3.0 | % |
Total mixed commercial use facilities | 51,662 |
| 1,040 |
| 52,702 |
| 7.0 | % | 48,236 |
| 976 |
| 49,212 |
| 6.5 | % |
Retail facilities: | | | | |
Owner occupied | 18,964 |
| 1,750 |
| 20,714 |
| 2.7 | % | |
Non-owner occupied | 30,920 |
| 1,029 |
| 31,949 |
| 4.2 | % | |
Total retail facilities | 49,884 |
| 2,779 |
| 52,663 |
| 6.9 | % | |
Lodging and lodging related | 42,757 |
| 2,030 |
| 44,787 |
| 5.9 | % | |
Light industrial facilities: | | | | |
Owner occupied | 35,405 |
| 41 |
| 35,446 |
| 4.7 | % | 49,495 |
| 38 |
| 49,533 |
| 6.5 | % |
Non-owner occupied | 2,758 |
| — |
| 2,758 |
| 0.4 | % | 10,148 |
| — |
| 10,148 |
| 1.3 | % |
Total light industrial facilities | 38,163 |
| 41 |
| 38,204 |
| 5.1 | % | 59,643 |
| 38 |
| 59,681 |
| 7.8 | % |
Lodging and lodging related | | 40,028 |
| 1,881 |
| 41,909 |
| 5.5 | % |
Assisted living facilities and nursing homes | 32,982 |
| 250 |
| 33,232 |
| 4.4 | % | 32,173 |
| 250 |
| 32,423 |
| 4.3 | % |
Restaurant: | | | |
Owner occupied | 25,542 |
| — |
| 25,542 |
| 3.4 | % | |
Non-owner occupied | 1,235 |
| — |
| 1,235 |
| 0.2 | % | |
Total restaurant facilities | 26,777 |
| — |
| 26,777 |
| 3.6 | % | |
Warehouse facilities | 19,883 |
| 497 |
| 20,380 |
| 2.7 | % | 26,365 |
| 595 |
| 26,960 |
| 3.6 | % |
Residential property: | | | |
Owner occupied | 905 |
| 1,651 |
| 2,556 |
| 0.3 | % | |
Non-owner occupied | 11,453 |
| 2,348 |
| 13,801 |
| 1.8 | % | |
Total residential facilities | 12,358 |
| 3,999 |
| 16,357 |
| 2.1 | % | |
Other | 304,472 |
| 15,201 |
| 319,673 |
| 42.2 | % | 327,150 |
| 19,039 |
| 346,189 |
| 45.7 | % |
Total commercial real estate, other | $ | 728,878 |
| $ | 28,033 |
| $ | 756,911 |
| 100.0 | % | $ | 730,055 |
| $ | 28,134 |
| $ | 758,189 |
| 100.0 | % |
Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas within Ohio, West Virginia and Kentucky. In all other states, the aggregate outstanding balances of commercial loans in each state were less than $4.0 millionnot material at both September 30, 2016March 31, 2017 and December 31, 2015.2016.
Allowance for Loan Losses
The amount of the allowance for loan losses at the end of each period represents management's estimate of expected losses from existing loans based upon its quarterly analysis of the loan portfolio. While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses incurred within the loan portfolio.
The following details management's allocation of the allowance for loan losses:
| | (Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Commercial real estate | 7,490 |
| 7,536 |
| 7,492 |
| 7,076 |
| 7,437 |
| $ | 7,066 |
| $ | 7,172 |
| $ | 7,490 |
| $ | 7,536 |
| $ | 7,492 |
|
Commercial and industrial | 5,690 |
| 5,234 |
| 5,295 |
| 5,382 |
| 11,487 |
| 6,534 |
| 6,353 |
| 5,690 |
| 5,234 |
| 5,295 |
|
Total commercial | 13,180 |
| 12,770 |
| 12,787 |
| 12,458 |
| 18,924 |
| 13,600 |
| 13,525 |
| 13,180 |
| 12,770 |
| 12,787 |
|
Residential real estate | 1,120 |
| 1,296 |
| 1,258 |
| 1,257 |
| 1,179 |
| 1,145 |
| 982 |
| 1,120 |
| 1,296 |
| 1,258 |
|
Home equity lines of credit | 686 |
| 684 |
| 733 |
| 732 |
| 777 |
| 675 |
| 688 |
| 686 |
| 684 |
| 733 |
|
Consumer, indirect | | 2,409 |
| 2,312 |
| 2,240 |
| 2,116 |
| 1,607 |
|
Consumer, other | | 438 |
| 518 |
| 592 |
| 631 |
| 549 |
|
Consumer | 2,832 |
| 2,747 |
| 2,156 |
| 1,971 |
| 1,803 |
| 2,847 |
| 2,830 |
| 2,832 |
| 2,747 |
| 2,156 |
|
Deposit account overdrafts | 143 |
| 144 |
| 125 |
| 121 |
| 154 |
| 111 |
| 171 |
| 143 |
| 144 |
| 125 |
|
Originated allowance for loan losses | 17,961 |
| 17,641 |
| 17,059 |
| 16,539 |
| 22,837 |
| 18,378 |
| 18,196 |
| 17,961 |
| 17,641 |
| 17,059 |
|
Purchased credit impaired loan losses | 258 |
| 197 |
| 202 |
| 240 |
| 303 |
| |
Nonimpaired acquired loans | — |
| — |
| — |
| — |
| 103 |
| |
Acquired allowance for loan losses | 258 |
| 197 |
| 202 |
| 240 |
| 406 |
| 90 |
| 233 |
| 258 |
| 197 |
| 202 |
|
Allowance for loan losses | $ | 18,219 |
| $ | 17,838 |
| $ | 17,261 |
| $ | 16,779 |
| $ | 23,243 |
| $ | 18,468 |
| $ | 18,429 |
| $ | 18,219 |
| $ | 17,838 |
| $ | 17,261 |
|
As a percent of originated loans, net of deferred fees and costs | 1.13 | % | 1.16 | % | 1.17 | % | 1.19 | % | 1.72 | % | 1.05 | % | 1.08 | % | 1.13 | % | 1.16 | % | 1.17 | % |
The increase inAt March 31, 2017, the allowance for loan losses at September 30, 2016,increased to $18.5 million, compared to the linked quarter$17.3 million at March 31, 2016 and $18.4 million at December 31, 20152016. 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 largely1.05% at March 31, 2017, compared to 1.17% at March 31, 2016 and 1.08% at December 31, 2016. The continual decline in this ratio has been primarily due to loan growth during the year. continued stabilization of Peoples' asset quality metrics.
The coveragesignificant allocations of allowance for loan losses at September 30, 2016 decreased from December 31, 2015 primarily due to continued improvement in the historical loss experience used to calculate the allowance for loan losses, coupled with the continued stabilization of asset quality metrics. The decrease in the coverage of allowance for loan losses from September 30, 2015 was due to the specific reserve on the one commercial loan relationship that was charged-off in the fourth quarter of 2015.
The significant allocations to commercial loans reflect the higher credit risk associated with this type of lending and the size of this loan category in relationship to the entire loan portfolio. The allowance allocated to the residential real estate and consumer loan categories is based upon Peoples' allowance methodology for homogeneous pools of loans. The fluctuations in these allocations have been directionally consistent with the changes in loan quality, loss experience and loan balances in these categories.
The following table summarizes Peoples’ net charge-offs and recoveries:
| | | Three Months Ended | Three Months Ended |
(Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Gross charge-offs: | | | | | | | | | | |
Commercial real estate, other | $ | 28 |
| $ | — |
| $ | 28 |
| $ | 120 |
| $ | 137 |
| $ | — |
| $ | 13 |
| $ | 28 |
| $ | — |
| $ | 28 |
|
Commercial and industrial | — |
| 6 |
| 1,012 |
| 13,150 |
| 83 |
| 117 |
| — |
| — |
| 6 |
| 1,012 |
|
Residential real estate | 146 |
| 234 |
| 168 |
| 94 |
| 255 |
| 108 |
| 63 |
| 146 |
| 234 |
| 168 |
|
Home equity lines of credit | 29 |
| 19 |
| 10 |
| 9 |
| 35 |
| 3 |
| 15 |
| 29 |
| 19 |
| 10 |
|
Consumer, indirect | | 483 |
| 571 |
| 674 |
| 320 |
| 507 |
|
Consumer, other | | 40 |
| 185 |
| 177 |
| 105 |
| 115 |
|
Consumer | 850 |
| 425 |
| 622 |
| 484 |
| 387 |
| 523 |
| 756 |
| 851 |
| 425 |
| 622 |
|
Deposit account overdrafts | 210 |
| 171 |
| 163 |
| 209 |
| 243 |
| 349 |
| 229 |
| 210 |
| 171 |
| 163 |
|
Total gross charge-offs | 1,263 |
| 855 |
| 2,003 |
| 14,066 |
| 1,140 |
| 1,100 |
| 1,076 |
| 1,264 |
| 855 |
| 2,003 |
|
Recoveries: | | |
Commercial real estate, other | 18 |
| 17 |
| 1,164 |
| 13 |
| 8 |
| 102 |
| 10 |
| 18 |
| 17 |
| 1,164 |
|
Commercial and industrial | — |
| 250 |
| — |
| 5 |
| — |
| — |
| 56 |
| — |
| 250 |
| — |
|
Residential real estate | 123 |
| 40 |
| 29 |
| 108 |
| 47 |
| 89 |
| 85 |
| 123 |
| 40 |
| 29 |
|
Home equity lines of credit | 8 |
| 19 |
| 7 |
| 12 |
| 27 |
| 3 |
| 22 |
| 8 |
| 19 |
| 7 |
|
Consumer, indirect | | 206 |
| 333 |
| 253 |
| 291 |
| 182 |
|
Consumer, other | | 50 |
| 42 |
| 56 |
| 50 |
| 78 |
|
Consumer | 308 |
| 341 |
| 260 |
| 189 |
| 242 |
| 256 |
| 375 |
| 309 |
| 341 |
| 260 |
|
Deposit account overdrafts | 41 |
| 38 |
| 70 |
| 37 |
| 41 |
| 65 |
| 27 |
| 41 |
| 38 |
| 70 |
|
Total recoveries | 498 |
| 705 |
| 1,530 |
| 364 |
| 365 |
| 515 |
| 575 |
| 499 |
| 705 |
| 1,530 |
|
Net charge-offs (recoveries): | | | | |
Commercial real estate, other | 10 |
| (17 | ) | (1,136 | ) | 107 |
| 129 |
| (102 | ) | 3 |
| 10 |
| (17 | ) | (1,136 | ) |
Commercial and industrial | — |
| (244 | ) | 1,012 |
| 13,145 |
| 83 |
| 117 |
| (56 | ) | — |
| (244 | ) | 1,012 |
|
Residential real estate | 23 |
| 194 |
| 139 |
| (14 | ) | 208 |
| 19 |
| (22 | ) | 23 |
| 194 |
| 139 |
|
Home equity lines of credit | 21 |
| — |
| 3 |
| (3 | ) | 8 |
| — |
| (7 | ) | 21 |
| — |
| 3 |
|
Consumer, indirect | | 277 |
| 238 |
| 421 |
| 29 |
| 325 |
|
Consumer, other | | (10 | ) | 143 |
| 121 |
| 55 |
| 37 |
|
Consumer | 542 |
| 84 |
| 362 |
| 295 |
| 145 |
| 267 |
| 381 |
| 542 |
| 84 |
| 362 |
|
Deposit account overdrafts | 169 |
| 133 |
| 93 |
| 172 |
| 202 |
| 284 |
| 202 |
| 169 |
| 133 |
| 93 |
|
Total net charge-offs | $ | 765 |
| $ | 150 |
| $ | 473 |
| $ | 13,702 |
| $ | 775 |
| $ | 585 |
| $ | 501 |
| $ | 765 |
| $ | 150 |
| $ | 473 |
|
Ratio of net charge-offs (recoveries) to average total loans (annualized): | | |
Commercial real estate, other | — | % | — | % | (0.22 | )% | 0.02 | % | 0.02 | % | |
Commercial and industrial | — | % | (0.05 | )% | 0.19 | % | 2.53 | % | 0.02 | % | |
Residential real estate | — | % | 0.04 | % | 0.03 | % | — | % | 0.04 | % | |
Home equity lines of credit | — | % | — | % | — | % | — | % | — | % | |
Consumer | 0.11 | % | 0.02 | % | 0.07 | % | 0.06 | % | 0.03 | % | |
Deposit account overdrafts | 0.03 | % | 0.02 | % | 0.02 | % | 0.03 | % | 0.04 | % | |
Total | 0.14 | % | 0.03 | % | 0.09 | % | 2.64 | % | 0.15 | % | |
Net charge-offs were below Peoples' historical rate
|
| | | | | | | | | | |
| Three Months Ended |
(Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Ratio of net charge-offs (recoveries) to average total loans (annualized): | | |
Commercial real estate | (0.01 | )% | — | % | — | % | — | % | (0.22 | )% |
Commercial and industrial | 0.02 | % | (0.01 | )% | — | % | (0.05 | )% | 0.19 | % |
Residential real estate | — | % | —% |
| — | % | 0.04 | % | 0.03 | % |
Home equity lines of credit | — | % | —% |
| — | % | — | % | — | % |
Consumer, indirect | 0.05 | % | 0.06 | % | 0.04 | % | 0.02 | % | 0.02 | % |
Consumer, other | — | % | — | % | 0.07 | % | — | % | 0.05 | % |
Consumer | 0.05 | % | 0.06 | % | 0.11 | % | 0.02 | % | 0.07 | % |
Deposit account overdrafts | 0.05 | % | 0.04 | % | 0.03 | % | 0.02 | % | 0.02 | % |
Total | 0.11 | % | 0.09 | % | 0.14 | % | 0.03 | % | 0.09 | % |
Peoples recorded net charge-offs of $765,000$585,000 for the three months ended September 30, 2016,March 31, 2017, resulting in an annualized net charge-off rate of 0.14%0.11%. The increase in consumer net charge-offs was in relation to the increase in indirect lending portfolio, which has experienced significant growth during the year. The commercial and industrial loan recovery during the second quarter of 2016 was due to a single commercial relationship that was previously charged-off. The commercial real estate loan recovery during the first quarter of 2016 was due to a $1.0 million recovery on a relationship that washad previously been charged-off. During the fourth quarter of 2015, Peoples recorded a $13.1 million charge-off of one commercial and industrial loan relationship. These factors have an impact on the estimated loss rates used to determine the allocations of allowance for loan losses for commercial loans.
The following table details Peoples’ nonperforming assets:
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 |
Loans 90+ days past due and accruing: | | | | | |
Commercial real estate, other | $ | 1,636 |
| $ | 3,982 |
| $ | 2,763 |
| $ | 2,425 |
| $ | 834 |
|
Commercial and industrial | 452 |
| 459 |
| 2,074 |
| 1,986 |
| 1,674 |
|
Residential real estate | 1,792 |
| 1,421 |
| 1,707 |
| 1,522 |
| 1,223 |
|
Home equity | 199 |
| — |
| 184 |
| 35 |
| 10 |
|
Consumer, indirect | 82 |
| — |
| — |
| — |
| — |
|
Consumer, other | — |
| 7 |
| 18 |
| 1 |
| 19 |
|
Total | 4,161 |
| 5,869 |
| 6,746 |
| 5,969 |
| 3,760 |
|
Nonaccrual loans: | | | | | |
Commercial real estate, construction | 855 |
| 877 |
| 891 |
| 921 |
| — |
|
Commercial real estate, other | 10,020 |
| 7,154 |
| 7,220 |
| 7,357 |
| 2,306 |
|
Commercial and industrial | 1,365 |
| 1,714 |
| 500 |
| 350 |
| 157 |
|
Residential real estate | 3,951 |
| 3,429 |
| 2,966 |
| 2,991 |
| 3,046 |
|
Home equity | 458 |
| 426 |
| 308 |
| 340 |
| 287 |
|
Consumer, indirect | — |
| — |
| — |
| — |
| — |
|
Consumer, other | — |
| — |
| 30 |
| 31 |
| 31 |
|
Total | 16,649 |
| 13,600 |
| 11,915 |
| 11,990 |
| 5,827 |
|
Troubled debt restructurings: | | | | | |
Commercial real estate, other | 742 |
| 123 |
| 107 |
| 153 |
| 337 |
|
Commercial and industrial | 384 |
| 394 |
| 374 |
| 377 |
| 13,854 |
|
Residential real estate | 1,484 |
| 1,354 |
| 1,022 |
| 864 |
| 995 |
|
Home equity | 47 |
| 52 |
| 65 |
| 79 |
| 82 |
|
Consumer, indirect | 30 |
| 46 |
| 82 |
| 34 |
| 36 |
|
Consumer, other | 10 |
| 13 |
| 14 |
| 34 |
| 13 |
|
Total | 2,697 |
| 1,982 |
| 1,664 |
| 1,541 |
| 15,317 |
|
Total nonperforming loans (NPLs) | 23,507 |
| 21,451 |
| 20,325 |
| 19,500 |
| 24,904 |
|
OREO: | | | | | |
Commercial | 594 |
| 597 |
| 597 |
| 644 |
| 1,476 |
|
Residential | 125 |
| 82 |
| 82 |
| 89 |
| 90 |
|
Total | 719 |
| 679 |
| 679 |
| 733 |
| 1,566 |
|
Total nonperforming assets (NPAs) | $ | 24,226 |
| $ | 22,130 |
| $ | 21,004 |
| $ | 20,233 |
| $ | 26,470 |
|
NPLs as a percent of total loans | 1.08 | % | 1.01 | % | 0.97 | % | 0.94 | % | 1.21 | % |
NPAs as a percent of total assets | 0.72 | % | 0.66 | % | 0.64 | % | 0.62 | % | 0.82 | % |
NPAs as a percent of total loans and OREO | 1.11 | % | 1.04 | % | 1.00 | % | 0.98 | % | 1.29 | % |
Allowance for loan losses as a percent of NPLs | 77.50 | % | 83.16 | % | 84.92 | % | 86.05 | % | 93.68 | % |
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. The increase of $0.8 million in total nonperforming assets during the first quarter of 2016 was primarily due to the increase in loans 90+ days past due and accruing, which was mainly the result of a loan moving into that classification. The decrease in total nonperforming assets in the fourth quarter of 2015 related to the charge-off of one commercial and industrial relationship.
The decrease in OREO during the first quarter of 2016 and fourth quarter of 2015 was due to net sales outpacing new OREO properties being recorded. |
| | | | | | | | | | | | | | | |
(Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Loans 90+ days past due and accruing: | | | | | |
Commercial real estate, other | $ | 456 |
| $ | 1,506 |
| $ | 1,636 |
| $ | 3,982 |
| $ | 2,763 |
|
Commercial and industrial | 1,358 |
| 387 |
| 452 |
| 459 |
| 2,074 |
|
Residential real estate | 1,020 |
| 1,855 |
| 1,792 |
| 1,421 |
| 1,707 |
|
Home equity lines of credit | 111 |
| — |
| 199 |
| — |
| 184 |
|
Consumer, indirect | 61 |
| — |
| 82 |
| — |
| — |
|
Consumer, other | — |
| 23 |
| — |
| 7 |
| 18 |
|
Consumer | 61 |
| 23 |
| 82 |
| 7 |
| 18 |
|
Total loans 90+ days past due and accruing | 3,006 |
| 3,771 |
| 4,161 |
| 5,869 |
| 6,746 |
|
Nonaccrual loans: | | | | | |
Commercial real estate, construction | 819 |
| 826 |
| 855 |
| 877 |
| 891 |
|
Commercial real estate, other | 8,893 |
| 10,792 |
| 10,020 |
| 7,154 |
| 7,220 |
|
Commercial real estate | 9,712 |
| 11,618 |
| 10,875 |
| 8,031 |
| 8,111 |
|
Commercial and industrial | 639 |
| 1,620 |
| 1,365 |
| 1,714 |
| 500 |
|
Residential real estate | 4,019 |
| 4,481 |
| 3,951 |
| 3,429 |
| 2,966 |
|
Home equity lines of credit | 438 |
| 554 |
| 458 |
| 426 |
| 308 |
|
Consumer, indirect | 153 |
| 9 |
| — |
| — |
| — |
|
Consumer, other | 1 |
| 81 |
| — |
| — |
| 30 |
|
Consumer | 154 |
| 90 |
| — |
| — |
| 30 |
|
Total nonaccrual loans | 14,962 |
| 18,363 |
| 16,649 |
| 13,600 |
| 11,915 |
|
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Nonaccrual troubled debt restructurings (TDRs): | | | | | |
Commercial real estate, other | 558 |
| 751 |
| 742 |
| 123 |
| 107 |
|
Commercial and industrial | 910 |
| 482 |
| 384 |
| 394 |
| 374 |
|
Residential real estate | 1,699 |
| 1,614 |
| 1,484 |
| 1,354 |
| 1,022 |
|
Home equity lines of credit | 102 |
| 60 |
| 47 |
| 52 |
| 65 |
|
Consumer, indirect | 58 |
| 6 |
| 30 |
| 46 |
| 82 |
|
Consumer, other | 4 |
| 49 |
| 10 |
| 13 |
| 14 |
|
Consumer | 62 |
| 55 |
| 40 |
| 59 |
| 96 |
|
Total nonaccrual TDRs | 3,331 |
| 2,962 |
| 2,697 |
| 1,982 |
| 1,664 |
|
Total nonperforming loans (NPLs) | 21,299 |
| 25,096 |
| 23,507 |
| 21,451 |
| 20,325 |
|
Other real estate owned (OREO): | | | | | |
Commercial | 545 |
| 594 |
| 594 |
| 597 |
| 597 |
|
Residential | 132 |
| 67 |
| 125 |
| 82 |
| 82 |
|
Total OREO | 677 |
| 661 |
| 719 |
| 679 |
| 679 |
|
Total nonperforming assets (NPAs) | $ | 21,976 |
| $ | 25,757 |
| $ | 24,226 |
| $ | 22,130 |
| $ | 21,004 |
|
Criticized loans (a)(c) | 101,284 |
| 99,182 |
| 99,294 |
| 106,616 |
| 119,368 |
|
Classified loans (b)(c) | 56,503 |
| 57,736 |
| 53,755 |
| 51,762 |
| 57,409 |
|
Asset Quality Ratios: | | | | | |
NPLs as a percent of total loans | 0.95 | % | 1.13 | % | 1.08 | % | 1.01 | % | 0.97 | % |
NPAs as a percent of total assets | 0.64 | % | 0.75 | % | 0.72 | % | 0.66 | % | 0.64 | % |
NPAs as a percent of total loans and OREO | 0.98 | % | 1.16 | % | 1.11 | % | 1.04 | % | 1.00 | % |
Allowance for loan losses as a percent of NPLs | 86.71 | % | 73.43 | % | 77.50 | % | 83.16 | % | 84.92 | % |
Criticized loans as a percent of total loans (a) | 4.50 | % | 4.46 | % | 4.58 | % | 5.01 | % | 5.67 | % |
Classified loans as a percent of total loans (b) | 2.51 | % | 2.59 | % | 2.48 | % | 2.43 | % | 2.73 | % |
(a) Includes loans categorized as watch, substandard or doubtful.
(b) Includes loans categorized as substandard or doubtful.
(c) Data presented as of the end of the period indicated.
Nonperforming assets decreased to 0.98% of total loans and OREO at March 31, 2017, compared to 1.16% at December 31, 2016, due to several payoffs on larger relationships during the quarter.
Deposits
The following table details Peoples’ deposit balances:
| | (Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Non-interest-bearing deposits | $ | 745,468 |
| $ | 699,695 |
| $ | 716,202 |
| $ | 717,939 |
| $ | 711,226 |
| $ | 785,047 |
| $ | 734,421 |
| $ | 745,468 |
| $ | 699,695 |
| $ | 716,202 |
|
Interest-bearing deposits: | | |
Retail certificates of deposit(a) | 406,866 |
| 418,748 |
| 439,460 |
| 448,992 |
| 461,398 |
| 353,918 |
| 360,464 |
| 390,568 |
| 418,748 |
| 417,043 |
|
Money market deposit accounts | 411,111 |
| 401,828 |
| 395,022 |
| 394,119 |
| 393,472 |
| 386,999 |
| 407,754 |
| 411,111 |
| 401,828 |
| 395,022 |
|
Governmental deposit accounts | 286,716 |
| 300,639 |
| 313,904 |
| 276,639 |
| 293,889 |
| 330,477 |
| 251,671 |
| 286,716 |
| 300,639 |
| 313,904 |
|
Savings accounts | 438,087 |
| 438,952 |
| 434,381 |
| 414,375 |
| 404,676 |
| 445,720 |
| 436,344 |
| 438,087 |
| 438,952 |
| 434,381 |
|
Interest-bearing demand accounts | 270,490 |
| 252,119 |
| 254,241 |
| 250,023 |
| 232,354 |
| 292,187 |
| 278,975 |
| 270,490 |
| 235,473 |
| 254,241 |
|
Brokered certificates of deposits(a) | 16,719 |
| 20,990 |
| 33,873 |
| 33,857 |
| 33,841 |
| 107,817 |
| 40,093 |
| 33,017 |
| 37,636 |
| 56,290 |
|
Total interest-bearing deposits | 1,829,989 |
| 1,833,276 |
| 1,870,881 |
| 1,818,005 |
| 1,819,630 |
| 1,917,118 |
| 1,775,301 |
| 1,829,989 |
| 1,833,276 |
| 1,870,881 |
|
Total deposits | $ | 2,575,457 |
| $ | 2,532,971 |
| $ | 2,587,083 |
| $ | 2,535,944 |
| $ | 2,530,856 |
| $ | 2,702,165 |
| $ | 2,509,722 |
| $ | 2,575,457 |
| $ | 2,532,971 |
| $ | 2,587,083 |
|
| |
(a) | Prior periods reclassified. |
Total deposits increased $42.5$192.4 million, or 8%, during the thirdfirst quarter of 2016,2017, attributable to an increase of $45.8$141.8 million in interest-bearing deposits and $50.6 million in non-interest-bearing deposits. Growth during the first quarter of 2017 was mainly due to an increase of $78.8 million in governmental deposits, $67.7 million in brokered certificates of deposit and $50.6 million in non-interest-bearing deposits. Balances in governmental deposits are seasonally higher in the first quarter of each year. The increase in brokered certificates of deposit was the result of adding relatively shorter term funding on the balance sheet. Over 40% of the increase in non-interest-bearing deposits was due to an increase in one commercial customer's account, with the remaining increase in both commercial and individual customer accounts.
Total deposits increased $115.1 million, or 4%, compared to March 31, 2016, with $68.8 million of growth in non-interest-bearing deposits, $51.5 million in brokered certificates of deposit and $46.2 million in interest-bearing demand deposits. The increase in non-interest-bearing and interest-bearing demand deposits was primarily due to overall customer activity for both commercial non-interest-bearingand individual customers, with no significant change in any one 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 balance than normal at September 30, 2016.
Compared to December 31, 2015, period-end deposit balances increased $39.5 million, with $27.5 million of the growthaccount. The increase 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 forbrokered certificates of deposits, which declined $59.3 million.
Period-end deposits increased $44.6 million 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 depositsdeposit 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.adding relatively shorter term funding on the balance sheet.
Non-interest-bearing deposits comprised 29% of total deposits at September 30,each of March 31, 2017 and December 31, 2016, compared to 28% at June 30, 2016, DecemberMarch 31, 2015 and September 30, 2015.2016.
Peoples continues its deposit strategy of growing low-cost core deposits, such as checking and savings accounts, and reducing its reliance on higher-cost, non-core deposits, such as retail certificates of deposit ("CDs") and brokered deposits. These actions accounted for much of the changes in deposit balances over the last several quarters. The decreases in governmental deposit accounts during the third and second quarter of 2016 and previous quarters in 2015 were due to normal seasonal declines, as the balances typically increase annually during the first quarter..
Borrowed Funds
The following table details Peoples’ short-term and long-term borrowings:
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 |
Short-term borrowings: | | | | | |
FHLB advances | $ | 90,000 |
| $ | 103,000 |
| $ | 63,000 |
| $ | 76,000 |
| $ | 40,000 |
|
Retail repurchase agreements | 72,807 |
| 70,512 |
| 72,068 |
| 84,386 |
| 89,165 |
|
Total short-term borrowings | 162,807 |
| 173,512 |
| 135,068 |
| 160,386 |
| 129,165 |
|
Long-term borrowings: | | | | | |
FHLB advances | 100,743 |
| 101,214 |
| 66,474 |
| 66,934 |
| 69,715 |
|
National market repurchase agreements | 40,000 |
| 40,000 |
| 40,000 |
| 40,000 |
| 40,000 |
|
Unamortized debt issuance costs | (57 | ) | (63 | ) | (69 | ) | — |
| — |
|
Term note payable (parent company) | — |
| — |
| — |
| — |
| — |
|
Junior subordinated debt securities | 6,877 |
| 6,829 |
| 6,783 |
| 6,736 |
| 6,685 |
|
Total long-term borrowings | 147,563 |
| 147,980 |
| 113,188 |
| 113,670 |
| 116,400 |
|
Total borrowed funds | $ | 310,370 |
| $ | 321,492 |
| $ | 248,256 |
| $ | 274,056 |
| $ | 245,565 |
|
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Short-term borrowings: | | | | | |
FHLB advances | $ | 32,000 |
| $ | 231,000 |
| $ | 90,000 |
| $ | 103,000 |
| $ | 63,000 |
|
Retail repurchase agreements | 73,752 |
| 74,607 |
| 72,807 |
| 70,512 |
| 72,068 |
|
Total short-term borrowings | 105,752 |
| 305,607 |
| 162,807 |
| 173,512 |
| 135,068 |
|
Long-term borrowings: | | | | | |
FHLB advances | 127,581 |
| 98,282 |
| 100,743 |
| 101,214 |
| 66,474 |
|
National market repurchase agreements | 40,000 |
| 40,000 |
| 40,000 |
| 40,000 |
| 40,000 |
|
Unamortized debt issuance costs | (45 | ) | (51 | ) | (57 | ) | (63 | ) | (69 | ) |
Junior subordinated debt securities | 6,970 |
| 6,924 |
| 6,877 |
| 6,829 |
| 6,783 |
|
Total long-term borrowings | 174,506 |
| 145,155 |
| 147,563 |
| 147,980 |
| 113,188 |
|
Total borrowed funds | $ | 280,258 |
| $ | 450,762 |
| $ | 310,370 |
| $ | 321,492 |
| $ | 248,256 |
|
Peoples' short-term FHLB advances generally consist of overnight borrowings being maintained in connection with the management of Peoples' daily liquidity position. Peoples' short-term FHLB advances decreased $199.0 million compared to the fourth quarter of 2016 as deposit growth funded loan growth during the first quarter of 2017. Peoples continually evaluates the overall balance sheet position given the interest rate environment.
In light of the recent interest rate environment, Peoples took action on $80 million of long-term borrowings that were scheduled to mature in 2018, with interest rates ranging from 2.79% to 3.92%. During the secondfirst quarter of 2017, and throughout 2016, Peoples executed transactions to take advantage of the low interest rates, whichthese actions included:
| |
▪ | On January 27, 2017, Peoples restructured $20.0entered into two $10.0 million of borrowings that had a weighted-average rate of 2.97%, resulting in a $700,000 loss. Peoples replaced these borrowings with a long-term FHLB advance, which has anforward starting interest rate of 2.17%swaps, which will become effective in 2018 and matures in 2026.mature between 2025 and 2027, with interest rates ranging from 2.47% to 2.53%. |
| |
▪ | During the fourth quarter of 2016, Peoples borrowed an additional $35.0entered into two $5.0 million of long-term FHLB amortizing advances,forward starting interest rate swaps, which hadbecome effective in 2018 and mature in 2022 and 2026, with interest rates ranging from 1.08% to 1.40%,of 1.56% and mature between 2019 and 2031.1.83%. |
| |
▪ | During the second quarter of 2016, Peoples entered into three forward starting interest rate swapsexecuted the following transactions to obtain short-term borrowings at fixed rates, withtake advantage of the low interest rates, ranging from 1.49% to 1.56%, which become effective in 2018 and mature between 2023 and 2025. These swaps will replace $30.0 million in borrowings that mature in 2018, which have interest rates ranging from 3.65% to 3.92%.included: |
Peoples restructured $20.0 million of FHLB borrowings that had a weighted-average rate of 2.97%, resulting in a $700,000 loss. Peoples replaced these borrowings with a long-term FHLB advance, which had an interest rate of 2.17% and matures in 2026.
Peoples entered into three $10.0 million forward starting interest rate swaps, which become effective in 2018 and mature between 2023 and 2025, with interest rates ranging from 1.49% to 1.56%.
Peoples borrowed an additional $35.0 million of long-term FHLB amortizing advances, which had interest rates ranging from 1.08% to 1.40%, and mature between 2019 and 2031.
Additional information regarding Peoples' interest rate swaps can be found in Note 109 of the Notes to the Unconsolidated Financial Statements.
Capital/Stockholders’ Equity
At September 30, 2016,March 31, 2017, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations. These higher capital levels reflect Peoples' desire to maintain a strong capital position. During the first quarter of 2015, Peoples adopted the new Basel III regulatory capital framework, as approved by the federal banking agencies. The adoption of this new framework modified the calculations and well capitalized thresholds of the currentexisting risk-based capital ratios and added the new Common Equity Tier 1 risk-based capital ratio. Additionally, under the new rules, in order to avoid limitations on dividends, equity repurchases and compensation, Peoples must exceed the three minimum required ratios by at least the capital conservation buffer. The capital conservation buffer is being phased in from 0.625% beginning January 1, 2016 to 2.50% by January 1, 2019, and applies to the Common Equity Tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio. At September 30 2016,March 31, 2017, Peoples' had a capital conservation buffer of 6.24%6.27%, compared to 2.50% for the fully phased-in capital conservation buffer required by January 1, 2019. As such, Peoples exceeded the minimum ratios including the capital conservation buffer at September 30, 2016.March 31, 2017.
The following table details Peoples' actual risk-based capital levels and corresponding ratios:
| | (Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Capital Amounts: | | |
Common Equity Tier 1 | $ | 301,222 |
| $ | 295,148 |
| $ | 288,787 |
| $ | 288,416 |
| $ | 287,020 |
| $ | 310,856 |
| $ | 306,506 |
| $ | 301,222 |
| $ | 295,148 |
| $ | 288,787 |
|
Tier 1 | 308,099 |
| 301,977 |
| 295,569 |
| 295,151 |
| 293,705 |
| 317,826 |
| 313,430 |
| 308,099 |
| 301,977 |
| 295,569 |
|
Total (Tier 1 and Tier 2) | 328,948 |
| 322,413 |
| 314,896 |
| 313,974 |
| 319,277 |
| 340,147 |
| 334,957 |
| 328,948 |
| 322,413 |
| 314,896 |
|
Net risk-weighted assets | $ | 2,309,951 |
| $ | 2,265,022 |
| $ | 2,203,776 |
| $ | 2,158,713 |
| $ | 2,133,399 |
| $ | 2,382,874 |
| $ | 2,373,359 |
| $ | 2,309,951 |
| $ | 2,265,022 |
| $ | 2,203,776 |
|
Capital Ratios: | | |
Common Equity Tier 1 | 13.04 | % | 13.03 | % | 13.10 | % | 13.36 | % | 13.45 | % | 13.05 | % | 12.91 | % | 13.04 | % | 13.03 | % | 13.10 | % |
Tier 1 | 13.34 | % | 13.33 | % | 13.41 | % | 13.67 | % | 13.77 | % | 13.34 | % | 13.21 | % | 13.34 | % | 13.33 | % | 13.41 | % |
Total (Tier 1 and Tier 2) | 14.24 | % | 14.23 | % | 14.29 | % | 14.54 | % | 14.97 | % | 14.27 | % | 14.11 | % | 14.24 | % | 14.23 | % | 14.29 | % |
Leverage ratio | 9.71 | % | 9.56 | % | 9.45 | % | 9.52 | % | 9.57 | % | 9.60 | % | 9.66 | % | 9.71 | % | 9.56 | % | 9.45 | % |
Peoples' capital ratios were relatively flatincreased compared to June 30,December 31, 2016, although the leverage ratio increased 15 basis points largely due to an increase in assets late in the third quarter of 2016, which had a small impact on averagenet income increasing stockholders' equity, along with relatively stable net risk-weighted assets. Compared to September 30, 2015,March 31, 2016, the declinedeclines in capital ratios waswere mostly attributable to stock repurchases completedincreases in the first quarter of 2016.net risk-weighted assets due to loan growth. Peoples continues to be well above the amounts required to be considered "well capitalized" under applicable banking regulations.
In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity. Such ratios represent non-GAAP financial measures since their calculation removes the impact of goodwill and other intangible assets acquired through acquisitions on the Unaudited Consolidated Balance Sheets. Management believes this information is useful to investors since it facilitates the comparison of Peoples' operating
performance, financial condition and trends to peers, especially those without a similar level of intangible assets to that of Peoples. Further, intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value. As a result, tangible equity represents a conservative measure of the capacity for a company to incur losses but remain solvent.
The following table reconciles the calculation of these non-GAAP financial measures to amounts reported in Peoples' Unaudited Consolidated Financial Statements:
| | (Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Tangible equity: | | |
Total stockholders' equity, as reported | $ | 440,637 |
| $ | 437,753 |
| $ | 428,486 |
| $ | 419,789 |
| $ | 424,760 |
| |
Total stockholders' equity | | $ | 443,009 |
| $ | 435,261 |
| $ | 440,637 |
| $ | 437,753 |
| $ | 428,486 |
|
Less: goodwill and other intangible assets | 147,005 |
| 147,971 |
| 148,997 |
| 149,617 |
| 151,339 |
| 145,505 |
| 146,018 |
| 147,005 |
| 147,971 |
| 148,997 |
|
Tangible equity | $ | 293,632 |
| $ | 289,782 |
| $ | 279,489 |
| $ | 270,172 |
| $ | 273,421 |
| $ | 297,504 |
| $ | 289,243 |
| $ | 293,632 |
| $ | 289,782 |
| $ | 279,489 |
|
|
| |
| |
Tangible assets: | | |
Total assets, as reported | $ | 3,363,585 |
| $ | 3,333,455 |
| $ | 3,294,929 |
| $ | 3,258,970 |
| $ | 3,228,830 |
| |
Total assets | | $ | 3,459,276 |
| $ | 3,432,348 |
| $ | 3,363,585 |
| $ | 3,333,455 |
| $ | 3,294,929 |
|
Less: goodwill and other intangible assets | 147,005 |
| 147,971 |
| 148,997 |
| 149,617 |
| 151,339 |
| 145,505 |
| 146,018 |
| 147,005 |
| 147,971 |
| 148,997 |
|
Tangible assets | $ | 3,216,580 |
| $ | 3,185,484 |
| $ | 3,145,932 |
| $ | 3,109,353 |
| $ | 3,077,491 |
| $ | 3,313,771 |
| $ | 3,286,330 |
| $ | 3,216,580 |
| $ | 3,185,484 |
| $ | 3,145,932 |
|
| | |
Tangible book value per common share: | Tangible book value per common share: | | Tangible book value per common share: | |
Tangible equity | $ | 293,632 |
| $ | 289,782 |
| $ | 279,489 |
| $ | 270,172 |
| $ | 273,421 |
| $ | 297,504 |
| $ | 289,243 |
| $ | 293,632 |
| $ | 289,782 |
| $ | 279,489 |
|
Common shares outstanding | 18,195,986 |
| 18,185,708 |
| 18,157,932 |
| 18,404,864 |
| 18,400,809 |
| 18,270,508 |
| 18,200,067 |
| 18,195,986 |
| 18,185,708 |
| 18,157,932 |
|
| | |
Tangible book value per common share | $ | 16.14 |
| $ | 15.93 |
| $ | 15.39 |
| $ | 14.68 |
| $ | 14.86 |
| $ | 16.28 |
| $ | 15.89 |
| $ | 16.14 |
| $ | 15.93 |
| $ | 15.39 |
|
| | |
Tangible equity to tangible assets ratio: | Tangible equity to tangible assets ratio: | | Tangible equity to tangible assets ratio: | |
Tangible equity | $ | 293,632 |
| $ | 289,782 |
| $ | 279,489 |
| $ | 270,172 |
| $ | 273,421 |
| $ | 297,504 |
| $ | 289,243 |
| $ | 293,632 |
| $ | 289,782 |
| $ | 279,489 |
|
Tangible assets | $ | 3,216,580 |
| $ | 3,185,484 |
| $ | 3,145,932 |
| $ | 3,109,353 |
| $ | 3,077,491 |
| $ | 3,313,771 |
| $ | 3,286,330 |
| $ | 3,216,580 |
| $ | 3,185,484 |
| $ | 3,145,932 |
|
| | |
Tangible equity to tangible assets | 9.13 | % | 9.10 | % | 8.88 | % | 8.69 | % | 8.88 | % | 8.98 | % | 8.80 | % | 9.13 | % | 9.10 | % | 8.88 | % |
The increase in the tangible equity to tangible assets ratio at September 30, 2016March 31, 2017 compared to the ratio at June 30,December 31, 2016 was mostly due mainly to the quarterly earnings. Tangible equity increased during 2016, largely asnet income, coupled with a result of the increaseslight recovery in the market value of investment securities. Compared to March 31, 2016, tangible equity to tangible assets increased, mainly due to the quarterly net income. Peoples' available-for-sale investment portfolio coupled with the current year-to-date earnings.
Tangibletangible book value per common share was $16.14 at September 30, 2016,increased 2% compared to $14.86 at the end of the prior year third quarterDecember 31, 2016, and $15.93 at the end of the linked quarter.6% compared to March 31, 2016. The increase from the previous year was primarily attributed to a decrease in the number of common shares outstanding coupled with an increase in the market value of Peoples' available for sale investment portfolio. The increase from the linked quarter wasincreases were driven by higher tangible equity due to current year-to-date earnings.quarterly net income.
Interest Rate Sensitivity and Liquidity
While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major risks that can materially impact future results of operations and financial condition due to their complexity and dynamic nature. The objective of Peoples' asset/liability management (“ALM”) function is to measure and manage these risks in order to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and liabilities, their related cash flows, and the rates earned and paid on those assets and liabilities. Ultimately, the ALM function is intended to guide management in the acquisition and disposition of earning assets, and selection of appropriate funding sources.
Interest Rate Risk
Interest rate risk (“IRR”) is one of the most significant risks arising in the normal course of business of financial services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream as well as market values of financial assets and liabilities. Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other
factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can expose Peoples to IRR and increase interest costs or reduce revenue streams.
Peoples has assigned overall management of IRR to its Asset-Liability Committee (the “ALCO”), which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and managing the level and amount of IRR. The methods used by the ALCO to assess IRR remain unchanged from those disclosed in Peoples' 20152016 Form 10-K.
The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis (dollars in thousands):
| | Increase in Interest Rate | Estimated Increase in Net Interest Income | | Estimated Decrease in Economic Value of Equity | Estimated Increase (Decrease) in Net Interest Income | | Estimated Decrease in Economic Value of Equity |
(in Basis Points) | September 30, 2016 | | December 31, 2015 | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 | | March 31, 2017 | | December 31, 2016 |
300 | $ | 4,079 |
| | 4.1 | % | | $ | 1,477 |
| 1.5 | % | | $ | (63,389 | ) | | (10.6 | )% | | $ | (88,774 | ) | (15.3 | )% | $ | 3,074 |
| | 2.8 | % | | $ | (1,100 | ) | (1.0 | )% | | $ | (94,698 | ) | | (14.0 | )% | | $ | (88,004 | ) | (15.0 | )% |
200 | 3,827 |
| | 3.8 | % | | 1,943 |
| 1.9 | % | | (38,084 | ) | | (6.4 | )% | | (57,205 | ) | (9.9 | )% | 2,709 |
| | 2.5 | % | | 83 |
| 0.1 | % | | (64,940 | ) | | (9.6 | )% | | (57,925 | ) | (9.9 | )% |
100 | 2,766 |
| | 2.7 | % | | 1,823 |
| 1.8 | % | | (14,360 | ) | | (2.4 | )% | | (27,036 | ) | (4.7 | )% | 1,753 |
| | 1.6 | % | | 603 |
| 0.6 | % | | (32,919 | ) | | (4.9 | )% | | (27,441 | ) | (4.7 | )% |
At September 30, 2016,March 31, 2017, Peoples' Unaudited Consolidated Balance Sheet remained positioned for a rising interest rate environment, as illustrated by the potential increase in net interest income shown in the above table. While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in Peoples' Unaudited Consolidated Balance Sheet, interest rates typically move in a non-parallel manner, with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any benefit that could occur as a result of the Federal Reserve Board increasing short-term interest rates in future quarters could be offset by an inverse movement in long-term interest rates.
Peoples entered into interest rate swaps in the second quarter of 2016 as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of September 30, 2016,March 31, 2017, Peoples had three7 interest rate swaps with a notional value of $30$60.0 million.
Liquidity
In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. The methods used by the ALCO to monitor and evaluate the adequacy of Peoples' liquidity position remain unchanged from those disclosed in Peoples' 20152016 Form 10-K.
At September 30, 2016,March 31, 2017, Peoples had liquid assets of $145.0$128.3 million, which represented 3.9%3.3% of total assets and unfunded commitments. This amount exceeded the minimal level of $74.2$76.8 million, or 2% of total loans and unfunded commitments, currently required under Peoples' liquidity policy. Peoples also had an additional $73.4$72.7 million of unpledged investment securities not included in the measurement of liquid assets.
Management believes the current balance of cash and cash equivalents, and anticipated cash flows from the investment portfolio, along with the availability of other funding sources, will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.
Off-Balance Sheet Activities and Contractual Obligations
In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments.
Loan Commitments and Standby Letters of Credit
Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the nonperformanceperformance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples' exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance
sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties.
Peoples routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the consolidated financial statements. These activities are part of Peoples' normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional
capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure.
The following table details the total contractual amount of loan commitments and standby letters of credit:
| | (Dollars in thousands) | September 30, 2016 | June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 |
Home equity lines of credit | $ | 83,267 |
| $ | 85,139 |
| $ | 84,826 |
| $ | 84,148 |
| $ | 84,613 |
| $ | 86,037 |
| $ | 85,024 |
| $ | 83,267 |
| $ | 85,139 |
| $ | 84,826 |
|
Unadvanced construction loans | 100,484 |
| 88,342 |
| 70,389 |
| 77,479 |
| 73,715 |
| 116,168 |
| 119,075 |
| 100,484 |
| 88,342 |
| 70,389 |
|
Other loan commitments | 268,259 |
| 242,914 |
| 245,679 |
| 233,689 |
| 224,673 |
| 267,132 |
| 269,669 |
| 268,259 |
| 242,914 |
| 245,679 |
|
Loan commitments | $ | 452,010 |
| $ | 416,395 |
| $ | 400,894 |
| $ | 395,316 |
| $ | 383,001 |
| $ | 469,337 |
| $ | 473,768 |
| $ | 452,010 |
| $ | 416,395 |
| $ | 400,894 |
|
Standby letters of credit | $ | 27,072 |
| $ | 22,065 |
| $ | 22,376 |
| $ | 22,970 |
| $ | 22,494 |
| $ | 25,797 |
| $ | 25,651 |
| $ | 27,072 |
| $ | 22,065 |
| $ | 22,376 |
|
Management does not anticipate that Peoples’ current off-balance sheet activities will have a material impact on its future results of operations and financial condition based on historical experience and recent trends.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this Item 3 is provided under the caption “Interest Rate Sensitivity and Liquidity” under “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION” in this Form 10-Q, and is incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Peoples' management, with the participation of Peoples' President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer, has evaluated the effectiveness of Peoples’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2016March 31, 2017. Based upon that evaluation, Peoples’ President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer have concluded that:
| |
(a) | information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be accumulated and communicated to Peoples’ management, including its President and Chief Executive Officer and its Executive Vice President, Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure; |
| |
(b) | information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and |
| |
(c) | Peoples’ disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. |
Changes in Internal Control Over Financial Reporting
There were no changes in Peoples' internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Peoples' fiscal quarter ended September 30, 2016March 31, 2017, that have materially affected, or are reasonably likely to materially affect, Peoples’ internal control over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of their respective businesses or operations, Peoples or one of its subsidiaries may be named as a plaintiff, a defendant, or a party to a legal proceeding or any of their respective properties may be subject to various pending and threatened legal proceedings and various actual and potential claims. In view of the inherent difficulty of predicting the outcome of such matters, Peoples cannot state what the eventual outcome of any such matters will be; however, based on management's current knowledge and after consultation with legal counsel, management believes these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of Peoples.
ITEM 1A. RISK FACTORS
The United Kingdom's exit from the European Union could adversely affect our business.
The referendum held in the United Kingdom (the "U.K.") on June 23, 2016 resulted in a determination that the U.K. should exit the European Union ("EU"). Such an exit from the European Union is unprecedented and it is unclear how the U.K.'s access to the EU single market, and the wider trading, legal and regulatory environment in which Peoples, its customers and its counterparties operate, will be impacted and how this will affect Peoples' and its business and the global macroeconomic environment. The uncertainty surrounding the terms of the U.K.'s exit and its consequences could adversely impact customer and investor confidence, result in additional market volatility and adversely affect Peoples' business, including revenues from trading and investment banking activities and results of operations and financial condition.
The accounting treatment of the interest rate swaps entered into by Peoples in the second quarter of 2016 as part of its interest rate management strategy, may change if the hedging relationship is not as effective as currently anticipated. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of September 30, 2016,March 31, 2017, Peoples had three7 interest rate swaps with a notional value of $30.0$60.0 million. The swaps become effective in 2018, roughly to coincide with the maturity of existing FHLB advances and their expected replacement dates.
Although Peoples expects that the hedging relationship will be highly effective as described above, it has not assumed that there will be no ineffectiveness in the hedging relationship. As of September 30, 2016,March 31, 2017, the termination value of derivatives in a net liabilityasset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $7.1$1.6 million. As of September 30, 2016,March 31, 2017, Peoples has no minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $8.7$5.0 million against its obligations under these agreements. If Peoples had breached any of these provisions at September 30, 2016,March 31, 2017, it could have been required to settle its obligations under the agreements at the termination value.
There have been no other material changes from those risk factors previously disclosed in “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 20152016 Form 10-K. Those risk factors are not the only risks Peoples faces. Additional risks and uncertainties not currently known to management or that management currently deems to be immaterial also may materially adversely affect Peoples’ business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table details repurchases by Peoples and purchases by “affiliated purchasers” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, of Peoples’ common shares during the three months ended September 30, 2016March 31, 2017:
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Period | (a) Total Number of Common Shares Purchased | | (b) Average Price Paid per Common Share | | (c) Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs (1) | (d) Maximum Number ( or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 1 - 31, 2016 | — |
| | $ | — |
| | — |
| $ | 15,049,184 |
|
August 1 - 31, 2016 | 1,408 |
| (2) | $ | 22.51 |
| | — |
| 15,049,184 |
|
September 1 - 30, 2016 | 367 |
| (2) | $ | 24.65 |
| (2) | — |
| 15,049,184 |
|
Total | 1,775 |
| | $ | 22.95 |
| | — |
| $ | 15,049,184 |
|
|
| | | | | | | | | | | | |
Period | (a) Total Number of Common Shares Purchased | | (b) Average Price Paid per Common Share | | (c) Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs (1) | (d) Maximum Number ( or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs (1) |
January 1 -31, 2017 | 1,535 |
| (2)(3) | $ | 31.52 |
| | — |
| $ | 15,049,184 |
|
February 1- 28, 2017 | 6,891 |
| (2) | $ | 31.58 |
| | — |
| 15,049,184 |
|
March 1- 31, 2017 | 333 |
| (3) | $ | 32.75 |
| | — |
| 15,049,184 |
|
Total | 8,759 |
| | $ | 31.61 |
| | — |
| $ | 15,049,184 |
|
| |
(1) | On November 3, 2015, Peoples announced that on that same date, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to $20.0 million of its outstanding common shares. No common shares were purchased under this share repurchase program during the three months ended September 30, 2016.March 31, 2017. |
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(2) | Information reported includes 1,408468 common shares and 3676,891 common shares withheld in January and February, respectively, to pay income tax associated with vested restricted common shares. |
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(3) | Information reported includes 1,067 and 333 common shares purchased in open market transactions during AugustJanuary and September,March, respectively, by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishingestablishes a rabbi trust that holds assets to provide funds for the payment of the benefits under the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp Inc. and Subsidiaries. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
The exhibits required to be filed or furnished with this Form 10-Q are attached hereto or incorporated herein by reference. For a list of such exhibits, see “Exhibit Index” beginning at page 69.64.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | |
| | | PEOPLES BANCORP INC. |
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Date: | OctoberApril 27, 20162017 | By: /s/ | CHARLES W. SULERZYSKI |
| | | Charles W. Sulerzyski |
| | | President and Chief Executive Officer |
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Date: | OctoberApril 27, 20162017 | By: /s/ | JOHN C. ROGERS |
| | | John C. Rogers |
| | | Executive Vice President, |
| | | Chief Financial Officer and Treasurer |
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EXHIBIT INDEX |
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PEOPLES BANCORP INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016MARCH 31, 2017 |
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Exhibit Number | | Description | | Exhibit Location |
| | | | |
2.1 | | Agreement and Plan of Merger, dated as of August 4, 2014, as amended, between Peoples Bancorp Inc. and NB&T Financial Group, Inc.* | | Included as Annex A to the joint proxy statement/prospectus which forms a part of the Registration Statement on Form S-4 of Peoples Bancorp Inc. ("Peoples") (Registration No. 333-199152) |
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3.1(a) | | Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on May 3, 1993) | | Incorporated herein by reference to Exhibit 3(a) to Peoples' Registration Statement on Form 8-B filed July 20, 1993 (File No. 0-16772) |
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3.1(b) | | Certificate of Amendment to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April 22, 1994) | | Incorporated herein by reference to Exhibit 3(a)(2) to Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 0-16772) (“Peoples’ 1997 Form 10-K”) |
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3.1(c) | | Certificate of Amendment to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April 9, 1996) | | Incorporated herein by reference to Exhibit 3(a)(3) to Peoples’ 1997 Form 10-K |
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3.1(d) | | Certificate of Amendment to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April 23, 2003) | | Incorporated herein by reference to Exhibit 3(a) to Peoples’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 (File No. 0-16772) (“Peoples’ March 31, 2003 Form 10-Q”) |
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3.1(e) | | Certificate of Amendment by Shareholders to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on January 22, 2009) | | Incorporated herein by reference to Exhibit 3.1 to Peoples’ Current Report on Form 8-K dated and filed on January 23, 2009 (File No. 0-16772) |
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3.1(f) | | Certificate of Amendment by Directors to Articles filed with the Secretary of State of the State of Ohio on January 28, 2009, evidencing adoption of amendments by the Board of Directors of Peoples Bancorp Inc. to Article FOURTH of Amended Articles of Incorporation to establish express terms of Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value, of Peoples Bancorp Inc. | | Incorporated herein by reference to Exhibit 3.1 to Peoples’ Current Report on Form 8-K dated and filed on February 2, 2009 (File No. 0-16772) |
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3.1(g) | | Amended Articles of Incorporation of Peoples Bancorp Inc. (reflecting all amendments) [For SEC reporting compliance purposes only – not filed with Ohio Secretary of State] | | Incorporated herein by reference to Exhibit 3.1(g) to Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (File No. 0-16772) |
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3.2(a) | | Code of Regulations of Peoples Bancorp Inc. | | Incorporated herein by reference to Exhibit 3(b) to Peoples’ Registration Statement on Form 8-B filed July 20, 1993 (File No. 0-16772) |
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3.2(b) | | Certified Resolutions Regarding Adoption of Amendments to Sections 1.03, 1.04, 1.05, 1.06, 1.08, 1.10, 2.03(C), 2.07, 2.08, 2.10 and 6.02 of the Code of Regulations of Peoples Bancorp Inc. by shareholders on April 10, 2003 | | Incorporated herein by reference to Exhibit 3(c) to Peoples’ March 31, 2003 Form 10-Q |
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3.2(c) | | Certificate regarding adoption of amendments to Sections 3.01, 3.03, 3.04, 3.05, 3.06, 3.07, 3.08 and 3.11 of the Code of Regulations of Peoples Bancorp Inc. by shareholders on April 8, 2004 | | Incorporated herein by reference to Exhibit 3(a) to Peoples’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004 (File No. 0-16772) |
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3.2(d) | | Certificate regarding adoption of amendments to Sections 2.06, 2.07, 3.01 and 3.04 of Peoples Bancorp Inc.’s Code of Regulations by the shareholders on April 13, 2006 | | Incorporated herein by reference to Exhibit 3.1 to Peoples’ Current Report on Form 8-K dated and filed on April 14, 2006 (File No. 0-16772) |
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* Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K. A copy of any omitted schedules or exhibits will be furnished supplementally to the SEC upon its request. |
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EXHIBIT INDEX |
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PEOPLES BANCORP INC. QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016
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|
Exhibit
Number
| | Description
| | Exhibit Location
|
3.2(e) | | Certificate regarding adoption of an amendment to Section 2.01 of Peoples Bancorp Inc.’s Code of Regulations by the shareholders on April 22, 2010 | | Incorporated herein by reference to Exhibit 3.2(e) to Peoples’ Quarterly Report on Form 10-Q/A (Amendment No. 1) for the quarterly period ended June 30, 2010 (File No. 0-16772) ("Peoples' June 30, 2010 Form 10-Q/A") |
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3.2(f) | | Code of Regulations of Peoples Bancorp Inc. (reflecting all amendments) [For SEC reporting compliance purposes only] | | Incorporated herein by reference to Exhibit 3.2(f) to Peoples’ June 30, 2010 Form 10-Q/A |
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EXHIBIT INDEX |
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PEOPLES BANCORP INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017 |
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Exhibit Number | | Description | | Exhibit Location |
10.1 | | Change in Control Agreement between Peoples Bancorp Inc. and Douglas V. Wyatt (adopted May 2, 2016)* | | Filed herewith |
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10.2 | | Form of Peoples Bancorp Inc. Second Amended and Restated 2006 Equity Plan Performance-Based Restricted Stock Agreement used and to be used to evidence awards of performance-based restricted stock granted to employees of Peoples Bancorp Inc. on and after (January 29, 2015)* | | Filed herewith |
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10.3 | | Form of Peoples Bancorp Inc. Second Amended and Restated 2006 Equity Plan Performance-Based Restricted Stock Award Agreement used and to be used to evidence awards of performance-based restricted stock granted to executive officers of Peoples Bancorp Inc. on and after (January 29, 2015)* | | Incorporated herein by reference to Exhibit 10.1 to Peoples’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 (File No. 0-16772) |
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31.1 | | Rule 13a-14(a)/15d-14(a) Certifications [President and Chief Executive Officer] | | Filed herewith |
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31.2 | | Rule 13a-14(a)/15d-14(a) Certifications [Executive Vice President, Chief Financial Officer and Treasurer] | | Filed herewith |
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32 | | Section 1350 Certifications | | Furnished herewith |
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101.INS | | XBRL Instance Document | | Submitted electronically herewith # |
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101.SCH | | XBRL Taxonomy Extension Schema Document | | Submitted electronically herewith # |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Submitted electronically herewith # |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Submitted electronically herewith # |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Submitted electronically herewith # |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Submitted electronically herewith # |
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*Management Compensation Plan or Agreement | | |
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# Attached as Exhibit 101 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016March 31, 2017 of Peoples Bancorp Inc. are the following documents formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited) at September 30, 2016March 31, 2017 and December 31, 2015;2016; (ii) Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2016March 31, 2017 and 2015;2016; (iii) Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2016March 31, 2017 and 2015;2016; (iv) Consolidated Statement of Stockholders' Equity (unaudited) for the ninethree months ended September 30, 2016;March 31, 2017; (v) Condensed Consolidated Statements of Cash Flows (unaudited) for the ninethree months ended September 30, 2016March 31, 2017 and 2015;2016; and (vi) Notes to the Unaudited Consolidated Financial Statements. |