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 SeptemberJune 30, 20182019
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: 0-16772000-16772
|
| | | | | | | | |
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. 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) | | |
Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares, without par value | PEBO | The Nasdaq Stock Market |
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 every Interactive Data File required to be submitted 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 such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
| | | | |
Large accelerated filer o | Accelerated filer x | Non-accelerated filer o
| 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 o No 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: 19,555,77520,698,571 common shares, without par value, at November 6, 2018.July 31, 2019.
PART I
ITEM 1. FINANCIAL STATEMENTS
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | September 30, 2018 | December 31, 2017 | June 30, 2019 | December 31, 2018 |
|
(Dollars in thousands) | (Unaudited) | | (Unaudited) | |
Assets | | |
Cash and cash equivalents: | | |
Cash and due from banks | $ | 60,567 |
| $ | 58,121 |
| $ | 56,731 |
| $ | 61,775 |
|
Interest-bearing deposits in other banks | 34,606 |
| 14,073 |
| 36,692 |
| 15,837 |
|
Total cash and cash equivalents | 95,173 |
| 72,194 |
| 93,423 |
| 77,612 |
|
Available-for-sale investment securities, at fair value (amortized cost of $819,431 at September 30, 2018 and $797,732 at December 31, 2017) (a) | 793,325 |
| 795,187 |
| |
Held-to-maturity investment securities, at amortized cost (fair value of $37,095 at September 30, 2018 and $41,213 at December 31, 2017) | 37,790 |
| 40,928 |
| |
Other investment securities (a) | 43,044 |
| 38,371 |
| |
Available-for-sale investment securities, at fair value (amortized cost of $910,431 at June 30, 2019 and $804,655 at December 31, 2018) | | 919,364 |
| 791,891 |
|
Held-to-maturity investment securities, at amortized cost (fair value of $35,747 at June 30, 2019 and $36,963 at December 31, 2018) | | 34,839 |
| 36,961 |
|
Other investment securities | | 43,508 |
| 42,985 |
|
Total investment securities | 874,159 |
| 874,486 |
| 997,711 |
| 871,837 |
|
Loans, net of deferred fees and costs | 2,707,727 |
| 2,357,137 |
| |
Loans, net of deferred fees and costs (a) | | 2,833,533 |
| 2,728,778 |
|
Allowance for loan losses | (19,879 | ) | (18,793 | ) | (21,357 | ) | (20,195 | ) |
Net loans | 2,687,848 |
| 2,338,344 |
| 2,812,176 |
| 2,708,583 |
|
Loans held for sale | 4,776 |
| 2,510 |
| 5,928 |
| 5,470 |
|
Bank premises and equipment, net of accumulated depreciation | 57,527 |
| 52,510 |
| 64,451 |
| 56,542 |
|
Bank owned life insurance | 68,439 |
| 62,176 |
| 69,909 |
| 68,934 |
|
Goodwill | 151,673 |
| 133,111 |
| 163,292 |
| 151,245 |
|
Other intangible assets | 11,728 |
| 11,465 |
| 13,471 |
| 10,840 |
|
Other assets | 51,766 |
| 34,890 |
| 56,015 |
| 40,391 |
|
Total assets | $ | 4,003,089 |
| $ | 3,581,686 |
| $ | 4,276,376 |
| $ | 3,991,454 |
|
Liabilities | | |
Deposits: | | |
Non-interest-bearing | $ | 617,447 |
| $ | 556,010 |
| $ | 643,058 |
| $ | 607,877 |
|
Interest-bearing | 2,423,676 |
| 2,174,320 |
| 2,720,555 |
| 2,347,588 |
|
Total deposits | 3,041,123 |
| 2,730,330 |
| 3,363,613 |
| 2,955,465 |
|
Short-term borrowings | 296,830 |
| 209,491 |
| 186,457 |
| 356,198 |
|
Long-term borrowings | 111,099 |
| 144,019 |
| 85,691 |
| 109,644 |
|
Accrued expenses and other liabilities | 49,747 |
| 39,254 |
| 61,593 |
| 50,007 |
|
Total liabilities | 3,498,799 |
| 3,123,094 |
| 3,697,354 |
| 3,471,314 |
|
Stockholders’ equity | | |
Preferred stock, no par value, 50,000 shares authorized, no shares issued at September 30, 2018 and December 31, 2017 | — |
| — |
| |
Common stock, no par value, 24,000,000 shares authorized, 20,119,194 shares issued at September 30, 2018 and 18,952,385 shares issued at December 31, 2017, including shares in treasury | 386,142 |
| 345,412 |
| |
Retained earnings (b) | 152,976 |
| 134,362 |
| |
Accumulated other comprehensive loss, net of deferred income taxes (b) | (20,590 | ) | (5,215 | ) | |
Treasury stock, at cost, 609,250 shares at September 30, 2018 and 702,449 shares at December 31, 2017 | (14,238 | ) | (15,967 | ) | |
Preferred stock, no par value, 50,000 shares authorized, no shares issued at June 30, 2019 and December 31, 2018 | | — |
| — |
|
Common stock, no par value, 24,000,000 shares authorized, 21,142,256 shares issued at June 30, 2019 and 20,124,378 shares issued at December 31, 2018, including shares in treasury | | 418,950 |
| 386,814 |
|
Retained earnings | | 171,410 |
| 160,346 |
|
Accumulated other comprehensive income (loss), net of deferred income taxes | | 316 |
| (12,933 | ) |
Treasury stock, at cost, 489,802 shares at June 30, 2019 and 601,289 shares at December 31, 2018 | | (11,654 | ) | (14,087 | ) |
Total stockholders’ equity | 504,290 |
| 458,592 |
| 579,022 |
| 520,140 |
|
Total liabilities and stockholders’ equity | $ | 4,003,089 |
| $ | 3,581,686 |
| $ | 4,276,376 |
| $ | 3,991,454 |
|
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting inAlso referred to throughout the reclassification of equity investment securities (including thosedocument as "total loans" and "loans held in participant accounts in the Peoples Bancorp Inc. Nonqualified Deferred Compensation Plan) from available-for-sale investment securities to other investment securities. At December 31, 2017, $7.8 million of equity investment securities were included in available-for-sale investment securities.
(b) As of January 1, 2018, Peoples adopted ASU 2014-09 (which resulted in a reduction to retained earnings and an increase in other liabilities of $3.1 million, net of federal income taxes, to reflect uncompleted contracts in the initial application of the guidance) and ASU 2016-01 (which resulted in the reclassification of $5.0 million in net unrealized gains on equity investment securities from accumulated other comprehensive loss to retained earnings).for investment."
See Notes to the Unaudited Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
| | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands, except per share data) | 2018 | 2017 | | 2018 | 2017 |
Interest income: | | | | | |
Interest and fees on loans | $ | 33,355 |
| $ | 26,370 |
| | $ | 91,486 |
| $ | 76,133 |
|
Interest and dividends on taxable investment securities | 5,577 |
| 5,615 |
| | 17,057 |
| 15,280 |
|
Interest on tax-exempt investment securities | 613 |
| 701 |
| | 1,891 |
| 2,257 |
|
Other interest income | 86 |
| 42 |
| | 192 |
| 83 |
|
Total interest income | 39,631 |
| 32,728 |
| | 110,626 |
| 93,753 |
|
Interest expense: | | | | | |
Interest on deposits | 4,018 |
| 1,865 |
| | 9,332 |
| 5,081 |
|
Interest on short-term borrowings | 1,617 |
| 369 |
| | 3,760 |
| 853 |
|
Interest on long-term borrowings | 672 |
| 1,274 |
| | 2,043 |
| 3,564 |
|
Total interest expense | 6,307 |
| 3,508 |
| | 15,135 |
| 9,498 |
|
Net interest income | 33,324 |
| 29,220 |
| | 95,491 |
| 84,255 |
|
Provision for loan losses | 1,302 |
| 1,086 |
| | 4,473 |
| 2,657 |
|
Net interest income after provision for loan losses | 32,022 |
| 28,134 |
| | 91,018 |
| 81,598 |
|
Non-interest income: | | | | | |
Insurance income | 3,388 |
| 3,345 |
| | 11,412 |
| 10,861 |
|
Trust and investment income | 3,110 |
| 2,838 |
| | 9,410 |
| 8,497 |
|
Electronic banking income | 2,890 |
| 2,544 |
| | 8,460 |
| 7,692 |
|
Deposit account service charges | 2,652 |
| 2,407 |
| | 7,160 |
| 7,130 |
|
Mortgage banking income | 1,060 |
| 535 |
| | 2,380 |
| 1,389 |
|
Bank owned life insurance income | 495 |
| 482 |
| | 1,460 |
| 1,471 |
|
Commercial loan swap fees | 355 |
| 76 |
| | 617 |
| 995 |
|
Net gain (loss) on asset disposals and other transactions | 12 |
| (25 | ) | | (319 | ) | 81 |
|
Net gain (loss) on investment securities | — |
| 1,861 |
| | (146 | ) | 2,219 |
|
Other non-interest income (a) | 391 |
| 383 |
| | 2,143 |
| 1,499 |
|
Total non-interest income | 14,353 |
| 14,446 |
| | 42,577 |
| 41,834 |
|
Non-interest expense: | | | | | |
Salaries and employee benefit costs | 17,908 |
| 15,141 |
| | 51,923 |
| 45,686 |
|
Net occupancy and equipment expense | 2,850 |
| 2,619 |
| | 8,519 |
| 7,980 |
|
Electronic banking expense | 1,552 |
| 1,403 |
| | 4,409 |
| 4,293 |
|
Data processing and software expense | 1,408 |
| 1,092 |
| | 4,089 |
| 3,330 |
|
Professional fees | 1,395 |
| 1,393 |
| | 6,135 |
| 4,532 |
|
Amortization of other intangible assets | 862 |
| 869 |
| | 2,477 |
| 2,603 |
|
Franchise tax expense | 616 |
| 583 |
| | 1,874 |
| 1,750 |
|
Marketing expense | 456 |
| 488 |
| | 1,437 |
| 1,122 |
|
FDIC insurance expense | 391 |
| 449 |
| | 1,173 |
| 1,339 |
|
Foreclosed real estate and other loan expenses | 373 |
| 214 |
| | 923 |
| 589 |
|
Communication expense | 305 |
| 334 |
| | 949 |
| 1,134 |
|
Other non-interest expense | 2,713 |
| 1,973 |
| | 11,113 |
| 6,211 |
|
Total non-interest expense | 30,829 |
| 26,558 |
| | 95,021 |
| 80,569 |
|
Income before income taxes | 15,546 |
| 16,022 |
| | 38,574 |
| 42,863 |
|
Income tax expense | 2,821 |
| 5,127 |
| | 6,216 |
| 13,393 |
|
Net income | $ | 12,725 |
| $ | 10,895 |
| | $ | 32,358 |
| $ | 29,470 |
|
Earnings per common share - basic | $ | 0.65 |
| $ | 0.60 |
| | $ | 1.70 |
| $ | 1.62 |
|
Earnings per common share - diluted | $ | 0.65 |
| $ | 0.60 |
| | $ | 1.69 |
| $ | 1.61 |
|
Weighted-average number of common shares outstanding - basic | 19,325,457 |
| 18,056,202 |
| | 18,875,290 |
| 18,043,692 |
|
Weighted-average number of common shares outstanding - diluted | 19,466,865 |
| 18,213,533 |
| | 19,004,087 |
| 18,199,959 |
|
Cash dividends declared | $ | 5,472 |
| $ | 4,020 |
| | $ | 15,709 |
| $ | 11,299 |
|
Cash dividends declared per common share | $ | 0.28 |
| $ | 0.22 |
| | $ | 0.82 |
| $ | 0.62 |
|
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in a reduction to other non-interest income of $16,000 for the three months ended September 30, 2018 and a gain to other non-interest income of $208,000 for the nine months ended September 30, 2018. |
| | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(Dollars in thousands, except per share data) | 2019 | 2018 | | 2019 | 2018 |
Interest income: | | | | | |
Interest and fees on loans | $ | 36,660 |
| $ | 31,250 |
| | $ | 70,713 |
| $ | 58,131 |
|
Interest and dividends on taxable investment securities | 5,969 |
| 5,830 |
| | 11,779 |
| 11,480 |
|
Interest on tax-exempt investment securities | 729 |
| 635 |
| | 1,266 |
| 1,278 |
|
Other interest income | 263 |
| 54 |
| | 439 |
| 106 |
|
Total interest income | 43,621 |
| 37,769 |
| | 84,197 |
| 70,995 |
|
Interest expense: | | | | | |
Interest on deposits | 5,719 |
| 3,101 |
| | 10,563 |
| 5,314 |
|
Interest on short-term borrowings | 1,233 |
| 1,175 |
| | 2,406 |
| 2,143 |
|
Interest on long-term borrowings | 620 |
| 685 |
| | 1,265 |
| 1,371 |
|
Total interest expense | 7,572 |
| 4,961 |
| | 14,234 |
| 8,828 |
|
Net interest income | 36,049 |
| 32,808 |
| | 69,963 |
| 62,167 |
|
Provision for loan losses | 626 |
| 1,188 |
| | 363 |
| 3,171 |
|
Net interest income after provision for loan losses | 35,423 |
| 31,620 |
| | 69,600 |
| 58,996 |
|
Non-interest income: | | | | | |
Insurance income | 3,486 |
| 3,369 |
| | 8,107 |
| 8,024 |
|
Trust and investment income | 3,401 |
| 3,232 |
| | 6,513 |
| 6,300 |
|
Electronic banking income | 3,267 |
| 2,785 |
| | 6,254 |
| 5,570 |
|
Deposit account service charges | 2,977 |
| 2,388 |
| | 5,318 |
| 4,508 |
|
Mortgage banking income | 1,000 |
| 969 |
| | 1,788 |
| 1,320 |
|
Bank owned life insurance income | 490 |
| 497 |
| | 975 |
| 965 |
|
Commercial loan swap fees | 516 |
| 146 |
| | 662 |
| 262 |
|
Net loss on investment securities | (57 | ) | (147 | ) | | (27 | ) | (146 | ) |
Net loss on asset disposals and other transactions | (293 | ) | (405 | ) | | (475 | ) | (331 | ) |
Other non-interest income | 502 |
| 421 |
| | 1,603 |
| 1,752 |
|
Total non-interest income | 15,289 |
| 13,255 |
| | 30,718 |
| 28,224 |
|
Non-interest expense: | | | | | |
Salaries and employee benefit costs | 20,824 |
| 18,025 |
| | 40,026 |
| 34,015 |
|
Net occupancy and equipment expense | 3,132 |
| 2,803 |
| | 6,110 |
| 5,669 |
|
Professional fees | 2,344 |
| 3,022 |
| | 3,620 |
| 4,740 |
|
Electronic banking expense | 1,693 |
| 1,407 |
| | 3,270 |
| 2,857 |
|
Data processing and software expense | 1,567 |
| 1,359 |
| | 3,112 |
| 2,681 |
|
Amortization of other intangible assets | 824 |
| 861 |
| | 1,518 |
| 1,615 |
|
Franchise tax expense | 772 |
| 614 |
| | 1,477 |
| 1,258 |
|
Marketing expense | 490 |
| 656 |
| | 1,084 |
| 981 |
|
FDIC insurance expense | 381 |
| 416 |
| | 752 |
| 782 |
|
Foreclosed real estate and other loan expenses | 469 |
| 338 |
| | 724 |
| 550 |
|
Communication expense | 317 |
| 300 |
| | 595 |
| 644 |
|
Other non-interest expense | 6,063 |
| 6,170 |
| | 8,448 |
| 8,400 |
|
Total non-interest expense | 38,876 |
| 35,971 |
| | 70,736 |
| 64,192 |
|
Income before income taxes | 11,836 |
| 8,904 |
| | 29,582 |
| 23,028 |
|
Income tax expense | 2,238 |
| 1,012 |
| | 5,615 |
| 3,395 |
|
Net income | $ | 9,598 |
| $ | 7,892 |
| | $ | 23,967 |
| $ | 19,633 |
|
Earnings per common share - basic | $ | 0.47 |
| $ | 0.41 |
| | $ | 1.20 |
| $ | 1.05 |
|
Earnings per common share - diluted | $ | 0.46 |
| $ | 0.41 |
| | $ | 1.19 |
| $ | 1.04 |
|
Weighted-average number of common shares outstanding - basic | 20,277,028 |
| 19,160,728 |
| | 19,824,035 |
| 18,646,266 |
|
Weighted-average number of common shares outstanding - diluted | 20,442,366 |
| 19,293,381 |
| | 19,972,350 |
| 18,773,169 |
|
Cash dividends declared | $ | 7,035 |
| $ | 5,466 |
| | $ | 12,903 |
| $ | 10,237 |
|
Cash dividends declared per common share | $ | 0.34 |
| $ | 0.28 |
| | $ | 0.64 |
| $ | 0.54 |
|
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 | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
(Dollars in thousands) | 2018 | 2017 | | 2018 | 2017 | 2019 | 2018 | | 2019 | 2018 |
Net income | $ | 12,725 |
| $ | 10,895 |
| | $ | 32,358 |
| $ | 29,470 |
| $ | 9,598 |
| $ | 7,892 |
| | $ | 23,967 |
| $ | 19,633 |
|
Other comprehensive income: | | | | |
Other comprehensive income (loss): | | | | |
Available-for-sale investment securities: | | | | | | |
Gross unrealized holding (loss) gain arising during the period | (5,813 | ) | (236 | ) | | (18,587 | ) | 5,448 |
| |
Related tax benefit (expense) | 1,221 |
| 83 |
| | 3,904 |
| (1,906 | ) | |
Less: reclassification adjustment for net gain (loss) included in net income | — |
| 1,861 |
| | (146 | ) | 2,219 |
| |
Gross unrealized holding gain (loss) arising during the period | | 12,947 |
| (2,661 | ) | | 21,672 |
| (12,774 | ) |
Related tax (expense) benefit | — |
| (652 | ) | | 31 |
| (777 | ) | (2,719 | ) | 559 |
| | (4,551 | ) | 3,737 |
|
Less: reclassification adjustment for net gain included in net income | | (57 | ) | (147 | ) | | (27 | ) | (146 | ) |
Related tax benefit | | 12 |
| 31 |
| | 6 |
| 31 |
|
Amounts reclassified out of accumulated other comprehensive loss per ASU 2016-01 (a) | — |
| — |
| | (5,020 | ) | — |
| — |
| — |
| | — |
| (5,020 | ) |
Related tax benefit | — |
| — |
| | 1,054 |
| — |
| |
Net effect on other comprehensive (loss) income | (4,592 | ) | (1,362 | ) | | (18,534 | ) | 2,100 |
| |
Net effect on other comprehensive income (loss) | | 10,273 |
| (1,986 | ) | | 17,142 |
| (13,942 | ) |
Defined benefit plans: | | | | | | |
Net gain (loss) arising during the period | 1,177 |
| (1 | ) | | 1,177 |
| (1 | ) | |
Related tax expense | (247 | ) | — |
| | (247 | ) | — |
| |
Net gain arising during the period | | — |
| — |
| | 2 |
| — |
|
Amortization of unrecognized loss and service cost on benefit plans | 28 |
| 25 |
| | 80 |
| 72 |
| 20 |
| 26 |
| | 37 |
| 52 |
|
Related tax expense | (6 | ) | (9 | ) | | (17 | ) | (25 | ) | |
Recognition of loss due to settlement and curtailment | 176 |
| — |
| | 176 |
| — |
| |
Related tax expense | (37 | ) | — |
| | (37 | ) | — |
| (4 | ) | (5 | ) | | (8 | ) | (11 | ) |
Net effect on other comprehensive income | 1,091 |
| 15 |
| | 1,132 |
| 46 |
| 16 |
| 21 |
| | 31 |
| 41 |
|
Cash flow hedges: | | | | | | |
Net gain (loss) arising during the period | 651 |
| (63 | ) | | 2,566 |
| (832 | ) | |
Related tax (expense) benefit | (137 | ) | 22 |
| | (539 | ) | 291 |
| |
Net effect on other comprehensive income (loss) | 514 |
| (41 | ) | | 2,027 |
| (541 | ) | |
Total other comprehensive (loss) income, net of tax expense | (2,987 | ) | (1,388 | ) | | (15,375 | ) | 1,605 |
| |
Net (loss) gain arising during the period | | (3,134 | ) | 537 |
| | (4,967 | ) | 1,915 |
|
Related tax benefit (expense) | | 658 |
| (113 | ) | | 1,043 |
| (402 | ) |
Net effect on other comprehensive (loss) income | | (2,476 | ) | 424 |
| | (3,924 | ) | 1,513 |
|
Total other comprehensive income (loss), net of tax | | 7,813 |
| (1,541 | ) | | 13,249 |
| (12,388 | ) |
Total comprehensive income | $ | 9,738 |
| $ | 9,507 |
| | $ | 16,983 |
| $ | 31,075 |
| $ | 17,411 |
| $ | 6,351 |
| | $ | 37,216 |
| $ | 7,245 |
|
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, which resulted in the reclassification of $5.0 million in net unrealized gains on equity investment securities from accumulated other comprehensive loss to retained earnings.
See Notes to the Unaudited Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
| | | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| Common Stock | Retained Earnings | Treasury Stock | Common Stock | Retained Earnings | Treasury Stock |
(Dollars in thousands) |
Balance, December 31, 2017 | $ | 345,412 |
| $ | 134,362 |
| $ | (5,215 | ) | $ | (15,967 | ) | $ | 458,592 |
| |
Amounts reclassified out of retained earnings, net of tax, per ASU 2014-09 | — |
| (3,055 | ) | — |
| — |
| (3,055 | ) | |
Balance, December 31, 2018 | | $ | 386,814 |
| $ | 160,346 |
| $ | (12,933 | ) | $ | (14,087 | ) | $ | 520,140 |
|
Net income | — |
| 32,358 |
| — |
| — |
| 32,358 |
| — |
| 23,967 |
| — |
| — |
| 23,967 |
|
Other comprehensive income (loss), net of tax | — |
| 5,020 |
| (15,375 | ) | — |
| (10,355 | ) | |
Other comprehensive income, net of tax | | — |
| — |
| 13,249 |
| — |
| 13,249 |
|
Cash dividends declared | — |
| (15,709 | ) | — |
| — |
| (15,709 | ) | — |
| (12,903 | ) | — |
| — |
| (12,903 | ) |
Exercise of stock appreciation rights | (2 | ) | — |
| — |
| 2 |
| — |
| |
Reissuance of treasury stock for common share awards | (2,674 | ) | — |
| — |
| 2,674 |
| — |
| (2,821 | ) | — |
| — |
| 2,821 |
| — |
|
Reissuance of treasury stock for deferred compensation plan for Boards of Directors | — |
| — |
| — |
| 46 |
| 46 |
| — |
| — |
| — |
| 53 |
| 53 |
|
Repurchase of treasury stock in connection with employee incentive plan and under compensation plan for Boards of Directors | — |
| — |
| — |
| (1,271 | ) | (1,271 | ) | — |
| — |
| — |
| (684 | ) | (684 | ) |
Common shares issued under dividend reinvestment plan | 497 |
| — |
| — |
| — |
| 497 |
| 384 |
| — |
| — |
| — |
| 384 |
|
Common shares issued under compensation plan for Boards of Directors | 85 |
| — |
| — |
| 157 |
| 242 |
| 52 |
| — |
| — |
| 157 |
| 209 |
|
Common shares issued under employee stock purchase plan | 68 |
| — |
| — |
| 121 |
| 189 |
| 28 |
| — |
| — |
| 86 |
| 114 |
|
Stock-based compensation expense | 1,858 |
| — |
| — |
| — |
| 1,858 |
| |
Issuance of common shares related to acquisition of ASB Financial Corp. ("ASB") | 40,898 |
| — |
| — |
| — |
| 40,898 |
| |
Balance, September 30, 2018 | $ | 386,142 |
| $ | 152,976 |
| $ | (20,590 | ) | $ | (14,238 | ) | $ | 504,290 |
| |
Stock-based compensation | | 2,056 |
| — |
| — |
| — |
| 2,056 |
|
Issuance of common shares related to merger with First Prestonsburg Bancshares Inc. | | 32,437 |
| — |
| — |
| — |
| 32,437 |
|
Balance, June 30, 2019 | | $ | 418,950 |
| $ | 171,410 |
| $ | 316 |
| $ | (11,654 | ) | $ | 579,022 |
|
See Notes to the Unaudited Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | Nine Months Ended | Six Months Ended |
| September 30, | June 30, |
(Dollars in thousands) | 2018 | 2017 | 2019 | 2018 |
Net cash provided by operating activities | $ | 50,263 |
| $ | 45,852 |
| $ | 18,821 |
| $ | 27,499 |
|
Investing activities: | | |
Available-for-sale investment securities: | | |
Purchases | (120,492 | ) | (140,791 | ) | (116,433 | ) | (81,441 | ) |
Proceeds from sales | 14,489 |
| 7,381 |
| 72,481 |
| 14,489 |
|
Proceeds from principal payments, calls and prepayments | 93,336 |
| 111,315 |
| 70,728 |
| 60,088 |
|
Held-to-maturity investment securities: | | |
Purchases | — |
| (1,310 | ) | |
Proceeds from principal payments | 3,521 |
| 1,997 |
| 1,984 |
| 2,627 |
|
Other investment securities: | | |
Purchases | (2,547 | ) | — |
| (376 | ) | (1,089 | ) |
Proceeds from sales | 7,544 |
| — |
| 3,872 |
| 7,111 |
|
Net increase in loans held for investment | (113,433 | ) | (99,829 | ) | |
Net expenditures for bank premises and equipment | (3,660 | ) | (3,016 | ) | |
Proceeds from insurance claim | | 26 |
| — |
|
Net decrease (increase) in loans held for investment | | 29,219 |
| (92,582 | ) |
Net expenditures for premises and equipment | | (1,233 | ) | (2,721 | ) |
Proceeds from sales of other real estate owned | 265 |
| 494 |
| 143 |
| 265 |
|
Business acquisitions, net of cash received | 4,695 |
| (450 | ) | 7,795 |
| 4,695 |
|
(Investment in) return of limited partnership and tax credit funds | (5,399 | ) | 6 |
| |
Net cash used in investing activities | (121,681 | ) | (124,203 | ) | |
Investment in limited partnership and tax credit funds | | (44 | ) | (399 | ) |
Net cash provided by (used in) investing activities | | 68,162 |
| (88,957 | ) |
Financing activities: | |
| |
| |
| |
|
Net increase (decrease) in non-interest-bearing deposits | 31,950 |
| (9,575 | ) | |
Net (decrease) increase in non-interest-bearing deposits | | (23,318 | ) | 364 |
|
Net increase in interest-bearing deposits | 79,761 |
| 164,513 |
| 173,571 |
| 19,705 |
|
Net increase (decrease) in short-term borrowings | 2,515 |
| (111,890 | ) | |
Proceeds from long-term borrowings | — |
| 54,403 |
| |
Net (decrease) increase in short-term borrowings | | (207,329 | ) | 66,412 |
|
Payments on long-term borrowings | (3,092 | ) | (3,823 | ) | (849 | ) | (1,062 | ) |
Cash dividends paid | (15,266 | ) | (10,855 | ) | (12,467 | ) | (10,001 | ) |
Repurchase of treasury stock in connection with employee incentive plan and compensation plan for Boards of Directors to be held as treasury stock | (1,271 | ) | (411 | ) | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock | | (684 | ) | (1,143 | ) |
Proceeds from issuance of common shares | 24 |
| 8 |
| 6 |
| 15 |
|
Contingent consideration payments made after a business combination | (224 | ) | (122 | ) | (102 | ) | (224 | ) |
Net cash provided by financing activities | 94,397 |
| 82,248 |
| |
Net cash (used in) provided by financing activities | | (71,172 | ) | 74,066 |
|
Net increase in cash and cash equivalents | 22,979 |
| 3,897 |
| 15,811 |
| 12,608 |
|
Cash and cash equivalents at beginning of period | 72,194 |
| 66,146 |
| 77,612 |
| 72,194 |
|
Cash and cash equivalents at end of period | $ | 95,173 |
| $ | 70,043 |
| $ | 93,423 |
| $ | 84,802 |
|
| | |
Supplemental cash flow information: | | |
Interest paid | | 13,765 |
| 8,765 |
|
Income taxes paid | | 6,150 |
| 6,065 |
|
Supplemental noncash disclosures: | | |
Transfers from loans to other real estate owned | | 49 |
| 16 |
|
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, 20172018 (“Peoples' 20172018 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"Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 20172018 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 SeptemberJune 30, 20182019 for potential recognition or disclosure in these unaudited consolidated financial statements. In the opinion of management, these unaudited 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. Intercompany accounts and transactions have been eliminated. The Consolidated Balance Sheet at December 31, 2017,2018, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 20172018 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.
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. The following accounting pronouncements should be read in conjunction with "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 2018 Form 10-K.
Accounting Standards Update ("ASU") 2018-142017-04 - Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20)Intangibles - Goodwill and Other (Topic 350): This update modifiesSimplifying the disclosure requirementsTest for employees that sponsor defined benefit pension or other postretirement plans. This update will remove some current disclosure requirements and requireGoodwill Impairment. The amendments in this ASU simplify how an explanation ofentity is required to test goodwill for impairment by eliminating the reasons for significant gains and losses relatedrequirement to changes incalculate the benefit obligation, the projected benefit obligation andimplied fair value of plan assets for plans with projected benefit obligations in excess of plan assets, and the accumulated benefit obligation and fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets.goodwill to measure a goodwill impairment charge. This ASU will become effective for interim and annual reporting periods beginning after December 15, 2020 (effective January 1, 2021 for Peoples). Peoples is currently reviewing this update and will adopt this new accounting guidance as required. This new accounting guidance is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2018-13 - Fair Value Measurement (Topic 820): The amendment in this update modify the disclosure requirements for fair value measurements. The amendment removes, modifies and adds to required disclosures related to certain fair value measurements. This ASU will becomebe effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples is currently reviewing the impact of this update and will adoptearly adopted this new accounting guidance as required. This new accounting guidance is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2016-02 - Leases (Topic 842): There are 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 an update in January 2018 (ASU 2018-01) and two in July of 2018 (ASU 2018-10 and 2018-11), which are to provide transparency and comparability and clarify several areas of the guidance. ASU 2018-01 provides an optional transition practical expedient to not evaluate land easements that exist or expired before the entity's adoption of Topic 842, and were not previously accounted for as leases. ASU 2018-10 provides several areas of improvement and clarification to the original standard, including:
optional practical expedient that affects entities with land easements that existed or expired before the adoption,
a rate implicit in the lease of zero should be used when applying the definition,
requirements about lease classification reassessments related to modified terms and conditions,
accounting for the exercise by a lessee of an option to extend or terminate the lease or to purchase,
re-measurement of variable lease payments using the index or rate at the measurement date,
period covered by a lessor-only option to terminate the lease is included in the lease term,
operating leases acquired as part of a previous business combination classified as direct financing leases or sales-type leases,
adjustments to earnings rather than equity when applying retrospectively to prior reporting period, and
determining loss allowance of the net investment in the lease, including cash flow.
ASU 2018-11 addresses comparative reporting at adoption, including an option to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. It also includes the options of separating components of lease contracts, accounting for non-lease components with the lease if the lease is classified as an operating lease and the timing of components are the same. Under ASU 2016-02 and the related updates, a lessee will be required to recognize assets and liabilities for leases with terms of more than 12 months. These ASUs will become effective for interim and annual reporting periods affected beginning after December 15, 2018 (effective January 1, 2019, for Peoples). Peoples is currently identifying the population of leases thatand it will be impacted by ASU 2016-02, and assessing the impact of the guidance providedincorporated in the subsequent updates, and will adopt this new accounting guidance as required. Peoples expects to recognize a one-time cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the new standard is effective. This new accounting guidance is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2018-09 - Codification Improvements: This update has been issued to address suggestions received from stakeholders on the Codification and to make other incremental improvements to GAAP. The improvements facilitate Codification updates for technical corrections, clarifications, and other minor improvements. The amendments in this update that do not require transition guidance became effective upon issuance of this update and did not have an impact on Peoples' consolidated financial statements. Many of the amendments in this update do have transition guidance with effective dates for annual periods beginning after December 15, 2018 (effective JanuaryOctober 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required,annual goodwill and it is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2018-07 - Compensation - Stock Compensation (Topic 718): This update has been issued as part of a simplification initiative which will expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees and improve aspects of the accounting for non-employee share-based payment transactions. 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' consolidated financial statements.
ASU 2018-06 - Codification Improvements (Topic 942): This update has been issued to increase stakeholders' awareness of the improvements to Topic 942, Financial Services - Depository and Lending. This update supersedes outdated guidance related to the Office of the Comptroller of the Currency's Banking Circular 202, Accounting for Net Deferred Tax Charges. The amendments became effective May 7, 2018, and did not have an impact on Peoples' consolidated financial statements.
ASU 2018-05 - Income Taxes (Topic 740): The amendments in this ASU clarify required disclosures in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting under ASC 740 for certain income tax effects of the Tax Cuts and Jobs Act for the reporting period. As of December 31, 2017, Peoples partially completed the accounting for the income tax effects of the enactment of the Tax Cuts and Jobs Act; however, in certain cases, Peoples made reasonable estimates of the effects of a reduced federal corporate income tax rate on its existing deferred tax balances. In other cases, Peoples has not been able to make a reasonable estimate and continued to account for those items based on its existing accounting under ASC 740, and the provisions of the tax laws that were in effect immediately prior to enactment of the Tax Cuts and Jobs Act. In all cases, Peoples will continue to make and refine its calculations during the one-year re-measurement period permitted under this ASU as additionalintangible assets impairment analysis, is completed. In addition, these estimates may be affected as Peoples gains a more thorough understanding of the new tax reform legislation.
ASU 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Peoples early adopted ASU 2018-02, reclassifying income tax effects of the Tax Cuts and Jobs Act of $0.9 million from accumulated other comprehensive loss to retained earnings as of December 31, 2017.
ASU 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of the amendments in this ASU is to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships, and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The FASB issued an update in October of 2018, providing an eligible U.S. benchmark interest rate for purposes of applying hedge accounting. 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, andbut it is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This accounting guidance replaces the current “incurred loss”"incurred loss" model for recognizing credit losses with an “expected loss”"expected loss" model, referred to as the Current Expected Credit Loss (“CECL”("CECL") model. Under the CECL model, Peoples will be required to present certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity debtinvestment securities, at the net amount expected to be collected. ASU 2018-19 clarified that receivables arising from operating leases are not within the scope of Subtopic 326-20, and should be accounted for according to Topic 842.
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”"incurred loss" model required under current US GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, Peoples expects that the adoption of the CECL model will materially affect how the allowance for loan 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 any reason, such increase could adversely affect Peoples' business, financial condition and results of operations.
The new CECL standard will become effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples continueshas a committee that meets regularly to makemonitor progress onand oversee the design and development of estimation methodologies, current and future data requirements,project. Peoples has implemented a third-party software solution, and is utilizing the tool to run test calculations throughout 2019 in anticipation of the processfull implementation at the beginning of implementing a technological solution2020. Peoples has engaged consultants to assist inwith the future calculations undercompletion of certain aspects of the new methodology.project plan. Peoples will complete model validation during 2019, and is currently refining the economic forecasting process, documenting accounting policies, reviewing business processes and evaluating potential changes to the impact thatcontrol environment. Peoples intends to complete a test run of its process, inclusive of the CECL model, will have on Peoples' financial statements andby the end of the third quarter of 2019, pending any unforeseen circumstances or significant changes to the requirements. Peoples expects to recognize a one-time cumulative-effect adjustment to the allowance for loan loss provision, and related tax effect, as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. Peoples believes that the adoptionThe impact of the standard will result in an overall increase in the allowance for loan losses; however, the magnitude of the increase at adoption will depend on relevant data at the adoption date, including the characteristics of the loan portfolio, macroeconomic conditions and forecasts. Peoples has not yet determined the magnitude of any such one-time cumulative-effect adjustment or of the overall impact of the new standard on Peoples' financial condition or results of operations.
Note 2 Fair Value of Assets and Liabilities
Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or a non-recurring basis in the Consolidated Financial Statements. Those assets and liabilities are presented below in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis.”
Depending on the nature of the asset or liability, Peoples uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under US GAAP uses a hierarchy, intendedwhich is described in "Note 1 Summary of Significant Accounting Policies" of the Notes to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:
Level 1: Quoted pricesConsolidated Financial Statements included in active exchange markets for identical assets or liabilities; also includes certain U.S. Treasury and other U.S. government and agency securities actively traded in over-the-counter markets.
Level 2: Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data; also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from, or corroborated by, observable market data. This category generally includes certain U.S. government and agency securities, corporate debt securities, derivative instruments, and residential mortgage loans held for sale.
Level 3: Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for single dealer nonbinding quotes not corroborated by observable market data. This category generally includes certain private equity investment securities, retained interests from securitizations, and certain collateralized debt obligations.Peoples' 2018 Form 10‑K.
Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods presented.
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis
The following table provides the fair value for assets and liabilities required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheets by level in the fair value hierarchy.
| | | Recurring Fair Value Measurements at Reporting Date | Recurring Fair Value Measurements at Reporting Date |
| September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
(Dollars in thousands) | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 |
| Assets: | | | | | | |
Available-for-sale investment securities: | | | | | | |
Obligations of: | | | | | | |
U.S. government sponsored agencies | | $ | — |
| $ | 19,051 |
| $ | — |
| | $ | — |
| $ | — |
| $ | — |
|
States and political subdivisions | $ | — |
| $ | 93,790 |
| $ | — |
| | $ | — |
| $ | 101,569 |
| $ | — |
| — |
| 125,418 |
| — |
| | — |
| 88,587 |
| — |
|
Residential mortgage-backed securities | — |
| 688,656 |
| — |
| | — |
| 673,664 |
| — |
| — |
| 748,132 |
| — |
| | — |
| 692,608 |
| — |
|
Commercial mortgage-backed securities | — |
| 6,713 |
| — |
| | — |
| 6,976 |
| — |
| — |
| 22,664 |
| — |
| | — |
| 6,707 |
| — |
|
Bank-issued trust preferred securities | — |
| 4,166 |
| — |
| | — |
| 5,129 |
| — |
| — |
| 4,099 |
| — |
| | — |
| 3,989 |
| — |
|
Equity investment securities (a) | — |
| — |
| — |
| | 7,694 |
| 155 |
| — |
| |
Total available-for-sale securities | — |
| 793,325 |
| — |
| | 7,694 |
| 787,493 |
| — |
| — |
| 919,364 |
| — |
| | — |
| 791,891 |
| — |
|
| | | | |
Held-to-maturity investment securities: | | | | |
Obligations of: | | | | |
States and political subdivisions | $ | — |
| $ | 4,889 |
| $ | — |
| | $ | — |
| $ | 4,417 |
| $ | — |
| |
Residential mortgage-backed securities | — |
| 28,718 |
| — |
| | — |
| 32,227 |
| — |
| |
Commercial mortgage-backed securities | — |
| 3,488 |
| — |
| | — |
| 4,569 |
| — |
| |
Total held-to-maturity securities | — |
| 37,095 |
| — |
| | — |
| 41,213 |
| — |
| |
| | | | |
Equity investment securities (a) | 104 |
| 174 |
| — |
| | — |
| — |
| — |
| |
Loans held for sale | — |
| 4,776 |
| — |
| | — |
| 2,510 |
| — |
| |
Derivative assets (b) | — |
| 8,766 |
| — |
| | — |
| 4,594 |
| — |
| |
| | | | |
Equity investment securities | | 111 |
| 188 |
| — |
| | 94 |
| 183 |
| — |
|
Derivative assets (a) | | — |
| 9,972 |
| — |
| | — |
| 4,544 |
| — |
|
Liabilities: | | | | | | |
Derivative liabilities (c) | $ | — |
| $ | 4,871 |
| $ | — |
| | $ | — |
| $ | 3,241 |
| $ | — |
| |
Derivative liabilities (b) | | $ | — |
| $ | 14,020 |
| $ | — |
| | $ | — |
| $ | 3,562 |
| $ | — |
|
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale investment securities to other investment securities. As of December 31, 2017, equity investment securities had a net unrealized gain of $6.5 million.
(b) Included in Otherother assets on the Unaudited Consolidated Balance Sheets. For additional information, see Note"Note 9 Derivative Financial Instruments" of the Notes to the Unaudited Consolidated Financial Statements.
(c)(b) Included in Otheraccrued expenses and other liabilities on the Unaudited Consolidated Balance Sheets. For additional information, see Note"Note 9 Derivative Financial Instruments" of the Notes to the Unaudited Consolidated Financial Statements.
Available-for-Sale Investment Securities Available-for-Sale and Held-to-Maturity:Securities: 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) 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.
Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from quoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2).
Loans Held for Sale:Loans originated and intended to be sold in the secondary market, generally one-to-four family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. The use of a valuation model using quoted prices of similar instruments are significant inputs in arriving at the fair value (Level 2).
Derivative Assets and Liabilities: Derivative assets and liabilities are recognized on the Consolidated Balance Sheets at their fair value within other assets/liabilities.assets and accrued expenses and other liabilities, respectively. 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).
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis
The following table provides the fair value for each class of assets and liabilities required to be measured and reported at fair value on a non-recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy.
| | | Non-Recurring Fair Value Measurements at Reporting Date | Non-Recurring Fair Value Measurements at Reporting Date |
| September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
(Dollars in thousands) | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 |
| Impaired loans | $ | — |
| $ | — |
| $ | 25,038 |
| | $ | — |
| $ | — |
| $ | 20,602 |
| $ | — |
| $ | — |
| $ | 32,952 |
| | $ | — |
| $ | — |
| $ | 24,129 |
|
Other real estate owned (OREO) | — |
| — |
| 106 |
| | — |
| — |
| 208 |
| |
Other real estate owned ("OREO") | | — |
| — |
| 123 |
| | — |
| — |
| 94 |
|
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 the market value provided by independent, licensed or certified appraisers (Level 3), less estimated selling costs. At SeptemberJune 30, 2018,2019, impaired loans hadwith an aggregate outstanding principal balance of $31.3$43.2 million were outstanding and reported at fair value of $33.0 million. For the three and ninesix months ended SeptemberJune 30, 2018,2019, Peoples recognized a reductionan increase of $223,000 and $830,000 in the specific reserve on impaired loans, through the allowance for loan losses, of $182,000 and $153,000, respectively.losses.
Other Real Estate Owned: Other real estate owned ("OREO"),OREO, included in Otherother assets on the Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated selling costs.costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available (Level 3).
Financial Instruments Not Required to be Measured or Reported at Fair Value
The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheets.
| | | Fair Value Measurements of Other Financial Instruments | Fair Value Measurements of Other Financial Instruments |
(Dollars in thousands) | Fair Value Hierarchy Level | September 30, 2018 | | December 31, 2017 | Fair Value Hierarchy Level | June 30, 2019 | | December 31, 2018 |
Carrying Amount | Fair Value | | Carrying Amount | Fair Value | Carrying Amount | Fair Value | | Carrying Amount | Fair Value |
| Assets: | | | | | | | | |
Cash and cash equivalents | 1 | $ | 95,173 |
| $ | 95,173 |
| | $ | 72,194 |
| $ | 72,194 |
| 1 | $ | 93,423 |
| $ | 93,423 |
| | $ | 77,612 |
| $ | 77,612 |
|
Held-to-maturity investment securities: | | | | | |
Obligations of: | | | | | |
States and political subdivisions | | 2 | 4,398 |
| 4,880 |
| | 4,403 |
| 4,896 |
|
Residential mortgage-backed securities | | 2 | 23,335 |
| 23,451 |
| | 29,044 |
| 28,603 |
|
Commercial mortgage-backed securities | | 2 | 7,106 |
| 7,416 |
| | 3,514 |
| 3,464 |
|
Total held-to-maturity securities | | | 34,839 |
| 35,747 |
| | 36,961 |
| 36,963 |
|
Other investment securities: | | | | | | | | |
Federal Home Loan Bank ("FHLB") stock | 2 | 29,368 |
| 29,368 |
| | 28,132 |
| 28,132 |
| 2 | 29,257 |
| 29,257 |
| | 29,367 |
| 29,367 |
|
Federal Reserve Bank ("FRB") stock | 2 | 12,294 |
| 12,294 |
| | 10,179 |
| 10,179 |
| 2 | 12,294 |
| 12,294 |
| | 12,294 |
| 12,294 |
|
Nonqualified deferred compensation (a) | 2 | 1,044 |
| 1,044 |
| | — |
| — |
| |
Federal Home Loan Mortgage Corp ("FHLMC") stock | 2 | 60 |
| 60 |
| | 60 |
| 60 |
| |
Total other investment securities | | 42,766 |
| 42,766 |
| | 38,371 |
| 38,371 |
| |
Loans, net of deferred fees and costs | 3 | 2,687,848 |
| 2,780,292 |
| | 2,338,344 |
| 2,274,194 |
| |
Nonqualified deferred compensation | | 2 | 1,293 |
| 1,293 |
| | 987 |
| 987 |
|
Other investment securities | | 2 | 365 |
| 365 |
| | 60 |
| 60 |
|
Other investment securities (a) | | | 43,209 |
| 43,209 |
| | 42,708 |
| 42,708 |
|
Net loans | | 3 | 2,812,176 |
| 3,076,717 |
| | 2,708,583 |
| 2,907,537 |
|
Loans held for sale | | 2 | 5,928 |
| 6,353 |
| | 5,470 |
| 5,492 |
|
Bank owned life insurance | 3 | 68,439 |
| 68,439 |
| | 62,176 |
| 62,176 |
| 3 | 69,909 |
| 69,909 |
| | 68,934 |
| 68,934 |
|
Bank premises and equipment, net of accumulated depreciation | 3 | 57,527 |
| 57,527 |
| | 52,510 |
| 52,510 |
| |
Servicing rights (b) | 3 | 2,682 |
| 2,682 |
| | 2,305 |
| 2,305 |
| 3 | 2,571 |
| 3,617 |
| | 2,655 |
| 4,568 |
|
Liabilities: | | | | | | | | |
Deposits | 2 | $ | 3,041,123 |
| $ | 3,029,072 |
| | $ | 2,730,330 |
| $ | 2,730,071 |
| 2 | $ | 3,363,613 |
| $ | 3,335,686 |
| | $ | 2,955,465 |
| $ | 2,953,452 |
|
Short-term borrowings | 2 | 296,830 |
| 295,542 |
| | 209,491 |
| 209,628 |
| 2 | 186,457 |
| 187,337 |
| | 356,198 |
| 349,994 |
|
Long-term borrowings | 2 | 111,099 |
| 101,779 |
| | 144,019 |
| 142,108 |
| 2 | 85,691 |
| 84,933 |
| | 109,644 |
| 107,696 |
|
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting inOther investment securities, as reported on the reclassification ofUnaudited Consolidated Balance Sheets, also includes equity investment securities (including those held in participant accountsfor 2018, which are reported in the Peoples Bancorp Inc. Nonqualified Deferred Compensation Plan) from available-for-sale investment securitiesAssets and Liabilities Required to other investment securities.be Measured and Reported at Fair Value on a Recurring Basis table above.
(b) Included in Otherother intangible assets on the Unaudited Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or market value.
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:
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and due from banks is a reasonable estimate of fair value. (Level 1).
Held-to-Maturity Investment Securities: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) 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.
Other Investment Securities: Certain restricted equity investment securities that do not have readily determinable fair values and for which Peoples does not exercise significant influence, are carried at cost. These cost method securities are reported as Other investment securities on the Consolidated Balance Sheets and consist primarily of shares of the FHLB of Cincinnati and the FRB of Cleveland. Other investment securities are measured at their respective redemption values due to restrictions placed on their transferability (Level 2).
Loans, Net of Deferred Fees and Costs: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). Fair values for loans are
estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and other market factors, including liquidity.
Loans Held for Sale:Loans originated and intended to be sold in the secondary market, generally 1-4 family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. The use of a valuation model using quoted prices of similar instruments are significant inputs in arriving at the fair value (Level 2).
Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 3). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits.
Bank Premises and Equipment, Net of Accumulated Depreciation: Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets owned. Major improvements to leased facilities are capitalized and included in bank premises at cost less accumulated depreciation, which is calculated on the straight-line method over the lesser of the remaining term of the leased facility or the estimated economic life of the improvement (Level 3).
Servicing Rights ("SRs"): SRs are recorded at fair value at the time of the sale of the loans to the third-party investor. Peoples follows the amortization method for the subsequent measurement of each class of separately recognized servicing assets and liabilities. Under the amortization method, Peoples amortizes the value of servicing assets or liabilities in proportion to, and over the period of, estimated net servicing income or net servicing loss, and assesses servicing assets or liabilities for impairment or increased obligation based on the fair value at each reporting date. The fair value of the SRsservicing rights is determined by using a discounted cash flow model, which estimates the present value of the future net cash flows of the servicing portfolio based on various factors, such as servicing costs, expected prepayment speeds and discount rates (Level 3).
Deposits: The fair value of fixed maturity certificates of deposit ("CDs") is estimated using a discounted cash flow calculation based on current rates offered for deposits of similar remaining maturities (Level 2).
Short-term Borrowings: The fair value of short-term borrowings is estimated using discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2).
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).
Certain financial assets and financial liabilities that are not required to be measured or reported at fair value can be subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These financial assets and liabilities include the following: customer relationships, deposit base, banking center networks, and other information required to compute Peoples’ aggregate fair value that 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 |
September 30, 2018 | | | | |
Obligations of: | | | | |
States and political subdivisions | $ | 94,014 |
| $ | 585 |
| $ | (809 | ) | $ | 93,790 |
|
Residential mortgage-backed securities | 714,360 |
| 1,558 |
| (27,262 | ) | 688,656 |
|
Commercial mortgage-backed securities | 6,861 |
| — |
| (148 | ) | 6,713 |
|
Bank-issued trust preferred securities | 4,196 |
| 132 |
| (162 | ) | 4,166 |
|
Total available-for-sale securities | $ | 819,431 |
| $ | 2,275 |
| $ | (28,381 | ) | $ | 793,325 |
|
December 31, 2017 | | | | |
Obligations of: | | | | |
States and political subdivisions | $ | 100,039 |
| $ | 1,786 |
| $ | (256 | ) | $ | 101,569 |
|
Residential mortgage-backed securities | 684,100 |
| 2,582 |
| (13,018 | ) | 673,664 |
|
Commercial mortgage-backed securities | 7,004 |
| 11 |
| (39 | ) | 6,976 |
|
Bank-issued trust preferred securities | 5,195 |
| 141 |
| (207 | ) | 5,129 |
|
Equity investment securities (a) | 1,394 |
| 6,520 |
| (65 | ) | 7,849 |
|
Total available-for-sale securities | $ | 797,732 |
| $ | 11,040 |
| $ | (13,585 | ) | $ | 795,187 |
|
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale
investment securities to other investment securities. |
| | | | | | | | | | | | |
(Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
June 30, 2019 | | | | |
Obligations of: | | | | |
U.S. government sponsored agencies | $ | 18,606 |
| $ | 445 |
| $ | — |
| $ | 19,051 |
|
States and political subdivisions | 122,809 |
| 2,721 |
| (112 | ) | 125,418 |
|
Residential mortgage-backed securities | 742,164 |
| 8,770 |
| (2,802 | ) | 748,132 |
|
Commercial mortgage-backed securities | 22,656 |
| 148 |
| (140 | ) | 22,664 |
|
Bank-issued trust preferred securities | 4,196 |
| 100 |
| (197 | ) | 4,099 |
|
Total available-for-sale securities | $ | 910,431 |
| $ | 12,184 |
| $ | (3,251 | ) | $ | 919,364 |
|
December 31, 2018 | | | | |
Obligations of: | | | | |
States and political subdivisions | $ | 88,358 |
| $ | 787 |
| $ | (558 | ) | $ | 88,587 |
|
Residential mortgage-backed securities | 705,289 |
| 2,720 |
| (15,401 | ) | 692,608 |
|
Commercial mortgage-backed securities | 6,812 |
| — |
| (105 | ) | 6,707 |
|
Bank-issued trust preferred securities | 4,196 |
| 75 |
| (282 | ) | 3,989 |
|
Total available-for-sale securities | $ | 804,655 |
| $ | 3,582 |
| $ | (16,346 | ) | $ | 791,891 |
|
The unrealized losses related to residential mortgage-backed securities at SeptemberJune 30, 20182019 and December 31, 2017,2018, were attributed to changes in market interest rates and spreads since the securities were purchased.
At December 31, 2017, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies.
The gross gains and gross losses realized by Peoples from sales of available-for-sale securities for the periods ended SeptemberJune 30 were as follows:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
(Dollars in thousands) | 2018 | 2017 | | 2018 | 2017 | 2019 | 2018 | | 2019 | 2018 |
Gross gains realized | $ | — |
| $ | 1,877 |
| | $ | 5 |
| $ | 2,235 |
| $ | 30 |
| $ | 3 |
| | $ | 60 |
| $ | 5 |
|
Gross losses realized | — |
| 16 |
| | 151 |
| 16 |
| 87 |
| 150 |
| | 87 |
| 151 |
|
Net gain (loss) realized | $ | — |
| $ | 1,861 |
| | $ | (146 | ) | $ | 2,219 |
| |
Net losses realized | | $ | (57 | ) | $ | (147 | ) | | $ | (27 | ) | $ | (146 | ) |
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 |
(Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
September 30, 2018 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
States and political subdivisions | $ | 30,112 |
| $ | 224 |
| 52 |
| | $ | 9,480 |
| $ | 585 |
| 6 |
| | $ | 39,592 |
| $ | 809 |
|
Residential mortgage-backed securities | 224,049 |
| 5,503 |
| 113 |
| | 405,124 |
| 21,759 |
| 128 |
| | 629,173 |
| 27,262 |
|
Commercial mortgage-backed securities | 3,127 |
| 44 |
| 1 |
| | 3,587 |
| 104 |
| 2 |
| | 6,714 |
| 148 |
|
Bank-issued trust preferred securities | — |
| — |
| — |
| | 1,838 |
| 162 |
| 2 |
| | 1,838 |
| 162 |
|
Total | $ | 257,288 |
| $ | 5,771 |
| 166 |
| | $ | 420,029 |
| $ | 22,610 |
| 138 |
| | $ | 677,317 |
| $ | 28,381 |
|
December 31, 2017 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
States and political subdivisions | $ | 16,985 |
| $ | 89 |
| 18 |
| | $ | 5,308 |
| $ | 167 |
| 1 |
| | $ | 22,293 |
| $ | 256 |
|
Residential mortgage-backed securities | 274,998 |
| 3,462 |
| 77 |
| | 291,812 |
| 9,556 |
| 88 |
| | 566,810 |
| 13,018 |
|
Commercial mortgage-backed securities | 2,487 |
| 23 |
| 1 |
| | 1,274 |
| 16 |
| 1 |
| | 3,761 |
| 39 |
|
Bank-issued trust preferred securities | — |
| — |
| — |
| | 2,792 |
| 207 |
| 3 |
| | 2,792 |
| 207 |
|
Equity investment securities (a) | 276 |
| 1 |
| 1 |
| | 112 |
| 64 |
| 1 |
| | 388 |
| 65 |
|
Total | $ | 294,746 |
| $ | 3,575 |
| 97 |
| | $ | 301,298 |
| $ | 10,010 |
| 94 |
| | $ | 596,044 |
| $ | 13,585 |
|
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale investment securities to other investment securities. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
June 30, 2019 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
States and political subdivisions | $ | — |
| $ | — |
| — |
| | $ | 8,020 |
| $ | 112 |
| 5 |
| | $ | 8,020 |
| $ | 112 |
|
Residential mortgage-backed securities | 17,932 |
| 154 |
| 7 |
| | 226,208 |
| 2,648 |
| 77 |
| | 244,140 |
| 2,802 |
|
Commercial mortgage-backed securities | — |
| — |
| — |
| | 6,380 |
| 140 |
| 5 |
| | 6,380 |
| 140 |
|
Bank-issued trust preferred securities | — |
| — |
| — |
| | 1,803 |
| 197 |
| 2 |
| | 1,803 |
| 197 |
|
Total | $ | 17,932 |
| $ | 154 |
| 7 |
| | $ | 242,411 |
| $ | 3,097 |
| 89 |
| | $ | 260,343 |
| $ | 3,251 |
|
December 31, 2018 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
States and political subdivisions | $ | 10,173 |
| $ | 18 |
| 17 |
| | $ | 19,918 |
| $ | 540 |
| 20 |
| | $ | 30,091 |
| $ | 558 |
|
Residential mortgage-backed securities | 47,562 |
| 226 |
| 50 |
| | 517,335 |
| 15,175 |
| 170 |
| | 564,897 |
| 15,401 |
|
Commercial mortgage-backed securities | — |
| — |
| — |
| | 6,707 |
| 105 |
| 3 |
| | 6,707 |
| 105 |
|
Bank-issued trust preferred securities | — |
| — |
| — |
| | 1,718 |
| 282 |
| 2 |
| | 1,718 |
| 282 |
|
Total | $ | 57,735 |
| $ | 244 |
| 67 |
| | $ | 545,678 |
| $ | 16,102 |
| 195 |
| | $ | 603,413 |
| $ | 16,346 |
|
Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair value on a quarterly basis. At SeptemberJune 30, 2018,2019, 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 SeptemberJune 30, 20182019 and December 31, 20172018 were largely attributable to changes in market interest rates and spreads since the securities were purchased.
At SeptemberJune 30, 2018,2019, approximately 99% 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%, or two positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Both of these positions had a fair value of less than 90% of their book value, with an aggregate book and fair value of $217,000$211,000 and $145,000,$147,000, 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 remaining number of loans remaining inunderlying these securities.
The unrealized losses with respect to the two bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at SeptemberJune 30, 20182019 were primarily attributable to the subordinated nature of the debt.
The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at SeptemberJune 30, 20182019. 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.
| | (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 | | $ | — |
| $ | 2,984 |
| $ | 14,644 |
| $ | 978 |
| $ | 18,606 |
|
States and political subdivisions | $ | 714 |
| $ | 12,538 |
| $ | 26,289 |
| $ | 54,473 |
| $ | 94,014 |
| 4,234 |
| 31,186 |
| 44,207 |
| 43,182 |
| 122,809 |
|
Residential mortgage-backed securities | 994 |
| 12,898 |
| 46,292 |
| 654,176 |
| 714,360 |
| 1 |
| 1,919 |
| 60,647 |
| 679,597 |
| 742,164 |
|
Commercial mortgage-backed securities | — |
| 5,678 |
| — |
| 1,183 |
| 6,861 |
| — |
| 17,107 |
| 1,848 |
| 3,701 |
| 22,656 |
|
Bank-issued trust preferred securities | — |
| — |
| 4,196 |
| — |
| 4,196 |
| — |
| — |
| 4,196 |
| — |
| 4,196 |
|
Total available-for-sale securities | $ | 1,708 |
| $ | 31,114 |
| $ | 76,777 |
| $ | 709,832 |
| $ | 819,431 |
| $ | 4,235 |
| $ | 53,196 |
| $ | 125,542 |
| $ | 727,458 |
| $ | 910,431 |
|
Fair value | | |
Obligations of: | | |
U.S. government sponsored agencies | | $ | — |
| $ | 3,041 |
| $ | 15,011 |
| $ | 999 |
| $ | 19,051 |
|
States and political subdivisions | $ | 713 |
| $ | 12,489 |
| $ | 26,184 |
| $ | 54,404 |
| $ | 93,790 |
| 4,236 |
| 31,477 |
| 45,518 |
| 44,187 |
| 125,418 |
|
Residential mortgage-backed securities | 990 |
| 12,590 |
| 44,656 |
| 630,420 |
| 688,656 |
| 1 |
| 1,934 |
| 60,507 |
| 685,690 |
| 748,132 |
|
Commercial mortgage-backed securities | — |
| 5,548 |
| — |
| 1,165 |
| 6,713 |
| — |
| 17,195 |
| 1,904 |
| 3,565 |
| 22,664 |
|
Bank-issued trust preferred securities | — |
| — |
| 4,166 |
| — |
| 4,166 |
| — |
| — |
| 4,099 |
| — |
| 4,099 |
|
Total available-for-sale securities | $ | 1,703 |
| $ | 30,627 |
| $ | 75,006 |
| $ | 685,989 |
| $ | 793,325 |
| $ | 4,237 |
| $ | 53,647 |
| $ | 127,039 |
| $ | 734,441 |
| $ | 919,364 |
|
Total weighted-average yield | 2.52 | % | 2.78 | % | 3.38 | % | 2.84 | % | 2.88 | % | 2.36 | % | 2.52 | % | 2.77 | % | 2.93 | % | 2.88 | % |
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, 2018 | | |
June 30, 2019 | | |
Obligations of: | | |
States and political subdivisions | $ | 4,451 |
| $ | 438 |
| $ | — |
| $ | 4,889 |
| $ | 4,398 |
| $ | 482 |
| $ | — |
| $ | 4,880 |
|
Residential mortgage-backed securities | 29,765 |
| 79 |
| (1,126 | ) | 28,718 |
| 23,335 |
| 256 |
| (140 | ) | 23,451 |
|
Commercial mortgage-backed securities | 3,574 |
| — |
| (86 | ) | 3,488 |
| 7,106 |
| 310 |
| — |
| 7,416 |
|
Total held-to-maturity securities | $ | 37,790 |
| $ | 517 |
| $ | (1,212 | ) | $ | 37,095 |
| $ | 34,839 |
| $ | 1,048 |
| $ | (140 | ) | $ | 35,747 |
|
December 31, 2017 | | |
December 31, 2018 | | |
Obligations of: | | |
States and political subdivisions | $ | 3,810 |
| $ | 607 |
| $ | — |
| $ | 4,417 |
| $ | 4,403 |
| $ | 493 |
| $ | — |
| $ | 4,896 |
|
Residential mortgage-backed securities | 32,487 |
| 269 |
| (529 | ) | 32,227 |
| 29,044 |
| 191 |
| (632 | ) | 28,603 |
|
Commercial mortgage-backed securities | 4,631 |
| — |
| (62 | ) | 4,569 |
| 3,514 |
| — |
| (50 | ) | 3,464 |
|
Total held-to-maturity securities | $ | 40,928 |
| $ | 876 |
| $ | (591 | ) | $ | 41,213 |
| $ | 36,961 |
| $ | 684 |
| $ | (682 | ) | $ | 36,963 |
|
There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for any of the three and ninesix months ended SeptemberJune 30, 20182019 and 2017.2018.
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, 2018 | | | | | | | | |
June 30, 2019 | | | | | | | | |
Residential mortgage-backed securities | | $ | — |
| $ | — |
| — |
| | $ | 11,639 |
| $ | 140 |
| 3 |
| | $ | 11,639 |
| $ | 140 |
|
Total | | $ | — |
| $ | — |
| — |
| | $ | 11,639 |
| $ | 140 |
| 3 |
| | $ | 11,639 |
| $ | 140 |
|
December 31, 2018 | | | | | | | | |
Residential mortgage-backed securities | $ | 11,826 |
| $ | 182 |
| 6 |
| | $ | 11,260 |
| $ | 944 |
| 3 |
| | $ | 23,086 |
| $ | 1,126 |
| $ | — |
| $ | — |
| — |
| | $ | 13,102 |
| $ | 632 |
| 5 |
| | $ | 13,102 |
| $ | 632 |
|
Commercial mortgage-backed securities | — |
| — |
| — |
| | 3,488 |
| 86 |
| 1 |
| | 3,488 |
| 86 |
| — |
| — |
| — |
| | 3,464 |
| 50 |
| 1 |
| | 3,464 |
| 50 |
|
Total | $ | 11,826 |
| $ | 182 |
| 6 |
| | $ | 14,748 |
| $ | 1,030 |
| 4 |
| | $ | 26,574 |
| $ | 1,212 |
| $ | — |
| $ | — |
| — |
| | $ | 16,566 |
| $ | 682 |
| 6 |
| | $ | 16,566 |
| $ | 682 |
|
December 31, 2017 | | | | | | | | |
Residential mortgage-backed securities | $ | 1,476 |
| $ | 4 |
| 2 |
| | $ | 12,098 |
| $ | 525 |
| 3 |
| | $ | 13,574 |
| $ | 529 |
| |
Commercial mortgage-backed securities | — |
| — |
| — |
| | 4,569 |
| 62 |
| 1 |
| | 4,569 |
| 62 |
| |
Total | $ | 1,476 |
| $ | 4 |
| 2 |
| | $ | 16,667 |
| $ | 587 |
| 4 |
| | $ | 18,143 |
| $ | 591 |
| |
The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at SeptemberJune 30, 20182019. 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.
| | (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 | $ | — |
| $ | 309 |
| $ | 2,982 |
| $ | 1,160 |
| $ | 4,451 |
| $ | 305 |
| $ | — |
| $ | 2,984 |
| $ | 1,109 |
| $ | 4,398 |
|
Residential mortgage-backed securities | — |
| 428 |
| 8,060 |
| 21,277 |
| 29,765 |
| — |
| — |
| 4,002 |
| 19,333 |
| 23,335 |
|
Commercial mortgage-backed securities | — |
| — |
| — |
| 3,574 |
| 3,574 |
| — |
| 410 |
| 3,893 |
| 2,803 |
| 7,106 |
|
Total held-to-maturity securities | $ | — |
| $ | 737 |
| $ | 11,042 |
| $ | 26,011 |
| $ | 37,790 |
| $ | 305 |
| $ | 410 |
| $ | 10,879 |
| $ | 23,245 |
| $ | 34,839 |
|
Fair value | | |
Obligations of: | | |
States and political subdivisions | $ | — |
| $ | 309 |
| $ | 3,410 |
| $ | 1,170 |
| $ | 4,889 |
| $ | 307 |
| $ | — |
| $ | 3,458 |
| $ | 1,115 |
| $ | 4,880 |
|
Residential mortgage-backed securities | — |
| 415 |
| 8,028 |
| 20,275 |
| 28,718 |
| — |
| — |
| 4,070 |
| 19,381 |
| 23,451 |
|
Commercial mortgage-backed securities | — |
| — |
| — |
| 3,488 |
| 3,488 |
| — |
| 412 |
| 4,196 |
| 2,808 |
| 7,416 |
|
Total held-to-maturity securities | $ | — |
| $ | 724 |
| $ | 11,438 |
| $ | 24,933 |
| $ | 37,095 |
| $ | 307 |
| $ | 412 |
| $ | 11,724 |
| $ | 23,304 |
| $ | 35,747 |
|
Total weighted-average yield | — | % | 2.97 | % | 3.08 | % | 2.70 | % | 2.82 | % | 2.62 | % | 2.29 | % | 1.49 | % | 2.81 | % | 2.83 | % |
Other Investment Securities
Peoples' other investment securities on the Unaudited Consolidated Balance Sheet consist largely of shares of FHLB of Cincinnati and FRB of Cleveland stock, and other equity investment securities. As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale investment securities to other investment securities.
The following table summarizes the carrying value of Peoples' other investment securities:
| | (Dollars in thousands) | September 30, 2018 | December 31, 2017 | June 30, 2019 | December 31, 2018 |
FHLB stock | $ | 29,368 |
| $ | 28,132 |
| $ | 29,257 |
| $ | 29,367 |
|
FRB stock | 12,294 |
| 10,179 |
| 12,294 |
| 12,294 |
|
Equity investment securities (a) | 278 |
| — |
| |
Other | 1,104 |
| 60 |
| |
Nonqualified deferred compensation | | 1,293 |
| 987 |
|
Equity investment securities | | 299 |
| 277 |
|
Other investment securities | | 365 |
| 60 |
|
Total other investment securities | $ | 43,044 |
| $ | 38,371 |
| $ | 43,508 |
| $ | 42,985 |
|
(a) AsPeoples redeemed $1.1 million during the second quarter of January 1, 2018,2019 and $1.8 million during the first quarter of 2019 of FHLB stock to be in compliance with requirements of the FHLB of Cincinnati.
During the three and six months ended June 30, 2019, Peoples adopted ASU 2016-01, resultingrecorded the change in the reclassificationfair value of equity investment securities from available-for-saleheld at June 30, 2019 in other non-interest income, resulting in unrealized gains of zero and $22,000, respectively. During the three and six months ended June 30, 2018, Peoples recorded the change in the fair value of equity investment
securities toheld at June 30, 2018 in other investment securities.non-interest income, resulting in unrealized losses of $658,000 and $198,000,
respectively. Net realized gains on sales of equity investment securities, included in other non-interest income during the first six months of 2019, consisted of a realized gain of $787,000 related to the sale of restricted Class B Visa stock, which had been held at a carrying cost and fair value of zero due to the litigation liability associated with the stock.
At SeptemberJune 30, 2018, there2019, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies. There were no equity investment securities of a single issuer that exceeded 10% of Peoples' stockholders' equity.
Pledged Securities
Peoples had pledged available-for-sale investment securities with carrying values of $514.9$499.5 million and $522.7$430.0 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, and held-to-maturity investment securities with carrying values of $17.1$14.6 million and $18.3$16.9 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, 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 $61.8$54.3 million and $6.7$60.1 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, and held-to-maturity securities with carrying values of $17.4$15.6 million and $19.9$16.7 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, 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 northeasterncentral and eastern Kentucky. Acquired loans consist of loans purchased in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit). The major classifications of loan balances (in each case, net of deferred fees and costs) excluding loans held for sale, were as follows:
| | (Dollars in thousands) | September 30, 2018 | December 31, 2017 | June 30, 2019 | December 31, 2018 |
Originated loans: | | |
Commercial real estate, construction | $ | 103,562 |
| $ | 107,118 |
| $ | 102,904 |
| $ | 124,013 |
|
Commercial real estate, other | 630,720 |
| 595,447 |
| 641,061 |
| 632,200 |
|
Commercial real estate | 734,282 |
| 702,565 |
| 743,965 |
| 756,213 |
|
Commercial and industrial | 510,591 |
| 438,051 |
| 548,460 |
| 530,207 |
|
Residential real estate | 299,768 |
| 304,523 |
| 299,173 |
| 296,860 |
|
Home equity lines of credit | 92,892 |
| 88,902 |
| 90,374 |
| 93,326 |
|
Consumer, indirect | 396,701 |
| 340,390 |
| 419,595 |
| 407,167 |
|
Consumer, direct | 72,601 |
| 67,010 |
| 72,209 |
| 71,674 |
|
Consumer | 469,302 |
| 407,400 |
| 491,804 |
| 478,841 |
|
Deposit account overdrafts | 649 |
| 849 |
| 676 |
| 583 |
|
Total originated loans | $ | 2,107,484 |
| $ | 1,942,290 |
| $ | 2,174,452 |
| $ | 2,156,030 |
|
Acquired loans: | | |
Commercial real estate, construction | $ | 13,050 |
| $ | 8,319 |
| $ | 6,775 |
| $ | 12,404 |
|
Commercial real estate, other | 191,993 |
| 165,120 |
| 201,909 |
| 184,711 |
|
Commercial real estate | 205,043 |
| 173,439 |
| 208,684 |
| 197,115 |
|
Commercial and industrial | 41,188 |
| 34,493 |
| 51,506 |
| 35,537 |
|
Residential real estate | 308,178 |
| 184,864 |
| 348,439 |
| 296,937 |
|
Home equity lines of credit | 42,961 |
| 20,575 |
| 41,262 |
| 40,653 |
|
Consumer, indirect | 161 |
| 329 |
| 90 |
| 136 |
|
Consumer, direct | 2,712 |
| 1,147 |
| 9,100 |
| 2,370 |
|
Consumer | 2,873 |
| 1,476 |
| 9,190 |
| 2,506 |
|
Total acquired loans | $ | 600,243 |
| $ | 414,847 |
| $ | 659,081 |
| $ | 572,748 |
|
Loans, net of deferred fees and costs | $ | 2,707,727 |
| $ | 2,357,137 |
| |
Total loans | | $ | 2,833,533 |
| $ | 2,728,778 |
|
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 purchased credit impaired loans included in the loan balances above are summarized as follows:
| | (Dollars in thousands) | September 30, 2018 | December 31, 2017 | June 30, 2019 | December 31, 2018 |
Commercial real estate, other | $ | 12,812 |
| $ | 8,117 |
| |
Commercial real estate | | $ | 13,116 |
| $ | 11,955 |
|
Commercial and industrial | 1,343 |
| 767 |
| 4,479 |
| 1,287 |
|
Residential real estate | 20,488 |
| 19,532 |
| 23,509 |
| 20,062 |
|
Consumer | 61 |
| 33 |
| 640 |
| 58 |
|
Total outstanding balance | $ | 34,704 |
| $ | 28,449 |
| $ | 41,744 |
| $ | 33,362 |
|
Net carrying amount | $ | 23,639 |
| $ | 19,564 |
| $ | 28,125 |
| $ | 22,475 |
|
Changes in the accretable yield for purchased credit impaired loans for the ninesix months ended SeptemberJune 30 were as follows:
| | (Dollars in thousands) | September 30, 2018 | September 30, 2017 | June 30, 2019 | June 30, 2018 |
Balance, beginning of period | $ | 6,704 |
| $ | 7,132 |
| $ | 8,955 |
| $ | 6,704 |
|
Reclassification from nonaccretable to accretable | 2,019 |
| 1,285 |
| |
Additions: | | |
ASB Financial Corp. (preliminary) | 2,047 |
| — |
| |
ASB Financial Corp. | | — |
| 2,415 |
|
First Prestonsburg Bancshares Inc. | | 3,853 |
| — |
|
Accretion | (1,392 | ) | (1,279 | ) | (1,148 | ) | (897 | ) |
Balance, September 30 | $ | 9,378 |
| $ | 7,138 |
| |
Balance, June 30 | | $ | 11,660 |
| $ | 8,222 |
|
The fair value of newly acquired loans is determined at the time of acquisition and Peoples completes annual re-estimations of cash flows on acquired purchased credit impaired loans in August of each year. At the end of each quarter, Peoples evaluates factors to determine if a material change has occurred in acquired purchased credit impaired loans, accounted for and if a re-estimation is needed. Factors evaluated to determine if a re-estimation is needed include changes in: risk ratings, maturity dates, charge-offs, payoffs, nonaccrual status, and loans that have become past due. Prepayments affect the estimated life of the loansdue and could change the amount of interest income, and possibly the amount of principal, expected to be collected. In reforecasting future estimatedactual cash flows credit loss expectations are adjusted as necessary.compared to the projected cash flows from the last re-estimation. Peoples evaluates these changes quarterly and compares the new estimated cash flowscurrent status or activity to those at the previous cash flow re-estimation date, and the related materiality of the changes. As of June 30, 2019, these changes, and when compared to the total loan portfolio and the differences in estimated cash flowsfactors at the most recent cash flow re-estimation date compared to the previous cash flowlast re-estimation date, would not have a material impact on amounts recorded since the last re-estimation. Peoples completed a re-estimation of cash flows on purchased credit impaired loans in August 2018, resulting in the reclassification from nonaccretable to accretable yield shown in the table above.2018.
Cash flows expected to be collected on 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 re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary.
Pledged Loans
Peoples pledges certain loans secured by 1-4 family and multifamily residential mortgages under a blanket collateral agreement to secure borrowings from the FHLB of Cincinnati. The amount of suchloans pledged loansunder this blanket collateral agreement totaled $524.1$488.4 million and $487.2505.7 million at SeptemberJune 30, 20182019 and December 31, 20172018, respectively. Peoples also pledges commercial loans to secure borrowings with the FRB of Cleveland. The outstanding balances of these loans totaled $198.9$153.0 million and $74.0180.9 million at SeptemberJune 30, 20182019 and December 31, 20172018, 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 |
(Dollars in thousands) | September 30, 2018 | December 31, 2017 | | September 30, 2018 | December 31, 2017 |
Originated loans: | | | | | |
Commercial real estate, construction | $ | 725 |
| $ | 754 |
| | $ | — |
| $ | — |
|
Commercial real estate, other | 6,712 |
| 6,877 |
| | — |
| — |
|
Commercial real estate | 7,437 |
| 7,631 |
| | — |
| — |
|
Commercial and industrial | 1,308 |
| 739 |
| | — |
| — |
|
Residential real estate | 3,842 |
| 3,546 |
| | 373 |
| 548 |
|
Home equity lines of credit | 582 |
| 550 |
| | 84 |
| 50 |
|
Consumer, indirect | 405 |
| 256 |
| | — |
| — |
|
Consumer, direct | 31 |
| 39 |
| | — |
| 16 |
|
Consumer | 436 |
| 295 |
| | — |
| 16 |
|
Total originated loans | $ | 13,605 |
| $ | 12,761 |
| | $ | 457 |
| $ | 614 |
|
Acquired loans: | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| | $ | 401 |
| $ | — |
|
Commercial real estate, other | 225 |
| 192 |
| | 60 |
| 215 |
|
Commercial real estate | 225 |
| 192 |
| | 461 |
| 215 |
|
Commercial and industrial | 61 |
| 259 |
| | — |
| 45 |
|
Residential real estate | 1,970 |
| 2,168 |
| | 965 |
| 730 |
|
Home equity lines of credit | 374 |
| 312 |
| | — |
| 22 |
|
Consumer, indirect | — |
| — |
| | 2 |
| — |
|
Total acquired loans | $ | 2,630 |
| $ | 2,931 |
| | $ | 1,428 |
| $ | 1,012 |
|
Total loans | $ | 16,235 |
| $ | 15,692 |
| | $ | 1,885 |
| $ | 1,626 |
|
|
| | | | | | | | | | | | | |
| Nonaccrual Loans | | Loans 90+ Days Past Due and Accruing |
(Dollars in thousands) | June 30, 2019 | December 31, 2018 | | June 30, 2019 | December 31, 2018 |
Originated loans: | | | | | |
Commercial real estate, construction | $ | 688 |
| $ | 710 |
| | $ | — |
| $ | — |
|
Commercial real estate, other | 6,241 |
| 6,565 |
| | — |
| 786 |
|
Commercial real estate | 6,929 |
| 7,275 |
| | — |
| 786 |
|
Commercial and industrial | 2,044 |
| 1,673 |
| | — |
| — |
|
Residential real estate | 3,816 |
| 4,105 |
| | 438 |
| 398 |
|
Home equity lines of credit | 452 |
| 596 |
| | 53 |
| 7 |
|
Consumer, indirect | 535 |
| 480 |
| | — |
| — |
|
Consumer, direct | 12 |
| 56 |
| | — |
| — |
|
Consumer | 547 |
| 536 |
| | — |
| — |
|
Total originated loans | $ | 13,788 |
| $ | 14,185 |
| | $ | 491 |
| $ | 1,191 |
|
Acquired loans: | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| | $ | 230 |
| $ | — |
|
Commercial real estate, other | 308 |
| 319 |
| | 557 |
| 15 |
|
Commercial real estate | 308 |
| 319 |
| | 787 |
| 15 |
|
Commercial and industrial | 36 |
| 36 |
| | 261 |
| 18 |
|
Residential real estate | 1,716 |
| 1,921 |
| | 1,853 |
| 1,032 |
|
Home equity lines of credit | 742 |
| 637 |
| | — |
| — |
|
Consumer, direct | 1 |
| — |
| | 57 |
| — |
|
Total acquired loans | $ | 2,803 |
| $ | 2,913 |
| | $ | 2,958 |
| $ | 1,065 |
|
Total loans | $ | 16,591 |
| $ | 17,098 |
| | $ | 3,449 |
| $ | 2,256 |
|
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, 2018 | | | | |
June 30, 2019 | | | | |
Originated loans: | | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| $ | 725 |
| $ | 725 |
| | $ | 102,837 |
| $ | 103,562 |
| $ | — |
| $ | — |
| $ | 688 |
| $ | 688 |
| | $ | 102,216 |
| $ | 102,904 |
|
Commercial real estate, other | 521 |
| 601 |
| 6,418 |
| 7,540 |
| | 623,180 |
| 630,720 |
| — |
| — |
| 6,050 |
| 6,050 |
| | 635,011 |
| 641,061 |
|
Commercial real estate | 521 |
| 601 |
| 7,143 |
| 8,265 |
| | 726,017 |
| 734,282 |
| — |
| — |
| 6,738 |
| 6,738 |
| | 737,227 |
| 743,965 |
|
Commercial and industrial | 624 |
| 865 |
| 988 |
| 2,477 |
| | 508,114 |
| 510,591 |
| 606 |
| 3 |
| 1,937 |
| 2,546 |
| | 545,914 |
| 548,460 |
|
Residential real estate | 826 |
| 2,544 |
| 2,126 |
| 5,496 |
| | 294,272 |
| 299,768 |
| 1,391 |
| 1,177 |
| 2,478 |
| 5,046 |
| | 294,127 |
| 299,173 |
|
Home equity lines of credit | 320 |
| 62 |
| 410 |
| 792 |
| | 92,100 |
| 92,892 |
| 387 |
| 18 |
| 461 |
| 866 |
| | 89,508 |
| 90,374 |
|
Consumer, indirect | 2,308 |
| 222 |
| 220 |
| 2,750 |
| | 393,951 |
| 396,701 |
| 3,024 |
| 216 |
| 111 |
| 3,351 |
| | 416,244 |
| 419,595 |
|
Consumer, direct | 289 |
| 5 |
| 20 |
| 314 |
| | 72,287 |
| 72,601 |
| 306 |
| 17 |
| 2 |
| 325 |
| | 71,884 |
| 72,209 |
|
Consumer | 2,597 |
| 227 |
| 240 |
| 3,064 |
| | 466,238 |
| 469,302 |
| 3,330 |
| 233 |
| 113 |
| 3,676 |
| | 488,128 |
| 491,804 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| | 649 |
| 649 |
| — |
| — |
| — |
| — |
| | 676 |
| 676 |
|
Total originated loans | $ | 4,888 |
| $ | 4,299 |
| $ | 10,907 |
| $ | 20,094 |
| | $ | 2,087,390 |
| $ | 2,107,484 |
| $ | 5,714 |
| $ | 1,431 |
| $ | 11,727 |
| $ | 18,872 |
| | $ | 2,155,580 |
| $ | 2,174,452 |
|
Acquired loans: | | | | | | |
Commercial real estate, construction | $ | 9 |
| $ | — |
| $ | 401 |
| $ | 410 |
| | $ | 12,640 |
| $ | 13,050 |
| $ | — |
| $ | — |
| $ | 230 |
| $ | 230 |
| | $ | 6,545 |
| $ | 6,775 |
|
Commercial real estate, other | 1,318 |
| 136 |
| 140 |
| 1,594 |
| | 190,399 |
| 191,993 |
| 661 |
| 728 |
| 773 |
| 2,162 |
| | 199,747 |
| 201,909 |
|
Commercial real estate | 1,327 |
| 136 |
| 541 |
| 2,004 |
| | 203,039 |
| 205,043 |
| 661 |
| 728 |
| 1,003 |
| 2,392 |
| | 206,292 |
| 208,684 |
|
Commercial and industrial | 1,263 |
| 15 |
| 20 |
| 1,298 |
| | 39,890 |
| 41,188 |
| 488 |
| 60 |
| 297 |
| 845 |
| | 50,661 |
| 51,506 |
|
Residential real estate | 1,382 |
| 1,215 |
| 1,963 |
| 4,560 |
| | 303,618 |
| 308,178 |
| 1,685 |
| 2,075 |
| 2,700 |
| 6,460 |
| | 341,979 |
| 348,439 |
|
Home equity lines of credit | 572 |
| 107 |
| 210 |
| 889 |
| | 42,072 |
| 42,961 |
| 228 |
| 109 |
| 563 |
| 900 |
| | 40,362 |
| 41,262 |
|
Consumer, indirect | 5 |
| — |
| 2 |
| 7 |
| | 154 |
| 161 |
| — |
| — |
| — |
| — |
| | 90 |
| 90 |
|
Consumer, direct | 19 |
| 12 |
| — |
| 31 |
| | 2,681 |
| 2,712 |
| 88 |
| 52 |
| 57 |
| 197 |
| | 8,903 |
| 9,100 |
|
Consumer | 24 |
| 12 |
| 2 |
| 38 |
|
| 2,835 |
| 2,873 |
| 88 |
| 52 |
| 57 |
| 197 |
|
| 8,993 |
| 9,190 |
|
Total acquired loans | $ | 4,568 |
| $ | 1,485 |
| $ | 2,736 |
| $ | 8,789 |
| | $ | 591,454 |
| $ | 600,243 |
| $ | 3,150 |
| $ | 3,024 |
| $ | 4,620 |
| $ | 10,794 |
| | $ | 648,287 |
| $ | 659,081 |
|
Total loans | $ | 9,456 |
| $ | 5,784 |
| $ | 13,643 |
| $ | 28,883 |
| | $ | 2,678,844 |
| $ | 2,707,727 |
| $ | 8,864 |
| $ | 4,455 |
| $ | 16,347 |
| $ | 29,666 |
| | $ | 2,803,867 |
| $ | 2,833,533 |
|
| | | 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, 2017 | | | | |
December 31, 2018 | | | | |
Originated loans: | | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | 107,118 |
| $ | 107,118 |
| $ | — |
| $ | — |
| $ | 710 |
| $ | 710 |
| | $ | 123,303 |
| $ | 124,013 |
|
Commercial real estate, other | 990 |
| — |
| 6,492 |
| 7,482 |
| | 587,965 |
| 595,447 |
| 12 |
| 736 |
| 7,151 |
| 7,899 |
| | 624,301 |
| 632,200 |
|
Commercial real estate | 990 |
| — |
| 6,492 |
| 7,482 |
| | 695,083 |
| 702,565 |
| 12 |
| 736 |
| 7,861 |
| 8,609 |
| | 747,604 |
| 756,213 |
|
Commercial and industrial | 1,423 |
| 92 |
| 706 |
| 2,221 |
| | 435,830 |
| 438,051 |
| 1,678 |
| 3,520 |
| 1,297 |
| 6,495 |
| | 523,712 |
| 530,207 |
|
Residential real estate | 4,562 |
| 1,234 |
| 2,408 |
| 8,204 |
| | 296,319 |
| 304,523 |
| 4,457 |
| 1,319 |
| 2,595 |
| 8,371 |
| | 288,489 |
| 296,860 |
|
Home equity lines of credit | 502 |
| 80 |
| 395 |
| 977 |
| | 87,925 |
| 88,902 |
| 531 |
| 30 |
| 431 |
| 992 |
| | 92,334 |
| 93,326 |
|
Consumer, indirect | 2,153 |
| 648 |
| 105 |
| 2,906 |
| | 337,484 |
| 340,390 |
| 3,266 |
| 488 |
| 165 |
| 3,919 |
| | 403,248 |
| 407,167 |
|
Consumer, direct | 417 |
| 46 |
| 48 |
| 511 |
| | 66,499 |
| 67,010 |
| 308 |
| 50 |
| 42 |
| 400 |
| | 71,274 |
| 71,674 |
|
Consumer | 2,570 |
| 694 |
| 153 |
| 3,417 |
|
| 403,983 |
| 407,400 |
| 3,574 |
| 538 |
| 207 |
| 4,319 |
|
| 474,522 |
| 478,841 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| | 849 |
| 849 |
| — |
| — |
| — |
| — |
| | 583 |
| 583 |
|
Total originated loans | $ | 10,047 |
| $ | 2,100 |
| $ | 10,154 |
| $ | 22,301 |
| | $ | 1,919,989 |
| $ | 1,942,290 |
| $ | 10,252 |
| $ | 6,143 |
| $ | 12,391 |
| $ | 28,786 |
| | $ | 2,127,244 |
| $ | 2,156,030 |
|
Acquired loans: | | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | 8,319 |
| $ | 8,319 |
| $ | 511 |
| $ | — |
| $ | — |
| $ | 511 |
| | $ | 11,893 |
| $ | 12,404 |
|
Commercial real estate, other | 775 |
| 948 |
| 312 |
| 2,035 |
| | 163,085 |
| 165,120 |
| 523 |
| 457 |
| 233 |
| 1,213 |
| | 183,498 |
| 184,711 |
|
Commercial real estate | 775 |
| 948 |
| 312 |
| 2,035 |
| | 171,404 |
| 173,439 |
| 1,034 |
| 457 |
| 233 |
| 1,724 |
| | 195,391 |
| 197,115 |
|
Commercial and industrial | — |
| 1 |
| 171 |
| 172 |
| | 34,321 |
| 34,493 |
| 111 |
| 13 |
| 18 |
| 142 |
| | 35,395 |
| 35,537 |
|
Residential real estate | 4,656 |
| 1,391 |
| 1,910 |
| 7,957 |
| | 176,907 |
| 184,864 |
| 6,124 |
| 1,823 |
| 1,885 |
| 9,832 |
| | 287,105 |
| 296,937 |
|
Home equity lines of credit | 126 |
| — |
| 301 |
| 427 |
| | 20,148 |
| 20,575 |
| 238 |
| 233 |
| 534 |
| 1,005 |
| | 39,648 |
| 40,653 |
|
Consumer, indirect | 3 |
| — |
| — |
| 3 |
| | 326 |
| 329 |
| — |
| — |
| — |
| — |
| | 136 |
| 136 |
|
Consumer, direct | 10 |
| 11 |
| — |
| 21 |
| | 1,126 |
| 1,147 |
| 23 |
| 6 |
| — |
| 29 |
| | 2,341 |
| 2,370 |
|
Consumer | 13 |
| 11 |
| — |
| 24 |
| | 1,452 |
| 1,476 |
| 23 |
| 6 |
| — |
| 29 |
| | 2,477 |
| 2,506 |
|
Total acquired loans | $ | 5,570 |
| $ | 2,351 |
| $ | 2,694 |
| $ | 10,615 |
| | $ | 404,232 |
| $ | 414,847 |
| $ | 7,530 |
| $ | 2,532 |
| $ | 2,670 |
| $ | 12,732 |
| | $ | 560,016 |
| $ | 572,748 |
|
Total loans | $ | 15,617 |
| $ | 4,451 |
| $ | 12,848 |
| $ | 32,916 |
| | $ | 2,324,221 |
| $ | 2,357,137 |
| $ | 17,782 |
| $ | 8,675 |
| $ | 15,061 |
| $ | 41,518 |
| | $ | 2,687,260 |
| $ | 2,728,778 |
|
Delinquency trends remained stable, as 98.9%99.0% of Peoples' portfolio was considered “current” at SeptemberJune 30, 2018,2019, compared to 99.0%98.5% at June 30, 2018 and 98.8% at September 30, 2017.December 31, 2018.
Credit Quality Indicators
As discussed in Note"Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 20172018 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.
“Special Mention” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned.” Loans in this risk 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 a 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 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, 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 a 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 during 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) | Special Mention (Grade 5) | Substandard (Grade 6) | Doubtful (Grade 7) | Not Rated | Total Loans | Pass Rated (Grades 1 - 4) | Special Mention (Grade 5) | Substandard (Grade 6) | Doubtful (Grade 7) | Not Rated | Total Loans |
(Dollars in thousands) |
September 30, 2018 | | |
June 30, 2019 | | |
Originated loans: | | |
Commercial real estate, construction | $ | 101,274 |
| $ | — |
| $ | 1,496 |
| $ | — |
| $ | 792 |
| $ | 103,562 |
| $ | 100,231 |
| $ | — |
| $ | 1,431 |
| $ | — |
| $ | 1,242 |
| $ | 102,904 |
|
Commercial real estate, other | 603,723 |
| 13,992 |
| 13,005 |
| — |
| — |
| 630,720 |
| 622,966 |
| 7,673 |
| 10,416 |
| 6 |
| — |
| 641,061 |
|
Commercial real estate | 704,997 |
| 13,992 |
| 14,501 |
| — |
| 792 |
| 734,282 |
| 723,197 |
| 7,673 |
| 11,847 |
| 6 |
| 1,242 |
| 743,965 |
|
Commercial and industrial | 459,927 |
| 42,036 |
| 8,628 |
| — |
| — |
| 510,591 |
| 525,738 |
| 5,807 |
| 16,915 |
| — |
| — |
| 548,460 |
|
Residential real estate | 14,483 |
| 537 |
| 12,506 |
| 294 |
| 271,948 |
| 299,768 |
| 13,752 |
| 201 |
| 14,682 |
| 249 |
| 270,289 |
| 299,173 |
|
Home equity lines of credit | 453 |
| — |
| — |
| — |
| 92,439 |
| 92,892 |
| 17 |
| — |
| — |
| — |
| 90,357 |
| 90,374 |
|
Consumer, indirect | 45 |
| — |
| — |
| — |
| 396,656 |
| 396,701 |
| — |
| — |
| — |
| — |
| 419,595 |
| 419,595 |
|
Consumer, direct | 39 |
| — |
| — |
| — |
| 72,562 |
| 72,601 |
| 24 |
| — |
| — |
| — |
| 72,185 |
| 72,209 |
|
Consumer | 84 |
| — |
| — |
| — |
| 469,218 |
| 469,302 |
| 24 |
| — |
| — |
| — |
| 491,780 |
| 491,804 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| 649 |
| 649 |
| — |
| — |
| — |
| — |
| 676 |
| 676 |
|
Total originated loans | $ | 1,179,944 |
| $ | 56,565 |
| $ | 35,635 |
| $ | 294 |
| $ | 835,046 |
| $ | 2,107,484 |
| $ | 1,262,728 |
| $ | 13,681 |
| $ | 43,444 |
| $ | 255 |
| $ | 854,344 |
| $ | 2,174,452 |
|
Acquired loans: | | |
Commercial real estate, construction | $ | 10,138 |
| $ | 1,280 |
| $ | 1,632 |
| $ | — |
| $ | — |
| $ | 13,050 |
| $ | 4,338 |
| $ | 1,636 |
| $ | 801 |
| $ | — |
| $ | — |
| $ | 6,775 |
|
Commercial real estate, other | 175,375 |
| 8,450 |
| 8,070 |
| 98 |
| — |
| 191,993 |
| 178,425 |
| 12,700 |
| 10,693 |
| 91 |
| — |
| 201,909 |
|
Commercial real estate | 185,513 |
| 9,730 |
| 9,702 |
| 98 |
| — |
| 205,043 |
| 182,763 |
| 14,336 |
| 11,494 |
| 91 |
| — |
| 208,684 |
|
Commercial and industrial | 38,424 |
| 1,400 |
| 1,364 |
| — |
| — |
| 41,188 |
| 43,171 |
| 3,265 |
| 5,038 |
| 32 |
| — |
| 51,506 |
|
Residential real estate | 18,477 |
| 1,950 |
| 1,825 |
| 140 |
| 285,786 |
| 308,178 |
| 17,634 |
| 2,686 |
| 2,564 |
| 130 |
| 325,425 |
| 348,439 |
|
Home equity lines of credit | 34 |
| — |
| — |
| — |
| 42,927 |
| 42,961 |
| 81 |
| — |
| — |
| — |
| 41,181 |
| 41,262 |
|
Consumer, indirect | 4 |
| — |
| — |
| — |
| 157 |
| 161 |
| 1 |
| — |
| — |
| — |
| 89 |
| 90 |
|
Consumer, direct | 39 |
| — |
| — |
| — |
| 2,673 |
| 2,712 |
| 19 |
| — |
| — |
| — |
| 9,081 |
| 9,100 |
|
Consumer | 43 |
| — |
| — |
| — |
| 2,830 |
| 2,873 |
| 20 |
| — |
| — |
| — |
| 9,170 |
| 9,190 |
|
Total acquired loans | $ | 242,491 |
| $ | 13,080 |
| $ | 12,891 |
| $ | 238 |
| $ | 331,543 |
| $ | 600,243 |
| $ | 243,669 |
| $ | 20,287 |
| $ | 19,096 |
| $ | 253 |
| $ | 375,776 |
| $ | 659,081 |
|
Total loans | $ | 1,422,435 |
| $ | 69,645 |
| $ | 48,526 |
| $ | 532 |
| $ | 1,166,589 |
| $ | 2,707,727 |
| $ | 1,506,397 |
| $ | 33,968 |
| $ | 62,540 |
| $ | 508 |
| $ | 1,230,120 |
| $ | 2,833,533 |
|
| | | Pass Rated (Grades 1 - 4) | Special Mention (Grade 5) | Substandard (Grade 6) | Doubtful (Grade 7) | Not Rated | Total Loans | Pass Rated (Grades 1 - 4) | Special Mention (Grade 5) | Substandard (Grade 6) | Doubtful (Grade 7) | Not Rated | Total Loans |
(Dollars in thousands) |
December 31, 2017 | | |
December 31, 2018 | | |
Originated loans: | | |
Commercial real estate, construction | $ | 100,409 |
| $ | 5,502 |
| $ | 754 |
| $ | — |
| $ | 453 |
| $ | 107,118 |
| $ | 121,457 |
| $ | — |
| $ | 1,472 |
| $ | — |
| $ | 1,084 |
| $ | 124,013 |
|
Commercial real estate, other | 561,320 |
| 17,189 |
| 16,938 |
| — |
| — |
| 595,447 |
| 612,099 |
| 10,898 |
| 9,203 |
| — |
| — |
| 632,200 |
|
Commercial real estate | 661,729 |
| 22,691 |
| 17,692 |
| — |
| 453 |
| 702,565 |
| 733,556 |
| 10,898 |
| 10,675 |
| — |
| 1,084 |
| 756,213 |
|
Commercial and industrial | 420,477 |
| 13,062 |
| 4,512 |
| — |
| — |
| 438,051 |
| 476,290 |
| 45,990 |
| 7,692 |
| — |
| 235 |
| 530,207 |
|
Residential real estate | 17,896 |
| 1,000 |
| 11,371 |
| 216 |
| 274,040 |
| 304,523 |
| 14,229 |
| 500 |
| 11,971 |
| 409 |
| 269,751 |
| 296,860 |
|
Home equity lines of credit | 454 |
| — |
| — |
| — |
| 88,448 |
| 88,902 |
| 453 |
| — |
| — |
| — |
| 92,873 |
| 93,326 |
|
Consumer, indirect | 55 |
| 8 |
| — |
| — |
| 340,327 |
| 340,390 |
| 8 |
| — |
| — |
| — |
| 407,159 |
| 407,167 |
|
Consumer, direct | 33 |
| — |
| — |
| — |
| 66,977 |
| 67,010 |
| 30 |
| — |
| — |
| — |
| 71,644 |
| 71,674 |
|
Consumer | 88 |
| 8 |
| — |
| — |
| 407,304 |
| 407,400 |
| 38 |
| — |
| — |
| — |
| 478,803 |
| 478,841 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| 849 |
| 849 |
| — |
| — |
| — |
| — |
| 583 |
| 583 |
|
Total originated loans | $ | 1,100,644 |
| $ | 36,761 |
| $ | 33,575 |
| $ | 216 |
| $ | 771,094 |
| $ | 1,942,290 |
| $ | 1,224,566 |
| $ | 57,388 |
| $ | 30,338 |
| $ | 409 |
| $ | 843,329 |
| $ | 2,156,030 |
|
Acquired loans: | | |
Commercial real estate, construction | $ | 8,267 |
| $ | — |
| $ | 52 |
| $ | — |
| $ | — |
| $ | 8,319 |
| $ | 8,976 |
| $ | 1,795 |
| $ | 1,633 |
| $ | — |
| $ | — |
| $ | 12,404 |
|
Commercial real estate, other | 149,486 |
| 6,527 |
| 9,107 |
| — |
| — |
| 165,120 |
| 169,260 |
| 7,241 |
| 8,114 |
| 96 |
| — |
| 184,711 |
|
Commercial real estate | 157,753 |
| 6,527 |
| 9,159 |
| — |
| — |
| 173,439 |
| 178,236 |
| 9,036 |
| 9,747 |
| 96 |
| — |
| 197,115 |
|
Commercial and industrial | 32,011 |
| 157 |
| 2,325 |
| — |
| — |
| 34,493 |
| 32,471 |
| 2,008 |
| 1,058 |
| — |
| — |
| 35,537 |
|
Residential real estate | 12,543 |
| 593 |
| 1,105 |
| — |
| 170,623 |
| 184,864 |
| 17,370 |
| 1,938 |
| 2,033 |
| 137 |
| 275,459 |
| 296,937 |
|
Home equity lines of credit | 124 |
| — |
| — |
| — |
| 20,451 |
| 20,575 |
| 33 |
| — |
| — |
| — |
| 40,620 |
| 40,653 |
|
Consumer, indirect | 12 |
| — |
| — |
| — |
| 317 |
| 329 |
| 4 |
| — |
| — |
| — |
| 132 |
| 136 |
|
Consumer, direct | 35 |
| — |
| — |
| — |
| 1,112 |
| 1,147 |
| 31 |
| — |
| — |
| — |
| 2,339 |
| 2,370 |
|
Consumer | 47 |
| — |
| — |
| — |
| 1,429 |
| 1,476 |
| 35 |
| — |
| — |
| — |
| 2,471 |
| 2,506 |
|
Total acquired loans | $ | 202,478 |
| $ | 7,277 |
| $ | 12,589 |
| $ | — |
| $ | 192,503 |
| $ | 414,847 |
| $ | 228,145 |
| $ | 12,982 |
| $ | 12,838 |
| $ | 233 |
| $ | 318,550 |
| $ | 572,748 |
|
Total loans | $ | 1,303,122 |
| $ | 44,038 |
| $ | 46,164 |
| $ | 216 |
| $ | 963,597 |
| $ | 2,357,137 |
| $ | 1,452,711 |
| $ | 70,370 |
| $ | 43,176 |
| $ | 642 |
| $ | 1,161,879 |
| $ | 2,728,778 |
|
In the first ninesix months of 2018,2019, Peoples' classified loans, which are loans categorized as substandard or doubtful, increased compared to the balances at December 31, 20172018 mostly due to downgrades during the period combined with loans acquired ASB Financial Corp. ("ASB") loans,in the First Prestonsburg merger, which were partially offset by paydowns on classified loans. Compared toAt June 30, 2019, criticized loans, which are those categorized as special mention, substandard or doubtful, declined compared to the balance at December 31, 2018, the improvement in classified loans was mostlylargely due to the upgrade of two commercial relationships, partially offset by loans acquired in the First Prestonsburg merger.
At June 30, 2019, Peoples had a single commercial relationshiptotal of $2.2 million of loans secured by residential real estate mortgages that was upgraded from substandard to special mention duringwere in the quarter.process of foreclosure.
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, 2018 | | |
June 30, 2019 | | |
Commercial real estate, construction | $ | 2,483 |
| $ | — |
| $ | 2,396 |
| $ | 2,396 |
| $ | — |
| $ | 1,571 |
| $ | 46 |
| $ | 1,793 |
| $ | — |
| $ | 1,706 |
| $ | 1,706 |
| $ | — |
| $ | 1,728 |
| $ | 29 |
|
Commercial real estate, other | 17,119 |
| 269 |
| 15,710 |
| 15,979 |
| 91 |
| 13,795 |
| 349 |
| 15,546 |
| 4,753 |
| 10,296 |
| 15,049 |
| 520 |
| 14,722 |
| 250 |
|
Commercial real estate | 19,602 |
| 269 |
| 18,106 |
| 18,375 |
| 91 |
| 15,366 |
| 395 |
| 17,339 |
| 4,753 |
| 12,002 |
| 16,755 |
| 520 |
| 16,450 |
| 279 |
|
Commercial and industrial | 2,395 |
| 899 |
| 1,286 |
| 2,185 |
| 191 |
| 2,068 |
| 53 |
| 4,265 |
| 1,485 |
| 2,731 |
| 4,216 |
| 449 |
| 3,226 |
| 47 |
|
Residential real estate | 26,732 |
| 234 |
| 24,913 |
| 25,147 |
| 40 |
| 22,724 |
| 898 |
| 22,195 |
| 387 |
| 23,170 |
| 23,557 |
| 53 |
| 22,086 |
| 629 |
|
Home equity lines of credit | 2,298 |
| 486 |
| 1,784 |
| 2,270 |
| 83 |
| 1,801 |
| 84 |
| 1,469 |
| 419 |
| 1,051 |
| 1,470 |
| 68 |
| 1,343 |
| 40 |
|
Consumer, indirect | 518 |
| 242 |
| 285 |
| 527 |
| 140 |
| 242 |
| 16 |
| 445 |
| 96 |
| 356 |
| 452 |
| 23 |
| 413 |
| 15 |
|
Consumer, direct | 77 |
| 32 |
| 45 |
| 77 |
| 32 |
| 66 |
| 11 |
| 464 |
| 49 |
| 415 |
| 464 |
| 18 |
| 207 |
| 9 |
|
Consumer | 595 |
| 274 |
| 330 |
| 604 |
| 172 |
| 308 |
| 27 |
| 909 |
| 145 |
| 771 |
| 916 |
| 41 |
| 620 |
| 24 |
|
Total | $ | 51,622 |
| $ | 2,162 |
| $ | 46,419 |
| $ | 48,581 |
| $ | 577 |
| $ | 42,267 |
| $ | 1,457 |
| $ | 46,177 |
| $ | 7,189 |
| $ | 39,725 |
| $ | 46,914 |
| $ | 1,131 |
| $ | 43,725 |
| $ | 1,019 |
|
December 31, 2017 | | |
December 31, 2018 | | |
Commercial real estate, construction | $ | 821 |
| $ | — |
| $ | 754 |
| $ | 754 |
| $ | — |
| $ | 788 |
| $ | — |
| $ | 2,376 |
| $ | — |
| $ | 2,376 |
| $ | 2,376 |
| $ | — |
| $ | 1,732 |
| $ | 74 |
|
Commercial real estate, other | 14,909 |
| 14 |
| 13,606 |
| 13,620 |
| 1 |
| 14,392 |
| 503 |
| 15,464 |
| 274 |
| 14,946 |
| 15,220 |
| 119 |
| 14,043 |
| 455 |
|
Commercial real estate | 15,730 |
| 14 |
| 14,360 |
| 14,374 |
| 1 |
| 15,180 |
| 503 |
| 17,840 |
| 274 |
| 17,322 |
| 17,596 |
| 119 |
| 15,775 |
| 529 |
|
Commercial and industrial | 1,690 |
| 951 |
| 572 |
| 1,523 |
| 199 |
| 1,668 |
| 65 |
| 3,305 |
| 790 |
| 2,436 |
| 3,226 |
| 157 |
| 2,423 |
| 72 |
|
Residential real estate | 24,743 |
| 477 |
| 22,626 |
| 23,103 |
| 58 |
| 23,195 |
| 1,246 |
| 25,990 |
| 644 |
| 24,034 |
| 24,678 |
| 154 |
| 22,769 |
| 1,134 |
|
Home equity lines of credit | 1,707 |
| 81 |
| 1,624 |
| 1,705 |
| 18 |
| 1,505 |
| 85 |
| 2,291 |
| 424 |
| 1,869 |
| 2,293 |
| 73 |
| 1,832 |
| 109 |
|
Consumer, indirect | 273 |
| 70 |
| 206 |
| 276 |
| 26 |
| 184 |
| 20 |
| 496 |
| — |
| 503 |
| 503 |
| — |
| 278 |
| 15 |
|
Consumer, direct | 87 |
| 56 |
| 28 |
| 84 |
| 37 |
| 79 |
| 7 |
| 79 |
| 22 |
| 57 |
| 79 |
| 6 |
| 63 |
| 20 |
|
Consumer | 360 |
| 126 |
| 234 |
| 360 |
| 63 |
| 263 |
| 27 |
| 575 |
| 22 |
| 560 |
| 582 |
| 6 |
| 341 |
| 35 |
|
Total | $ | 44,230 |
| $ | 1,649 |
| $ | 39,416 |
| $ | 41,065 |
| $ | 339 |
| $ | 41,811 |
| $ | 1,926 |
| $ | 50,001 |
| $ | 2,154 |
| $ | 46,221 |
| $ | 48,375 |
| $ | 509 |
| $ | 43,140 |
| $ | 1,879 |
|
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 months ended SeptemberJune 30:
| | | | Three Months Ended | | Three Months Ended |
| | Recorded Investment (a) | | Recorded Investment (a) |
(Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
September 30, 2018 | | |
June 30, 2019 | | June 30, 2019 | |
Originated loans: | Originated loans: | | Originated loans: | |
Residential real estate | 3 |
| $ | 87 |
| $ | 87 |
| $ | 87 |
| 1 |
| $ | 37 |
| $ | 37 |
| $ | 37 |
|
Home equity lines of credit | 4 |
| 533 |
| 533 |
| 531 |
| 2 |
| 60 |
| 60 |
| 60 |
|
Consumer, indirect | 7 |
| 150 |
| 150 |
| 150 |
| 7 |
| 110 |
| 110 |
| 110 |
|
Consumer, direct | | 3 |
| 41 |
| 41 |
| 41 |
|
Consumer | | 10 |
| 151 |
| 151 |
| 151 |
|
Total originated loans | 14 |
| $ | 770 |
| $ | 770 |
| $ | 768 |
| 13 |
| $ | 248 |
| $ | 248 |
| $ | 248 |
|
Acquired loans: | Acquired loans: | | Acquired loans: | |
Commercial real estate, other | | 7 |
| $ | 725 |
| $ | 699 |
| $ | 700 |
|
Commercial and industrial | | 4 |
| 1,259 |
| 1,259 |
| 1,259 |
|
Residential real estate | 3 |
| $ | 272 |
| $ | 272 |
| $ | 272 |
| 35 |
| 1,823 |
| 1,823 |
| 1,823 |
|
Home equity lines of credit | 1 |
| 54 |
| 54 |
| 54 |
| 7 |
| 113 |
| 113 |
| 113 |
|
Consumer, direct | | 16 |
| 340 |
| 340 |
| 340 |
|
Total acquired loans | 4 |
| $ | 326 |
| $ | 326 |
| $ | 326 |
| 69 |
| $ | 4,260 |
| $ | 4,234 |
| $ | 4,235 |
|
September 30, 2017 | | |
June 30, 2018 | | June 30, 2018 | |
Originated loans: | Originated loans: | | Originated loans: | |
Commercial and industrial | 1 |
| $ | 36 |
| $ | 36 |
| $ | 36 |
| |
Residential real estate | 1 |
| 90 |
| 90 |
| 90 |
| 5 |
| $ | 717 |
| $ | 717 |
| $ | 717 |
|
Home equity lines of credit | 2 |
| 22 |
| 22 |
| 19 |
| 3 |
| 61 |
| 61 |
| 61 |
|
Consumer, indirect | 5 |
| 34 |
| 34 |
| 34 |
| 14 |
| 230 |
| 230 |
| 230 |
|
Consumer, direct | 2 |
| 9 |
| 9 |
| 9 |
| 5 |
| 27 |
| 27 |
| 27 |
|
Consumer | 7 |
| 43 |
| 43 |
| 43 |
| 19 |
| 257 |
| 257 |
| 257 |
|
Total originated loans | 11 |
| $ | 191 |
| $ | 191 |
| $ | 188 |
| 27 |
| $ | 1,035 |
| $ | 1,035 |
| $ | 1,035 |
|
Acquired loans: | Acquired loans: | | Acquired loans: | |
Residential real estate | 2 |
| $ | 61 |
| $ | 61 |
| $ | 61 |
| 11 |
| $ | 720 |
| $ | 720 |
| $ | 720 |
|
Home equity lines of credit | 1 |
| 34 |
| 34 |
| 34 |
| 4 |
| 86 |
| 86 |
| 86 |
|
Consumer, direct | | 3 |
| 57 |
| 57 |
| 57 |
|
Total acquired loans | 3 |
| $ | 95 |
| $ | 95 |
| $ | 95 |
| 18 |
| $ | 863 |
| $ | 863 |
| $ | 863 |
|
(a) 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. | |
(a) 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. | | (a) 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 summarizes the loans that were modified as a TDR during the nine months ended September 30:
| | | | Nine Months Ended | | Six Months Ended |
| | Recorded Investment (a) | | Recorded Investment (a) |
(Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
September 30, 2018 | | |
June 30, 2019 | | June 30, 2019 | |
Originated loans: | Originated loans: | | Originated loans: | |
Commercial and industrial | | 2 |
| $ | 38 |
| $ | 38 |
| $ | 35 |
|
Residential real estate | 9 |
| $ | 871 |
| $ | 871 |
| $ | 871 |
| 3 |
| 436 |
| 440 |
| 437 |
|
Home equity lines of credit | 6 |
| 565 |
| 565 |
| 562 |
| 4 |
| 139 |
| 139 |
| 139 |
|
Consumer, indirect | 26 |
| 454 |
| 454 |
| 420 |
| 8 |
| 123 |
| 123 |
| 123 |
|
Consumer, direct | 5 |
| 27 |
| 27 |
| 18 |
| 5 |
| 69 |
| 69 |
| 67 |
|
Consumer | 31 |
| 481 |
| 481 |
| 438 |
| 13 |
| 192 |
| 192 |
| 190 |
|
Total originated loans | 46 |
| $ | 1,917 |
| $ | 1,917 |
| $ | 1,871 |
| 22 |
| $ | 805 |
| $ | 809 |
| $ | 801 |
|
Acquired loans: | Acquired loans: | | Acquired loans: | |
Commercial real estate, other | 1 |
| $ | 50 |
| $ | 50 |
| $ | 47 |
| 7 |
| $ | 724 |
| $ | 699 |
| $ | 700 |
|
Commercial and industrial | | 4 |
| 1,259 |
| 1,259 |
| 1,259 |
|
Residential real estate | 15 |
| 1,258 |
| 1,258 |
| 1,244 |
| 36 |
| 1,847 |
| 1,847 |
| 1,842 |
|
Home equity lines of credit | 5 |
| 140 |
| 140 |
| 139 |
| 9 |
| 179 |
| 179 |
| 178 |
|
Consumer, direct | | 16 |
| 340 |
| 340 |
| 340 |
|
Total acquired loans | 21 |
| $ | 1,448 |
| $ | 1,448 |
| $ | 1,430 |
| 72 |
| $ | 4,349 |
| $ | 4,324 |
| $ | 4,319 |
|
September 30, 2017 | | |
June 30, 2018 | | June 30, 2018 | |
Originated loans: | Originated loans: | | Originated loans: | |
Commercial real estate, other | 1 |
| $ | 14 |
| $ | 14 |
| $ | 14 |
| |
Commercial and industrial | 3 |
| 174 |
| 174 |
| 123 |
| |
Residential real estate | 7 |
| 483 |
| 483 |
| 478 |
| 7 |
| $ | 910 |
| $ | 910 |
| $ | 911 |
|
Home equity lines of credit | 6 |
| 291 |
| 291 |
| 286 |
| 3 |
| 61 |
| 61 |
| 61 |
|
Consumer, indirect | 11 |
| 127 |
| 127 |
| 86 |
| 21 |
| 316 |
| 316 |
| 302 |
|
Consumer, direct | 3 |
| 10 |
| 10 |
| 10 |
| 7 |
| 31 |
| 31 |
| 31 |
|
Consumer | 14 |
| 137 |
| 137 |
| 96 |
| 28 |
| 347 |
| 347 |
| 333 |
|
Total originated loans | 31 |
| $ | 1,099 |
| $ | 1,099 |
| $ | 997 |
| 38 |
| $ | 1,318 |
| $ | 1,318 |
| $ | 1,305 |
|
Acquired loans: | Acquired loans: | | Acquired loans: | |
Commercial real estate, other | 2 |
| $ | 271 |
| $ | 271 |
| $ | 265 |
| 1 |
| $ | 50 |
| $ | 50 |
| $ | 48 |
|
Residential real estate | 8 |
| 264 |
| 264 |
| 263 |
| 13 |
| 989 |
| 989 |
| 989 |
|
Home equity lines of credit | 5 |
| 328 |
| 328 |
| 323 |
| 4 |
| 86 |
| 86 |
| 86 |
|
Consumer, direct | 2 |
| 10 |
| 10 |
| 9 |
| 3 |
| 57 |
| 57 |
| 57 |
|
Total acquired loans | 17 |
| $ | 873 |
| $ | 873 |
| $ | 860 |
| 21 |
| $ | 1,182 |
| $ | 1,182 |
| $ | 1,180 |
|
(a) 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 acquired loans modified in a TDR during the year that subsequently defaulted (i.e., arewere 90 days or more past due following a modification) during the nine-monthsix-month periods ended SeptemberJune 30:
|
| | | | | | | | | | | | | | | | | |
| September 30, 2018 | | September 30, 2017 |
(Dollars in thousands) | Number of Contracts | Recorded Investment (a) | Impact on the Allowance for Loan Losses | | Number of Contracts | Recorded Investment (a) | Impact on the Allowance for Loan Losses |
Acquired loans: | | | | | | | |
Residential real estate | — |
| $ | — |
| $ | — |
| | 1 |
| $ | 44 |
| $ | — |
|
Home equity lines of credit | 1 |
| 10 |
| — |
| | — |
| — |
| — |
|
Consumer, other | — |
| — |
| — |
| | 1 |
| 8 |
| — |
|
Total | 1 |
| $ | 10 |
| $ | — |
| | 2 |
| $ | 52 |
| $ | — |
|
(a) 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. |
|
| | | | | | | | | | | | | | | | | |
| June 30, 2019 | | June 30, 2018 |
(Dollars in thousands) | Number of Contracts | Recorded Investment (a) | Impact on the Allowance for Loan Losses | | Number of Contracts | Recorded Investment (a) | Impact on the Allowance for Loan Losses |
Acquired loans: | | | | | | | |
Consumer, direct | 1 |
| $ | 34 |
| $ | — |
| | — |
| $ | — |
| $ | — |
|
Total | 1 |
| $ | 34 |
| $ | — |
| | — |
| $ | — |
| $ | — |
|
(a) The amount shown is 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 originated loans that were modified as a TDR during the last twelve months that subsequently defaulted. Peoples had no 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 ninesix months ended SeptemberJune 30 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Commercial Real Estate | Commercial and Industrial | Residential Real Estate | Home Equity Lines of Credit | Consumer Indirect | Consumer Direct | Deposit Account Overdrafts | Total |
Balance, January 1, 2018 | $ | 7,797 |
| $ | 5,813 |
| $ | 904 |
| $ | 693 |
| $ | 2,944 |
| $ | 464 |
| $ | 70 |
| $ | 18,685 |
|
Charge-offs | (849 | ) | (38 | ) | (293 | ) | (67 | ) | (1,967 | ) | (297 | ) | (731 | ) | (4,242 | ) |
Recoveries | 58 |
| 10 |
| 98 |
| 12 |
| 403 |
| 114 |
| 160 |
| 855 |
|
Net charge-offs | (791 | ) | (28 | ) | (195 | ) | (55 | ) | (1,564 | ) | (183 | ) | (571 | ) | (3,387 | ) |
Provision for loan losses | 960 |
| 353 |
| 290 |
| 70 |
| 2,043 |
| 114 |
| 596 |
| 4,426 |
|
Balance, September 30, 2018 | $ | 7,966 |
| $ | 6,138 |
| $ | 999 |
| $ | 708 |
| $ | 3,423 |
| $ | 395 |
| $ | 95 |
| $ | 19,724 |
|
| | | | | | | | |
Period-end amount allocated to: | | | | | | | |
Loans individually evaluated for impairment | $ | 91 |
| $ | 191 |
| $ | 40 |
| $ | 83 |
| $ | 140 |
| $ | 32 |
| $ | — |
| $ | 577 |
|
Loans collectively evaluated for impairment | 7,875 |
| 5,947 |
| 959 |
| 625 |
| 3,283 |
| 363 |
| 95 |
| 19,147 |
|
Ending balance | $ | 7,966 |
| $ | 6,138 |
| $ | 999 |
| $ | 708 |
| $ | 3,423 |
| $ | 395 |
| $ | 95 |
| $ | 19,724 |
|
| | | | | | | | |
Balance, January 1, 2017 | $ | 7,172 |
| $ | 6,353 |
| $ | 982 |
| $ | 688 |
| $ | 2,312 |
| $ | 518 |
| $ | 171 |
| $ | 18,196 |
|
Charge-offs | (25 | ) | (165 | ) | (451 | ) | (100 | ) | (1,493 | ) | (275 | ) | (767 | ) | (3,276 | ) |
Recoveries | 135 |
| 1 |
| 128 |
| 9 |
| 598 |
| 152 |
| 159 |
| 1,182 |
|
Net recoveries (charge-offs) | 110 |
| (164 | ) | (323 | ) | (91 | ) | (895 | ) | (123 | ) | (608 | ) | (2,094 | ) |
Provision for loan losses | 252 |
| 226 |
| 265 |
| 82 |
| 1,397 |
| 46 |
| 507 |
| 2,775 |
|
Balance, September 30, 2017 | $ | 7,534 |
| $ | 6,415 |
| $ | 924 |
| $ | 679 |
| $ | 2,814 |
| $ | 441 |
| $ | 70 |
| $ | 18,877 |
|
| | | | | | | | |
Period-end amount allocated to: | | | | | | | |
Loans individually evaluated for impairment | $ | 136 |
| $ | 424 |
| $ | 151 |
| $ | 13 |
| $ | 2 |
| $ | 21 |
| $ | — |
| $ | 747 |
|
Loans collectively evaluated for impairment | 7,398 |
| 5,991 |
| 773 |
| 666 |
| 2,812 |
| 420 |
| 70 |
| 18,130 |
|
Ending balance | $ | 7,534 |
| $ | 6,415 |
| $ | 924 |
| $ | 679 |
| $ | 2,814 |
| $ | 441 |
| $ | 70 |
| $ | 18,877 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Commercial Real Estate | Commercial and Industrial | Residential Real Estate | Home Equity Lines of Credit | Consumer Indirect | Consumer Direct | Deposit Account Overdrafts | Total |
Balance, January 1, 2019 | $ | 8,003 |
| $ | 6,178 |
| $ | 1,214 |
| $ | 618 |
| $ | 3,214 |
| $ | 351 |
| $ | 81 |
| $ | 19,659 |
|
Charge-offs | (153 | ) | (63 | ) | (176 | ) | (9 | ) | (819 | ) | (96 | ) | (349 | ) | (1,665 | ) |
Recoveries | 12 |
| 2,012 |
| 133 |
| 2 |
| 162 |
| 40 |
| 106 |
| 2,467 |
|
Net (charge-offs) recoveries | (141 | ) | 1,949 |
| (43 | ) | (7 | ) | (657 | ) | (56 | ) | (243 | ) | 802 |
|
Provision for (recoveries of) loan losses | 383 |
| (930 | ) | 13 |
| (13 | ) | 615 |
| 47 |
| 248 |
| 363 |
|
Balance, June 30, 2019 | $ | 8,245 |
| $ | 7,197 |
| $ | 1,184 |
| $ | 598 |
| $ | 3,172 |
| $ | 342 |
| $ | 86 |
| $ | 20,824 |
|
| | | | | | | | |
Balance, January 1, 2018 | $ | 7,797 |
| $ | 5,813 |
| $ | 904 |
| $ | 693 |
| $ | 2,944 |
| $ | 464 |
| $ | 70 |
| $ | 18,685 |
|
Charge-offs | (849 | ) | (38 | ) | (227 | ) | (57 | ) | (1,479 | ) | (219 | ) | (420 | ) | (3,289 | ) |
Recoveries | 43 |
| — |
| 67 |
| 9 |
| 272 |
| 84 |
| 116 |
| 591 |
|
Net charge-offs | (806 | ) | (38 | ) | (160 | ) | (48 | ) | (1,207 | ) | (135 | ) | (304 | ) | (2,698 | ) |
Provision for (recovery of) loan losses | 1,280 |
| (410 | ) | 261 |
| (27 | ) | 1,602 |
| 136 |
| 329 |
| 3,171 |
|
Balance, June 30, 2018 | $ | 8,271 |
| $ | 5,365 |
| $ | 1,005 |
| $ | 618 |
| $ | 3,339 |
| $ | 465 |
| $ | 95 |
| $ | 19,158 |
|
The following table details the recorded investment and allowance for originated loan losses disaggregated based on impairment method:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Commercial Real Estate | Commercial and Industrial | Residential Real Estate | Home Equity Lines of Credit | Consumer Indirect | Consumer Direct | Deposit Account Overdrafts | Total |
June 30, 2019 | | | | | | | | |
Allowance for loan losses allocated to: | | | | | | | |
Loans individually evaluated for impairment | $ | 520 |
| $ | 449 |
| $ | 53 |
| $ | 68 |
| $ | 23 |
| $ | 18 |
| $ | — |
| $ | 1,131 |
|
Loans collectively evaluated for impairment | 7,725 |
| 6,748 |
| 1,131 |
| 530 |
| 3,149 |
| 324 |
| 86 |
| 19,693 |
|
Ending balance | $ | 8,245 |
| $ | 7,197 |
| $ | 1,184 |
| $ | 598 |
| $ | 3,172 |
| $ | 342 |
| $ | 86 |
| $ | 20,824 |
|
| | | | | | | | |
Recorded investment in: | | | | | | | |
Loans individually evaluated for impairment | $ | 16,755 |
| $ | 4,216 |
| $ | 23,557 |
| $ | 1,470 |
| $ | 452 |
| $ | 464 |
| $ | — |
| $ | 46,914 |
|
Loans collectively evaluated for impairment | 727,210 |
| 544,244 |
| 275,616 |
| 88,904 |
| 419,143 |
| 71,745 |
| 676 |
| 2,127,538 |
|
Ending balance | $ | 743,965 |
| $ | 548,460 |
| $ | 299,173 |
| $ | 90,374 |
| $ | 419,595 |
| $ | 72,209 |
| $ | 676 |
| $ | 2,174,452 |
|
| | | | | | | | |
December 31, 2018 | | | | | | | | |
Allowance for loan losses allocated to: | | | | | | | |
Loans individually evaluated for impairment | $ | 119 |
| $ | 157 |
| $ | 154 |
| $ | 73 |
| $ | — |
| $ | 6 |
| $ | — |
| $ | 509 |
|
Loans collectively evaluated for impairment | 7,884 |
| 6,021 |
| 1,060 |
| 545 |
| 3,214 |
| 345 |
| 81 |
| 19,150 |
|
Ending balance | $ | 8,003 |
| $ | 6,178 |
| $ | 1,214 |
| $ | 618 |
| $ | 3,214 |
| $ | 351 |
| $ | 81 |
| $ | 19,659 |
|
| | | | | | | | |
Recorded investment in: | | | | | | | |
Loans individually evaluated for impairment | $ | 17,596 |
| $ | 3,226 |
| $ | 24,678 |
| $ | 2,293 |
| $ | 503 |
| $ | 79 |
| $ | — |
| $ | 48,375 |
|
Loans collectively evaluated for impairment | 738,617 |
| 526,981 |
| 272,182 |
| 91,033 |
| 406,664 |
| 71,595 |
| 583 |
| 2,107,655 |
|
Ending balance | $ | 756,213 |
| $ | 530,207 |
| $ | 296,860 |
| $ | 93,326 |
| $ | 407,167 |
| $ | 71,674 |
| $ | 583 |
| $ | 2,156,030 |
|
| | | | | | | | |
June 30, 2018 | | | | | | | | |
Allowance for loan losses allocated to: | | | | | | | |
Loans individually evaluated for impairment | $ | 1 |
| $ | 191 |
| $ | 47 |
| $ | 14 |
| $ | 31 |
| $ | 45 |
| $ | — |
| $ | 329 |
|
Loans collectively evaluated for impairment | 8,270 |
| 5,174 |
| 958 |
| 604 |
| 3,308 |
| 420 |
| 95 |
| 18,829 |
|
Ending balance | $ | 8,271 |
| $ | 5,365 |
| $ | 1,005 |
| $ | 618 |
| $ | 3,339 |
| $ | 465 |
| $ | 95 |
| $ | 19,158 |
|
| | | | | | | | |
Recorded investment in: | | | | | | | |
Loans individually evaluated for impairment | $ | 19,162 |
| $ | 3,173 |
| $ | 26,497 |
| $ | 1,736 |
| $ | 441 |
| $ | 150 |
| $ | — |
| $ | 51,159 |
|
Loans collectively evaluated for impairment | 737,051 |
| 468,097 |
| 273,437 |
| 88,221 |
| 372,943 |
| 71,395 |
| 860 |
| 2,012,004 |
|
Ending balance | $ | 756,213 |
| $ | 471,270 |
| $ | 299,934 |
| $ | 89,957 |
| $ | 373,384 |
| $ | 71,545 |
| $ | 860 |
| $ | 2,063,163 |
|
Allowance for Loan Losses for Acquired Loans
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 purchased 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 nonimpairednon-impaired 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.
The following table presents activity in the allowance for loan losses for acquired loans:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | September 30, 2018 | September 30, 2017 | | September 30, 2018 | September 30, 2017 | June 30, 2019 | June 30, 2018 | | June 30, 2019 | June 30, 2018 |
Non-impaired loans: | | | | |
Balance, beginning of period | | $ | 380 |
| $ | — |
| | $ | 383 |
| $ | — |
|
Charge-offs | | — |
| — |
| | (3 | ) | — |
|
Balance, end of period | | $ | 380 |
| $ | — |
| | $ | 380 |
| $ | — |
|
| | | | |
Purchased credit impaired loans: | | | | | | |
Balance, beginning of period | $ | 108 |
| $ | 90 |
| | $ | 108 |
| $ | 233 |
| $ | 153 |
| $ | 108 |
| | $ | 153 |
| $ | 108 |
|
Provision for (recovery of) loan losses | 47 |
| 25 |
| | 47 |
| (118 | ) | |
Balance, September 30 | $ | 155 |
| $ | 115 |
| | $ | 155 |
| $ | 115 |
| |
Balance, end of period | | $ | 153 |
| $ | 108 |
| | $ | 153 |
| $ | 108 |
|
The allowance for loan losses for non-impaired acquired loans was established at December 31, 2018.
Note 5 Long-Term Borrowings
The following table summarizes Peoples' long-term borrowings:
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
(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 | $ | 85,000 |
| 2.05 | % | | $ | 115,000 |
| 1.86 | % | $ | 65,000 |
| 2.18 | % | | $ | 85,000 |
| 2.05 | % |
FHLB amortizing, fixed-rate advances | 18,860 |
| 2.09 | % | | 21,939 |
| 2.02 | % | 13,324 |
| 1.73 | % | | 17,361 |
| 2.09 | % |
Junior subordinated debt securities | 7,239 |
| 7.34 | % | | 7,107 |
| 6.51 | % | 7,367 |
| 7.34 | % | | 7,283 |
| 7.83 | % |
Unamortized debt issuance costs | — |
| — | % | | (27 | ) | — | % | |
Total long-term borrowings | $ | 111,099 |
| 2.40 | % | | $ | 144,019 |
| 2.11 | % | $ | 85,691 |
| 2.55 | % | | $ | 109,644 |
| 2.44 | % |
Peoples continually evaluates its overall balance sheet position given the interest rate environment. During the first ninesix months of 2018,2019, no additional borrowings were entered into, and two long-term FHLB non-amortizing advances in the aggregate amount of $30.0totaling $20.0 million were reclassified to short-term borrowings as the maturity became less than one year.
As of SeptemberJune 30, 2018, Peoples'2019, Peoples had one remaining FHLB putable option-based advance. The FHLB has the option, at its sole discretion, to terminate the advance after the initial fixed rate period of three months, requiring full repayment of the advance by Peoples prior to the stated maturity. If the 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. Peoples is required to make quarterly interest payments.
The amortizing, fixed-rate FHLB advances have a fixed rate for the term of each advance, with maturities ranging from twoeight to thirteen 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 maintains a multi-year unsecured $15.0 million revolving credit facility (the “Credit Facility”) with Raymond James Bank, N.A. that matures on March 4, 2019. Borrowings under the Credit Facility may be used: (i) to make acquisitions; (ii) to make stock repurchases; (iii) for working capital needs; and (iv) for other general corporate purposes. Each loan under the Credit Facility will bear interest per annum at a rate equal to 3.00% plus the one-month LIBOR rate, which rate will reset monthly. As of September 30, 2018, there were no borrowings outstanding under the Credit Facility. Additional information regarding the Credit Facility can be found in Note 9 of the Notes to the Consolidated Financial Statements included in Peoples' 2017 Form 10-K.
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, 2018 | $ | 1,455 |
| 1.97 | % | |
Year ending December 31, 2019 | 3,512 |
| 1.56 | % | |
Six months ending December 31, 2019 | | $ | 2,568 |
| 1.48 | % |
Year ending December 31, 2020 | 25,564 |
| 1.83 | % | 2,555 |
| 1.35 | % |
Year ending December 31, 2021 | 21,979 |
| 1.74 | % | 21,979 |
| 1.74 | % |
Year ending December 31, 2022 | 16,521 |
| 1.95 | % | 16,521 |
| 1.95 | % |
Year ending December 31, 2023 | | 1,157 |
| 1.06 | % |
Thereafter | 42,068 |
| 3.35 | % | 40,911 |
| 3.41 | % |
Total long-term borrowings | $ | 111,099 |
| 2.40 | % | $ | 85,691 |
| 2.55 | % |
Effective April 3, 2019, Peoples terminated the Credit Agreement, dated as of March 4, 2016, between Peoples, as Borrower, and Raymond James Bank, N.A., as Lender (the "RJB Credit Agreement"), with a revolving line of credit in the maximum aggregate principal amount of $15.0 million. As of the termination date, April 3, 2019, and December 31, 2018, there were no borrowings outstanding under the RJB Credit Agreement. Additional information regarding the RJB Credit Agreement can be found in "Note 9 Long-Term Borrowings" of the Notes to the Consolidated Financial Statements included in Peoples' 2018 Form 10-K.
Note 6 Stockholders’ Equity
The following table details the progression in Peoples’ common shares and treasury stock during the ninesix months ended SeptemberJune 30, 2018:2019:
| | | Common Shares | Treasury Stock | Common Stock | Treasury Stock |
Shares at December 31, 2017 | 18,952,385 |
| 702,449 |
| |
Shares at December 31, 2018 | | 20,124,378 |
| 601,289 |
|
Changes related to stock-based compensation awards: | | |
Release of restricted common shares | — |
| 30,808 |
| — |
| 17,481 |
|
Cancellation of restricted common shares | — |
| 1,961 |
| — |
| 3,465 |
|
Exercise of stock appreciation rights | — |
| (102 | ) | |
Grant of restricted common shares | — |
| (103,605 | ) | — |
| (122,286 | ) |
Grant of common shares | — |
| (16,544 | ) | — |
| (4,680 | ) |
Changes related to deferred compensation plan for Boards of Directors: | | |
Purchase of treasury stock | — |
| 4,646 |
| — |
| 3,834 |
|
Disbursed out of treasury stock | — |
| (2,089 | ) | — |
| (2,187 | ) |
Common shares issued under dividend reinvestment plan | 14,098 |
| — |
| 12,400 |
| — |
|
Common shares issued under compensation plan for Boards of Directors | — |
| (3,088 | ) | — |
| (3,490 | ) |
Common shares issued under employee stock purchase plan | — |
| (5,186 | ) | — |
| (3,624 | ) |
Issuance of common shares related to the acquisition of ASB Financial Corp. | 1,152,711 |
| — |
| |
Shares at September 30, 2018 | 20,119,194 |
| 609,250 |
| |
Issuance of common shares related to the merger with First Prestonsburg Bancshares Inc. | | 1,005,478 |
| — |
|
Shares at June 30, 2019 | | 21,142,256 |
| 489,802 |
|
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 SeptemberJune 30, 20182019, Peoples had no preferred shares issued or outstanding.
The following table details the cash dividends declared per common share during 2019 and the nine months ended September 30:comparable period of 2018:
|
| | | | | | |
| 2018 | 2017 |
First Quarter | $ | 0.26 |
| $ | 0.20 |
|
Second Quarter | 0.28 |
| 0.20 |
|
Third Quarter | 0.28 |
| 0.22 |
|
Total dividends declared | $ | 0.82 |
| $ | 0.62 |
|
|
| | | | | | |
| 2019 | 2018 |
First quarter | $ | 0.30 |
| $ | 0.26 |
|
Second quarter | 0.34 |
| 0.28 |
|
Third quarter | 0.34 |
| 0.28 |
|
Total dividends declared | $ | 0.98 |
| $ | 0.82 |
|
Accumulated Other Comprehensive LossIncome (Loss)
The following table details the change in the components of Peoples’ accumulated other comprehensive lossincome (loss) for the ninesix months ended SeptemberJune 30, 20182019:
|
| | | | | | | | | | | | |
(Dollars in thousands) | Unrealized Loss on Securities | Unrecognized Net Pension and Postretirement Costs | Unrealized Gain on Cash Flow Hedge | Accumulated Other Comprehensive Loss |
Balance, December 31, 2017 | $ | (2,088 | ) | $ | (4,256 | ) | $ | 1,129 |
| $ | (5,215 | ) |
Reclassification adjustments to net income: | | | |
|
|
Realized gain on sale of securities, net of tax | 115 |
| — |
| — |
| 115 |
|
Realized loss due to settlement and curtailment, net of tax | — |
| 139 |
| — |
| 139 |
|
Amounts reclassified out of accumulated other comprehensive loss per ASU 2016-01 | (5,020 | ) | — |
| — |
| (5,020 | ) |
Other comprehensive (loss) income, net of reclassifications and tax | (13,629 | ) | 993 |
| 2,027 |
| (10,609 | ) |
Balance, September 30, 2018 | $ | (20,622 | ) | $ | (3,124 | ) | $ | 3,156 |
| $ | (20,590 | ) |
|
| | | | | | | | | | | | |
(Dollars in thousands) | Unrealized Gain (Loss) on Securities | Unrecognized Net Pension and Postretirement Costs | Unrealized Gain (Loss) on Cash Flow Hedge | Accumulated Other Comprehensive Income (Loss) |
Balance, December 31, 2018 | $ | (10,082 | ) | $ | (3,711 | ) | $ | 860 |
| $ | (12,933 | ) |
Reclassification adjustments to net income: | | | |
|
|
Realized gain on sale of securities, net of tax | 21 |
| — |
| — |
| 21 |
|
Other comprehensive income (loss), net of reclassifications and tax | 17,121 |
| 31 |
| (3,924 | ) | 13,228 |
|
Balance, June 30, 2019 | $ | 7,060 |
| $ | (3,680 | ) | $ | (3,064 | ) | $ | 316 |
|
Note 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 during the years 2003 through 2009, 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. Effective July 1, 2013, a participant in the pension plan who is employed by Peoples may elect to receive or to commence receiving such person's retirement benefits as of the later of such person's normal retirement date or the first day of the month first following the date such person makes an election to receive his or her retirement benefits.
Peoples also provides post-retirement health and life insurance benefits to certain 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 only pays 100% of the cost for those individuals who retired before January 1, 1993. For all others, the retiree is responsible for most, if not all, of the cost of the health benefits. 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:plans described above:
|
| | | | | | | | | | | | | |
| Pension Benefits |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2018 | 2017 | | 2018 | 2017 |
Interest cost | $ | 104 |
| $ | 112 |
| | $ | 314 |
| $ | 338 |
|
Expected return on plan assets | (147 | ) | (138 | ) | | (440 | ) | (415 | ) |
Amortization of net loss | 29 |
| 26 |
| | 84 |
| 77 |
|
Settlement of benefit obligation | 176 |
| — |
| | — |
| — |
|
Net periodic cost | $ | 162 |
| $ | — |
| | $ | (42 | ) | $ | — |
|
|
| | | | | | | | | | | | | |
| Pension Benefits |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(Dollars in thousands) | 2019 | 2018 | | 2019 | 2018 |
Interest cost | $ | 110 |
| $ | 105 |
| | $ | 219 |
| $ | 210 |
|
Expected return on plan assets | (196 | ) | (146 | ) | | (391 | ) | (293 | ) |
Amortization of net loss | 20 |
| 27 |
| | 39 |
| 55 |
|
Net periodic income | $ | (66 | ) | $ | (14 | ) | | $ | (133 | ) | $ | (28 | ) |
| | | Postretirement Benefits | Postretirement Benefits |
| Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
(Dollars in thousands) | 2018 | 2017 | | 2018 | 2017 | 2019 | 2018 | | 2019 | 2018 |
Interest cost | $ | — |
| $ | 1 |
| | $ | 2 |
| $ | 3 |
| $ | 1 |
| $ | 1 |
| | $ | 2 |
| $ | 2 |
|
Amortization of net gain | (1 | ) | (1 | ) | | (4 | ) | (5 | ) | |
Net periodic cost | $ | (1 | ) | $ | — |
| | $ | (2 | ) | $ | (2 | ) | |
Amortization of prior service cost | | (1 | ) | — |
| | (1 | ) | — |
|
Amortization of net loss | | — |
| (1 | ) | | (2 | ) | (3 | ) |
Net periodic income | | $ | — |
| $ | — |
| | $ | (1 | ) | $ | (1 | ) |
Under US GAAP, Peoples is required to recognize a settlement gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the unrealized gain or loss existing immediately prior to the settlement. In general, both the projected benefit obligation and the fair value of plan assets are required to be remeasured in order to determine the settlement gain or loss.
During the third quarter 2018, the total lump-sum distributions made to participants caused the total settlements to exceed the recognition threshold for settlement gain or losses. As a result, Peoples recorded settlement charges of $176,000 in the three and nine months ended September 30, 2018. There were no settlement charges recorded during any of the three or nineand six months ended SeptemberJune 30, 20172019 and June 30, 2018 under the noncontributory defined benefit pension plan.
The following table summarizes the change in projected benefit obligation and funded status as a result of the remeasurement and the aggregate settlements for the three months ended September 30, 2018:
|
| | | | | | | | | | | | |
| As of | September 30, 2018 |
(Dollars in thousands) | December 31, | Before | Impact of | After |
Funded status: | 2017 | Settlements | Settlement | Settlement |
Projected benefit obligation | $ | 12,991 |
| $ | 12,006 |
| $ | (510 | ) | $ | 11,496 |
|
Fair value of plan assets | 8,493 |
| 12,006 |
| (510 | ) | 11,496 |
|
Funded status | $ | (4,498 | ) | $ | — |
| $ | — |
| $ | — |
|
Gross unrealized loss | $ | 5,458 |
| $ | 4,196 |
| $ | 176 |
| $ | 4,020 |
|
Assumptions: | | | | |
Discount rate | 3.40 | % | 4.00 | % |
| 4.00 | % |
Expected return on plan assets | 7.50 | % | 7.50 | % |
| 7.50 | % |
In 2018, Peoples contributed $3.2 million to the defined benefit pension plan. This contribution was reported on the 2017 federal income tax return and recognized as a deduction for tax purposes at the 35% statutory federal corporate income tax rate.
Note 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 | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
(Dollars in thousands, except per common share data) | 2018 | 2017 | | 2018 | 2017 | 2019 | 2018 | | 2019 | 2018 |
Distributed earnings allocated to common shareholders | $ | 5,409 |
| $ | 3,972 |
| | $ | 15,532 |
| $ | 11,184 |
| $ | 6,935 |
| $ | 5,407 |
| | $ | 12,711 |
| $ | 10,123 |
|
Undistributed earnings allocated to common shareholders | 7,246 |
| 6,865 |
| | 16,638 |
| 18,134 |
| 2,568 |
| 2,427 |
| | 11,067 |
| 9,389 |
|
Net earnings allocated to common shareholders | $ | 12,655 |
| $ | 10,837 |
| | $ | 32,170 |
| $ | 29,318 |
| $ | 9,503 |
| $ | 7,834 |
| | $ | 23,778 |
| $ | 19,512 |
|
| | | | | | |
Weighted-average common shares outstanding | 19,325,457 |
| 18,056,202 |
| | 18,875,290 |
| 18,043,692 |
| 20,277,028 |
| 19,160,728 |
| | 19,824,035 |
| 18,646,266 |
|
Effect of potentially dilutive common shares | 141,408 |
| 157,331 |
| | 128,797 |
| 156,267 |
| 165,338 |
| 132,653 |
| | 148,315 |
| 126,903 |
|
Total weighted-average diluted common shares outstanding | 19,466,865 |
| 18,213,533 |
| | 19,004,087 |
| 18,199,959 |
| 20,442,366 |
| 19,293,381 |
| | 19,972,350 |
| 18,773,169 |
|
| | | | | | |
Earnings per common share: | | | | | | |
Basic | $ | 0.65 |
| $ | 0.60 |
| | $ | 1.70 |
| $ | 1.62 |
| $ | 0.47 |
| $ | 0.41 |
| | $ | 1.20 |
| $ | 1.05 |
|
Diluted | $ | 0.65 |
| $ | 0.60 |
| | $ | 1.69 |
| $ | 1.61 |
| $ | 0.46 |
| $ | 0.41 |
| | $ | 1.19 |
| $ | 1.04 |
|
| | | | |
Anti-dilutive shares excluded from calculation: | | | | |
Restricted shares, stock options and stock appreciation rights | 5,541 |
| 163 |
| | 2,193 |
| 270 |
| |
Anti-dilutive common shares excluded from calculation: | | | | |
Restricted shares | | 87 |
| — |
| | 46 |
| 32 |
|
Note 9 Derivative Financial Instruments with Off-Balance Sheet Risk
Peoples utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
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 risks,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 valuevalues 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 customer-related 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 instruments was $8.8 million in an asset position and $4.9 million in a liability position at September 30, 2018, and there was $4.6 million in an asset position and $3.2 million in a liability position at December 31, 2017. The amounts are recorded in Other assets, and Accrued expenses and other liabilities on the Consolidated Balance Sheet at the date indicated.
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 these objectives, Peoples has entered into interest rate swaps 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. Peoples acquired three interest rate swaps with the ASB acquisition in the second quarter of 2018, which had an aggregate notional value of $7.0 million, and all of which matured in July 2018. As of SeptemberJune 30, 2018,2019, Peoples had entered into twelvefifteen interest rate swap contracts ten of which were effective with an aggregate notional value of $100.0 million. The remaining two became effective in October 2018 with an aggregate notional value of $10.0$140.0 million. Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The interest received on the floating rate component is intended to offset the rateinterest paid on the rolling three-month FHLB advances.advances or rolling three-month brokered certificates of deposit, which will continue to be rolled through the life of the swaps. Amounts reported in accumulated other comprehensive lossincome (loss) ("AOCL"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 three and ninesix months ended SeptemberJune 30, 2019, Peoples had reclassifications of gains to interest expense of $70,000 and $153,000, respectively, and during the three and six months ended June 30, 2018, and September 30, 2017, Peoples had minimal reclassifications of gains to interest expense. During the next twelve months, Peoples estimates that minimal interest expense amount will be reclassified.
$28,000 and $16,000, respectively.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of each derivative is reported in AOCLAOCI (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. The reset dates and the payment dates on the 90-day advances or brokered certificates of deposit used to fund the swaps are matched to the reset dates and payment dates on the receipt of the 3-month LIBOR floating portion of the swaps to ensure effectiveness of the cash flow hedge. Effectiveness is measured by ensuring that reset dates and payment dates are matched.
The amount of accumulated other comprehensive pre-tax incomeAOCI for Peoples' cash flow hedges was $4.0$3.9 million at SeptemberJune 30, 2018. There were no pre-tax2019.
The following table summarizes information about the interest rate swaps designated as cash flow hedges:
|
| | | | | | |
(Dollars in thousands) | June 30, 2019 | December 31, 2018 |
Notional amount | $ | 140,000 |
| $ | 110,000 |
|
Weighted average pay rates | 2.27 | % | 2.37 | % |
Weighted average receive rates | 1.80 | % | 2.57 | % |
Weighted average maturity | 5.6 years |
| 6.2 years |
|
Unrealized gains | $ | 3,879 |
| $ | 860 |
|
The following table presents net losses or gains recorded forin AOCI and in the nine months ended SeptemberUnaudited Consolidated Statements of Income related to the cash flow hedges:
|
| | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(Dollars in thousands) | 2019 | 2018 | | 2019 | 2018 |
Amount of loss (gain) recognized in AOCI, pre-tax | $ | 2,994 |
| $ | (529 | ) | | $ | 4,661 |
| $ | (1,907 | ) |
Amount of (gain) loss recognized in earnings | $ | — |
| $ | — |
| | $ | (19 | ) | $ | 30 |
|
The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:
|
| | | | | | | | | | | | |
| June 30, 2019 | December 31, 2018 |
(Dollars in thousands) | Notional Amount | Fair Value | Notional Amount | Fair Value |
Included in other assets: | | | | |
Interest rate swaps related to debt | $ | 35,000 |
| $ | 316 |
| $ | 60,000 |
| $ | 2,093 |
|
Total included in other assets | $ | 35,000 |
| $ | 316 |
| $ | 60,000 |
| $ | 2,093 |
|
| | | | |
Included in accrued expenses and other liabilities: | | | | |
Interest rate swaps related to debt | $ | 105,000 |
| $ | 4,363 |
| $ | 50,000 |
| $ | 1,111 |
|
Total included in accrued expenses and other liabilities | $ | 105,000 |
| $ | 4,363 |
| $ | 50,000 |
| $ | 1,111 |
|
At June 30, 2018. Additionally,2019, Peoples had $14.4 million and no reclassificationsamount of cash pledged at December 31, 2018, against interest rate swaps related to earnings indebt, however, the three or nine months ended September 30, 2018 or September 30, 2017.counterparties had pledged no amount of cash and $130,000, respectively.
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 customeroriginates variable rate loans with a fixed-rate loan while creating a variable-rate asset for Peoples byinterest rate swaps, where the customer enteringenters into an interest rate swap with Peoples on terms that match the terms of the loan. By entering into the interest rate swap with the customer, Peoples Bank effectively provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples Bank offsets its risk exposure in the swap 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 an aggregatea gross notional value of $449.3$492.0 million and fair value of $5.6$9.7 million of equally offsetting assets and liabilities at SeptemberJune 30, 2018,2019, and an aggregatea gross notional value of $363.3$453.4 million and fair value of $3.0$2.5 million of equally offsetting assets and liabilities at December 31, 2017.2018. These interest rate swaps did not have a material impact on Peoples' results of operation or financial condition.
The following table reflects the non-designated hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:
|
| | | | | | | | | | | | |
| June 30, 2019 | December 31, 2018 |
(Dollars in thousands) | Notional Amount | Fair Value | Notional Amount | Fair Value |
Included in other assets: | | | | |
Interest rate swaps related to commercial loans | $ | 245,996 |
| $ | 9,656 |
| $ | 226,662 |
| $ | 2,451 |
|
Total included in other assets | $ | 245,996 |
| $ | 9,656 |
| $ | 226,662 |
| $ | 2,451 |
|
| | | | |
Included in accrued expenses and other liabilities: | | | | |
Interest rate swaps related to commercial loans | $ | 245,996 |
| $ | 9,656 |
| $ | 226,662 |
| $ | 2,451 |
|
Total included in accrued expenses and other liabilities | $ | 245,996 |
| $ | 9,656 |
| $ | 226,662 |
| $ | 2,451 |
|
Peoples had no cash pledged against interest rate swaps related to commercial loans.
Note 10 Stock-Based Compensation
Under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan (the "2006 Equity Plan"), Peoples may grant, among other awards, nonqualified stock options, incentive stock options, restricted common stock awards, stock appreciation rights ("SARs"), performance units and unrestricted common share awards to employees and non-employee directors. The total number of common shares currently available under the 2006 Equity Plan is 891,340. The maximum number of common shares that can be issued for incentive stock options is 500,000 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 February 2009, Peoples has granted restricted common shares to employees, and restricted common sharesperiodically to non-employee directors, subject to the terms and conditions prescribed by the 2006 Equity Plan. InAdditionally, in 2018 and 2019, the Board of Directors granted unrestricted common shares to non-employee directors and to all full-time and part-time employees who did not already participate in 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 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 respective grant dates and expired ten years from the respective date of grant. The most recent grant of SARs occurred in 2008 and these SARs were exercised immediately prior to their expiration on February 20, 2018. The following table summarizes the changes to Peoples' SARs for the nine months ended September 30, 2018:
|
| | | | | | | | | | | | | | |
| | Number of Common Shares Subject to SARs | | Weighted- Average Exercise Price | | Weighted-Average Remaining Contractual Life | | Aggregate Intrinsic Value |
Outstanding at January 1 | | 314 |
| | $ | 23.77 |
| | | | |
Exercised | | 314 |
| | 23.77 |
| | | | |
Outstanding at September 30 | | — |
| | $ | — |
| | — |
| | $ | — |
|
Exercisable at September 30 | | — |
| | $ | — |
| | — |
| | $ | — |
|
Restricted Common Shares
Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-employee directors. Beginning inSince 2018, common shares awarded to non-employee directors vesthave vested immediately upon grant with no restrictions. Restrictions on restricted common shares awarded to employees typically expire after periods ranging from one to three years. In the first ninesix months of 2018,2019, Peoples granted an aggregate of 84,876117,200 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. During the first ninesix months of 2018,2019, Peoples granted, to certain key employees, an aggregate of 18,7295,086 restricted common shares subject to time-based vesting with restrictions that will lapse after periods ranging from immediate grant date vesting to vesting three years after the grant date.
The following table summarizes the changes to Peoples’ restricted common shares for the ninesix months ended SeptemberJune 30, 2018:2019:
| | | 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 | 33,082 |
| $ | 22.85 |
| | 176,218 |
| $ | 25.50 |
| 43,679 |
| $ | 29.64 |
| | 175,772 |
| $ | 31.08 |
|
Awarded | 18,729 |
| 36.70 |
| | 84,876 |
| 35.43 |
| 5,086 |
| 32.05 |
| | 117,200 |
| 32.20 |
|
Released | 7,000 |
| 24.49 |
| | 83,311 |
| 23.62 |
| 17,500 |
| 21.69 |
| | 33,400 |
| 17.86 |
|
Forfeited | — |
| — |
| | 1,961 |
| 34.39 |
| 2,852 |
| 37.79 |
| | 613 |
| 34.50 |
|
Outstanding at September 30 | 44,811 |
| $ | 28.38 |
| | 175,822 |
| $ | 31.09 |
| |
Outstanding at June 30 | | 28,413 |
| $ | 34.16 |
| | 258,959 |
| $ | 33.29 |
|
For the ninesix months ended SeptemberJune 30, 2018,2019, the total intrinsic value for restricted common shares released was $3.2$1.6 million compared to $0.9$3.2 million for the ninesix months ended SeptemberJune 30, 2017.
Stock-Based Compensation
Peoples recognizes stock-based compensation expense 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 |
| September 30, | | September 30, |
(Dollars in thousands) | 2018 | 2017 | | 2018 | 2017 |
Total stock-based compensation expense | $ | 564 |
| $ | 351 |
| | $ | 2,174 |
| $ | 1,362 |
|
Recognized tax benefit | (119 | ) | (123 | ) | | (457 | ) | (477 | ) |
Net expense recognized | $ | 445 |
| $ | 228 |
| | $ | 1,717 |
| $ | 885 |
|
Total unrecognized stock-based compensation expense related to unvested awards was $2.7 million at September 30, 2018, which will be recognized over a weighted-average period of 1.9 years. On January 31, 2018, Peoples granted, to non-employee directors, an aggregate of 3,600 unrestricted common shares, which resulted in an additional $128,000 of stock-based compensation expense being recognized. On February 14, 2018, an aggregate of 11,112 unrestricted common shares were granted as a one-time special award to all full-time and part-time employees who did not already participate in the 2006 Equity Plan, which resulted in an additional $388,000 of stock-based compensation expense being recognized in the first quarter of 2018.
Performance Unit Awards
Under the 2006 Equity Plan, Peoples may awardgrant performance unit awards to officers, key employees and non-employee directors. On July 26, 2017, Peoples granted a total of seven performance unit awards to individuals who were then serving as officers, with a maximum aggregate dollar amount of $1.3 million represented by the performance units subject to such awards withand each performance unit representing $1.00. As of June 30, 2019, one of seven performance unit awards had been forfeited as one of the individuals granted a performance unit award left Peoples before meeting the minimum service requirement to retain the performance unit award. The performance unit awards granted are forcover the performance period beginning January 1, 2018 and ending on December 31, 2019, and will beare subject to two performance goals. Twenty-five percent of the performance units subject to each award will vest if, but only if, the related company-specific target performance goal is achieved. The remaining 75% of the performance units subject to each award will vest based on the relative performance of Peoples compared to a defined peer group (measured by percentile ranking) with
respect to the related maximum performance goal. If, for the performance period, the target level of achievement for the first performance goal and/or the maximum level of achievement for the second performance goal is not reached, the dollar amount represented by the performance units associated with each performance goal will be adjusted to reflect the level of performance achieved. After the vesting date, the participant will receive that number of common shares of Peoples equal to (i) the aggregate number of
the participant's performance units (and equivalent dollar value of such performance units) that vested based on the performance achieved under both performance goals (ii) divided by the fair market value of a common share of Peoples on the date the performance units are deemed to have vested (which will be the last day of such vestingthe performance period) and rounded down to the nearest whole common share.
Note 11 Revenue
AsPeoples recognizes stock-based compensation, which is included as a component of January 1, 2018, Peoples adopted ASU 2014-09 - Revenue from Contracts with Customers (Topic 606),Peoples’ salaries and all subsequent updates that modified ASC 606. Peoples elected to adopt this new accounting guidance using the modified retrospective approach. The modified retrospective approach uses a cumulative-effect adjustment to retained earnings to reflect uncompleted contractsemployee benefit costs, for restricted common shares and performance unit awards, as well as purchases made by participants in the initial applicationemployee stock purchase plan. For restricted common shares, Peoples recognizes stock-based compensation based on the estimated fair value of the guidance. Asawards on the grant date, for the portion of January 1,awards that is expected to vest over the vesting period. For performance unit awards, Peoples recognizes stock-based compensation over the performance period, based on the portion of the awards that is expected to vest based on the expected level of achievement of the two performance goals. Peoples also has an employee stock purchase plan whereby employees can purchase Peoples' common shares at a discount of up to 15%. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized for each period:
|
| | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(Dollars in thousands) | 2019 | 2018 | | 2019 | 2018 |
Total stock-based compensation expense | $ | 930 |
| $ | 424 |
| | $ | 2,138 |
| $ | 1,510 |
|
Recognized tax benefit | (195 | ) | (89 | ) | | (449 | ) | (317 | ) |
Net expense recognized | $ | 735 |
| $ | 335 |
| | $ | 1,689 |
| $ | 1,193 |
|
Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the three and six months ended June 30, 2019 and 2018. The fair value of restricted common share awards on the grant date is the market price of Peoples' common shares. Total unrecognized stock-based compensation expense related to unvested awards was $3.6 million at June 30, 2019, which will be recognized over a weighted-average period of 2.1 years. On February 14, 2018, an aggregate of 11,112 unrestricted common shares were granted as a one-time special award to all full-time and part-time employees who did not already participate in the 2006 Equity Plan, with a related stock-based compensation expense of $388,000 being recognized. On June 3, 2019, an aggregate of 880 unrestricted common shares were granted as a one-time special award to all full-time and part-time First Prestonsburg employees, with a related stock-based compensation expense of $27,000 being recognized. For the three and six months ended June 30, 2019, Peoples recorded $11,000 and $50,000, respectively, of stock-based compensation associated with the performance unit awards and for the three and six months ended June 30, 2018 recorded $81,000 and $125,000, respectively. Additionally, Peoples recognized $16,000 and $32,000 of stock-based compensation associated with the employee stock purchase plan, based on purchases by employees thereunder, in the three and six months ended June 30, 2019, respectively, and $14,000 and $28,000 for the three and six months ended June 30, 2018, respectively.
Unrestricted common shares awarded to non-employee directors are included as a cumulative-effect adjustment for uncompleted contracts,component of Peoples' other non-interest expense. On January 31, 2019, Peoples granted, to non-employee directors, an aggregate of 3,200 unrestricted common shares, which resulted in a reductionan additional $102,000 of stock-based compensation expense being recognized. On January 31, 2018, Peoples granted, to Retained earnings andnon-employee directors, an increase in Accrued expenses and other liabilitiesaggregate of $3.1 million,3,600 unrestricted common shares, which is net of federal income taxes. The impact during the third quarter of 2018 was an increase in insurance income and a decrease in retained earnings of $101,000 as a result of applying ASC 606. During the first nine months of 2018, the impact of ASC 606 resulted in an increase in insurance income and a decrease in retained earningsadditional $128,000 of $146,000. Prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for those respective periods.
Peoples recognizes revenues as they are earned based on contractual terms, or as services are provided and collectability is reasonably assured. Estimates of variable consideration are included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur, once the uncertainty is resolved. Peoples contracts with customers are short-term in nature, and are recognized under the following revenue streams:
Insurance Income: Insurance income generally consists of commissions and fees from the sale of insurance policies, third-party administration services and performance-based commissions from insurance companies.
Peoples recognizes commission income from the sale of insurance policies when it acts as an agent between the insurance carrier and policyholder, arranging for the insurance carrier to provide policies to policyholders, and acts on behalf of the insurance carrier by providing customer service to the policyholders during the respective policy periods. Commission income is recognized over time, using the output method of time elapsed, which corresponds with the underlying insurance policy period, for which Peoples is obligated to perform under contract with the insurance carrier. Commission income is variable, as it is comprised of a certain percentage of the underlying policy premium. Peoples estimates the variable consideration based upon the "most likely amount" method, and does not expect or anticipate a significant reversal of revenue in future periods, based upon historical experience. Payment is due from the insurance carrier for commission income once the insurance policy has been sold. Peoples has elected to apply a practical expedient related to capitalizable costs, which are the commissions paid to insurance producers, and willstock-based compensation expense these commissions paid to insurance producers as incurred, as these costs are related to the commission income and would have been amortized within one year or less if they had been capitalized, the same period over which the commission income was earned.
Fees related to third-party administration services performed are recognized over time, during the period in which services have been provided, and are recognized monthly in the month the services were performed.
Performance-based commissions from insurance companies are recognized at a point in time, when received, and no contingencies remain.
Trust and Investment Income: Trust and investment income consists of revenue from fiduciary and brokerage activities, which includes fees for services such as asset management, record keeping, retirement services and estate management, and investment commissions and fees related to the sale of investments. Trust and investment income is recognized over time which reflects the duration of the contract period for which services have been provided. Trust and investment income is variable as it is based on the value of assets under administration and management, and specific transactions. Peoples estimates the variable consideration based upon the most likely amount method, and does not expect or anticipate a significant reversal of revenue in future periods. Payment is due from the customer when billed, which is typically a monthly or quarterly billing for services rendered in the most recent period, for which the performance obligation has been satisfied. Peoples has elected to apply a practical expedient of right to invoice when recognizing trust and investment income, as Peoples has fulfilled the performancebeing recognized.
obligation, the customer has consumed the service, and Peoples has a right to the related income. Peoples has also elected to apply a practical expedient related to capitalizable costs, which are the commissions paid to financial advisors, and will expense these commissions paid to financial advisors as incurred, as these costs are related to the trust and investment income and would have been amortized within one year or less if they had been capitalized, the same period over which the income was earned.Note 11 Revenue
Electronic Banking Income: Electronic banking income consists of two revenue streams related to interchange income and promotional and usage income.
Peoples recognizes interchange income over time, on a monthly basis, which is based on the transactional volume of debit card activity completed by its customers during the month in which income is recognized. Peoples is obligated to certain debit card activity being performed by its customers over a certain period of time. Interchange income is variable as it is based on the transaction volume of debit card activity completed by Peoples' customers. Peoples estimates the variable consideration based upon the most likely amount method, and does not expect or anticipate a significant reversal of revenue in future periods. Payment is due from the vendor within one month of the completed customer debit card activity. Peoples has elected to apply a practical expedient of right to invoice when recognizing interchange income, as Peoples has fulfilled the required performance obligations, the vendor has consumed the service, and Peoples has a right to the related income.
Peoples also recognizes promotional and usage income over time, on a monthly basis, which is related to branding of debit cards and promotion or use of certain services provided by third-party vendors. Peoples is obligated to brand its debit cards in a certain manner, and promote and use services provided by third-party vendors. Promotional and usage income is variable as it is based on certain metrics achieved for promotion and usage of services provided by the third-party vendors. Peoples estimates the variable consideration based upon the most likely amount method, and does not expect or anticipate a significant reversal of revenue in future periods. Payment is due from the third-party vendors within 45 days of the monthly fulfillment of Peoples' performance obligation. Peoples has elected to apply a practical expedient of right to invoice when recognizing promotional and usage income, as Peoples has fulfilled the required performance obligations, the vendor has consumed the service, and Peoples has a right to the related income.
Deposit Account Service Charges: Deposit account service charges consist of two revenue streams related to ongoing maintenance fees for deposit accounts and certain transactional-based fees.
Ongoing maintenance fees are recognized on a monthly basis, generally with the monthly period beginning on the day of the month on which the account was opened. Ongoing maintenance fee income is variable as these fees can be reduced if a customer meets certain qualifying metrics. Peoples estimates the variable consideration based upon the most likely amount method, and does not expect or anticipate a significant reversal of revenue in future periods. For accounts that are assessed maintenance fees through the account analysis process, payment is due from the customer within one month of the monthly period in which the account was open. For all other accounts, monthly maintenance fees are assessed to the account on the last day of the monthly period. Peoples has elected to apply a practical expedient of right to invoice when recognizing ongoing maintenance fees for deposit accounts, as Peoples has fulfilled the required performance obligations, the customer has consumed the service, and Peoples has a right to the related income.
Transactional-based deposit account fees are recognized at a point in time, which is at the completion of the relevant transaction. Peoples is obligated to perform certain transactions as requested by its consumer and business deposit account customers, which are outside of the normal maintenance requirements. Transactional-based deposit account fee income is variable as these fees are directly related to a service request from the customer. Peoples estimates the variable consideration based upon the most likely amount method, and does not expect or anticipate a significant reversal of revenue in future periods. Payment is due from the customer at the time of completion of the requested transaction.
Commercial Loan Swap Fees: Commercial loan swap fees consist of income related to transactions in which Peoples acts as an agent between a third-party vendor and certain Peoples commercial loan customers for which an interest rate swap occurs. Commercial loan swap fees are recognized at a point in time, when the transaction has been completed, and there is no recourse or further performance obligation required of Peoples. Commercial loan swap fee income is variable as these fees are a certain percentage of the total swap fee collected on a completed transaction. Peoples estimates the variable consideration based upon the most likely amount method, and does not expect or anticipate a significant reversal of revenue in future periods. Payment is due from the customer at the time of completion of the requested transaction.
Other Non-Interest Income: Other non-interest income includes certain revenues that are transactional-based, such as wire transfer fees, money order fees and other ancillary fees or services. These transactional-based fees are recognized as income at a point in time, at the completion of the relevant transaction. Transactional-based other non-interest income is variable as these fees are directly related to a service request from the customer. Peoples estimates the variable consideration based upon the most likely amount method, and does not expect or anticipate a significant reversal of revenue in future periods. Payment is due from the customer at the time of completion of the requested transaction.
The following table details Peoples' revenue from contracts with customers for the three and nine months ended September 30, 2018:customers:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | September 30, 2018 | | September 30, 2018 | June 30, 2019 | June 30, 2018 | | June 30, 2019 | June 30, 2018 |
Insurance income: | | | | | | |
Commission and fees from sale of insurance policies (a) | $ | 3,159 |
| | $ | 9,541 |
| $ | 3,306 |
| $ | 3,193 |
| | $ | 6,339 |
| $ | 6,382 |
|
Fees related to third-party administration services (a) | 131 |
| | 423 |
| 178 |
| 173 |
| | 347 |
| 292 |
|
Performance-based commissions (b) | 98 |
| | 1,448 |
| 2 |
| 3 |
| | 1,421 |
| 1,350 |
|
Trust and investment income (a) | 3,110 |
| | 9,410 |
| 3,401 |
| 3,232 |
| | 6,513 |
| 6,300 |
|
Electronic banking income: | | | | | | |
Interchange income (a) | 2,464 |
| | 7,248 |
| 2,747 |
| 2,520 |
| | 5,190 |
| 4,784 |
|
Promotional and usage income (a) | 426 |
| | 1,212 |
| 520 |
| 265 |
| | 1,064 |
| 786 |
|
Deposit account service charges: | | | | | | |
Ongoing maintenance fees for deposit accounts (a) | 691 |
| | 2,012 |
| 1,012 |
| 646 |
| | 1,764 |
| 1,321 |
|
Transactional-based fees (b) | 1,961 |
| | 5,148 |
| 1,965 |
| 1,742 |
| | 3,554 |
| 3,187 |
|
Commercial loan swap fees (b) | 355 |
| | 617 |
| 516 |
| 146 |
| | 662 |
| 262 |
|
Other non-interest income transactional-based fees (b) | 228 |
| | 772 |
| 253 |
| 262 |
| | 424 |
| 543 |
|
Total | $ | 12,623 |
| | $ | 37,831 |
| $ | 13,900 |
| $ | 12,182 |
| | $ | 27,278 |
| $ | 25,207 |
|
| | | | | | |
Timing of revenue recognition: | | | | | | |
Services transferred over time | $ | 9,981 |
| | $ | 29,846 |
| $ | 11,164 |
| $ | 10,029 |
| | $ | 21,217 |
| $ | 19,865 |
|
Services transferred at a point in time | 2,642 |
| | 7,985 |
| 2,736 |
| 2,153 |
| | 6,061 |
| 5,342 |
|
Total | $ | 12,623 |
| | $ | 37,831 |
| $ | 13,900 |
| $ | 12,182 |
| | $ | 27,278 |
| $ | 25,207 |
|
(a) Services transferred over time.
(b) Services transferred at a point in time.
Peoples records contract assets for income that has been recognized over a period of time for fulfillment of performance obligations, but has not yet been received related to electronic banking income. This income typically relates to bonuses for which Peoples is eligible, but will not receive until a certain time in the future. Peoples records contract liabilities for payments received for commission income related to the sale of insurance policies, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which income is recognized during the period in which the performance obligations are fulfilled.
The following table details the change in Peoples' contract assets and contract liabilities for the period ended SeptemberJune 30, 2018:2019:
|
| | | |
| Contract Liabilities |
(Dollars in thousands) |
Balance, January 1, 2018 (a) | $ | 4,700 |
|
Additional deferred income | 4,362 |
|
Recognition of income previously deferred | (4,508 | ) |
Balance, September 30, 2018 | $ | 4,554 |
|
(a) The amount of $3.1 million reported elsewhere throughout this Form 10-Q is the $4.7 million noted above, net of federal corporate income taxes.
|
| | | | | | |
| Contract Assets | Contract Liabilities |
(Dollars in thousands) |
Balance, January 1, 2019 | $ | 207 |
| $ | 5,055 |
|
Additional income receivable | 183 |
| — |
|
Additional deferred income | — |
| 4,013 |
|
Receipt of income previously receivable | (11 | ) | — |
|
Recognition of income previously deferred | — |
| (3,521 | ) |
Balance, June 30, 2019 | $ | 379 |
| $ | 5,547 |
|
The following table details the impact of the adoption of ASU 2014-09 to Peoples' Consolidated Statements of Income and Balance Sheets, compared to amounts that would have been recognized under previous guidance:
|
| | | | | | | | | | | | | | | | | | | |
| At or For the Three Months Ended | | At or For the Nine Months Ended |
| September 30, 2018 | | September 30, 2018 |
(Dollars in thousands) | As Reported | Impact of ASC 606 | Amounts Recognized Under Previous Guidance | | As Reported | Impact of ASC 606 | Amounts Recognized Under Previous Guidance |
Non-interest income: | | | | | | | |
Insurance income | $ | 3,388 |
| $ | 101 |
| $ | 3,287 |
| | $ | 11,412 |
| $ | 146 |
| $ | 11,266 |
|
Liabilities: | | | | | | | |
Accrued expenses and other liabilities | 49,747 |
| 2,940 |
| 46,807 |
| | 49,747 |
| 2,940 |
| 46,807 |
|
Stockholders' equity: | | | | | | | |
Retained earnings | 152,976 |
| (2,940 | ) | 155,916 |
| | 152,976 |
| (2,940 | ) | 155,916 |
|
Note 12 Acquisitions
On October 29, 2018,April 12, 2019, Peoples entered into an Agreement and Plan of Merger (The "First Prestonsburg Merger Agreement")completed the merger with First Prestonsburg Bancshares Inc. ("First Prestonsburg"), that calls for First Prestonsburg to merge into Peoples (the "Merger"). First Prestonsburg is the parent company ofmerged into Peoples and First Prestonsburg's wholly-owned subsidiary, First Commonwealth Bank of Prestonsburg, Inc. ("First Commonwealth"), which operates eight full servicenine full-service branches located in eastern and central Kentucky, with an additional branch to open by the end of 2018. First Commonwealth will mergemerged into Peoples Bank followingBank. Consideration of $32.4 million was paid by Peoples in the mergerform of First Prestonsburg into Peoples. The merger transactions are expected12.512 common shares of Peoples stock to close during the second quarter of 2019, subject to the satisfaction of customary closing conditions, including receipt of applicable regulatory approvals and the approval of the shareholders of First Prestonsburg. As of September 30, 2018, First Prestonsburg had, on a consolidated basis, approximately $310 million in total assets, which included approximately $139 million in total loans, and approximately $244 million in total deposits. Under the terms of the First Prestonsburg Merger Agreement, shareholders of First Prestonsburg will receive 12.512 Peoples' common shares for each share of First Prestonsburg common stock they owned, which resulted in the issuance of 1,005,478 common shares of Peoples stock. In addition, immediately prior to the closing of the Merger,merger, First Prestonsburg will paypaid a special aggregate cash distribution of $11.275 million$140.30 per share (for an aggregate amount of $11.3 million) which was deemed part of the purchase price to its shareholders. As a result, First Prestonsburg shareholders based upon the twenty day volume-weighted average closingreceived a total purchase price of Peoples' common stock through October 26, 2018. The stock consideration plus the special dividend have a combined transaction value of $45.4 million to the holders of First Prestonsburg's common stock.
On April 13, 2018, Peoples completed its acquisition of ASB for total consideration of $41.5 million, which reflected the conversion of each of the 1,979,034 outstanding ASB common shares into $20.00 in cash or 0.592 in Peoples' common shares. ASB merged into Peoples, and ASB's wholly-owned subsidiary, American Savings Bank, fsb, which operated seven full-service branches in southern Ohio and northern Kentucky, merged into Peoples Bank. Per the applicable accounting guidance for business combinations, the acquisition date fair values of the assets purchased, liabilities assumed and related identifiable intangible assets are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.$43.7 million.
The following table provides the preliminary purchase price calculation as of the date of acquisition for the ASBFirst Prestonsburg acquisition, and the assets acquired and liabilities assumed at their estimated fair values.
| | | | | |
(Dollars in thousands, except per share data) | ASB | |
Purchase Price | | |
Common shares electing cash consideration | 31,763 |
| |
Cash purchase price per share | $ | 20.00 |
| |
Cash consideration | $ | 635 |
| |
Common shares electing stock consideration | 1,947,271 |
| |
Consideration | | |
Common shares | | 80,362 |
|
Number of common shares of Peoples issued for each common share of acquired company | 0.592 |
| 12.512 |
|
Price per Peoples common share, based on closing date | $ | 35.48 |
| $ | 32.26 |
|
Common share consideration | $ | 40,898 |
| $ | 32,437 |
|
Cash in lieu of fractional common shares of Peoples | $ | 2 |
| |
Total consideration | $ | 41,535 |
| |
| | |
Net Assets at Fair Value | | |
Assets | | |
Cash and due from banks | | $ | 4,998 |
|
Interest-bearing deposits in other banks | | 2,798 |
|
Total cash and cash equivalents | $ | 5,332 |
| 7,796 |
|
Available-for-sale investment securities | 18,155 |
| 137,658 |
|
Held-to-maturity investment securities | 649 |
| |
Other investment securities | 1,596 |
| 3,068 |
|
Total investment securities | 20,400 |
| 140,726 |
|
Loans, net of deferred fees and costs | 236,628 |
| |
Loans held for sale | 2,539 |
| |
Net loans | 239,167 |
| |
Total loans | | 130,407 |
|
Bank premises and equipment, net of accumulated depreciation | 3,320 |
| 8,255 |
|
Bank owned life insurance | 4,803 |
| |
Other intangible assets | 2,639 |
| 4,234 |
|
Other assets | 3,481 |
| 2,677 |
|
Total assets | $ | 279,142 |
| $ | 294,095 |
|
Liabilities | | |
Deposits: | | |
Non-interest-bearing | $ | 29,487 |
| $ | 40,089 |
|
Interest-bearing | 169,142 |
| 217,151 |
|
Total deposits | 198,629 |
| 257,240 |
|
Short-term borrowings | 54,824 |
| 14,400 |
|
Accrued expenses and other liabilities | 2,716 |
| 2,065 |
|
Total liabilities | $ | 256,169 |
| $ | 273,705 |
|
Net assets | $ | 22,973 |
| $ | 20,390 |
|
Goodwill | $ | 18,562 |
| $ | 12,047 |
|
The estimated fair values presented in the above table reflect additional information that was obtained during the three
months ended September 30, 2018, which resulted in changes to certain fair value estimates made as of the date of
acquisition. Adjustments to acquisition date estimated fair values are recorded duringin the period in which they occurthe adjustment is determined and, as a result, previously recorded results have changed. After considering the additional information, the estimated fair value of loans decreased $481,000; bank premises and equipment, net of accumulated depreciation, increased $355,000; other assetsmay change.
increased $34,000; and accrued expenses and other liabilities increased $158,000, in each case from balances reported as of June 30, 2018. These revised fair value estimates resulted in a net increase to goodwill of $250,000 from $18.3 million reported as of June 30, 2018, to $18.6 million which was recognized in the September 30, 2018 Consolidated Balance Sheet.
Acquired loans are reported net of the unamortized fair value adjustment. The following table details the preliminary fair value adjustment for acquired loans as of the acquisition date:
| | (Dollars in thousands, except per share data) | ASB | |
Nonimpaired Loans | | |
| | |
(Dollars in thousands) | | First Prestonsburg |
Non-impaired Loans | | |
Contractual cash flows | $ | 342,087 |
| $ | 168,903 |
|
Nonaccretable difference | 59,967 |
| 19,756 |
|
Expected cash flows | 282,120 |
| 149,147 |
|
Accretable yield | 54,029 |
| 27,789 |
|
Fair value | $ | 228,091 |
| $ | 121,358 |
|
Credit Impaired Loans | | |
Contractual cash flows | $ | 19,031 |
| $ | 17,706 |
|
Nonaccretable difference | 5,908 |
| 4,804 |
|
Expected cash flows | 13,123 |
| 12,902 |
|
Accretable yield | 2,047 |
| 3,853 |
|
Fair value | $ | 11,076 |
| $ | 9,049 |
|
Peoples recorded non-interest expense related to acquisitions of $675,000$6.8 million and $6.9$7.0 million for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. Total non-interest income declined due to losses of $203,000$253,000 associated with the ASB acquisition. SalariesFirst Prestonsburg merger. For each of the three and six months ended June 30, 2019, salaries and employee benefit costs contained $466,000 andincluded $2.4 million, for the three and nine months ended September 30, 2018, respectively, related to change in control agreements, retention and severance bonuses, and regular payroll and taxes after conversion. Professional fees contained $31,000related to the acquisition included $562,000 and $742,000$620,000 for the three and ninesix months ended SeptemberJune 30, 2018, respectively. Data processing2019, respectively, and other non-interest expenses contained noneincluded $3.7 million and $59,000$3.8 million (mainly contract termination fees) for the three and ninesix months ended SeptemberJune 30, 2018. Marketing expense included $16,000 and $107,000 for the three and nine months ended September 30, 2018, respectively, and other non-interest expense contained $162,000 and $3.6 million for the three and nine months ended September 30, 2018,2019, respectively.
Note 13 Leases
Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to twenty years. Certain leases contain renewal options and rent escalation clauses calling for rent increases over the term of the lease. Short-term leases of certain facilities and equipment, with lease terms of 12 months or less, are recognized on a straight-line basis over the lease term. At June 30, 2019, Peoples did not have any finance leases or any significant lessor agreements.
Peoples elected certain practical expedients, in accordance with Accounting Standards Codification ("ASC") 842. Peoples elected to recognize a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019 for the implementation of ASU 2016-02. Peoples also made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases subject to ASC 842.
The table below details Peoples' lease expense, which is included in net occupancy and equipment expense in the Unaudited Consolidated Statements of Income:
|
| | | | | | | |
| Three Months Ended | | Six Months Ended |
(Dollars in thousands) | June 30, 2019 | | June 30, 2019 |
Operating lease expense | $ | 311 |
| | 618 |
|
Short-term lease expense | 32 |
| | 62 |
|
Total lease expense | $ | 343 |
| | $ | 680 |
|
The following table details the right-of-use asset, the lease liability and other information related to Peoples' operating leases:
|
| | | |
(Dollars in thousands) | June 30, 2019 |
Right-of-use asset: | |
Other assets | $ | 6,661 |
|
Lease liability: | |
Accrued expenses and other liabilities | $ | 6,839 |
|
| |
Other information: | |
Weighted-average remaining lease term | 13.1 years |
|
Weighted-average discount rate | 2.46 | % |
The increased right-of-use asset and lease liability at June 30, 2019 were due to acquired leases associated with the First Prestonsburg merger.
The following table summarizes the maturity of remaining lease liabilities:
|
| | | |
(Dollars in thousands) | Balance |
Six months ending December 31, 2019 | $ | 10 |
|
Year ending December 31, 2020 | 112 |
|
Year ending December 31, 2021 | 148 |
|
Year ending December 31, 2022 | 700 |
|
Year ending December 31, 2023 | 63 |
|
Thereafter | 5,806 |
|
Total lease liability | $ | 6,839 |
|
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the Unaudited Consolidated Financial Statements and 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, |
| 2018 | 2017 | | 2018 | 2017 |
Per Common Share Data (a) | | | | | |
Earnings per common share – basic | $ | 0.65 |
| $ | 0.60 |
| | $ | 1.70 |
| $ | 1.62 |
|
Earnings per common share – diluted | 0.65 |
| 0.60 |
| | 1.69 |
| 1.61 |
|
Cash dividends declared per common share | 0.28 |
| 0.22 |
| | 0.82 |
| 0.62 |
|
Book value per common share (b) | 25.79 |
| 25.02 |
| | 25.79 |
| 25.02 |
|
Tangible book value per common share (b)(c) | $ | 17.44 |
| $ | 17.15 |
| | $ | 17.44 |
| $ | 17.15 |
|
Weighted-average number of common shares outstanding – basic | 19,325,457 |
| 18,056,202 |
| | 18,875,290 |
| 18,043,692 |
|
Weighted-average number of common shares outstanding – diluted | 19,466,865 |
| 18,213,533 |
| | 19,004,087 |
| 18,199,959 |
|
Common shares outstanding at end of period | 19,550,014 |
| 18,281,194 |
| | 19,550,014 |
| 18,281,194 |
|
Closing stock price at end of period | $ | 35.03 |
| $ | 33.59 |
| | $ | 35.03 |
| $ | 33.59 |
|
Significant Ratios (a) | | | | | |
Return on average stockholders' equity (d) | 10.06 | % | 9.47 | % | | 8.97 | % | 8.80 | % |
Return on average tangible stockholders' equity (d)(e) | 15.73 | % | 14.58 | % | | 14.09 | % | 13.77 | % |
Return on average assets (d) | 1.26 | % | 1.22 | % | | 1.13 | % | 1.13 | % |
Average stockholders' equity to average assets | 12.55 | % | 12.88 | % | | 12.58 | % | 12.81 | % |
Average loans to average deposits | 90.47 | % | 86.69 | % | | 89.11 | % | 86.09 | % |
Net interest margin (d)(f) | 3.68 | % | 3.67 | % | | 3.69 | % | 3.61 | % |
Efficiency ratio (g) | 62.58 | % | 60.74 | % | | 66.48 | % | 62.24 | % |
Pre-provision net revenue to total average assets (d)(h) | 1.67 | % | 1.71 | % | | 1.52 | % | 1.65 | % |
Dividend payout ratio | 43.00 | % | 36.90 | % | | 48.55 | % | 38.34 | % |
Total investment securities as percentage of total assets (b) | 21.84 | % | 24.70 | % | | 21.84 | % | 24.70 | % |
Asset Quality Ratios (a) | | | | | |
Nonperforming loans as a percent of total loans (b)(i) | 0.67 | % | 0.85 | % | | 0.67 | % | 0.85 | % |
Nonperforming assets as a percent of total assets (b)(i) | 0.46 | % | 0.56 | % | | 0.46 | % | 0.56 | % |
Nonperforming assets as a percent of total loans and other real estate owned ("OREO") (b)(i) | 0.67 | % | 0.86 | % | | 0.67 | % | 0.86 | % |
Criticized loans as a percent of total loans (b)(j) | 4.38 | % | 4.15 | % | | 4.38 | % | 4.15 | % |
Classified loans as a percent of total loans (b)(k) | 1.81 | % | 1.77 | % | | 1.81 | % | 1.77 | % |
Allowance for loan losses as a percent of total loans (b) | 0.73 | % | 0.82 | % | | 0.73 | % | 0.82 | % |
Allowance for loan losses as a percent of nonperforming loans (b)(i) | 109.71 | % | 96.11 | % | | 109.71 | % | 96.11 | % |
Provision for loan losses as a percent of average total loans | 0.19 | % | 0.19 | % | | 0.23 | % | 0.16 | % |
Net charge-offs as a percentage of average total loans (d) | 0.10 | % | 0.16 | % | | 0.18 | % | 0.12 | % |
Capital Information (b) | |
| | | | |
Common equity tier 1 capital ratio (l) | 13.31 | % | 13.31 | % | | 13.31 | % | 13.31 | % |
Tier 1 risk-based capital ratio | 13.58 | % | 13.60 | % | | 13.58 | % | 13.60 | % |
Total risk-based capital ratio (tier 1 and tier 2) | 14.30 | % | 14.49 | % | | 14.30 | % | 14.49 | % |
Leverage ratio | 9.71 | % | 9.81 | % | | 9.71 | % | 9.81 | % |
Common equity tier 1 capital | $ | 368,195 |
| $ | 326,966 |
| | $ | 368,195 |
| $ | 326,966 |
|
Tier 1 capital | 375,433 |
| 334,027 |
| | 375,433 |
| 334,027 |
|
Total capital (tier 1 and tier 2) | 395,313 |
| 355,951 |
| | 395,313 |
| 355,951 |
|
Total risk-weighted assets | $ | 2,765,328 |
| $ | 2,456,797 |
| | $ | 2,765,328 |
| $ | 2,456,797 |
|
Tangible equity to tangible assets (c) | 8.88 | % | 9.20 | % | | 8.88 | % | 9.20 | % |
|
| | | | | | | | | | | | | |
| At or For the Three Months Ended | | At or For the Six Months Ended |
| June 30, | | June 30, |
| 2019 | 2018 | | 2019 | 2018 |
Operating Data (a) | | | | | |
Total interest income | $ | 43,621 |
| $ | 37,769 |
| | $ | 84,197 |
| $ | 70,995 |
|
Total interest expense | 7,572 |
| 4,961 |
| | 14,234 |
| 8,828 |
|
Net interest income | 36,049 |
| 32,808 |
| | 69,963 |
| 62,167 |
|
Provision for loan losses | 626 |
| 1,188 |
| | 363 |
| 3,171 |
|
Net loss on investment securities | (57 | ) | (147 | ) | | (27 | ) | (146 | ) |
Net loss on asset disposals and other transactions | (293 | ) | (405 | ) | | (475 | ) | (331 | ) |
Total non-interest income excluding net gains and losses | 15,639 |
| 13,807 |
| | 31,220 |
| 28,701 |
|
Total non-interest expense | 38,876 |
| 35,971 |
| | 70,736 |
| 64,192 |
|
Net income | 9,598 |
| 7,892 |
| | 23,967 |
| 19,633 |
|
Balance Sheet Data (a) | | | | | |
Total investment securities | $ | 997,711 |
| $ | 876,765 |
| | $ | 997,711 |
| $ | 876,765 |
|
Loans, net of deferred fees and costs ("total loans") | 2,833,533 |
| 2,686,491 |
| | 2,833,533 |
| 2,686,491 |
|
Allowance for loan losses | 21,357 |
| 19,266 |
| | 21,357 |
| 19,266 |
|
Goodwill and other intangible assets | 176,763 |
| 163,953 |
| | 176,763 |
| 163,953 |
|
Total assets | 4,276,376 |
| 3,972,091 |
| | 4,276,376 |
| 3,972,091 |
|
Non-interest-bearing deposits | 643,058 |
| 585,861 |
| | 643,058 |
| 585,861 |
|
Other interest-bearing deposits | 2,394,398 |
| 2,363,398 |
| | 2,394,398 |
| 2,363,398 |
|
Brokered certificates of deposits | 326,157 |
| 211,062 |
| | 326,157 |
| 211,062 |
|
Short-term borrowings | 186,457 |
| 360,727 |
| | 186,457 |
| 360,727 |
|
Junior subordinated debentures held by subsidiary trust | 7,367 |
| 7,195 |
| | 7,367 |
| 7,195 |
|
Other long-term borrowings | 85,691 |
| 113,085 |
| | 85,691 |
| 113,085 |
|
Total stockholders' equity | 579,022 |
| 499,339 |
| | 579,022 |
| 499,339 |
|
Tangible assets (b) | 4,099,613 |
| 3,808,138 |
| | 4,099,613 |
| 3,808,138 |
|
Tangible equity (b) | 402,259 |
| 335,386 |
| | 402,259 |
| 335,386 |
|
Per Common Share Data (a) | | | | | |
Earnings per common share – basic | $ | 0.47 |
| $ | 0.41 |
| | $ | 1.20 |
| $ | 1.05 |
|
Earnings per common share – diluted | 0.46 |
| 0.41 |
| | 1.19 |
| 1.04 |
|
Cash dividends declared per common share | 0.34 |
| 0.28 |
| | 0.64 |
| 0.54 |
|
Book value per common share (c) | 27.98 |
| 25.57 |
| | 27.98 |
| 25.57 |
|
Tangible book value per common share (b)(c) | $ | 19.44 |
| $ | 17.17 |
| | $ | 19.44 |
| $ | 17.17 |
|
Weighted-average number of common shares outstanding – basic | 20,277,028 |
| 19,160,728 |
| | 19,824,035 |
| 18,646,266 |
|
Weighted-average number of common shares outstanding – diluted | 20,442,366 |
| 19,283,381 |
| | 19,972,350 |
| 18,773,169 |
|
Common shares outstanding at end of period | 20,696,041 |
| 19,528,952 |
| | 20,696,041 |
| 19,528,952 |
|
Closing stock price at end of period | $ | 32.26 |
| $ | 37.78 |
| | $ | 32.26 |
| $ | 37.78 |
|
|
| | | | | | | | | | | | | |
| At or For the Three Months Ended | | At or For the Six Months Ended |
| June 30, | | June 30, |
| 2019 | 2018 | | 2019 | 2018 |
Significant Ratios (a) | | | | | |
Return on average stockholders' equity (d) | 6.81 | % | 6.46 | % | | 8.87 | % | 8.39 | % |
Return on average tangible equity (d)(e) | 10.55 | % | 10.47 | % | | 13.49 | % | 13.21 | % |
Return on average assets (d) | 0.91 | % | 0.81 | % | | 1.17 | % | 1.06 | % |
Return on average assets adjusted for non-core items (d)(f) | 1.44 | % | 1.35 | % | | 1.47 | % | 1.34 | % |
Average stockholders' equity to average assets | 13.33 | % | 12.57 | % | | 13.24 | % | 12.60 | % |
Average total loans to average deposits | 86.37 | % | 89.57 | % | | 87.81 | % | 88.37 | % |
Net interest margin (d)(g) | 3.77 | % | 3.74 | % | | 3.78 | % | 3.70 | % |
Efficiency ratio (h) | 73.24 | % | 74.96 | % | | 68.09 | % | 68.53 | % |
Efficiency ratio adjusted for non-core items (i) | 60.21 | % | 62.03 | % | | 61.19 | % | 61.73 | % |
Pre-provision net revenue to total average assets (j) | 1.21 | % | 1.10 | % | | 1.49 | % | 1.44 | % |
Dividend payout ratio | 73.30 | % | 69.27 | % | | 53.84 | % | 52.15 | % |
Total investment securities as percentage of total assets (c) | 23.33 | % | 22.07 | % | | 23.33 | % | 22.07 | % |
Asset Quality Ratios (a) | | | | | |
Nonperforming loans as a percent of total loans (c)(k) | 0.71 | % | 0.67 | % | | 0.71 | % | 0.67 | % |
Nonperforming assets as a percent of total assets (c)(k) | 0.47 | % | 0.46 | % | | 0.47 | % | 0.46 | % |
Nonperforming assets as a percent of total loans and OREO (c)(k) | 0.71 | % | 0.67 | % | | 0.71 | % | 0.67 | % |
Criticized loans as a percent of total loans (c)(l) | 3.42 | % | 4.50 | % | | 3.42 | % | 4.50 | % |
Classified loans as a percent of total loans (c)(m) | 2.23 | % | 2.07 | % | | 2.23 | % | 2.07 | % |
Allowance for loan losses as a percent of total loans (c) | 0.75 | % | 0.72 | % | | 0.75 | % | 0.72 | % |
Allowance for loan losses as a percent of nonperforming loans (c)(k) | 106.57 | % | 106.77 | % | | 106.57 | % | 106.77 | % |
Provision for loan losses as a percent of average total loans | 0.09 | % | 0.18 | % | | 0.03 | % | 0.26 | % |
Net charge-offs (recoveries) as a percentage of average total loans | 0.03 | % | 0.11 | % | | (0.06 | )% | 0.22 | % |
Capital Information (a)(c) | |
| | | | |
Common equity tier 1 capital ratio (n) | 14.16 | % | 13.03 | % | | 14.16 | % | 13.03 | % |
Tier 1 risk-based capital ratio | 14.41 | % | 13.29 | % | | 14.41 | % | 13.29 | % |
Total risk-based capital ratio (tier 1 and tier 2) | 15.14 | % | 13.99 | % | | 15.14 | % | 13.99 | % |
Leverage ratio | 10.26 | % | 9.73 | % | | 10.26 | % | 9.73 | % |
Common equity tier 1 capital | $ | 410,979 |
| $ | 358,987 |
| | $ | 410,979 |
| $ | 358,987 |
|
Tier 1 capital | 418,347 |
| 366,182 |
| | 418,347 |
| 366,182 |
|
Total capital (tier 1 and tier 2) | 439,704 |
| 385,448 |
| | 439,704 |
| 385,448 |
|
Total risk-weighted assets | $ | 2,903,387 |
| $ | 2,755,112 |
| | $ | 2,903,387 |
| $ | 2,755,112 |
|
Total stockholders' equity to total assets | 13.54 | % | 12.57 | % | | 13.54 | % | 12.57 | % |
Tangible equity to tangible assets (b) | 9.81 | % | 9.07 | % | | 9.81 | % | 9.07 | % |
| |
(a) | Reflects the impact of the acquisition of First Prestonsburg Bancshares Inc. ("First Prestonsburg") beginning April 12, 2019, and of ASB Financial Corp. ("ASB") beginning April 13, 2018. |
| |
(b) | Data presented as of the end of the period indicated. |
| |
(c) | These amounts represent non-GAAPnon-US GAAP financial measures since they exclude the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity and total assets. Additional information regarding the calculation of these non-GAAPnon-US GAAP financial measures can be found under the caption “Capital/Stockholders’ Equity.” |
| |
(c) | Data presented as of the end of the period indicated. |
| |
(d) | Ratios are presented on an annualized basis. |
| |
(e) | These amounts represent non-GAAPReturn on average tangible equity represents a non-US GAAP financial measures since they excludeit excludes the after-tax impact of amortization of other intangible assets from earnings and excludeit excludes the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on stockholders'total stockholders’ equity. Additional information regarding the calculation of these non-GAAPthis non-US GAAP financial measuresmeasure can be found under the caption “Return on Average Tangible Stockholders' Equity Ratio.”
|
| |
(f) | Return on average assets adjusted for non-core itemsrepresents a non-US GAAP financial measure since it excludes the impact of the Tax Cuts and Jobs Act on the remeasurement of deferred tax assets and deferred tax liabilities, and the after-tax impact of all gains and/or losses, core banking system conversion revenue and expenses, acquisition-related expenses, pension settlement charges, and other non-recurring expenses in earnings. Additional information regarding the calculation of this non-US GAAP financial measure can be found under the caption "Return on Average Assets Adjusted for Non-Core Items." |
| |
(g) | Information presented on a fully tax-equivalent basis. |
| |
(g)(h) | These amounts represent non-GAAP financial measures and includeThe efficiency ratio is defined as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income (excluding all gains and losses). This amount represents a non-US GAAP financial measure since it |
excludes amortization of other intangible assets, and all gains and/or losses included in earnings, and uses fully tax-equivalent net interest income. Additional information regarding the calculation of this non-US GAAP financial measure can be found under the caption “Efficiency Ratio.”
| |
(i) | The efficiency ratio adjusted for non-core items is defined as core non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus core non-interest income excluding all losses).gains and losses. This amount represents a non-US GAAP financial measure since it excludes the impact of all gains and/or losses, and acquisition-related expenses included in earnings, and uses fully tax-equivalent net interest income. Additional information regarding the calculation of these non-GAAPthis non-US GAAP financial measuresmeasure can be found under the caption “Efficiency Ratio.” |
| |
(h)(j) | These amounts represent non-GAAPPre-provision net revenue is defined as net interest income plus total non-interest income (excluding all gains and losses) minus total non-interest expense. This ratio represents a non-US GAAP financial measuresmeasure since they excludeit excludes the provision for (recovery of) loan losses and all gains andand/or losses included in earnings. This measure is a key metric used by federal bank regulatory agencies in their evaluation of capital adequacy for financial institutions. Additional information regarding the calculation of these non-GAAPthis non-US GAAP financial measuresmeasure can be found under the caption “Pre-Provision Net Revenue.” |
| |
(i)(k) | Nonperforming loans include loans 9090+ days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include nonperforming loans and other real estate owned. |
| |
(j)(l) | Includes loans categorized as special mention, substandard and doubtful. |
| |
(k)(m) | Includes loans categorized as substandard and doubtful. |
| |
(l)(n) | Peoples' capital conservation buffer was 6.30%7.14% at SeptemberJune 30, 20182019 and 6.49%5.99% at SeptemberJune 30, 2017,2018, compared to 2.50% for the fully phased-in capital conservation buffer required byat January 1, 2019. |
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 of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," and similar expressions.
These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These factors include, but are not limited to:
| |
(1) | the success, impact, and timing of the implementation of Peoples' business strategies, including the successful integration of the recently completed acquisitionbusiness of ASBFirst Prestonsburg, and the expansion of consumer lending activity; |
| |
(2) | risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets; |
| |
(3) | Peoples' ability to integrate future acquisitions, including the pending merger with First Prestonsburg, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected; |
| |
(3)(4) | 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, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals; |
| |
(4)(5) | 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; |
| |
(5)(6) | uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, promulgated and to be promulgated by governmental and regulatory agencies in the Statestate of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform; |
| |
(6)(7) | the effects of easing restrictions on participants in the financial services industry; |
| |
(7) | uncertainties in Peoples' preliminary review of, and additional analysis of, the impact of the Tax Cuts and Jobs Act; |
| |
(8) | local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations) 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; |
| |
(9) | the existence or exacerbation of general geopolitical instability and uncertainty; |
| |
(10) | changes in policy and other regulatory and legal developments, including the Tax Cuts and Jobs Act, and uncertainty or speculation pending the enactment of such changes; |
| |
(11) | Peoples may issue equity investment securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders; |
| |
(12) | 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; |
| |
(13) | adverse changes in economic conditions and/or activities, including, but not limited to, potential or imposed tariffs, continued economic uncertainty in the U.S., the European Union (including the uncertainty surrounding the actions to be taken to implement the 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; |
| |
(14) | slowing or reversal of the current U.S. economic expansion; |
| |
(15) | deterioration in the credit quality of Peoples' loan portfolio, which may adversely impact the provision for loan losses; |
| |
(15) | Peoples may have more credit risk and higher credit losses to the extent loans are concentrated by location or industry of the borrowers or collateral; |
| |
(16) | changes in accounting standards, policies, estimates or procedures, including the new current expected credit loss rule issued by the Financial Accounting Standards Board in June 2016, which will require banks to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities, as opposed to the current practice of recording losses when it is probable that a loss event has occurred, which may adversely affect Peoples' reported financial condition or results of operations; |
| |
(17) | Peoples' assumptions and estimates used in applying critical accounting policies, which may prove unreliable, inaccurate or not predictive of actual results; |
| |
(18) | the discontinuation of the London Inter-Bank Offered Rate and other reference rates may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies; |
| |
(19) | 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; |
| |
(19)(20) | the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors; |
| |
(21) | Peoples' ability to receive dividends from its subsidiaries; |
| |
(20)(22) | Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity; |
| |
(21) | the impact of minimum capital thresholds established as a part of the implementation of Basel III; |
| |
(22)(23) | 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; |
| |
(23)(24) | the costs and effects of new federal and state laws, and other regulatory and legal developments, including the outcome of potential regulatory or other governmental inquiries and legal proceedings and results of regulatory examinations; |
| |
(24)(25) | Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss; |
| |
(25)(26) | Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including itsPeoples' primary core banking system provider; |
| |
(26) | Peoples' ability to anticipate and respond to technological changesprovider, which can impact Peoples' ability to respond to customer needs and meet competitive demands; |
| |
(27) | operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and its subsidiaries are highly dependent; |
| |
(28) | changes in consumer spending, borrowing and saving habits, whether due to tax reform legislation, changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions, legislative or regulatory initiatives, or other factors, which may be different than anticipated; |
| |
(29) | the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cyber security, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business; |
| |
(30) | the impact on Peoples' businesses, personnel, facilities, or systems, related to fraud, theft, or violence; |
| |
(31) | the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics, cyber attacks, civil unrest, military or terrorist activities or international conflicts; |
| |
(31) | 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; |
| |
(32) | Peoples' continued ability to grow deposits; and |
| |
(33) | 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, 20172018 and under the heading "ITEM 1A. RISK FACTORS" in Part II of this Form 10-Q. |
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’ 20172018 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 8289 locations, including 7279 full-service bank branches, and 7886 Automated Teller Machines ("ATMs") in northeastern, central, southwestern and southeastern Ohio, west central West Virginia, and northeasterncentral and eastern 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"), the Federal Reserve Bank ("FRB") of Cleveland and the Federal Deposit Insurance Corporation (the "FDIC"). Peoples Bank is also subject to regulations of the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and 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 Peoples 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 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 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 SeptemberJune 30, 2018,2019, which were unchanged from the policies disclosed in Peoples’ 20172018 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:
| |
◦ | On October 29, 2018,April 12, 2019, Peoples entered into acompleted the previously-announced merger agreement with First Prestonsburg Bancshares Inc. ("First Prestonsburg"), which calls forPrestonsburg. First Prestonsburg to mergemerged into Peoples.Peoples and First Prestonsburg is the parent company of ThePrestonsburg's wholly-owned subsidiary, First Commonwealth Bank of Prestonsburg, Inc. ("First Commonwealth"), which operates eight full serviceoperated nine full-service bank branches located in central and eastern Kentucky, with an additional branch to open by the endmerged into Peoples Bank. Total purchase price of this year. Following$43.7 million was paid in the merger, of which $11.3 million was in the form of a special cash dividend paid by First Prestonsburg into Peoples, First Commonwealth will merge into Peoples Bank. This transaction is expected to close during the second quarter of 2019, subject to the satisfaction of customary closing conditions, including receipt of applicable regulatory approvals and the approval of the shareholders of First Prestonsburg.Prestonsburg prior to the merger with the remainder being paid in the form of an aggregate of 1,005,478 Peoples common shares by Peoples. The merger added $130.4 million of total loans and $257.2 million of total deposits at the acquisition date, after preliminary fair value adjustments. Peoples also recorded $4.2 million of other intangible assets and $12.0 million of goodwill. These amounts reflect information available through the date of the filing of this Quarterly Report on Form 10-Q. Refer to Note"Note 12 Acquisitions" of the Notes to the Unaudited Consolidated Financial Statements for additional information. |
| |
◦ | On July 31, 2018, Peoples entered into five $10.0 million interest rate swaps, which will mature between 2021 and 2028, with interest rates ranging from 2.94% to 3.03%. Additionally, the three interest rate swaps acquired with the ASB acquisition matured in July of 2018. For additional information regarding Peoples' interest rate swaps, refer to Note 9 of the Notes to the Unaudited Consolidated Financial Statements. |
| |
◦ | In 2018, Peoples contributed $3.2 million to Peoples' defined benefit pension plan. This contribution was reported in the 2017 federal income tax return. In accordance with the Tax Cuts and Jobs Act, Peoples recognized the contribution as a deduction for tax purposes at the 35% statutory federal corporate income tax rate for 2017. |
| |
◦ | In the third quarter of 2018, Peoples incurred $674,000 of acquisition-related costs, which include gains and losses, compared to $6.3 million in the second quarter of 2018, $149,000 in the first quarter of 2018 and none in the third quarter of 2017. For the nine months ended September 30, 2018, Peoples incurred $6.9 million of acquisition-related costs compared to none for the same period in 2017. The acquisition-related costs incurred in 2018 were primarily related to fees associated with early termination of contracts, severance costs and write-offs associated with assets acquired. |
| |
◦ | At the close of business on April 13, 2018, Peoples completed the acquisition of ASB Financial Corp. ("ASB").merger with ASB. ASB merged into Peoples, and ASB's wholly-owned subsidiary, American Savings Bank, fsb, which operated seven full-service bank branches and two loan production offices in southern Ohio and northerneastern Kentucky, merged into Peoples Bank. Under the terms of the merger agreement, Peoples paid total consideration of $41.5 million. The acquisitionmerger added $239.2 million of nettotal loans and loans held for sale in the aggregate, and $198.6 million of total deposits at the acquisition date, after preliminary acquisition accounting adjustments. ReferPeoples also recorded $2.6 million of other intangible assets and $18.1 million of goodwill. |
| |
◦ | During the second quarter of 2019, Peoples incurred $7.0 million of acquisition-related costs, compared to Note 12$253,000 in the first quarter of 2019, and $6.3 million in the second quarter of 2018. During the first six months of 2019, Peoples incurred $7.3 million of acquisition-related costs, compared to $6.4 million during the first six months of 2018. The acquisition costs in 2019 and 2018 were primarily related to the First Prestonsburg and ASB mergers, respectively, and were primarily related to fees associated with early termination of contracts, severance costs and write-offs associated with assets acquired. |
| |
◦ | During the second quarter of 2019, Peoples entered into $30.0 million of interest rate swaps, with a notional value in aggregate of $30.0 million, which became effective immediately and will mature between 2023 and 2026, with interest rates ranging from 1.89% to 1.91%. For additional information regarding Peoples' interest rate swaps, refer to "Note 9 Derivative Financial Instruments" of the Notes to the Unaudited Consolidated Financial Statements for additional information.Statements. |
| |
◦ | InDuring the first quarter of 2019, Peoples recognized a $1.8 million recovery on a previously charged-off commercial loan. |
| |
◦ | During the second quarter of 2019, Peoples closed one full-service bank branch located in West Virginia when the lease expired in June 2019. During the first quarter of 2019, Peoples closed one insurance office located in Ohio when the lease for the location expired at the end of January 2019 and one full-service bank branch located in West Virginia when the lease for the location expired in March 2019. Employees at the closed locations were relocated to other branches or offices. |
| |
◦ | On April 22, 2019, Peoples Bank signed an agreement to open a Federal Funds liquidity facility with Canadian Imperial Bank of Commerce, which either party may cancel at any time. The $20.0 million line increases Peoples Bank's contingent liquidity and will serve to help manage Peoples Bank's daily liquidity needs. As of June 30, 2019, Peoples Bank had not borrowed under the agreement. |
| |
◦ | On April 3, 2019, Peoples entered into a Loan Agreement (the “U.S. Bank Loan Agreement”) with U.S. Bank National Association. The U.S. Bank Loan Agreement has a one-year term and provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $20.0 million that may be used: (i) for working capital |
purposes; (ii) to finance dividends or other distributions (other than stock dividends and stock splits) on or in respect of Peoples’ capital stock and redemptions, repurchases or other acquisitions of any of Peoples’ capital stock permitted under the U.S. Bank Loan Agreement and (iii) to finance acquisitions permitted under the U.S. Bank Loan Agreement.
| |
◦ | Effective April 3, 2019, Peoples terminated the Credit Agreement, dated as of March 4, 2016 between Peoples, as Borrower, and Raymond James Bank, N.A., as Lender (the "RJB Credit Agreement"), with a revolving line of credit in the maximum aggregate principal amount of $15.0 million. |
| |
◦ | During the first quarter of 2019, Peoples sold its restricted Class B Visa stock, which had been held at a carrying cost and fair value of zero due to the litigation liability associated with the stock, resulting in a gain of $787,000 recorded in other non-interest income. |
| |
◦ | Multiple items impacted Peoples' income tax expense during 2018, primarily as a result of the Tax Cuts and Jobs Act, which lowered the statutory federal corporate income tax rate to 21% as of January 1, 2018, from a previous rate of 35%. There were no similar items in 2019. |
| |
▪ | Beginning on January 1, 2018, Peoples began recognizing income tax expense at the 21% statutory federal corporate income tax rate. |
| |
▪ | During the fourth quarter of 2018, Peoples finalized the remeasurement of its net deferred tax assets and liabilities at the new statutory federal corporate income tax rate of 21%, which resulted in a reduction to income tax expense of $705,000 in 2018. The final adjustment was mainly due to Peoples' contribution of $3.2 million to Peoples' defined benefit pension plan during 2018. |
| |
▪ | During 2018, Peoples released a valuation allowance, which reduced income tax expense by $0.8 million. The valuation allowance was related to a historical tax credit that Peoples had invested in during 2015. Peoples sold $6.7 million of equity investment securities in the second quarter of 2018, which resulted in a capital gain for tax purposes. This capital gain was large enough to offset an anticipated future capital loss, which is expected to be recognized due to the structure of the historical tax credit investment, resulting in the release of the valuation allowance. |
| |
◦ | During the fourth quarter of 2018, Peoples incurred $91,000 in pension settlement costs due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing such charges during the period. There were no such costs during the first or second halfquarters of 2017,2019 or the first or second quarters of 2018. |
| |
◦ | On July 31, 2018, Peoples reduced its positionentered into $50.0 million of interest rate swaps, which became effective immediately and will mature between 2021 and 2028, with interest rates ranging from 2.92% to 3.00%. Additionally, the three interest rate swaps acquired with the ASB acquisition matured in certain equity investment securities. This action was taken as a resultJuly of 2018. These swaps locked in funding rates for $40.0 million, in notional value, in FHLB advances that matured in 2018, which had interest rates ranging from 3.57% to 3.92%. For additional information regarding Peoples' interest rate swaps, refer to "Note 9 Derivative Financial Instruments" of the high appreciation inNotes to the market value of these securities. The sales completed resulted in a net gain on investment securities of $1.9 million in the second half of 2017. Unaudited Consolidated Financial Statements. |
| |
◦ | On January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of $7.8 million of equity investment securities from available-for-sale investment securities to other investment securities which also resultedand the reclassification of $5.0 million in changes in the fair value of thenet unrealized gains on equity investment securities being recorded in non-interest income. |
| |
◦ | As of December 31, 2017, Peoples recorded a revaluation of its deferred tax assets and liabilities in light of the applicable provisions of the Tax Cuts and Jobs Act. Previously, Peoples had recognized its deferred tax assets and deferred tax liabilities at a federal corporate income tax rate of 35%, and the new law required the use of a 21% federal corporate income tax rate. As a result, Peoples wrote down its net deferred tax assets by $0.9 million in the fourth quarter of 2017, which had a direct impact on income tax expense recorded during that period. Beginning on January 1, 2018, in accordance with the Tax Cuts and Jobs Act, Peoples began recognizing income tax expense at the 21% statutory federal corporate income tax rate, which has resulted in lower income tax expense for 2018, comparedfrom accumulated other comprehensive loss to the 35% statutory federal corporate income tax rate for 2017. |
| |
◦ | On October 2, 2017, Peoples Insurance acquired a property and casualty focused independent insurance agency with annual net revenue of $0.8 million located in the Cleveland, Ohio area. The acquisition did not materially impact Peoples' financial position, results of operations, or cash flows. |
| |
◦ | During the second quarter of 2017, Peoples borrowed an additional $45.0 million of long-term FHLB non-amortizing advances, which have interest rates ranging from 1.74% to 2.03% and mature between 2020 and 2022. |
| |
◦ | During the first quarter of 2017, Peoples borrowed an additional $30.0 million of long-term FHLB non-amortizing advances, which have interest rates ranging from 1.20% to 1.46% and mature between 2018 and 2019. |
| |
◦ | During 2017, Peoples closed six full-service bank branches, four located in Ohio, and two located in West Virginia. Peoples continues to evaluate its bank branch network in an effort to optimize efficiency. |
| |
◦ | On January 31, 2017, Peoples Insurance acquired a third-party insurance administration company located in Piketon, 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. |
| |
◦ | On January 27, 2017, Peoples entered into two $10.0 million forward starting interest rate swaps, which became effective in January and April of 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 of the Notes to the Unaudited Consolidated Financial Statements.retained earnings. |
| |
◦ | The Federal Reserve Board began tightening monetary policy in December 2015 by raising the benchmark Federal Funds Target Rate. Since then, the rate has increased sevenseveral times from a range of 0.25% -to 0.50% to its current range of 2.00% - 2.25% to 2.50%. ExpectationsMarket participants are fornow expecting two eases this year and potentially one more rate hikeearly next year. While recent economic numbers have been fairly strong, the Federal Reserve Board is contemplating lowering rates in 2018 and three in 2019.order to prevent the economy from slipping into what many investors believe is a long-overdue recession. The Federal Reserve Board has also begun to reduce the size ofindicated it would pause reducing its $4.5 trillion balance sheet which couldbeginning in September 2019 as planned. As a result, in higher interest rates as well. However, there has been no indication thatwill likely remain rather low throughout the Federal Reserve Board would alter its current posturerest of tightening monetary policy at future meetings.2019. Peoples is closely monitoring interest rates, both foreign and domestic; and potential impacts of changes in interest rates to Peoples Bank'sPeoples' operations. |
The impact of these transactions and events, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis of Results of Operations and Financial Condition.
EXECUTIVE SUMMARY
Peoples recorded net income of $12.7$9.6 million for the thirdsecond quarter of 2018,2019, representing earnings per diluted common share of $0.65,$0.46, compared to $14.4 million, or $0.73 per diluted common share, for the first quarter of 2019, and $7.9 million, or $0.41 per diluted share, for the second quarter of 2018, and $10.9 million, or $0.602018. During the second quarter of 2019, earnings per diluted share, for the third quarter of 2017. During the third quarter of 2018, earnings per dilutedcommon share were negatively impacted by $0.03$0.28 per share for acquisition-related costs, which include gains and losses, and $0.01 per share for pension settlement charges, compared tocosts. During the negative impact of $0.25 per share in acquisition-related costs, offset partially by the positive impact of $0.04 per share due to the release of a tax valuation allowance, in the secondfirst quarter of 2018. During the third quarter of 2017,2019, earnings per diluted common share were positively impacted by $0.07 per share for the recovery on a previously charged-off commercial loan and by $0.03 per share for income related to the sale of restricted Class B Visa stock, partially offset by the negative impact of $0.01 per share for acquisition-related costs. During the second quarter of 2018, earnings per diluted common share were negatively impacted by $0.25 per share in acquisition-related costs, and were positively impacted by $0.04 per share due to the recognized gain on investment securitiesrelease of $1.9 million.a tax valuation allowance.
ForDuring the first ninesix months of 2018,2019, net income was $32.4$24.0 million, or $1.69$1.19 per diluted share, compared to $29.5$19.6 million, or $1.61$1.04 per diluted common share, for the same period in 2017. Earnings per diluted common share for the first nine months of 2018 were negatively impacted by $0.28 per share for acquisition-related costs and $0.01 per share for pension settlement charges.2018. The increased earnings were primarily due to increases in net interest income, mortgage banking income, trustdeposit account service charges, and investment income, electronic banking income, and other non-interest income. These increaseswhich were partially offset by increased salaries and employee benefit costs, professional fees and other fees related to acquisition-relatednon-interest expenses, which were primarily related to fees associated with early termination of contracts,impacted by the First Prestonsburg and ASB mergers, in 2018,2019 compared to 2017.
2019 and 2018, respectively.
Net interest income grewincreased to $33.3$36.0 million for the thirdsecond quarter of 2018, an increase2019, up 6% compared to $33.9 million for the first quarter of 2%,2019, and increased by 10% compared to $32.8 million for the second quarter of 2018, and 14% compared to $29.2 million for the third quarter of 2017.2018. Net interest margin was 3.68%3.77% for the thirdsecond quarter of 2018, a decrease from2019, compared to 3.80% for the first quarter of 2019, and 3.74% for the second quarter of 2018,2018. The slight decline in net interest margin during the quarter was driven by higher costs for time deposits and an increase from 3.67% forgovernmental deposits, which more than offset increased loan yields, driven by the thirdFirst Prestonsburg merger. Compared to the first quarter of 2017.2019, net interest income was positively impacted by the merger of First Prestonsburg. The increase in net interest income compared to both the linked quarter and the third quarter of 2017 was largely due to loan growth and the recent ASB acquisition, which were tempered by lower income on investment securities, higher deposit costs and increased borrowing costs. In addition, during the third quarter of 2017, net interest income was impacted by proceeds of $611,000, received on an investment security for which an other-than-temporary-impairment had previously been recorded.
Net interest margin experienced a decline for the third quarter of 2018, compared to the linked quarter, due to increases in both deposit costs and borrowings costs, while loan yields only rose slightly given the relatively flat LIBOR rates in the third quarter of 2018. Although deposit rates remain relatively low, competition for deposits is increasing, resulting in higher deposit rates being offered to clients. The second quarter of 2018 andwas driven by higher yields on loans combined with the third quarterimpact of 2017, included proceeds received on a security for which an other-than-temporary-impairment had previously been recorded, which added 3 basis points and 8 basis points, respectively, to net interest margin for those periods.
Compared to the third quarter of 2017, net interest margin has increased primarily due to higher loan yields, which have beenFirst Prestonsburg earning assets. These were partially offset by higher deposit costs anddue to increased borrowing costs.
Comparedcompetition for deposits, combined with additional interest expense related to the first nine months of 2017, net interest income grew $11.2 million, or 13%, while net interest margin increased 8 basis points. Net interest income for 2018 benefited from the acquisition of ASB, coupled with organic loan growth. Net interest margin for the first nine months of 2018 was 3.69%, compared to 3.61% for the same period in 2017. Loan yields have benefited from higher LIBOR rates since the end of 2017, while deposit costs were relatively controlled, which caused the improvement compared to 2017. During 2017, the net interest margin improved due to proceeds of $0.8 million that were received on an investment security for which an other-than-temporary-impairment had previously been recorded, which added 10 basis points to net interest margin. During 2018, the net interest margin improved due to proceeds of $0.6 million, that were received on an investment security for which an other-than-temporary-impairment had previously been recorded, which added 2 basis points to net interest margin.acquired First Prestonsburg deposits.
For the thirdsecond quarter of 2018,2019, accretion income from acquisitions, net of amortization expense, was $612,000,$1.2 million, compared to $722,000 for the first quarter of 2019 and $523,000 for the second quarter of 2018, and $816,000 for the third quarter of 2017, which added 713 basis points, 68 basis points, and 106 basis points, respectively, to net interest margin. The growth in net accretion income compared to the first quarter of 2019 and the second quarter of 2018 was due to the First Prestonsburg merger, specifically the loan discount that was accreted during the quarter.
For the first six months of 2019, net interest income was $70.0 million, and net interest margin was 3.78%, compared to $62.2 million and 3.70%, respectively, during the same period in 2018. The increases were driven by higher interest income on loans due to a combination of loan growth, which was primarily the result of the First Prestonsburg and ASB acquisitions, and higher yields from interest rate increases. The interest income from higher average loan balances outpaced interest expense from deposits, which increased due to the recent acquisitions and increased competition for deposits. The first six months of 2018 benefited from proceeds of $589,000 received on investment securities that had been previously written down due to other-than-temporary impairment ("OTTI"), which added 3 basis points to net interest margin.
Accretion income, net of amortization expense, from the ASB acquisitionacquisitions was $238,000$1.9 million for the third quarterfirst six months of 2018,2019 and exceeded the amortization of the fair value adjustment to time deposits of $218,000. The preliminary accounting$1.1 million for the fair value adjustments for the ASB acquisition may be refined for up to one year after the acquisition, which could result in changes to accretion income and amortization expense in future periods.
For the first ninesix months of 2018, accretion income, net of amortization expense, was $1.7 million, compared to $2.4 million during the same period in 2017. The accretion income, net of amortization expensewhich added 710 basis points and 6 basis points, respectively, to net interest margin duringmargin. The growth in net accretion income compared to the first ninesix months of 2018 comparedwas largely due to 10 basis points in 2017.the First Prestonsburg acquisition.
During the thirdfirst quarter of 2018,2019, Peoples recorded a provision for loan losses was $1.3 million,of $626,000, compared to a recovery of loan losses of $263,000 for the first quarter of 2019 and a provision for loan losses of $1.2 million for the second quarter of 2018 and $1.1 million2018. Net charge-offs for the thirdsecond quarter of 2017.2019 were $208,000, or 0.03% of average total loans, compared to net recoveries of $1.0 million, or 0.15% of average total loans, for the linked quarter and net charge-offs of $720,000, or 0.11% of average total loans, for the second quarter of 2018. Net recoveries during the first quarter of 2019 were driven by a $1.8 million recovery recorded on a previously charged-off commercial loan. Given the low net charge-offs in the current quarter, combined with originated loan balances remaining stable during the second quarter of 2019, the provision for loan losses during each of the current and linked quarter was lower than historical trends. Provision for loan losses during the first ninesix months of 20182019 was $4.5$363,000, compared to $3.2 million for the first six months of 2018. Net recoveries for the first six months of 2019 were $799,000, compared to net charge-offs of $2.7 million for the same period in 2017. Organic loan growth has drivenfirst six months of 2018. The first six months of 2019 included the higher provision for loan losses during 2018, while asset quality metrics were stable.
For the third quarter of 2018, total non-interest income increased $1.1$1.8 million or 8%, compared to the second quarter of 2018 and decreased $93,000, or 1%, from the third quarter of 2017.recovery recorded on a previously charged-off commercial loan. The increase in total non-interest income from the second quarter of 2018 was largely due to increased deposit account service charges coupled with higher commercial loan swap fees and mortgage banking income. The decrease in total non-interest income from the third quarter of 2017 was due primarily to net gains on investment securities recognized in 2017 as a result of the sale of bank equity investment securities. The decrease in net gains on investment securities were partially offset by higher mortgage banking income related to the mortgage origination operations acquired in the ASB transaction, coupled with increases in trust and investment income, and electronic banking income.
For the first ninesix months of 2018 total non-interest income grew $743,000, or 2%, compared to 2017. The increase was led by higher income from mortgage banking, trust and investment, electronic banking and insurance. In addition, other non-interest income grew during the first nine monthsincluded a charge-off of 2018, as a result of higher gains$827,000 on sale of Small Business Administration ("SBA") loans, coupled with the change in fair value of equity investment securities during 2018. The majority of these investment securities were liquidated during 2018, and the fair value change in future periods should bean acquired commercial loan relationship.
minimal.For the second quarter of 2019, total non-interest income declined $140,000, or 1%, compared to the first quarter of 2019 and was up $2.0 million, or 15%, from the second quarter of 2018. The first quarter of 2019 included $1.4 million of annual performance-based insurance commissions, which are primarily received in the first quarter each year. Additionally, year-over-year,other non-interest income in the first quarter of 2019 included $787,000 of income related to the sale of restricted Class B Visa stock. During the second quarter of 2019, these two items were largely offset by increases in a number of categories, including income from deposit account service charges, commercial loan swap fee income, trust and investment income, electronic banking income, and mortgage banking income. The increase in total non-interest income from the second quarter of 2018 was driven by increases in all non-interest income categories, with the exception of bank owned life insurance, which had a slight decrease. For the first six months of 2019, total non-interest income grew 9%, as most categories of non-interest income increased, including income from deposit account service charges, electronic banking income, mortgage banking income, increased as the mortgage origination operations acquired from ASB, provided additionaland commercial loan swap fee income.
Total non-interest expense decreased $5.1increased $7.0 million, or 14%22%, in the thirdsecond quarter of 20182019 compared to the first quarter of 2019 and grew $2.9 million, or 8%, compared to the second quarter of 2018 and grew $4.3 million, or 16%, compared to the third quarter of 2017.2018. The decreaseincrease compared to the linked quarter was primarily due to the $5.4 million reduction in acquisition-related expenses. Excluding acquisition-related expenses total non-interest expense was relatively flat compared toof First Prestonsburg, coupled with the linked quarter.ongoing cost of running the First Prestonsburg operations. The growth in total non-interest expense compared to the thirdsecond quarter of 20172018 was led by higher salaries and employee benefit costs, mainly duepartially offset by a decline in professional fees. Base salaries, stock-based compensation, and medical insurance were the main contributors to the ASB acquisition, coupled with $176,000 of pension settlement charges, as well as acquisition-related expenses of $675,000 and the ongoing increased operating costs resulting from running the ASB franchise.
During the first nine months of 2018, total non-interest expense increased 18% compared to 2017. This increase was driven by $6.9 million of acquisition-related expenses during 2018, compared to none in 2017, coupled with growth in salaries and employee benefit costs, which were impacted by employees that have been added in the last twelve months from acquisitions and other ongoingfor future growth, as well as higher medical claims. Base salaries were also impacted by annual merit increases, which included the implementation of a $15 per hour minimum wage throughout the company, which began being phased in during 2018 and will be largely implemented by January 1, 2020. Professional fees declined 22% compared to the second quarter of 2018, primarily due to consulting work performed during the second quarter of 2018 which was not repeated in 2019.
During the first six months of 2019, total non-interest expense increased operating10% compared to 2018. This increase was led by higher salaries and employee benefit costs, resultingpartially offset by a decline in professional fees. Salaries and employee benefit costs were up primarily due to higher base salaries, medical insurance and stock-based compensation. Base salaries were impacted by the First Prestonsburg and ASB acquisitions, annual merit increases, which included the implementation of a $15 per hour minimum wage throughout the company, and employees that have been added in the last twelve months for future growth. The increase in medical insurance was driven by higher medical claims. Stock-based compensation increased as a result of the employees that have been added in the last twelve months from recent acquisitions and for future growth. Professional fees declined 24% compared to the ASB acquisition.first six months of 2018, mostly due to consulting work performed during the first six months of 2018 which was not repeated in 2019.
Peoples' efficiency ratio, calculated as total non-interest expense less amortization of other intangible assets divided by fully tax-equivalent ("FTE") net interest income, plus total non-interest income, excluding all gains and losses, for the thirdsecond quarter of 20182019 was 62.6%73.2%, compared to 62.7% for the first quarter of 2019 and 75.0% for the second quarter of 2018 and 60.7% for2018. The efficiency ratio increased compared to the thirdlinked quarter, of 2017.driven by higher acquisition-related expenses. The efficiency ratio, when adjusted for non-core expenses,items, was 60.8%60.2% for the thirdsecond quarter of 2018,2019, compared to 62.2% for the first quarter of 2019 and 62.0% for the second quarter of 2018 and 60.7% for the third quarter of 2017. The decline in the efficiency ratio compared to the linked quarter was primarily due to the acquisition-related expenses recognized during the second quarter of 2018, while the increase compared to the third quarter of 2017 was mostly due to higher total non-interest expense.2018. During the first ninesix months of 2018,2019, the efficiency ratio was 66.5%68.1%, compared to 62.2%68.5% for the same period in 2017.2018. The efficiency ratio, for the first nine months of 2018, when adjusted for non-core expenses initems, during the formfirst six months of acquisition-related expenses and pension settlement charges,2019 was 61.4%61.2% and was 62.2%61.7% for the first ninesix months of 2017.2018.
During the third quarter of 2018, incomeIncome tax expense was $2.8$2.2 million for the second quarter of 2019, compared to $1.0$3.4 million for the linked quarter and $5.1$1.0 million for the thirdsecond quarter of 2017.2018. The increasedecline in income tax expense compared to the linked quarter was due to higherlower pre-tax income asincome. The current quarter included a resulttax benefit of reduced acquisition-related expenses, coupled with$59,000 recorded for the vesting of restricted stock during the current quarter, compared to a releasetax benefit of $133,000 in the linked quarter. The vesting of a valuation allowance duringmajority of stock awards granted by Peoples occurs annually in the second quarter of 2018 of $0.8 million. This valuation allowance was related to a historical tax credit that Peoples invested in during 2015.first quarter. The declineincrease in income tax expense compared to the third quarter of 2017 was directly related to the reduction in the federal corporate income tax rate from 35% to 21% due to the Tax Cuts and Jobs Act.
For the first nine months of 2018, income tax expense totaled $6.2 million compared to $13.4 million in 2017. The reduction in income tax expense compared to 2017 was largely a result of the Tax Cuts and Jobs Act enacted in December 2017, coupled with the release of the valuation allowance of $0.8 million during the second quarter of 2018.
At September 30, 2018, total assets were $4.00 billion, compared to $3.58 billion at December 31, 2017. The 12% increase compared to December 31, 2017 was primarily due to the ASB acquisition, which added $279.1 million of assets, after preliminary fair value adjustments, coupled with organic loan growth. Excluding the impact of the ASB acquisition, period-end loan balances, net of deferred fees and costs, grew $133.9 million, or 8% annualized. Commercial loan balances increased $73.0 million, mostly driven by higher commercial and industrial loans, while consumer loans grew $60.9 million, with consumer indirect lending providing most of the increase.
Total liabilities were $3.50 billion at September 30, 2018, up $375.7 million, or 12%, since December 31, 2017. The increase in liabilities during the first nine months of 2018 was primarily due to anhigher pre-tax income. For the first six months of 2019, Peoples recorded income tax expense of $5.6 million, compared to $3.4 million for the same period in the prior year. The year-over-year increase in depositsincome tax expense was primarily due to higher pre-tax income. The first six months of $310.8 million, while borrowings increased $54.4 million.2019 included a tax benefit of $192,000 recorded for the vesting of restricted stock during the period. The growth in depositsfirst six months of 2018 also included an $805,000 valuation allowance release, as well as a tax benefit of $296,000 recorded for the vesting of restricted stock during the period.
At June 30, 2019, total assets were $4.28 billion, compared to $3.99 billion at December 31, 2018. The 7% increase compared to December 31, 20172018 was mostly due to acquired ASB deposit balances.
At September 30, 2018, total stockholders' equity was $504.3 million, an increase of $45.7 million, compared to December 31, 2017. The increase in total stockholders' equity was mostlyprimarily due to the $40.9First Prestonsburg merger, which added $294.1 million of common shares issuedassets, including $130.4 million in connection with the ASB acquisition. In addition, net income earned for the first nine months of 2018 exceeded dividends, but was offset partially by an increase in accumulated other comprehensive loss.
total loans, after preliminary fair value adjustments.
Total liabilities were $3.70 billion at June 30, 2019, up $226.0 million since December 31, 2018. The increase in liabilities during the first six months of 2019 was primarily due to an increase in deposits of $408.1 million, partially offset by a decline in borrowings of $193.7 million. The growth in deposits compared to December 31, 2018, was mostly due to acquired First Prestonsburg deposit balances, which totaled $232.2 million at June 30, 2019. Retail certificates of deposit ("CDs") grew $102.9 million, of which $65.3 million was from First Prestonsburg. Governmental deposit and brokered CDs were up $64.4 million and $62.3 million, respectively, compared to December 31, 2018.
At June 30, 2019, total stockholders' equity was $579.0 million, an increase of $58.9 million, compared to December 31, 2018. The increase in total stockholders' equity was mostly due to the $32.4 million of common shares issued in connection with the First Prestonsburg merger, net income of $9.6 million and other comprehensive income of $7.8 million, partially offset by dividends paid of $7.0 million.
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 |
| September 30, 2018 | | June 30, 2018 | | September 30, 2017 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 23,057 |
| $ | 86 |
| 1.48 | % | | $ | 10,815 |
| $ | 54 |
| 2.00 | % | | $ | 12,812 |
| $ | 42 |
| 1.30 | % |
Investment securities (a)(b): | | | | | | | | | | | |
Taxable | 787,081 |
| 5,615 |
| 2.85 | % | | 793,497 |
| 5,868 |
| 2.96 | % | | 780,667 |
| 5,661 |
| 2.90 | % |
Nontaxable | 93,958 |
| 777 |
| 3.31 | % | | 96,991 |
| 804 |
| 3.32 | % | | 105,077 |
| 1,078 |
| 4.10 | % |
Total investment securities | 881,039 |
| 6,392 |
| 2.90 | % | | 890,488 |
| 6,672 |
| 3.00 | % | | 885,744 |
| 6,739 |
| 3.04 | % |
Loans (b)(c): | | | | | | | | | | | |
Commercial real estate, construction | 123,939 |
| 1,573 |
| 4.97 | % | | 118,206 |
| 1,438 |
| 4.81 | % | | 118,208 |
| 1,337 |
| 4.43 | % |
Commercial real estate, other | 852,675 |
| 10,934 |
| 5.02 | % | | 840,677 |
| 10,434 |
| 4.91 | % | | 750,260 |
| 8,890 |
| 4.64 | % |
Commercial and industrial | 526,316 |
| 6,844 |
| 5.09 | % | | 503,364 |
| 6,216 |
| 4.89 | % | | 438,524 |
| 5,196 |
| 4.64 | % |
Residential real estate (d) | 614,914 |
| 7,010 |
| 4.56 | % | | 600,799 |
| 6,749 |
| 4.49 | % | | 507,906 |
| 5,468 |
| 4.31 | % |
Home equity lines of credit | 135,626 |
| 1,860 |
| 5.44 | % | | 131,970 |
| 1,701 |
| 5.17 | % | | 110,741 |
| 1,291 |
| 4.63 | % |
Consumer, indirect | 387,559 |
| 3,872 |
| 3.96 | % | | 359,941 |
| 3,498 |
| 3.90 | % | | 322,072 |
| 2,955 |
| 3.64 | % |
Consumer, direct | 76,171 |
| 1,281 |
| 6.67 | % | | 72,820 |
| 1,230 |
| 6.77 | % | | 70,204 |
| 1,270 |
| 7.18 | % |
Total loans | 2,717,200 |
| 33,374 |
| 4.84 | % | | 2,627,777 |
| 31,266 |
| 4.73 | % | | 2,317,915 |
| 26,407 |
| 4.49 | % |
Less: Allowance for loan losses | (19,584 | ) | | | | (19,071 | ) | | | | (18,869 | ) | | |
Net loans | 2,697,616 |
| 33,374 |
| 4.88 | % | | 2,608,706 |
| 31,266 |
| 4.77 | % | | 2,299,046 |
| 26,407 |
| 4.53 | % |
Total earning assets | 3,601,712 |
| 39,852 |
| 4.37 | % | | 3,510,009 |
| 37,992 |
| 4.31 | % | | 3,197,602 |
| 33,188 |
| 4.10 | % |
Intangible assets | 163,615 |
| | | | 161,600 |
| | | | 144,267 |
| | |
Other assets | 232,927 |
| | | | 226,348 |
| | | | 199,351 |
| | |
Total assets | $ | 3,998,254 |
| | | | $ | 3,897,957 |
| | | | $ | 3,541,220 |
| | |
Deposits: | | | | | | | | | | | |
Savings accounts | $ | 476,127 |
| $ | 84 |
| 0.07 | % | | $ | 477,167 |
| $ | 69 |
| 0.06 | % | | $ | 443,599 |
| $ | 65 |
| 0.06 | % |
Governmental deposit accounts | 328,806 |
| 507 |
| 0.61 | % | | 312,999 |
| 273 |
| 0.35 | % | | 309,623 |
| 200 |
| 0.26 | % |
Interest-bearing demand accounts | 551,291 |
| 157 |
| 0.11 | % | | 581,600 |
| 202 |
| 0.14 | % | | 320,788 |
| 133 |
| 0.16 | % |
Money market accounts | 395,477 |
| 365 |
| 0.37 | % | | 393,580 |
| 323 |
| 0.33 | % | | 389,292 |
| 253 |
| 0.26 | % |
Retail certificates of deposit | 402,379 |
| 1,372 |
| 1.35 | % | | 395,304 |
| 1,242 |
| 1.26 | % | | 348,047 |
| 760 |
| 0.87 | % |
Brokered certificates of deposit | 256,780 |
| 1,533 |
| 2.37 | % | | 187,387 |
| 992 |
| 2.13 | % | | 106,448 |
| 454 |
| 1.69 | % |
Total interest-bearing deposits | 2,410,860 |
| 4,018 |
| 0.66 | % | | 2,348,037 |
| 3,101 |
| 0.53 | % | | 1,917,797 |
| 1,865 |
| 0.39 | % |
Borrowed funds: | | | | | | | | | | | |
Short-term FHLB advances | 258,742 |
| 1,475 |
| 2.26 | % | | 225,635 |
| 966 |
| 1.72 | % | | 96,760 |
| 336 |
| 1.38 | % |
Retail repurchase agreements | 74,174 |
| 142 |
| 0.77 | % | | 85,188 |
| 209 |
| 0.98 | % | | 77,706 |
| 33 |
| 0.17 | % |
Total short-term borrowings | 332,916 |
| 1,617 |
| 1.93 | % | | 310,823 |
| 1,175 |
| 1.52 | % | | 174,466 |
| 369 |
| 0.84 | % |
Long-term FHLB advances | 104,026 |
| 537 |
| 2.05 | % | | 114,287 |
| 559 |
| 1.96 | % | | 153,070 |
| 788 |
| 2.04 | % |
Wholesale repurchase agreements | — |
| — |
| — | % | | — |
| — |
| — | % | | 40,000 |
| 371 |
| 3.71 | % |
Other borrowings | 7,217 |
| 135 |
| 7.48 | % | | 7,766 |
| 126 |
| 6.49 | % | | 7,003 |
| 115 |
| 6.57 | % |
Total long-term borrowings | 111,243 |
| 672 |
| 2.40 | % | | 122,053 |
| 685 |
| 2.25 | % | | 200,073 |
| 1,274 |
| 2.53 | % |
Total borrowed funds | 444,159 |
| 2,289 |
| 2.05 | % | | 432,876 |
| 1,860 |
| 1.72 | % | | 374,539 |
| 1,643 |
| 1.74 | % |
Total interest-bearing liabilities | 2,855,019 |
| 6,307 |
| 0.88 | % | | 2,780,913 |
| 4,961 |
| 0.71 | % | | 2,292,336 |
| 3,508 |
| 0.61 | % |
Non-interest-bearing deposits | 592,709 |
| | | | 585,800 |
| | | | 756,098 |
| | |
Other liabilities | 48,741 |
| |
| | | 41,368 |
| |
| | | 36,588 |
| |
| |
Total liabilities | 3,496,469 |
| | | | 3,408,081 |
| | |
| 3,085,022 |
| | |
Total stockholders’ equity | 501,785 |
| |
| | | 489,876 |
| |
| | | 456,198 |
| |
| |
Total liabilities and stockholders’ equity | $ | 3,998,254 |
| |
| | | $ | 3,897,957 |
| |
| | | $ | 3,541,220 |
| |
| |
Interest rate spread (b) | | $ | 33,545 |
| 3.49 | % | | | $ | 33,031 |
| 3.60 | % | | | $ | 29,680 |
| 3.49 | % |
Net interest margin (b) | 3.68 | % | | | | 3.74 | % | | | | 3.67 | % |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| For the Nine Months Ended |
| September 30, 2018 | | September 30, 2017 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 15,379 |
| $ | 192 |
| 1.67 | % | | $ | 10,854 |
| $ | 83 |
| 1.02 | % |
Investment securities (a)(b): | | | | | | | |
Taxable | 785,454 |
| 17,169 |
| 2.91 | % | | 766,116 |
| 15,416 |
| 2.68 | % |
Nontaxable | 96,016 |
| 2,395 |
| 3.33 | % | | 109,921 |
| 3,473 |
| 4.21 | % |
Total investment securities | 881,470 |
| 19,564 |
| 2.96 | % | | 876,037 |
| 18,889 |
| 2.87 | % |
Loans (b)(c): | | | | | | | |
Commercial real estate, construction | 120,264 |
| 4,344 |
| 4.76 | % | | 106,637 |
| 3,488 |
| 4.31 | % |
Commercial real estate, other | 819,797 |
| 30,492 |
| 4.90 | % | | 740,263 |
| 26,205 |
| 4.67 | % |
Commercial and industrial | 503,328 |
| 18,631 |
| 4.88 | % | | 434,976 |
| 14,599 |
| 4.43 | % |
Residential real estate (d) | 569,593 |
| 19,068 |
| 4.46 | % | | 519,989 |
| 16,801 |
| 4.31 | % |
Home equity lines of credit | 125,505 |
| 4,832 |
| 5.15 | % | | 111,012 |
| 3,683 |
| 4.44 | % |
Consumer, indirect | 363,705 |
| 10,500 |
| 3.86 | % | | 295,461 |
| 7,758 |
| 3.51 | % |
Consumer, other | 72,499 |
| 3,673 |
| 6.77 | % | | 69,914 |
| 3,718 |
| 7.11 | % |
Total loans | 2,574,691 |
| 91,540 |
| 4.70 | % | | 2,278,252 |
| 76,252 |
| 4.46 | % |
Less: Allowance for loan losses | (19,116 | ) | | | | (18,671 | ) | | |
Net loans | 2,555,575 |
| 91,540 |
| 4.75 | % | | 2,259,581 |
| 76,252 |
| 4.47 | % |
Total earning assets | 3,452,424 |
| 111,296 |
| 4.28 | % | | 3,146,472 |
| 95,224 |
| 4.02 | % |
Intangible assets | 156,540 |
| | | | 144,950 |
| | |
Other assets | 223,590 |
| | | | 201,350 |
| | |
Total assets | $ | 3,832,554 |
| | | | $ | 3,492,772 |
| | |
Deposits: | | | | | | | |
Savings accounts | $ | 468,810 |
| $ | 217 |
| 0.06 | % | | $ | 442,559 |
| $ | 184 |
| 0.06 | % |
Governmental deposit accounts | 311,223 |
| 997 |
| 0.43 | % | | 298,321 |
| 499 |
| 0.22 | % |
Interest-bearing demand accounts | 566,656 |
| 580 |
| 0.14 | % | | 300,911 |
| 310 |
| 0.14 | % |
Money market accounts | 385,768 |
| 914 |
| 0.32 | % | | 393,944 |
| 637 |
| 0.22 | % |
Retail certificates of deposit | 378,871 |
| 3,379 |
| 1.19 | % | | 363,747 |
| 2,233 |
| 0.82 | % |
Brokered certificates of deposit | 200,637 |
| 3,245 |
| 2.16 | % | | 85,576 |
| 1,218 |
| 1.90 | % |
Total interest-bearing deposits | 2,311,965 |
| 9,332 |
| 0.54 | % | | 1,885,058 |
| 5,081 |
| 0.36 | % |
Borrowed funds: | | | | | | | |
Short-term FHLB advances | 209,980 |
| 3,104 |
| 1.98 | % | | 104,703 |
| 757 |
| 0.97 | % |
Retail repurchase agreements | 87,076 |
| 656 |
| 1.00 | % | | 74,940 |
| 96 |
| 0.17 | % |
Total short-term borrowings | 297,056 |
| 3,760 |
| 1.69 | % | | 179,643 |
| 853 |
| 0.64 | % |
Long-term FHLB advances | 112,381 |
| 1,660 |
| 1.97 | % | | 136,570 |
| 2,140 |
| 2.10 | % |
Wholesale repurchase agreements | — |
| — |
| — | % | | 40,000 |
| 1,100 |
| 3.67 | % |
Other borrowings | 7,364 |
| 383 |
| 6.93 | % | | 6,951 |
| 324 |
| 6.21 | % |
Total long-term borrowings | 119,745 |
| 2,043 |
| 2.28 | % | | 183,521 |
| 3,564 |
| 2.59 | % |
Total borrowed funds | 416,801 |
| 5,803 |
| 1.86 | % | | 363,164 |
| 4,417 |
| 1.62 | % |
Total interest-bearing liabilities | 2,728,766 |
| 15,135 |
| 0.74 | % | | 2,248,222 |
| 9,498 |
| 0.56 | % |
Non-interest-bearing deposits | 577,461 |
| | | | 761,308 |
| | |
Other liabilities | 44,189 |
| |
| | | 35,650 |
| |
| |
Total liabilities | 3,350,416 |
| | | | 3,045,180 |
| |
| |
|
Total stockholders’ equity | 482,138 |
| |
| | | 447,592 |
| |
| |
Total liabilities and stockholders’ equity | $ | 3,832,554 |
| |
| | | $ | 3,492,772 |
| |
| |
Interest rate spread (b) | | $ | 96,161 |
| 3.54 | % | | | $ | 85,726 |
| 3.46 | % |
Net interest margin (b) | | | 3.69 | % | | | | 3.61 | % |
| |
(a) | Average balances are based on carrying value. |
| |
(b) | Interest income and yields are presented on a fully tax-equivalent basis using a 21% federal corporate income tax rate for the 2018 reported periods and a 35% federal corporate income tax rate for the 2017 reported periods. |
| |
(c) | Average balances include nonaccrual, impaired loans and 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. |
(d) Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income.
The following table provides an analysis of the changes in fully tax-equivalent ("FTE") net interest income:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Nine Months Ended |
| | | | | | | | | September 30, 2018 |
| Three Months Ended September 30, 2018 Compared to | | Compared to |
(Dollars in thousands) | June 30, 2018 | | September 30, 2017 | | September 30, 2017 |
Increase (decrease) in: | Rate | Volume | Total (a) | | Rate | Volume | Total (a) | | Rate | Volume | Total (a) |
INTEREST INCOME: | | | | | | | | | | | |
Short-term investments | $ | (71 | ) | $ | 103 |
| $ | 32 |
| | $ | 5 |
| $ | 39 |
| $ | 44 |
| | $ | 64 |
| $ | 45 |
| $ | 109 |
|
Investment Securities (b): | | | | | | | | | | | |
Taxable | (230 | ) | (23 | ) | (253 | ) | | (282 | ) | 236 |
| (46 | ) | | 1,660 |
| 93 |
| 1,753 |
|
Nontaxable | (2 | ) | (25 | ) | (27 | ) | | (195 | ) | (106 | ) | (301 | ) | | (59 | ) | (1,019 | ) | (1,078 | ) |
Total investment income | (232 | ) | (48 | ) | (280 | ) | | (477 | ) | 130 |
| (347 | ) | | 1,601 |
| (926 | ) | 675 |
|
Loans (b): | | | | | | | | | | | |
Commercial real estate, construction | 54 |
| 81 |
| 135 |
| | 169 |
| 67 |
| 236 |
| | 385 |
| 471 |
| 856 |
|
Commercial real estate, other | 303 |
| 197 |
| 500 |
| | 768 |
| 1,276 |
| 2,044 |
| | 1,374 |
| 2,913 |
| 4,287 |
|
Commercial and industrial | 298 |
| 330 |
| 628 |
| | 540 |
| 1,108 |
| 1,648 |
| | 1,596 |
| 2,436 |
| 4,032 |
|
Residential real estate | 101 |
| 160 |
| 261 |
| | 337 |
| 1,205 |
| 1,542 |
| | 623 |
| 1,644 |
| 2,267 |
|
Home equity lines of credit | 103 |
| 56 |
| 159 |
| | 250 |
| 319 |
| 569 |
| | 633 |
| 516 |
| 1,149 |
|
Consumer, indirect | 68 |
| 306 |
| 374 |
| | 279 |
| 638 |
| 917 |
| | 825 |
| 1,917 |
| 2,742 |
|
Consumer, direct | (103 | ) | 154 |
| 51 |
| | (410 | ) | 421 |
| 11 |
| | (40 | ) | (5 | ) | (45 | ) |
Total loan income | 824 |
| 1,284 |
| 2,108 |
| | 1,933 |
| 5,034 |
| 6,967 |
| | 5,396 |
| 9,892 |
| 15,288 |
|
Total interest income | 521 |
| 1,339 |
| 1,860 |
| | 1,461 |
| 5,203 |
| 6,664 |
| | 7,061 |
| 9,011 |
| 16,072 |
|
INTEREST EXPENSE: | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Savings accounts | 16 |
| (1 | ) | 15 |
| | 14 |
| 5 |
| 19 |
| | 21 |
| 12 |
| 33 |
|
Governmental deposit accounts | 219 |
| 15 |
| 234 |
| | 294 |
| 13 |
| 307 |
| | 475 |
| 23 |
| 498 |
|
Interest-bearing demand accounts | (35 | ) | (10 | ) | (45 | ) | | (223 | ) | 247 |
| 24 |
| | (4 | ) | 274 |
| 270 |
|
Money market accounts | 40 |
| 2 |
| 42 |
| | 108 |
| 4 |
| 112 |
| | 299 |
| (22 | ) | 277 |
|
Brokered certificates of deposit | 127 |
| 414 |
| 541 |
| | 238 |
| 841 |
| 1,079 |
| | 187 |
| 1,840 |
| 2,027 |
|
Retail certificates of deposit | 106 |
| 24 |
| 130 |
| | 479 |
| 133 |
| 612 |
| | 1,050 |
| 96 |
| 1,146 |
|
Total deposit cost | 473 |
| 444 |
| 917 |
| | 910 |
| 1,243 |
| 2,153 |
| | 2,028 |
| 2,223 |
| 4,251 |
|
Borrowed funds: | | | | | | | | | | | |
Short-term borrowings | 308 |
| 134 |
| 442 |
| | 434 |
| 814 |
| 1,248 |
| | 635 |
| 2,272 |
| 2,907 |
|
Long-term borrowings | 184 |
| (197 | ) | (13 | ) | | 126 |
| (728 | ) | (602 | ) | | (614 | ) | (907 | ) | (1,521 | ) |
Total borrowed funds cost | 492 |
| (63 | ) | 429 |
| | 560 |
| 86 |
| 646 |
| | 21 |
| 1,365 |
| 1,386 |
|
Total interest expense | 965 |
| 381 |
| 1,346 |
| | 1,470 |
| 1,329 |
| 2,799 |
| | 2,049 |
| 3,588 |
| 5,637 |
|
Net interest income | $ | (444 | ) | $ | 958 |
| $ | 514 |
| | $ | (9 | ) | $ | 3,874 |
| $ | 3,865 |
| | $ | 5,012 |
| $ | 5,423 |
| $ | 10,435 |
|
| |
(a) | 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. |
| |
(b) | Interest income and yields are presented on a fully tax-equivalent basis using a 21% federal corporate income tax rate for the 2018 periods and a 35% federal corporate income tax rate for the 2017 periods.
|
Average quarterly gross loan balances increased $89.4 million, or 3%, compared to the linked quarter of 2018, which included the partial impact to average balances from the ASB acquisition on April 13, 2018. The average quarterly gross loan balances increased $399.3 million, or 17%, including acquired loans from the ASB acquisition, compared to the third quarter of 2017. For the nine months ended September 30, 2018, average gross loan balances, including acquired loans from the ASB acquisition, increased $244.2 million, or 11%, compared to the same period in the prior year. Commercial lending, including both commercial real estate and commercial and industrial loans, as well as indirect consumer lending, were among the largest contributors to the comparative growth. Compared to the second quarter of 2018, average balances in commercial real estate loans increased $40.7 million, or 3%. Compared to the third quarter of 2017, average balances in commercial real estate loans increased $195.9 million, or 15%, while average balances in consumer indirect loans increased $65.5 million, or 20%. Compared to the first nine months of 2017, average commercial real estate loan balances grew $93.2 million, or 11%, and average commercial and industrial loan balances grew $68.4 million, or 16%, while average consumer indirect loan balances grew $69.6 million, or 23%.
Net interest margin, which is calculated by dividing 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 interest-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 federal corporate income tax rate of 21% for the 2018 periods and 35% for the 2017 periods..
The following table details the calculation of FTE net interest income:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, | June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2018 | 2017 | | 2019 | 2018 |
Net interest income, as reported | $ | 33,324 |
| $ | 32,808 |
| $ | 29,220 |
| | $ | 95,491 |
| $ | 84,255 |
| |
Net interest income | | $ | 36,049 |
| 33,914 |
| $ | 32,808 |
| | $ | 69,963 |
| $ | 62,167 |
|
Taxable equivalent adjustments | 221 |
| 223 |
| 460 |
| | 670 |
| 1,471 |
| 267 |
| 200 |
| 223 |
| | 467 |
| 450 |
|
Fully tax-equivalent net interest income | $ | 33,545 |
| $ | 33,031 |
| $ | 29,680 |
| | $ | 96,161 |
| $ | 85,726 |
| $ | 36,316 |
| $ | 34,114 |
| $ | 33,033 |
| | $ | 70,430 |
| $ | 62,617 |
|
The following tables detail Peoples’ average balance sheets for the previous increasesperiods presented:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| June 30, 2019 | | March 31, 2019 | | June 30, 2018 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 27,979 |
| $ | 263 |
| 3.77 | % | | $ | 16,247 |
| $ | 176 |
| 4.39 | % | | $ | 10,815 |
| $ | 56 |
| 2.00 | % |
Investment securities (a)(b): | | | | | | | | | | | |
Taxable (c) | 874,427 |
| 6,006 |
| 2.75 | % | | 780,721 |
| 5,847 |
| 3.00 | % | | 793,497 |
| 5,868 |
| 2.96 | % |
Nontaxable | 118,241 |
| 923 |
| 3.12 | % | | 83,319 |
| 680 |
| 3.26 | % | | 96,991 |
| 804 |
| 3.32 | % |
Total investment securities | 992,668 |
| 6,929 |
| 2.79 | % | | 864,040 |
| 6,527 |
| 3.03 | % | | 890,488 |
| 6,672 |
| 3.00 | % |
Loans (b)(d): | | | | | | | | | | | |
Commercial real estate, construction | 124,334 |
| 1,655 |
| 5.27 | % | | 131,683 |
| 1,732 |
| 5.26 | % | | 118,206 |
| 1,438 |
| 4.81 | % |
Commercial real estate, other | 833,991 |
| 11,322 |
| 5.37 | % | | 806,181 |
| 10,596 |
| 5.26 | % | | 840,677 |
| 10,434 |
| 4.91 | % |
Commercial and industrial | 599,432 |
| 8,081 |
| 5.33 | % | | 578,954 |
| 7,681 |
| 5.31 | % | | 503,364 |
| 6,216 |
| 4.89 | % |
Residential real estate (e) | 646,978 |
| 7,918 |
| 4.90 | % | | 603,253 |
| 6,927 |
| 4.59 | % | | 600,799 |
| 6,749 |
| 4.49 | % |
Home equity lines of credit | 132,395 |
| 2,006 |
| 6.08 | % | | 131,089 |
| 1,860 |
| 5.75 | % | | 131,970 |
| 1,701 |
| 5.17 | % |
Consumer, indirect | 412,986 |
| 4,255 |
| 4.13 | % | | 409,975 |
| 4,088 |
| 4.04 | % | | 359,941 |
| 3,498 |
| 3.90 | % |
Consumer, direct | 80,442 |
| 1,459 |
| 7.27 | % | | 73,457 |
| 1,189 |
| 6.56 | % | | 72,820 |
| 1,230 |
| 6.77 | % |
Total loans | 2,830,558 |
| 36,696 |
| 5.20 | % | | 2,734,592 |
| 34,073 |
| 5.00 | % | | 2,627,777 |
| 31,266 |
| 4.73 | % |
Allowance for loan losses | (21,311 | ) | | | | (20,406 | ) | | | | (19,071 | ) | | |
Net loans | 2,809,247 |
| 36,696 |
| 5.20 | % | | 2,714,186 |
| 34,073 |
| 5.04 | % | | 2,608,706 |
| 31,266 |
| 4.77 | % |
Total earning assets | 3,829,894 |
| 43,888 |
| 4.56 | % | | 3,594,473 |
| 40,776 |
| 4.55 | % | | 3,510,009 |
| 37,994 |
| 4.31 | % |
Goodwill and other intangible assets | 175,169 |
| | | | 161,673 |
| | | | 161,600 |
| | |
Other assets | 234,716 |
| | | | 229,475 |
| | | | 226,348 |
| | |
Total assets | $ | 4,239,779 |
| | | | $ | 3,985,621 |
| | | | $ | 3,897,957 |
| | |
Deposits: | | �� | | | | | | | | | |
Savings accounts | $ | 523,295 |
| $ | 110 |
| 0.08 | % | | $ | 472,656 |
| $ | 91 |
| 0.08 | % | | $ | 477,167 |
| $ | 69 |
| 0.06 | % |
Governmental deposit accounts | 331,607 |
| 848 |
| 1.03 | % | | 297,537 |
| 557 |
| 0.76 | % | | 312,999 |
| 273 |
| 0.35 | % |
Interest-bearing demand accounts | 603,494 |
| 231 |
| 0.15 | % | | 569,472 |
| 247 |
| 0.18 | % | | 581,600 |
| 202 |
| 0.14 | % |
Money market accounts | 414,307 |
| 654 |
| 0.63 | % | | 395,324 |
| 531 |
| 0.54 | % | | 393,580 |
| 323 |
| 0.33 | % |
Retail certificates of deposit | 477,530 |
| 2,079 |
| 1.75 | % | | 396,977 |
| 1,417 |
| 1.45 | % | | 395,304 |
| 1,242 |
| 1.26 | % |
Brokered certificates of deposit | 272,693 |
| 1,797 |
| 2.64 | % | | 314,163 |
| 2,001 |
| 2.58 | % | | 187,387 |
| 992 |
| 2.13 | % |
Total interest-bearing deposits | 2,622,926 |
| 5,719 |
| 0.87 | % | | 2,446,129 |
| 4,844 |
| 0.80 | % | | 2,348,037 |
| 3,101 |
| 0.53 | % |
Borrowed funds: | | | | | | | | | | | |
Short-term FHLB advances | 193,963 |
| 1,140 |
| 2.36 | % | | 198,643 |
| 1,115 |
| 2.28 | % | | 225,635 |
| 966 |
| 1.72 | % |
Repurchase agreements and other | 46,631 |
| 93 |
| 0.80 | % | | 46,111 |
| 58 |
| 0.50 | % | | 85,188 |
| 209 |
| 0.98 | % |
Total short-term borrowings | 240,594 |
| 1,233 |
| 2.06 | % | | 244,754 |
| 1,173 |
| 1.94 | % | | 310,823 |
| 1,175 |
| 1.52 | % |
Long-term FHLB advances | 96,519 |
| 491 |
| 2.04 | % | | 100,930 |
| 508 |
| 2.04 | % | | 114,287 |
| 559 |
| 1.96 | % |
Other borrowings | 7,346 |
| 129 |
| 7.02 | % | | 7,304 |
| 137 |
| 7.50 | % | | 7,766 |
| 126 |
| 6.49 | % |
Total long-term borrowings | 103,865 |
| 620 |
| 2.39 | % | | 108,234 |
| 645 |
| 2.41 | % | | 122,053 |
| 685 |
| 2.25 | % |
Total borrowed funds | 344,459 |
| 1,853 |
| 2.16 | % | | 352,988 |
| 1,818 |
| 2.09 | % | | 432,876 |
| 1,860 |
| 1.72 | % |
Total interest-bearing liabilities | 2,967,385 |
| 7,572 |
| 1.02 | % | | 2,799,117 |
| 6,662 |
| 0.96 | % | | 2,780,913 |
| 4,961 |
| 0.71 | % |
Non-interest-bearing deposits | 654,468 |
| | | | 613,924 |
| | | | 585,800 |
| | |
Other liabilities | 52,934 |
| |
| | | 48,384 |
| |
| | | 41,368 |
| |
| |
Total liabilities | 3,674,787 |
| | | | 3,461,425 |
| | |
| 3,408,081 |
| | |
Total stockholders’ equity | 564,992 |
| |
| | | 524,196 |
| |
| | | 489,876 |
| |
| |
Total liabilities and stockholders’ equity | $ | 4,239,779 |
| |
| | | $ | 3,985,621 |
| |
| | | $ | 3,897,957 |
| |
| |
Interest rate spread (b) | | $ | 36,316 |
| 3.54 | % | | | $ | 34,114 |
| 3.59 | % | | | $ | 33,033 |
| 3.60 | % |
Net interest margin (b) | 3.77 | % | | | | 3.80 | % | | | | 3.74 | % |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| For the Six Months Ended |
| June 30, 2019 | | June 30, 2018 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 22,145 |
| $ | 439 |
| 4.00 | % | | $ | 11,052 |
| $ | 106 |
| 1.93 | % |
Investment securities (a)(b): | | | | | | | |
Taxable | 827,831 |
| 11,853 |
| 2.86 | % | | 784,628 |
| 11,555 |
| 2.95 | % |
Nontaxable | 100,876 |
| 1,603 |
| 3.18 | % | | 97,062 |
| 1,618 |
| 3.33 | % |
Total investment securities | 928,707 |
| 13,456 |
| 2.90 | % | | 881,690 |
| 13,173 |
| 2.99 | % |
Loans (b)(c): | | | | | | | |
Commercial real estate, construction | 127,988 |
| 3,387 |
| 5.26 | % | | 118,396 |
| 2,771 |
| 4.66 | % |
Commercial real estate, other | 820,163 |
| 21,918 |
| 5.32 | % | | 803,085 |
| 19,558 |
| 4.84 | % |
Commercial and industrial | 589,249 |
| 15,762 |
| 5.32 | % | | 491,643 |
| 11,787 |
| 4.77 | % |
Residential real estate (d) | 625,236 |
| 14,845 |
| 4.75 | % | | 546,558 |
| 12,058 |
| 4.41 | % |
Home equity lines of credit | 131,746 |
| 3,866 |
| 5.92 | % | | 120,360 |
| 2,972 |
| 4.98 | % |
Consumer, indirect | 411,489 |
| 8,343 |
| 4.09 | % | | 351,581 |
| 6,628 |
| 3.80 | % |
Consumer, other | 76,969 |
| 2,648 |
| 6.94 | % | | 70,633 |
| 2,392 |
| 6.83 | % |
Total loans | 2,782,840 |
| 70,769 |
| 5.07 | % | | 2,502,256 |
| 58,166 |
| 4.64 | % |
Less: Allowance for loan losses | (20,861 | ) | | | | (18,878 | ) | | |
Net loans | 2,761,979 |
| 70,769 |
| 5.12 | % | | 2,483,378 |
| 58,166 |
| 4.68 | % |
Total earning assets | 3,712,831 |
| 84,664 |
| 4.55 | % | | 3,376,120 |
| 71,445 |
| 4.23 | % |
Intangible assets | 168,458 |
| | | | 152,943 |
| | |
Other assets | 232,114 |
| | | | 219,268 |
| | |
Total assets | $ | 4,113,403 |
| | | | $ | 3,748,331 |
| | |
Deposits: | | | | | | | |
Savings accounts | $ | 498,115 |
| $ | 201 |
| 0.08 | % | | $ | 465,091 |
| $ | 133 |
| 0.06 | % |
Governmental deposit accounts | 314,666 |
| 1,405 |
| 0.90 | % | | 302,286 |
| 490 |
| 0.33 | % |
Interest-bearing demand accounts | 586,577 |
| 478 |
| 0.16 | % | | 574,465 |
| 423 |
| 0.15 | % |
Money market accounts | 404,868 |
| 1,185 |
| 0.59 | % | | 380,834 |
| 549 |
| 0.29 | % |
Retail certificates of deposit | 437,476 |
| 3,496 |
| 1.61 | % | | 366,923 |
| 2,007 |
| 1.10 | % |
Brokered certificates of deposit | 293,313 |
| 3,798 |
| 2.61 | % | | 172,101 |
| 1,712 |
| 2.01 | % |
Total interest-bearing deposits | 2,535,015 |
| 10,563 |
| 0.84 | % | | 2,261,700 |
| 5,314 |
| 0.47 | % |
Borrowed funds: | | | | | | | |
Short-term FHLB advances | 196,290 |
| 2,255 |
| 2.32 | % | | 185,195 |
| 1,629 |
| 1.77 | % |
Repurchase agreements and other | 46,373 |
| 151 |
| 0.65 | % | | 93,634 |
| 514 |
| 1.10 | % |
Total short-term borrowings | 242,663 |
| 2,406 |
| 2.00 | % | | 278,829 |
| 2,143 |
| 1.55 | % |
Long-term FHLB advances | 98,712 |
| 999 |
| 2.04 | % | | 116,628 |
| 1,123 |
| 1.94 | % |
Other borrowings | 7,325 |
| 266 |
| 7.26 | % | | 7,439 |
| 248 |
| 6.67 | % |
Total long-term borrowings | 106,037 |
| 1,265 |
| 2.40 | % | | 124,067 |
| 1,371 |
| 2.22 | % |
Total borrowed funds | 348,700 |
| 3,671 |
| 2.12 | % | | 402,896 |
| 3,514 |
| 1.75 | % |
Total interest-bearing liabilities | 2,883,715 |
| 14,234 |
| 0.99 | % | | 2,664,596 |
| 8,828 |
| 0.67 | % |
Non-interest-bearing deposits | 634,308 |
| | | | 569,711 |
| | |
Other liabilities | 50,674 |
| |
| | | 41,872 |
| |
| |
Total liabilities | 3,568,697 |
| | | | 3,276,179 |
| |
| |
|
Total stockholders’ equity | 544,706 |
| |
| | | 472,152 |
| |
| |
Total liabilities and stockholders’ equity | $ | 4,113,403 |
| |
| | | $ | 3,748,331 |
| |
| |
Interest rate spread (b) | | $ | 70,430 |
| 3.56 | % | | | $ | 62,617 |
| 3.56 | % |
Net interest margin (b) | | | 3.78 | % | | | | 3.70 | % |
| |
(a) | Average balances are based on carrying value. |
| |
(b) | Interest income and yields are presented on a fully tax-equivalent basis using a 21% statutory federal corporate income tax rate. |
| |
(c) | Interest income and yield presented for the second quarter of 2018 include $248,000 of proceeds on an investment security for which an other-than-temporary-impairment had been recorded in previous years. Interest income and yield presented for the first six months of 2018 include $589,000 of proceeds on an investment security for which an other-than-temporary-impairment had been recorded in previous years. |
| |
(d) | Average balances include nonaccrual, impaired loans and 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. |
| |
(e) | 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 interest rates, positively impactedFTE net interest income:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 Compared to | | Compared to |
(Dollars in thousands) | March 31, 2019 | | June 30, 2018 | | June 30, 2018 |
Increase (decrease) in: | Rate | Volume | Total (a) | | Rate | Volume | Total (a) | | Rate | Volume | Total (a) |
INTEREST INCOME: | | | | | | | | | | | |
Short-term investments | $ | (155 | ) | $ | 242 |
| $ | 87 |
| | $ | 74 |
| $ | 133 |
| $ | 207 |
| | $ | 169 |
| $ | 164 |
| $ | 333 |
|
Investment Securities (b): | | | | | | | | | | | |
Taxable | (2,234 | ) | 2,393 |
| 159 |
| | (1,908 | ) | 2,046 |
| 138 |
| | 282 |
| 16 |
| 298 |
|
Nontaxable | (191 | ) | 434 |
| 243 |
| | (271 | ) | 390 |
| 119 |
| | (14 | ) | (1 | ) | (15 | ) |
Total investment income | (2,425 | ) | 2,827 |
| 402 |
| | (2,179 | ) | 2,436 |
| 257 |
| | 268 |
| 15 |
| 283 |
|
Loans (b): | | | | | | | | | | | |
Commercial real estate, construction | 11 |
| (88 | ) | (77 | ) | | 140 |
| 77 |
| 217 |
| | 380 |
| 236 |
| 616 |
|
Commercial real estate, other | 280 |
| 446 |
| 726 |
| | 1,424 |
| (536 | ) | 888 |
| | 1,937 |
| 423 |
| 2,360 |
|
Commercial and industrial | 50 |
| 350 |
| 400 |
| | 604 |
| 1,261 |
| 1,865 |
| | 1,464 |
| 2,511 |
| 3,975 |
|
Residential real estate | 471 |
| 520 |
| 991 |
| | 629 |
| 540 |
| 1,169 |
| | 965 |
| 1,822 |
| 2,787 |
|
Home equity lines of credit | 124 |
| 22 |
| 146 |
| | 299 |
| 6 |
| 305 |
| | 595 |
| 299 |
| 894 |
|
Consumer, indirect | 125 |
| 42 |
| 167 |
| | 219 |
| 538 |
| 757 |
| | 527 |
| 1,188 |
| 1,715 |
|
Consumer, direct | 145 |
| 125 |
| 270 |
| | 85 |
| 144 |
| 229 |
| | 236 |
| 20 |
| 256 |
|
Total loan income | 1,206 |
| 1,417 |
| 2,623 |
| | 3,400 |
| 2,030 |
| 5,430 |
| | 6,104 |
| 6,499 |
| 12,603 |
|
Total interest income | $ | (1,374 | ) | $ | 4,486 |
| $ | 3,112 |
| | $ | 1,295 |
| $ | 4,599 |
| $ | 5,894 |
| | $ | 6,541 |
| $ | 6,678 |
| $ | 13,219 |
|
INTEREST EXPENSE: | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Savings accounts | $ | 8 |
| $ | 11 |
| $ | 19 |
| | $ | 34 |
| $ | 7 |
| $ | 41 |
| | $ | 58 |
| $ | 10 |
| $ | 68 |
|
Governmental deposit accounts | 220 |
| 71 |
| 291 |
| | 558 |
| 17 |
| 575 |
| | 894 |
| 21 |
| 915 |
|
Interest-bearing demand accounts | (92 | ) | 76 |
| (16 | ) | | 21 |
| 8 |
| 29 |
| | 46 |
| 9 |
| 55 |
|
Money market accounts | 94 |
| 29 |
| 123 |
| | 313 |
| 18 |
| 331 |
| | 599 |
| 37 |
| 636 |
|
Retail certificates of deposit | 334 |
| 328 |
| 662 |
| | 544 |
| 293 |
| 837 |
| | 1,051 |
| 438 |
| 1,489 |
|
Brokered certificates of deposit | 291 |
| (495 | ) | (204 | ) | | 281 |
| 524 |
| 805 |
| | 626 |
| 1,460 |
| 2,086 |
|
Total deposit cost | 855 |
| 20 |
| 875 |
| | 1,751 |
| 867 |
| 2,618 |
| | 3,274 |
| 1,975 |
| 5,249 |
|
Borrowed funds: | | | | | | | | | | | |
Short-term borrowings | 180 |
| (120 | ) | 60 |
| | 886 |
| (828 | ) | 58 |
| | 679 |
| (416 | ) | 263 |
|
Long-term borrowings | (13 | ) | (12 | ) | (25 | ) | | 136 |
| (201 | ) | (65 | ) | | 171 |
| (277 | ) | (106 | ) |
Total borrowed funds cost | 167 |
| (132 | ) | 35 |
| | 1,022 |
| (1,029 | ) | (7 | ) | | 850 |
| (693 | ) | 157 |
|
Total interest expense | 1,022 |
| (112 | ) | 910 |
| | 2,773 |
| (162 | ) | 2,611 |
| | 4,124 |
| 1,282 |
| 5,406 |
|
Net interest income | $ | (2,396 | ) | $ | 4,598 |
| $ | 2,202 |
| | $ | (1,478 | ) | $ | 4,761 |
| $ | 3,283 |
| | $ | 2,417 |
| $ | 5,396 |
| $ | 7,813 |
|
| |
(a) | 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. |
| |
(b) | Interest income and yields are presented on a fully tax-equivalent basis using a 21% statutory federal corporate income tax rate. |
Net interest income and the net interest marginwas $36.0 million for the nine monthssecond quarter of 20182019, an increase of 6% compared to the nine monthslinked quarter. Net interest margin was 3.77% for the second quarter of 2017.2019, compared to 3.80% for the linked quarter. The ASB acquisition also impacted net interest income andslight decline in net interest margin during the thirdquarter was driven by higher costs for time deposits and governmental deposits, which more than offset increased loan yields, driven by the acquisition of First Prestonsburg. Compared to the first quarter of 2019, net interest income was positively impacted by the acquisition of First Prestonsburg.
Accretion income, net of amortization expense, from acquisitions was $1.2 million for the second quarter of 2019 and $722,000 for the first quarter of 2019, which added 13 basis points and 8 basis points, respectively, to net interest margin.
The growth in accretion income compared to the first quarter of 2019 was due to the First Prestonsburg acquisition, specifically the loan discount that was accreted during the quarter.
Net interest income for the current quarter increased $3.2 million, or 10%, over the second quarter of 2018. Net interest margin increased 3 basis points compared to 3.74% for the second quarter of 2018. The increase in net interest income compared to the second quarter of 2018 andwas driven by higher yields on loans combined with the nine months ended September 30, 2018.impact of acquired First Prestonsburg loans. These were partially offset by higher deposit costs due to increased competition for deposits, combined with additional interest expense related to the acquired First Prestonsburg deposits. The decline insecond quarter of 2018 also benefited from proceeds of $248,000 received on an investment security that had been previously written down due to an OTTI, which added 3 basis points to the taxable equivalent adjustments innet interest margin. Peoples recorded no similar proceeds during the nine months ended September 30, 2018 was a result of the change in the federal corporatecurrent quarter.
Accretion income, tax rate, which was 21% for the periods reported in 2018 compared to 35% for the periods reported in 2017. The accretion income from acquisitions, net of amortization expense, from acquisitions was $612,000$1.2 million for the thirdsecond quarter of 2018, compared to2019 and $523,000 for the second quarter of 2018, and $816,000 for the third quarter of 2017, which added 7 basis points, 613 basis points and 106 basis points, respectively, to net interest margin. OnThe increase in accretion income compared to the second quarter of 2018 was due to the First Prestonsburg acquisition.
For the first six months of 2019, net interest income grew 13% compared to 2018, and net interest margin grew 8 basis points to 3.78%. The increases were driven by higher interest income on loans due to a year-to-datecombination of loan growth, which was primarily the result of the First Prestonsburg and ASB acquisitions, and higher yields from interest rate increases. The increase in interest income due to loan growth outpaced higher deposit costs, which were due to the recent acquisitions and increased competition for deposits. The first six months of 2018 benefited from proceeds of $589,000 received on investment securities that had been previously written down due to OTTI, which added 3 basis points to net interest margin. Peoples recorded no similar proceeds during the accretionfirst six months of 2019.
Accretion income, net of amortization expense, from acquisitions was $1.9 million for the first six months of 2019 and $1.1 million for the first six months of 2018, which added 710 basis points and 6 basis points, respectively, to net interest margin formargin. The growth in accretion income compared to the first ninesix months of 2018 comparedwas largely due to 10 basis points for the first nine months of 2017.First Prestonsburg acquisition.
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 "FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity."
Provision for (Recovery of) Loan Losses
The following table details Peoples’ provision for (recovery of) loan losses:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, |
(Dollars in thousands) | | 2018 | 2017 |
Loan losses | $ | 1,035 |
| $ | 1,000 |
| $ | 900 |
| | $ | 3,877 |
| $ | 2,150 |
|
Checking account overdrafts | 267 |
| 188 |
| 186 |
| | 596 |
| 507 |
|
Provision for loan losses | $ | 1,302 |
| $ | 1,188 |
| $ | 1,086 |
| | $ | 4,473 |
| $ | 2,657 |
|
As a percentage of average total loans (a) | 0.19 | % | 0.18 | % | 0.19 | % | | 0.23 | % | 0.16 | % |
(a) Presented on an annualized basis. | | | | | | |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2019 | 2018 |
Provision for (recovery of) other loan losses | $ | 475 |
| $ | (360 | ) | $ | 1,000 |
| | $ | 115 |
| $ | 2,842 |
|
Provision for checking account overdrafts | 151 |
| 97 |
| 188 |
| | 248 |
| 329 |
|
Provision for (recovery of) loan losses | $ | 626 |
| $ | (263 | ) | $ | 1,188 |
| | $ | 363 |
| $ | 3,171 |
|
As a percentage of average total loans (a) | 0.09 | % | (0.04 | )% | 0.18 | % | | 0.03 | % | 0.26 | % |
(a) Presented on an annualized basis. | | | | | | |
The provision for, or recovery of, loan losses recorded represents the amount needed to maintain the adequacyappropriate level of the allowance for loan losses based on management’s formal 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. Provisionconditions, and other environmental factors such as changes in real estate market conditions, unemployment, and the economic impact of tariffs.
The provision for loan losses continued to increase from previous quarters due to continued loan growth, while asset quality metrics were stable. The increase induring the second quarter and the first ninesix months of 2019 was lower than historical trends, given low gross charge-offs and high recoveries combined with originated loan balances remaining stable during the first six months of 2019. Net charge-offs for the second quarter of 2019 were $208,000, or 0.03% of average total loans, compared to net recoveries of $1.0 million, or 0.15% of average total loans, for the linked quarter and $720,000, or 0.11% of average total loans, for the second quarter of 2018. Net recoveries during the first quarter of 2019 were driven by a $1.8 million recovery recorded on a previously charged-off commercial loan. Gross charge-offs were $665,000, or 0.09% of average total loans, for the second quarter of 2019, compared to $1.0 million, or 0.15% of average total loans, for the first quarter of 2019, and
$1.0 million, or 0.15% of average total loans, for the second quarter of 2018. Net recoveries for the first six months of 2019 were $799,000, compared to net charge-offs of $2.7 million for the first six months of 2018. The first six months of 2018 was due primarily to oneincluded a charge-off of $827,000 on an acquired commercial loan relationship, coupled withrelationship. Gross charge-offs relatedwere $1.7 million, or 0.12% of average total loans, for the first six months of 2019, compared to indirect lending and continued loan growth.$3.3 million, or 0.26% of average total loans, for the first six months of 2018.
Additional information regarding changes in the allowance for loan losses and loan credit quality can be found later in this discussion under the caption “FINANCIAL CONDITION - Allowance for Loan Losses.”
Net Gain (Loss)(Losses) Gains Included in Total Non-Interest Income
Net gains and net losses include gains and losses on Asset Disposalsinvestment securities, and Other Transactions
The following table details the net gain (loss) on asset disposals and other transactions, which are recognized by Peoples:in total non-interest income. The following table details Peoples’ net gains and net losses:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, |
(Dollars in thousands) | | 2018 | 2017 |
Net gain (loss) on other assets | $ | 12 |
| $ | (330 | ) | $ | (38 | ) | | $ | (239 | ) | $ | 92 |
|
Net gain (loss) on other real estate owned ("OREO") | — |
| 14 |
| 13 |
| | 9 |
| (11 | ) |
Net loss on debt extinguishment | — |
| (13 | ) | — |
| | (13 | ) | — |
|
Net loss on other transactions | — |
| (76 | ) | — |
| | (76 | ) | — |
|
Net gain (loss) on asset disposals and other transactions | $ | 12 |
| $ | (405 | ) | $ | (25 | ) |
| $ | (319 | ) | $ | 81 |
|
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2019 | 2018 |
Net (loss) gain on investment securities | $ | (57 | ) | $ | 30 |
| $ | (147 | ) | | $ | (27 | ) | $ | (146 | ) |
| | | | | | |
Net (loss) gain on asset disposals and other transactions: | | | | | | |
Net loss on other assets | $ | (274 | ) | $ | (157 | ) | $ | (330 | ) | | $ | (431 | ) | $ | (251 | ) |
Net (loss) gain on OREO | (24 | ) | (25 | ) | 14 |
| | (49 | ) | 9 |
|
Net loss on debt extinguishment | — |
| — |
| (13 | ) | | — |
| (13 | ) |
Net gain (loss) on other transactions | 5 |
| — |
| (76 | ) | | 5 |
| (76 | ) |
Net loss on asset disposals and other transactions | $ | (293 | ) | $ | (182 | ) | $ | (405 | ) |
| $ | (475 | ) | $ | (331 | ) |
During the second quarter of 2019, losses included $253,000 of write-offs of fixed assets acquired from First Prestonsburg. During the first quarter of 2019, net loss on other assets was primarily due to $118,000 of market value write-downs related to closed offices that were held for sale. During the second quarter of 2018, net loss on other assets was primarily due to the disposalincluded losses of $192,000 in ASBrelated to fixed assets acquired coupled withfrom ASB and $147,000 of market value write-downs related to closed offices that were held for sale. The net loss on other transactions
Net losses during the year-to-date period through June 30, 2019 were driven by the write-offs of fixed assets acquired from First Prestonsburg, combined with market value write-downs related to closed offices that were held for sale. For the year-to-date period in 2018, the second quarter of 2018 was due to the write down of a limited partnership investment. The netlosses on fixed asset disposals, loss on otherinvestment securities, and market value write-downs on properties held for sale were partially offset by net gains related to repossessed assets duringrecorded in the thirdfirst quarter of 2017 was primarily due to the sale of a parking lot that was no longer being utilized. The year-to-date 2017 net gain on other assets was due to the sale of a previously closed branch.2018.
Total Non-Interest Income, Excluding Net Gains and Losses
Insurance income comprised the largest portion of the thirdsecond quarter 20182019 total non-interest income. The following table details Peoples' insurance income:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, | June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2018 | 2017 | | 2019 | 2018 |
Property and casualty insurance commissions | $ | 2,614 |
| $ | 2,597 |
| $ | 2,638 |
| | $ | 7,856 |
| $ | 7,633 |
| $ | 2,680 |
| $ | 2,674 |
| $ | 2,597 |
| | $ | 5,354 |
| $ | 5,242 |
|
Performance-based commissions | | 2 |
| 1,419 |
| 3 |
| | 1,421 |
| 1,350 |
|
Life and health insurance commissions | 545 |
| 596 |
| 433 |
| | 1,685 |
| 1,310 |
| 626 |
| 359 |
| 596 |
| | 985 |
| 1,140 |
|
Performance-based commissions | 98 |
| 3 |
| 99 |
| | 1,448 |
| 1,407 |
| |
Credit life and A&H insurance commissions | 5 |
| 4 |
| 2 |
| | 14 |
| 27 |
| |
Other fees and charges | 126 |
| 169 |
| 173 |
| | 409 |
| 484 |
| 178 |
| 169 |
| 173 |
| | 347 |
| 292 |
|
Insurance income | $ | 3,388 |
| $ | 3,369 |
| $ | 3,345 |
| | $ | 11,412 |
| $ | 10,861 |
| $ | 3,486 |
| $ | 4,621 |
| $ | 3,369 |
| | $ | 8,107 |
| $ | 8,024 |
|
The increasedecline in insurance income the first nine months of 2018, included the continued growth resulting from the acquisition of a third-party insurance administration company on January 31, 2017, and a property and casualty focused independent insurance agency on October 2, 2017. Revenuerevenue related to performance-based commissions is largely due to annual performance-based insurance commissions, which are primarily recognized in the first quarter of each year.year and are a core component of insurance income.
Life and health insurance commissions were low in the first six months of 2019 primarily due to an increase in deferred revenue.
Peoples' fiduciary and brokerage revenues continued to be based primarily upon the value of assets under administration and management, with additional income generated from transaction commissions, cross-selling of products and additional retirement plan services business. Fiduciary revenue related to tax preparationand brokerage income is largely recognized infor the second quarter of each year.
2019 and the second quarter of 2018 primarily due to higher market values of accounts. The following tables detail Peoples’ trust and investment income and related assets under administration and management:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, | June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2018 | 2017 | | 2019 | 2018 |
Fiduciary | $ | 1,626 |
| $ | 1,767 |
| $ | 1,548 |
| | $ | 5,000 |
| $ | 4,764 |
| $ | 1,837 |
| $ | 1,636 |
| $ | 1,767 |
| | $ | 3,473 |
| $ | 3,374 |
|
Brokerage | 999 |
| 989 |
| 882 |
| | 2,951 |
| 2,575 |
| 1,038 |
| 965 |
| 989 |
| | 2,003 |
| 1,952 |
|
Employee benefits | 485 |
| 476 |
| 408 |
| | 1,459 |
| 1,158 |
| 526 |
| 511 |
| 476 |
| | 1,037 |
| 974 |
|
Trust and investment income | $ | 3,110 |
| $ | 3,232 |
| $ | 2,838 |
| | $ | 9,410 |
| $ | 8,497 |
| $ | 3,401 |
| $ | 3,112 |
| $ | 3,232 |
| | $ | 6,513 |
| $ | 6,300 |
|
| | | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
(Dollars in thousands) |
Trust assets under administration and management | $ | 1,489,810 |
| $ | 1,454,009 |
| $ | 1,447,636 |
| $ | 1,452,959 |
| $ | 1,418,360 |
| $ | 1,501,110 |
| $ | 1,471,422 |
| $ | 1,384,113 |
| $ | 1,489,810 |
| $ | 1,454,009 |
|
Brokerage assets under administration and management | 914,172 |
| 881,839 |
| 882,018 |
| 887,303 |
| 862,530 |
| 887,745 |
| 863,286 |
| 849,188 |
| 914,172 |
| 881,839 |
|
Total assets under administration and management | $ | 2,403,982 |
| $ | 2,335,848 |
| $ | 2,329,654 |
| $ | 2,340,262 |
| $ | 2,280,890 |
| $ | 2,388,855 |
| $ | 2,334,708 |
| $ | 2,233,301 |
| $ | 2,403,982 |
| $ | 2,335,848 |
|
Quarterly average | $ | 2,378,676 |
| $ | 2,331,529 |
| $ | 2,352,798 |
| $ | 2,314,015 |
| $ | 2,254,997 |
| $ | 2,356,121 |
| $ | 2,312,098 |
| $ | 2,316,201 |
| $ | 2,378,676 |
| $ | 2,331,529 |
|
Peoples' electronic banking ("e-banking") services include ATM and debit cards, direct deposit services, internet and mobile banking, and remote deposit capture and serve as alternative delivery channels to traditional sales offices for providing services to clients. The following table details Peoples' e-banking income:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2019 | 2018 |
Interchange fees | $ | 2,747 |
| $ | 2,443 |
| $ | 2,520 |
| | $ | 5,190 |
| $ | 4,784 |
|
Promotional and usage income | 520 |
| 544 |
| 265 |
| | 1,064 |
| 786 |
|
E-banking income | $ | 3,267 |
| $ | 2,987 |
| $ | 2,785 |
| | $ | 6,254 |
| $ | 5,570 |
|
Peoples' e-banking revenue is derived largely from ATM and debit cards, as other services are mainly provided at no charge to the customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. The increases in e-banking income in all comparisons were the result of the increased usage of debit cards by more customers, which includes the impact of additional cardholders obtained in the merger with First Prestonsburg.
Deposit account service charges which are based on the recovery of costs associated with services provided, comprised a significant portion of People's non-interest income.provided. The following table details Peoples' deposit account service charges:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, | June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2018 | 2017 | | 2019 | 2018 |
Overdraft and non-sufficient funds fees | $ | 1,800 |
| $ | 1,584 |
| $ | 1,765 |
| | $ | 4,823 |
| $ | 5,021 |
| $ | 1,746 |
| $ | 1,433 |
| $ | 1,584 |
| | $ | 3,179 |
| $ | 3,023 |
|
Account maintenance fees | 691 |
| 646 |
| 543 |
| | 2,012 |
| 1,624 |
| 1,012 |
| 752 |
| 646 |
| | 1,764 |
| 1,321 |
|
Other fees and charges | 161 |
| 158 |
| 99 |
| | 325 |
| 485 |
| 219 |
| 156 |
| 158 |
| | 375 |
| 164 |
|
Deposit account service charges | $ | 2,652 |
| $ | 2,388 |
| $ | 2,407 |
| | $ | 7,160 |
| $ | 7,130 |
| $ | 2,977 |
| $ | 2,341 |
| $ | 2,388 |
| | $ | 5,318 |
| $ | 4,508 |
|
The slight decline in overdrafts and non-sufficient funds fees from 2017 was partially due to changes made to the calculation
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. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Income from deposit account service charges were up compared to the linked quarter, due to a combination of the additional accounts acquired from First Prestonsburg and a new deposit account fee schedule that was implemented in March 2019. Income from deposit account service charges for the first six months of 2019 were up compared to a year ago primarily due to the ASB and First Prestonsburg acquisitions, coupled with changes in fee schedules.
The following table details the other items included within Peoples' total non-interest income:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, |
(Dollars in thousands) | | 2018 | 2017 |
Electronic banking income | $ | 2,890 |
| $ | 2,785 |
| $ | 2,544 |
| | $ | 8,460 |
| $ | 7,692 |
|
Mortgage banking income | 1,060 |
| 969 |
| 535 |
| | 2,380 |
| 1,389 |
|
Bank owned life insurance income | 495 |
| 497 |
| 482 |
| | 1,460 |
| 1,471 |
|
Commercial loan swap fees | 355 |
| 146 |
| 76 |
| | 617 |
| 995 |
|
Other non-interest income (a) | 391 |
| 421 |
| 383 |
| | 2,143 |
| 1,499 |
|
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in a reduction of income of $16,000 during the three months ended September 30, 2018 and a gain in income of $208,000 for the nine months ended September 30, 2018.
Peoples' electronic banking ("e-banking") services include ATM and debit cards, direct deposit services, internet and mobile banking, and remote deposit capture and serve as alternative delivery channels to traditional sales offices for
providing services to clients. Revenue is derived largely from ATM and debit cards, as other services are mainly provided at no charge to the customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. |
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2019 | 2018 |
Mortgage banking income | $ | 1,000 |
| $ | 788 |
| $ | 969 |
| | $ | 1,788 |
| $ | 1,320 |
|
Bank owned life insurance income | 490 |
| 485 |
| 497 |
| | 975 |
| 965 |
|
Commercial loan swap fees | 516 |
| 146 |
| 146 |
| | 662 |
| 262 |
|
Other non-interest income | 502 |
| 1,101 |
| 421 |
| | 1,603 |
| 1,752 |
|
Mortgage banking income is comprised mostly of net gains from the origination and sale of long-term, fixed-rate real estate loans in the secondary market, and servicing income for loans sold loans as well aswith servicing released premiums for sold loans.retained. As a result, the amount of income recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans offered in the secondary market. InThe increase in mortgage banking income from the second and third quartersfirst quarter of 2018, and2019 was mainly due to customer demand which is typically seasonally low in the ninefirst quarter of each year. For the first six months ended September 30,of 2019, compared to the same period in 2018, the increase in mortgage banking income was largely attributable to gains on sale of real estate loans originated by the mortgage origination operation acquired as part of the ASB acquisition.
In the thirdsecond quarter of 2018,2019, Peoples sold approximately $20.6$24.9 million in loans to the secondary market with servicing retained and sold approximately $11.4 million in loans with servicing released, compared to $19.1approximately $13.7 million and $10.9 million, respectively, in the linked quarter and $20.2quarter. For the first six months of 2019, Peoples sold approximately $38.6 million in loans to the third quartersecondary market with servicing retained and sold approximately $22.3 million in loans with servicing released, compared to approximately $29.2 million and $13.6 million, respectively, in the first six months of 2017.2018. The volume of sales has a direct impact on the amount of mortgage banking income. During the third quarter of 2018, Peoples sold approximately $19.2 million in loans with servicing released premiums, compared to $13.6 million in loans with servicing released premiums for the second quarter of 2018.
Commercial loan swap fee income isfees are largely dependent on the timing, interest rates, and volume of customer activity. Demand has decreasedThe increase in all comparisons was driven by a combination of an increase in the average size of each transaction and higher customer demand, given the current year due largelyrate environment and the favorable longer term rates that customers can lock in by utilizing a swap.
Compared to the current interest rate environment.
For the first nine months of 2018,linked quarter, other non-interest income declined primarily due to lower income from equity investment securities, which was $2.1 million, compareddown $809,000. During the first quarter of 2019, Peoples recognized $787,000 of income related to $1.5 millionthe sale of restricted Class B Visa stock, which had been held at a carrying cost and fair value of zero due to the litigation liability associated with the stock. Other non-interest income for the first ninesix months of 2017. The increase2019 was down compared to the same period of $644,000, or 43%, was primarily2018, due to $208,000 recordeda decrease in connection with the implementationSmall Business Administration income of a new accounting standard, which changed how the fair value of$550,000 and declines in various other small items, partially offset by an increase in income from equity investment securities was to be recognized beginning January 1, 2018, coupled with an increase of $179,000 in the gain on sale of SBA loans and other operating income which included recoveries of previously charged off acquired loans.$585,000.
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 | | Six Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, | June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2018 | 2017 | | 2019 | 2018 |
Base salaries and wages | $ | 11,889 |
| $ | 12,656 |
| $ | 10,043 |
| | $ | 34,917 |
| $ | 29,860 |
| $ | 14,353 |
| $ | 11,874 |
| $ | 12,656 |
| | $ | 26,227 |
| $ | 23,028 |
|
Employee benefits | | 1,966 |
| 2,690 |
| 1,485 |
| | 4,656 |
| 3,028 |
|
Sales-based and incentive compensation | 3,125 |
| 3,003 |
| 2,653 |
| | 8,364 |
| 7,630 |
| 3,096 |
| 2,609 |
| 3,003 |
| | 5,705 |
| 5,239 |
|
Employee benefits | 1,897 |
| 1,499 |
| 1,535 |
| | 4,953 |
| 4,971 |
| |
Payroll taxes and other employment costs | 1,036 |
| 1,036 |
| 945 |
| | 3,255 |
| 3,056 |
| 1,208 |
| 1,377 |
| 1,036 |
| | 2,585 |
| 2,220 |
|
Stock-based compensation | 564 |
| 410 |
| 359 |
| | 2,046 |
| 1,370 |
| 930 |
| 1,208 |
| 424 |
| | 2,138 |
| 1,510 |
|
Deferred personnel costs | (602 | ) | (579 | ) | (394 | ) | | (1,612 | ) | (1,201 | ) | (729 | ) | (556 | ) | (579 | ) | | (1,285 | ) | (1,010 | ) |
Salaries and employee benefit costs | $ | 17,909 |
| $ | 18,025 |
| $ | 15,141 |
| | $ | 51,923 |
| $ | 45,686 |
| $ | 20,824 |
| $ | 19,202 |
| $ | 18,025 |
| | $ | 40,026 |
| $ | 34,015 |
|
Full-time equivalent employees: | | |
| | | | |
| | |
Actual at end of period | 849 |
| 862 |
| 778 |
| | 849 |
| 778 |
| 918 |
| 859 |
| 862 |
| | 918 |
| 862 |
|
Average during the period | 860 |
| 844 |
| 778 |
| | 832 |
| 778 |
| 906 |
| 869 |
| 844 |
| | 891 |
| 820 |
|
The decreaseincrease in full-time equivalent employees in the second quarter of 2019 and the first six months of 2019 compared to previous periods was mainly due to additional employees from the First Prestonsburg acquisition and, in comparison to the 2018 periods, employees that were added in the last twelve months from acquisitions and for future growth.
The increase in base salaries and wages for the thirdsecond quarter of 20182019 compared to the linked quarter was primarily due to acquisition-related expenses of $466,000$2.2 million (mainly severance and change in the third quarter of 2018, comparedcontrol costs). Compared to $1.9 million in the second quarter of 2018. The increase in2018, base salaries and wages increased due to a combination of employees that have been added in the last twelve months from acquisitions and for future growth, annual merit increases, which included the implementation of a $15 per hour minimum wage throughout the company, and an increase in acquisition-related expenses of $594,000. The $15 per hour minimum wage began being phased in during 2018 and is expected to be largely implemented by January 1, 2020. For the first ninesix months of 2018,2019 compared to the first ninesame period of 2018, the increase was impacted by the First Prestonsburg and ASB acquisitions, as well as the employees that have been added in the last twelve months for future growth.
The decline in employee benefits for the second quarter of 20172019, compared to the linked quarter, was partiallyprimarily due to acquisition-related expenseslower medical insurance costs of $2.4 million recorded$817,000. Medical insurance costs in the linked quarter included annual contributions to employee health benefit accounts resulting in an expense of $450,000. These contributions occur primarily in the first quarter of each year. Compared to the second quarter of 2018, comparedthe increase in employee benefits was driven by higher medical insurance costs due primarily to nonehigher medical claims and the increase in 2017.the number of plan participants, which was impacted by the First Prestonsburg acquisition. The increase in employee benefits in the six-month periods comparison was impacted by the First Prestonsburg and ASB acquisitions, and included an increase in medical insurance costs of $1.3 million.
The increase in sales-based and incentive compensation for both the thirdsecond quarter of 2018 and first nine months of 2018, compared to the 2017 periods, was increased sales volume and overall corporate performance for 2018.
The increase in employee benefits for the third quarter of 20182019, compared to the linked quarter, was primarily due to higher medicalsales-based compensation from insurance, costsmortgage banking and a pension settlement chargeretail lines of $176,000 recognizedbusiness. The increase in sales-based and incentive compensation for the thirdsecond quarter of 2019, compared to the second quarter of 2018, was due to higher sales-based compensation from the mortgage banking and retail lines of business. Compared to the first six months of 2018, the increase in sales-based and incentive compensation for the first six months of 2019 was driven by higher sales-based compensation from mortgage banking. The increase in mortgage banking growth compared to no pension settlement chargesthe first six months of 2018 was largely attributable to the mortgage origination operation acquired as part of the ASB acquisition.
The increases in payroll taxes and other employment costs for periods in 2019 compared to those in 2018 primarily reflected the increases in base salaries and wages.
Stock-based compensation declined compared to the linked quarter due largely to annual stock grants, which occur primarily in the linked quarter.first quarter of each year. The majority of the grants are expensed over the three-year vesting period, with the exception of those made to retirement eligible grantees. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. The $1.2 million of stock-based compensation for the first quarter of 2019 included $469,000 of expense related to stock grants to retirement eligible individuals, and $128,000 of expense related
to the annual vesting of prior stock grants. The increase in stock-based compensation for the first nine months of 2018, compared to the first nine months of 20172018 periods was due primarilydriven by higher expense related to the grant in the first quarter of a one-time award of unrestricted common sharesstock grants made to all full-time and part-time employees who did not already participate in the equity plan, which resulted in an expense of $388,000, coupledretirement eligible grantees combined with restricted stock granted to new key position hires in 2018.Peoples' improved performance during recent years.
Peoples' net occupancy and equipment expense was comprised of the following:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, | June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2018 | 2017 | | 2019 | 2018 |
Depreciation | $ | 1,237 |
| $ | 1,248 |
| $ | 1,206 |
| | $ | 3,704 |
| $ | 3,649 |
| $ | 1,494 |
| $ | 1,249 |
| $ | 1,248 |
| | $ | 2,743 |
| $ | 2,466 |
|
Repairs and maintenance costs | 697 |
| 659 |
| 577 |
| | 2,203 |
| 1,930 |
| 715 |
| 770 |
| 659 |
| | 1,485 |
| 1,507 |
|
Net rent expense | 264 |
| 235 |
| 264 |
| | 709 |
| 689 |
| 250 |
| 288 |
| 235 |
| | 538 |
| 444 |
|
Property taxes, utilities and other costs | 652 |
| 661 |
| 572 |
| | 1,903 |
| 1,712 |
| 673 |
| 671 |
| 661 |
| | 1,344 |
| 1,252 |
|
Net occupancy and equipment expense | $ | 2,850 |
| $ | 2,803 |
| $ | 2,619 |
| | $ | 8,519 |
| $ | 7,980 |
| $ | 3,132 |
| $ | 2,978 |
| $ | 2,803 |
| | $ | 6,110 |
| $ | 5,669 |
|
The increase in netNet occupancy and equipment expense for the first nine monthssecond quarter of 2018 was2019 increased primarily due to the increased maintenance costs property taxes, utilities and other costs coupled withrelated to the addition of sevennine full-service bank branches and two loan production offices infrom the ASBFirst Prestonsburg acquisition and ongoing increased operating costs associated with the expanded footprint. These increases were partially offset by a reduction in ATM repairs and maintenance costs driven by a new vendor contract. For the first six months of 2019, the increase in net occupancy and equipment expense was driven by additional costs related to the First Prestonsburg and ASB acquisitions, partially offset by a reduction in ATM repairs and maintenance costs driven by the new vendor contract.
The following table details the other items included in total non-interest expense:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, | June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2018 | 2017 | | 2019 | 2018 |
Professional fees | | $ | 2,344 |
| $ | 1,276 |
| $ | 3,022 |
| | $ | 3,620 |
| $ | 4,740 |
|
Electronic banking expense | $ | 1,552 |
| $ | 1,448 |
| $ | 1,403 |
| | $ | 4,409 |
| $ | 4,293 |
| 1,693 |
| 1,577 |
| 1,407 |
| | 3,270 |
| 2,857 |
|
Data processing and software expense | 1,408 |
| 1,359 |
| 1,092 |
| | 4,089 |
| 3,330 |
| 1,567 |
| 1,545 |
| 1,359 |
| | 3,112 |
| 2,681 |
|
Professional fees | 1,395 |
| 3,022 |
| 1,393 |
| | 6,135 |
| 4,532 |
| |
Amortization of other intangible assets | 862 |
| 861 |
| 869 |
| | 2,477 |
| 2,603 |
| 824 |
| 694 |
| 861 |
| | 1,518 |
| 1,615 |
|
Franchise tax expense | 616 |
| 614 |
| 583 |
| | 1,874 |
| 1,750 |
| 772 |
| 705 |
| 614 |
| | 1,477 |
| 1,258 |
|
Marketing expense | 456 |
| 656 |
| 488 |
| | 1,437 |
| 1,122 |
| 490 |
| 594 |
| 656 |
| | 1,084 |
| 981 |
|
FDIC insurance expense | 391 |
| 416 |
| 449 |
| | 1,173 |
| 1,339 |
| 381 |
| 371 |
| 416 |
| | 752 |
| 782 |
|
Foreclosed real estate and other loan expenses | 373 |
| 338 |
| 214 |
| | 923 |
| 589 |
| 469 |
| 255 |
| 338 |
| | 724 |
| 550 |
|
Communication expense | 305 |
| 300 |
| 334 |
| | 949 |
| 1,134 |
| 317 |
| 278 |
| 300 |
| | 595 |
| 644 |
|
Other non-interest expense | 2,713 |
| 6,129 |
| 1,973 |
| | 11,113 |
| 6,211 |
| 6,063 |
| 2,519 |
| 6,170 |
| | 8,448 |
| 8,400 |
|
Professional fees decreased $1.6increased $1.1 million, or 53%84%, from the first quarter of 2019, driven by acquisition-related expenses of $562,000 in the current quarter, up from $58,000 in the first quarter of 2019, combined with additional audit and consulting work performed during second quarter of 2019. Professional fees were down compared to the second quarter of 2018, primarily due to consulting work performed during the second quarter of 2018 which was not duplicated in 2019. Professional fees were down compared to the first six months of 2018, mainly due to lower legal expenses and consulting work performed during the first six months of 2018 which was not duplicated in 2019.
Electronic banking expense was up in each comparison due to an increase in customer accounts and customer usage of mobile and online banking tools, which were impacted by the First Prestonsburg and ASB mergers.
Data processing and software expense increased $208,000, or 15%, from the second quarter of 2018, due to $652,000 of ASB acquisition-related expenses recognized in the second quarter of 2018, coupled with a decrease in consulting and legal fees. The increase of $1.6 million,$431,000, or 35%16%, in professional fees for the first nine months ended September 2018, compared to the nine months ended September 30, 2017, was due to acquisition-related expenses coupled with increased consulting and legal fees.
Data processing and software expense increased $49,000, or 4%, from the linked quarter and $316,000, or 29%, from the third quarter of 2017 and $759,000, or 23%, for the first ninesix months of 2018, compared to the same period in 2017.2018. The increase wasincreases were driven by upgrades and overall growth, which included: the implementation of enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers.
Marketing expense decreased $200,000, or 30%, for the third quartercustomers; increases in customer accounts and customer usage of 2018, from the linked quartermobile and increased $315,000, or 28%, for the first nine months of 2018, compared to the first nine months of 2017. For the second quarter and the first nine months of 2018, marketing expense increased in connection with the timing of the ASB acquisitiononline banking tools; software upgrades; and additional marketing campaigns in the new market areas.
Other non-interestnetwork capacity and security features. Data processing and software expense decreased $3.5 million, or 56%, for the third quarterincluded $91,000 of 2018, compared to the linked quarter, which had included $3.4 million of acquisition-related expenses, primarily related to fees associated with early termination of contracts and de-conversion fees. For the first nine months of 2018, other non-interest expense increased $4.9 million, or 79%, which included $3.6 million of acquisition-related expenses, compared to no acquisition-related expenses in the first ninesix months of 2017.2019, and $59,000 in the first six months of 2018.
Peoples' amortization of other intangible assets is driven by acquisition-related activity. Amortization of other intangible assets for the second quarter of 2019 was up compared to the first quarter of 2019 as a result of the core deposit intangible asset related to the acquisition of First Prestonsburg.
Marketing expense was down $104,000, or 18%, for the second quarter of 2019, compared to the first quarter of 2019, and down $166,000, or 25%, compared to the second quarter of 2018, due to the timing of product marketing campaigns.
The increase in other non-interest expense of $3.5 million for the second quarter of 2019 compared to the linked quarter, was primarily due to acquisition-related expenses of $3.7 million (mainly contract termination fees) in the current quarter compared to $54,000 in the linked quarter.
Income Tax Expense
Income tax expense was $2.8$2.2 million for the thirdsecond quarter of 2018,2019, compared to $1.0$3.4 million for the linked quarter and $5.1$1.0 million for the thirdsecond quarter of 2017.2018. The increasedecline in income tax expense compared to the linked quarter was due to lower pre-tax income. The current quarter included a tax benefit of $59,000 recorded for the vesting of restricted stock during the current quarter, compared to a tax benefit of $133,000 in the linked quarter. The vesting of a majority of stock awards granted by Peoples occurs annually in the first quarter. The increase in income tax expense compared to the second quarter of 2018 was due to higher pre-tax income as a result of reduced acquisition-related expenses, coupledcombined with the release of a valuation allowance during the second quarter of 2018 of $0.8 million. The decline in income tax expense compared to the third quarter of 2017 was directly related to the reduction in the federal corporate income tax rate from the Tax Cuts and Jobs Act enacted in December 2017.$805,000.
For the first ninesix months of 2018,2019, Peoples recorded income tax expense totaled $6.2of $5.6 million, compared to $13.4$3.4 million for the same period in 2017the prior year, and the effective tax rate for the first ninesix months of 20182019 was 16.1%18.9%, compared to 31.2%14.7% for the first ninesix months of 2017.2018. The reductionyear-over-year increase in income tax expense comparedwas primarily due to 2017 was largely a result of the Tax Cuts and Jobs Act, which lowered the federal corporatehigher pre-tax income tax rate from 35% to 21%, coupledcombined with the release of thea valuation allowance of $0.8 million during the second quarterfirst six months of 2018 of $805,000. The first six months of 2019 included a tax benefit of $192,000 recorded for the vesting of restricted stock during the period, compared to a tax benefit of $296,000 in the first six months of 2018.
Additional information regarding income taxes can be found in Note"Note 12 Income Taxes" of the Notes to the Consolidated Financial Statements included in Peoples' 20172018 Form 10-K.
Pre-Provision Net Revenue (non-US GAAP)
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 and losses) minus total non-interest expense while excluding the recovery of, or provision for, loan losses and all gains and 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. This ratio represents a non-US GAAP financial measure since it excludes the provision for loan losses and all gains and/or losses included in earnings.
The following table provides a reconciliation of this non-GAAPnon-US GAAP financial measure to the amounts reported in Peoples' Unaudited Consolidated Financial Statements for the periods presented: | | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, | June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2018 | 2017 | | 2019 | 2018 |
Pre-provision net revenue: | | | | | | |
Income before income taxes | $ | 15,546 |
| $ | 8,904 |
| $ | 16,022 |
| | $ | 38,574 |
| $ | 42,863 |
| $ | 11,836 |
| $ | 17,746 |
| $ | 8,904 |
| | $ | 29,582 |
| $ | 23,028 |
|
Add: provision for loan losses | 1,302 |
| 1,188 |
| 1,086 |
| | 4,473 |
| 2,657 |
| 626 |
| — |
| 1,188 |
| | 363 |
| 3,171 |
|
Add: loss on debt extinguishment | — |
| 13 |
| — |
| | 13 |
| — |
| — |
| — |
| 13 |
| | — |
| 13 |
|
Add: net loss on OREO | — |
| — |
| — |
| | — |
| 24 |
| 24 |
| 25 |
| — |
| | 49 |
| — |
|
Add: net loss on investment securities | — |
| 147 |
| — |
| | 146 |
| — |
| 57 |
| — |
| 147 |
| | 27 |
| 146 |
|
Add: net loss on other assets | — |
| 330 |
| — |
| | 239 |
| — |
| 274 |
| 157 |
| 330 |
| | 431 |
| 251 |
|
Add: net loss on other transactions |
| 76 |
| 38 |
| | 76 |
| 41 |
| — |
| — |
| 76 |
| | — |
| 76 |
|
Less: net gain on OREO | — |
| 14 |
| 13 |
| | 9 |
| 13 |
| — |
| — |
| 14 |
| | — |
| 9 |
|
Less: recovery of loan losses | | — |
| 263 |
| — |
| | — |
| — |
|
Less: net gain on investment securities | — |
| — |
| 1,861 |
| | — |
| 2,219 |
| — |
| 30 |
| — |
| | — |
| — |
|
Less: net gain on other assets | 12 |
| — |
| — |
| | — |
| 133 |
| |
Less: gain on other transactions | | 5 |
|
|
| — |
| | 5 |
| — |
|
Pre-provision net revenue | $ | 16,836 |
| $ | 10,644 |
| $ | 15,272 |
| | $ | 43,512 |
| $ | 43,220 |
| $ | 12,812 |
| $ | 17,635 |
| $ | 10,644 |
| | $ | 30,447 |
| $ | 26,676 |
|
Total average assets | $ | 3,998,254 |
| $ | 3,897,957 |
| $ | 3,541,220 |
| | $ | 3,832,554 |
| $ | 3,492,772 |
| $ | 4,239,779 |
| $ | 3,985,621 |
| $ | 3,897,957 |
| | $ | 4,113,403 |
| $ | 3,748,331 |
|
Pre-provision net revenue to total average assets (a) | 1.67 | % | 1.10 | % | 1.71 | % | | 1.52 | % | 1.65 | % | 1.21 | % | 1.79 | % | 1.10 | % | | 1.49 | % | 1.44 | % |
(a) Presented on an annualized basis. | | | | | | |
ThePre-provision net revenue and the ratio of pre-provision net revenue increasedto total average assets decreased in the thirdsecond quarter of 20182019 compared to the linked quarter, due primarily to higherdecreased income before income taxes. The linked quarter included $6.1 milliontaxes mainly as a result of acquisition-related expenses comparedof $6.8 million. Compared to $675,000 in the thirdsecond quarter of 2018. The decrease2018, the increase in pre-provision net revenue and pre-provision net revenue to total average assets was driven by higher net interest income. Pre-provision net revenue and the ratio of pre-provision net revenue to total average assets for the first ninesix months of 2018,2019, compared to the first ninesix months of 2017, was due2018, increased primarily to average assets increasing partially due to the ASB acquisition which included $6.9 million ofhigher income before income taxes, as both periods were impacted by acquisition-related expenses.
Core Non-Interest Expense (non-US GAAP)
Core non-interest expense is a financial measuremeasures used to evaluate Peoples' recurring expense stream. This measure is non-GAAPnon-US GAAP since it excludes the impact of all acquisition-related expenses and pension settlement charges.expenses.
The following table provides a reconciliationtables provide reconciliations of this non-GAAP financialnon-US GAAP measure to the comparable GAAP amounts reported in Peoples' Unaudited Consolidated Financial Statements for the periods presented:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, |
(Dollars in thousands) | | 2018 | 2017 |
Core non-interest expense: | | | | | | |
Total non-interest expense | $ | 30,829 |
| $ | 35,971 |
| $ | 26,558 |
| | $ | 95,021 |
| $ | 80,569 |
|
Less: acquisition-related expenses | 675 |
| 6,056 |
| — |
| | 6,880 |
| — |
|
Less: pension settlement charges | 176 |
| — |
| — |
| | 176 |
| — |
|
Core non-interest expense | $ | 29,978 |
| $ | 29,915 |
| $ | 26,558 |
| | $ | 87,965 |
| $ | 80,569 |
|
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2019 | 2018 |
Core non-interest expense: | | | | | | |
Total non-interest expense | $ | 38,876 |
| $ | 31,860 |
| $ | 35,971 |
| | $ | 70,736 |
| $ | 64,192 |
|
Less: acquisition-related expenses | 6,770 |
| 253 |
| 6,056 |
| | 7,023 |
| 6,205 |
|
Core non-interest expense | $ | 32,106 |
| $ | 31,607 |
| $ | 29,915 |
| | $ | 63,713 |
| $ | 57,987 |
|
Efficiency Ratio (non-US GAAP)
The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of FTEfully tax-equivalent net interest income plus total non-interest income (excluding allexcluding net gains and all losses).losses. This measure is non-GAAPnon-US GAAP since it excludes amortization of other intangible assets and all gains and/or losses included in earnings, and uses FTEfully tax-equivalent net interest income.
The following table provides a reconciliation of this non-GAAPnon-US GAAP financial measure to the amounts reported in Peoples' Unaudited Consolidated Financial Statements for the periods presented:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, | June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2018 | 2017 | | 2019 | 2018 |
| | | | | | |
Efficiency ratio: | | | | | | |
Total non-interest expense | $ | 30,829 |
| $ | 35,971 |
| $ | 26,558 |
| | $ | 95,021 |
| $ | 80,569 |
| $ | 38,876 |
| $ | 31,860 |
| $ | 35,971 |
| | $ | 70,736 |
| $ | 64,192 |
|
Less: Amortization of other intangible assets | 862 |
| 861 |
| 869 |
| | 2,477 |
| 2,603 |
| |
Less: amortization of other intangible assets | | 824 |
| 694 |
| 861 |
| | 1,518 |
| 1,615 |
|
Adjusted total non-interest expense | $ | 29,967 |
| $ | 35,110 |
| $ | 25,689 |
| | $ | 92,544 |
| $ | 77,966 |
| $ | 38,052 |
| $ | 31,166 |
| $ | 35,110 |
| | $ | 69,218 |
| $ | 62,577 |
|
| | | | |
Total non-interest income | 14,353 |
| 13,255 |
| 14,446 |
| | 42,577 |
| 41,834 |
| $ | 15,289 |
| $ | 15,429 |
| $ | 13,255 |
| | $ | 30,718 |
| $ | 28,224 |
|
Less: net (loss) gain on investment securities | — |
| (147 | ) | 1,861 |
| | (146 | ) | 2,219 |
| (57 | ) | 30 |
| (147 | ) | | (27 | ) | (146 | ) |
Less: net gain (loss) on asset disposals and other transactions | 12 |
| (405 | ) | (25 | ) | | (319 | ) | 81 |
| |
Adjusted total non-interest income | $ | 14,341 |
| $ | 13,807 |
| $ | 12,610 |
| | $ | 43,042 |
| $ | 39,534 |
| |
Less: net loss on asset disposals and other transactions | | (293 | ) | (182 | ) | (405 | ) | | (475 | ) | (331 | ) |
Total non-interest income excluding net gains and losses | | $ | 15,639 |
| $ | 15,581 |
| $ | 13,807 |
| | $ | 31,220 |
| $ | 28,701 |
|
| | | | |
Net interest income | $ | 33,324 |
| $ | 32,808 |
| $ | 29,220 |
| | $ | 95,491 |
| $ | 84,255 |
| $ | 36,049 |
| $ | 33,914 |
| $ | 32,808 |
| | $ | 69,963 |
| $ | 62,167 |
|
Add: Fully tax-equivalent adjustment (a) | 221 |
| 223 |
| 460 |
| | 670 |
| 1,471 |
| |
Add: fully tax-equivalent adjustment (a) | | 267 |
| 200 |
| 225 |
| | 467 |
| 450 |
|
Net interest income on a fully tax-equivalent basis | | $ | 36,316 |
| $ | 34,114 |
| $ | 33,033 |
| | $ | 70,430 |
| $ | 62,617 |
|
| | | | |
Adjusted revenue | | $ | 51,955 |
| $ | 49,695 |
| $ | 46,840 |
| | $ | 101,650 |
| $ | 91,318 |
|
| | | | |
Efficiency ratio | | 73.24 | % | 62.71 | % | 74.96 | % | | 68.09 | % | 68.53 | % |
| | | | |
Efficiency ratio adjusted for non-core items: | | | | |
Core non-interest expense | | $ | 32,106 |
| $ | 31,607 |
| $ | 29,915 |
| | $ | 63,713 |
| $ | 57,987 |
|
Less: amortization of other intangible assets | | 824 |
| 694 |
| 861 |
| | 1,518 |
| 1,615 |
|
Adjusted core non-interest expense | | $ | 31,282 |
| $ | 30,913 |
| $ | 29,054 |
| | $ | 62,195 |
| $ | 56,372 |
|
| | | | |
Total non-interest income excluding net gains and losses | | $ | 15,639 |
| $ | 15,581 |
| $ | 13,807 |
| | $ | 31,220 |
| $ | 28,701 |
|
Net interest income on a fully tax-equivalent basis | $ | 33,545 |
| $ | 33,031 |
| $ | 29,680 |
| | $ | 96,161 |
| $ | 85,726 |
| 36,316 |
| 34,114 |
| 33,033 |
| | 70,430 |
| 62,617 |
|
Adjusted revenue | $ | 47,886 |
| $ | 46,838 |
| $ | 42,290 |
| | $ | 139,203 |
| $ | 125,260 |
| $ | 51,955 |
| $ | 49,695 |
| $ | 46,840 |
| | $ | 101,650 |
| $ | 91,318 |
|
Efficiency ratio | 62.58 | % | 74.96 | % | 60.74 | % | | 66.48 | % | 62.24 | % | |
Core non-interest expense | $ | 29,978 |
| $ | 29,915 |
| $ | 26,558 |
| | $ | 87,965 |
| $ | 80,569 |
| |
Less: Amortization of other intangible assets | 862 |
| 861 |
| 869 |
| | 2,477 |
| 2,603 |
| |
Adjusted core non-interest expense | $ | 29,116 |
| $ | 29,054 |
| $ | 25,689 |
| | $ | 85,488 |
| $ | 77,966 |
| |
Adjusted revenue | 47,886 |
| 46,838 |
| 42,290 |
| | 139,203 |
| 125,260 |
| |
| | | | |
Efficiency ratio adjusted for non-core items | 60.80 | % | 62.03 | % | 60.74 | % | | 61.41 | % | 62.24 | % | 60.21 | % | 62.21 | % | 62.03 | % | | 61.19 | % | 61.73 | % |
(a) Used(a) Based on a 21% statutory federal corporate income tax rate for 2018 periods and a 35% federal corporate income tax rate forrate.
The increase in the 2017 periods.
Peoples' efficiency ratio for the third quarter of 2018 was 62.6%, compared to 75.0%the linked quarter was driven by an increase in acquisition-related expenses of $6.5 million. The efficiency ratio adjusted for non-core items declined compared to both the linked quarter and the second quarter of 2018, and 60.7%mostly due to higher net interest income. Management is targeting an efficiency ratio of 59% to 61% for the third quarterfull year of 2017. The efficiency ratio, when2019, after excluding acquisition-related expenses and other non-core acquisition-related expenses.
Return on Average Assets Adjusted for Non-Core Items (non-US GAAP)
In addition to return on average assets, management uses return on average assets adjusted for non-core expenses, was 60.8%items to monitor performance. The return on average assets ratio adjusted for non-core items represents a non-US GAAP financial measure since it excludesthe third quarterafter-tax impact of 2018, compared to 62.0% for the second quarter of 2018all gains and 60.7% for the third quarter of 2017. The decline in thelosses, and acquisition-related expenses.
efficiency ratioThe following table provides a reconciliation of this non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Consolidated Financial Statements for the periods presented:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2019 | 2018 |
| | | | | | |
Annualized net income adjusted for non-core items: | | | |
Net income | $ | 9,598 |
| $ | 14,369 |
| $ | 7,892 |
| | $ | 23,967 |
| $ | 19,633 |
|
Add: net loss on investment securities | 57 |
| — |
| 147 |
| | 27 |
| 146 |
|
Less: tax effect of net loss on investment securities (a) | 12 |
| — |
| 31 |
| | 6 |
| 31 |
|
Less: net gain on investment securities | — |
| 30 |
| — |
| | — |
| — |
|
Add: tax effect of net gain on investment securities (a) | — |
| 6 |
| — |
| | — |
| — |
|
Add: net loss on asset disposals and other transactions | 293 |
| 182 |
| 405 |
| | 475 |
| 331 |
|
Less: tax effect of net loss on asset disposals and other transactions (a) | 62 |
| 38 |
| 85 |
| | 100 |
| 70 |
|
Add: acquisition-related expenses | 6,770 |
| 253 |
| 6,056 |
| | 7,023 |
| 6,205 |
|
Less: tax effect of acquisition-related expenses (a) | 1,422 |
| 53 |
| 1,272 |
| | 1,475 |
| 1,303 |
|
Net income adjusted for non-core items | $ | 15,222 |
| $ | 14,689 |
| $ | 13,112 |
| | $ | 29,911 |
| $ | 24,911 |
|
Days in the quarter | 91 |
| 90 |
| 91 |
| | 181 |
| 181 |
|
Days in the year | 365 |
| 365 |
| 365 |
| | 365 |
| 365 |
|
Annualized net income | $ | 38,497 |
| $ | 58,274 |
| $ | 31,655 |
| | $ | 48,331 |
| $ | 39,591 |
|
Annualized net income adjusted for non-core items | $ | 61,055 |
| $ | 59,572 |
| $ | 52,592 |
| | $ | 60,318 |
| $ | 50,235 |
|
Return on average assets: | | | | | | |
Annualized net income | $ | 38,497 |
| $ | 58,274 |
| $ | 31,655 |
| | $ | 48,331 |
| $ | 39,591 |
|
Total average assets | 4,239,779 |
| 3,985,621 |
| 3,897,957 |
| | 4,113,403 |
| 3,748,331 |
|
Return on average assets | 0.91 | % | 1.46 | % | 0.81 | % | | 1.17 | % | 1.06 | % |
Return on average assets adjusted for non-core items: | | | |
Annualized net income adjusted for non-core items | $ | 61,055 |
| $ | 59,572 |
| $ | 52,592 |
| | $ | 60,318 |
| $ | 50,235 |
|
Total average assets | 4,239,779 |
| 3,985,621 |
| 3,897,957 |
| | 4,113,403 |
| 3,748,331 |
|
Return on average assets adjusted for non-core items | 1.44 | % | 1.49 | % | 1.35 | % | | 1.47 | % | 1.34 | % |
(a) Based on a 21% statutory federal corporate income tax rate.
The return on average assets declined in the second quarter of 2019 compared to the linked quarter, was primarily duedriven by an increase in acquisition-related expenses of $6.5 million compared to the acquisition-related expenses recognized duringlinked quarter, combined with higher average assets which resulted from the First Prestonsburg merger. Compared to the second quarter of 2018, while the increase in return on average assets was driven by higher net interest income, non-interest income, and a lower provision for loan losses, partially offset by an increase in average assets. The return on average assets increased in the first six months of 2019 compared to the thirdsame period of 2018, driven by higher net interest income, a lower provision for loan losses, and higher non-interest income compared to the linked quarter, partially offset by an increase in average assets, all of which were impacted by the First Prestonsburg and ASB mergers.
The return on average assets adjusted for non-core items declined in the second quarter of 2017 was mostly due2019 compared to higher totalthe linked quarter, driven by the increase in average assets, combined with relatively unchanged non-interest expense. Forincome. Compared to the first nine monthssecond quarter of 2018, the efficiency ratioincrease in return on average assets adjusted for non-core items was 66.5%,driven by higher net interest income, non-interest income, and a lower provision for loan losses, partially offset by an increase in average assets. The return on average assets adjusted for non-core items increased in the first six months of 2019 compared to 62.2% for the same period in 2017. The efficiency ratio for the first nine months of 2018, when adjusteddriven by higher net interest income, a lower provision for non-core expenses, was 61.4%loan losses, and was 62.2% forhigher non-interest income compared to the first nine months
linked quarter, partially offset by an efficiency ratioincrease in average assets, all of 60% to 62% forwhich were impacted by the fourth quarter of 2018, after excluding acquisition-related expensesFirst Prestonsburg and other non-core expenses.ASB mergers.
Return on Average Tangible Stockholders' Equity (non-US GAAP)
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. The return on tangible stockholders' equity is calculated as net income (less the after-tax impact of amortization of other intangible assets) divided by tangible stockholders' equity. This measure is non-GAAPnon-US 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.
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, 2018 | June 30, 2018 | September 30, 2017 | | September 30, | June 30, 2019 | March 31, 2019 | June 30, 2018 | | June 30, |
(Dollars in thousands) | | 2018 | 2017 | | 2019 | 2018 |
Annualized net income excluding amortization of other intangible assets: | Annualized net income excluding amortization of other intangible assets: | | | Annualized net income excluding amortization of other intangible assets: | | |
Net income | $ | 12,725 |
| $ | 7,892 |
| $ | 10,895 |
| | $ | 32,358 |
| $ | 29,470 |
| $ | 9,598 |
| $ | 14,369 |
| $ | 7,892 |
| | $ | 23,967 |
| $ | 19,633 |
|
Add: amortization of other intangible assets | 862 |
| 861 |
| 869 |
| | 2,477 |
| 2,603 |
| 824 |
| 694 |
| 861 |
| | 1,518 |
| 1,615 |
|
Less: tax effect of amortization of other intangible assets (a) | 181 |
| 181 |
| 304 |
| | 520 |
| 911 |
| 173 |
| 146 |
| 181 |
| | 319 |
| 339 |
|
Net income excluding amortization of other intangible assets | $ | 13,406 |
| $ | 8,572 |
| $ | 11,460 |
| | $ | 34,315 |
| $ | 31,162 |
| $ | 10,249 |
| $ | 14,917 |
| $ | 8,572 |
| | $ | 25,166 |
| $ | 20,909 |
|
Days in the quarter | 92 |
| 91 |
| 92 |
| | 273 |
| 273 |
| 91 |
| 90 |
| 91 |
| | 181 |
| 181 |
|
Days in the year | 365 |
| 365 |
| 365 |
| | 365 |
| 365 |
| 365 |
| 365 |
| 365 |
| | 365 |
| 365 |
|
Annualized net income | $ | 50,485 |
| $ | 31,655 |
| $ | 43,225 |
| | $ | 43,263 |
| $ | 39,401 |
| $ | 38,497 |
| $ | 58,274 |
| $ | 31,655 |
| | $ | 48,331 |
| $ | 39,591 |
|
Annualized net income excluding amortization of other intangible assets | $ | 53,187 |
| $ | 34,382 |
| $ | 45,466 |
| | $ | 45,879 |
| $ | 41,663 |
| $ | 41,109 |
| $ | 60,497 |
| $ | 34,382 |
| | $ | 50,749 |
| $ | 42,165 |
|
Average tangible stockholders' equity: | | | | |
Average tangible equity: | | Average tangible equity: | | | |
Total average stockholders' equity | $ | 501,785 |
| $ | 489,876 |
| $ | 456,198 |
| | $ | 482,138 |
| $ | 447,592 |
| $ | 564,992 |
| $ | 524,196 |
| $ | 489,876 |
| | $ | 544,706 |
| $ | 472,152 |
|
Less: average goodwill and other intangible assets | 163,615 |
| 161,600 |
| 144,267 |
| | 156,540 |
| 144,950 |
| 175,169 |
| 161,673 |
| 161,600 |
| | 168,458 |
| 152,943 |
|
Average tangible stockholders' equity | $ | 338,170 |
| $ | 328,276 |
| $ | 311,931 |
| | $ | 325,598 |
| $ | 302,642 |
| |
Average tangible equity | | $ | 389,823 |
| $ | 362,523 |
| $ | 328,276 |
| | $ | 376,248 |
| $ | 319,209 |
|
Return on average stockholders' equity ratio: | Return on average stockholders' equity ratio: | | | | Return on average stockholders' equity ratio: | | | |
Annualized net income | $ | 50,485 |
| $ | 31,655 |
| $ | 43,225 |
| | $ | 43,263 |
| $ | 39,401 |
| $ | 38,497 |
| $ | 58,274 |
| $ | 31,655 |
| | $ | 48,331 |
| $ | 39,591 |
|
Average stockholders' equity | $ | 501,785 |
| $ | 489,876 |
| $ | 456,198 |
| | $ | 482,138 |
| $ | 447,592 |
| $ | 564,992 |
| $ | 524,196 |
| $ | 489,876 |
| | $ | 544,706 |
| $ | 472,152 |
|
Return on average stockholders' equity | 10.06 | % | 6.46 | % | 9.48 | % | | 8.97 | % | 8.80 | % | 6.81 | % | 11.12 | % | 6.46 | % | | 8.87 | % | 8.39 | % |
Return on average tangible stockholders' equity ratio: | | | |
Return on average tangible equity ratio: | | Return on average tangible equity ratio: | | |
Annualized net income excluding amortization of other intangible assets | $ | 53,187 |
| $ | 34,382 |
| $ | 45,466 |
| | $ | 45,879 |
| $ | 41,663 |
| $ | 41,109 |
| $ | 60,497 |
| $ | 34,382 |
| | $ | 50,749 |
| $ | 42,165 |
|
Average tangible stockholders' equity | $ | 338,170 |
| $ | 328,276 |
| $ | 311,931 |
| | $ | 325,598 |
| $ | 302,642 |
| |
Return on average tangible stockholders' equity | 15.73 | % | 10.47 | % | 14.58 | % | | 14.09 | % | 13.77 | % | |
Average tangible equity | | $ | 389,823 |
| $ | 362,523 |
| $ | 328,276 |
| | $ | 376,248 |
| $ | 319,209 |
|
Return on average tangible equity | | 10.55 | % | 16.69 | % | 10.47 | % | | 13.49 | % | 13.21 | % |
(a) Used(a) Based on a 21% statutory federal corporate income tax rate for 2018 periods and 35% for the 2017 periods.rate.
The return on average stockholders' equity and on average tangible stockholders' equity ratios were impacted by the First Prestonsburg acquisition, which created increases in capital and decreased income for the second quarter of 2019 due to the acquisition-related costs. The return on average stockholders' equity and on average tangible stockholders' equity ratios increased in the third quarterfirst six months of 2019 compared to the first six months of 2018, compared to both the linked quarter and the third quarter of 2017, reflecting increasesan increase in net income, which werewas partially offset by dividends declared and paid during each quarter.
The return on average stockholders' equity and average tangible stockholders' equity ratios were impacted in the second quarter of 2018 by the ASB acquisition which created increases in capital and decreased net income due to the acquisition-period.
related costs, which include gains and losses. However, the ASB acquisition-related costs were primarily recorded in the second quarter of 2018 and should not continue to decrease the return on average stockholders' equity.
FINANCIAL CONDITION
Cash and Cash Equivalents
At SeptemberJune 30, 2018,2019, Peoples' interest-bearing deposits in other banks increased $20.5$20.9 million from December 31, 2017. 2018. The total cash and cash equivalent balance included $25.0$19.8 million of excess cash reserves being maintained at the FRB of Cleveland at SeptemberJune 30, 2018,2019, compared to $9.3$11.2 million at December 31, 2017.2018. 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 ninesix months of 2018,2019, Peoples' total cash and cash equivalents increased $23.0$15.8 million as Peoples' net cash provided used in investingfinancing activities of $121.7$71.2 million was less than the sum of net cash provided by financinginvesting and operating activities of $94.4$68.2 million and $50.3$18.8 million, respectively. Peoples' investing activities reflected a net increasedecrease of $113.4$29.2 million in loans and purchases of $120.5 million in available-for-sale investment securities, which were partially offset by $111.3$145.2 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment securities. Financing activities included a net increase of $111.7 million in deposits offset partially by $15.3 million of cash dividends paid.
Through the first nine months of 2017, Peoples' total cash and cash equivalents increased $3.9 million as Peoples' net cash provided by financing and operating activities of $128.1 million exceeded cash used in investing activities of $124.2 million. Peoples' investing activities reflected purchases of $142.1 million in available-for-sale and held-to-maturity investment securities, and a net increase of $99.8 million in loans, which were partially offset by $120.7purchases of $116.4 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment securities. Financing activities included a net increase$207.3 million decrease in short-term borrowings, as well as $12.5 million of $154.9 million in deposits which wascash dividends paid, offset partially by a net decreaseincrease of $61.3$150.3 million in borrowings and $10.9 million of cash dividends paid.deposits.
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, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 |
Available-for-sale securities, at fair value: | | | | |
Obligations of: | | | | | |
U.S. Treasury and government agencies | $ | — |
| $ | 43 |
| $ | — |
| $ | — |
| $ | — |
|
States and political subdivisions | 93,790 |
| 96,913 |
| 97,205 |
| 101,569 |
| 104,560 |
|
Residential mortgage-backed securities | 688,656 |
| 688,002 |
| 681,746 |
| 673,664 |
| 672,106 |
|
Commercial mortgage-backed securities | 6,713 |
| 6,799 |
| 6,864 |
| 6,976 |
| 7,128 |
|
Bank-issued trust preferred securities | 4,166 |
| 4,167 |
| 5,095 |
| 5,129 |
| 5,154 |
|
Equity investment securities (a) | — |
| — |
| — |
| 7,849 |
| 8,073 |
|
Total fair value | $ | 793,325 |
| $ | 795,924 |
| $ | 790,910 |
| $ | 795,187 |
| $ | 797,021 |
|
Total amortized cost | $ | 819,431 |
| $ | 816,217 |
| $ | 808,689 |
| $ | 797,732 |
| $ | 792,810 |
|
Net unrealized (loss) gain | $ | (26,106 | ) | $ | (20,293 | ) | $ | (17,779 | ) | $ | (2,545 | ) | $ | 4,211 |
|
Held-to-maturity securities, at amortized cost: | | | | |
Obligations of: |
|
|
| | | |
States and political subdivisions | $ | 4,451 |
| $ | 4,530 |
| $ | 3,807 |
| $ | 3,810 |
| $ | 3,812 |
|
Residential mortgage-backed securities | 29,765 |
| 30,668 |
| 31,590 |
| 32,487 |
| 33,648 |
|
Commercial mortgage-backed securities | 3,574 |
| 3,636 |
| 4,254 |
| 4,631 |
| 4,703 |
|
Total amortized cost | $ | 37,790 |
| $ | 38,834 |
| $ | 39,651 |
| $ | 40,928 |
| $ | 42,163 |
|
Other investment securities (a) | $ | 43,044 |
| $ | 42,007 |
| $ | 46,756 |
| $ | 38,371 |
| $ | 38,371 |
|
Total investment portfolio: |
|
| | | | |
Amortized cost | $ | 900,265 |
| $ | 897,058 |
| $ | 895,096 |
| $ | 877,031 |
| $ | 873,344 |
|
Carrying value | $ | 874,159 |
| $ | 876,765 |
| $ | 877,317 |
| $ | 874,486 |
| $ | 877,555 |
|
(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale investment securities to other investment securities. At December 31, 2017, $7.8 million of equity investment securities were included in available-for-sale investment securities, and at September 30, 2018, $278,000 of equity investment securities were included in other investment securities compared to $294,000 and $7.5 million at June 30, 2018 and March 31, 2018, respectively. |
| | | | | | | | | | | | | | | |
(Dollars in thousands) | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Available-for-sale securities, at fair value: | | | | |
Obligations of: | | | | | |
U.S. Treasury and government agencies | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 43 |
|
U.S. government sponsored agencies | 19,051 |
| — |
| — |
| — |
| — |
|
States and political subdivisions | 125,418 |
| 84,827 |
| 88,587 |
| 93,790 |
| 96,913 |
|
Residential mortgage-backed securities | 748,132 |
| 706,976 |
| 692,608 |
| 688,656 |
| 688,002 |
|
Commercial mortgage-backed securities | 22,664 |
| 6,649 |
| 6,707 |
| 6,713 |
| 6,799 |
|
Bank-issued trust preferred securities | 4,099 |
| 4,118 |
| 3,989 |
| 4,166 |
| 4,167 |
|
Total fair value | $ | 919,364 |
| $ | 802,570 |
| $ | 791,891 |
| $ | 793,325 |
| $ | 795,924 |
|
Total amortized cost | $ | 910,431 |
| $ | 806,641 |
| $ | 804,655 |
| $ | 819,431 |
| $ | 816,217 |
|
Net unrealized gain (loss) | $ | 8,933 |
| $ | (4,071 | ) | $ | (12,764 | ) | $ | (26,106 | ) | $ | (20,293 | ) |
Held-to-maturity securities, at amortized cost: | | | | |
Obligations of: |
|
|
|
| | | |
States and political subdivisions | $ | 4,398 |
| $ | 4,401 |
| $ | 4,403 |
| $ | 4,451 |
| $ | 4,530 |
|
Residential mortgage-backed securities | 23,335 |
| 28,348 |
| 29,044 |
| 29,765 |
| 30,668 |
|
Commercial mortgage-backed securities | 7,106 |
| 2,857 |
| 3,514 |
| 3,574 |
| 3,636 |
|
Total amortized cost | $ | 34,839 |
| $ | 35,606 |
| $ | 36,961 |
| $ | 37,790 |
| $ | 38,834 |
|
Other investment securities | $ | 43,508 |
| $ | 41,449 |
| $ | 42,985 |
| $ | 43,044 |
| $ | 42,007 |
|
Total investment securities: |
|
| | | | |
Amortized cost | $ | 988,778 |
| $ | 883,696 |
| $ | 884,601 |
| $ | 900,265 |
| $ | 897,058 |
|
Carrying value | $ | 997,711 |
| $ | 879,625 |
| $ | 871,837 |
| $ | 874,159 |
| $ | 876,765 |
|
During the second quarter of 2018,2019, Peoples acquired, in the ASBFirst Prestonsburg acquisition, investment securities totaling approximately $18.8$140.7 million and subsequently sold approximately $14.6$65.1 million of acquired available-for-sale investment securities.
Peoples' investment In April and May of 2019, $53.7 million 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 theproceeds were reinvested. Available-for-sale residential mortgage-backed securities totals above was as follows:
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 |
Total fair value | $ | 919 |
| $ | 1,162 |
| $ | 1,478 |
| $ | 1,924 |
| $ | 2,067 |
|
Total amortized cost | 985 |
| 1,225 |
| 1,607 |
| 2,109 |
| 2,253 |
|
Net unrealized loss | $ | (66 | ) | $ | (63 | ) | $ | (129 | ) | $ | (185 | ) | $ | (186 | ) |
Management continues to reinvest the principal runoff from the non-agency securities in U.S. agency investments, which accounted for the decline in the past year. At September 30, 2018, 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.
were up at March 31, 2019, compared to December 31, 2018, primarily due to an increase in fair value driven by overall declines in market interest rates during the quarter. At December 31, 2018, the amortized cost of available-for-sale securities declined compared to September 30, 2018, as securities matured and were not replaced.
Additional information regarding Peoples' investment portfolio can be found in Note"Note 3 Investment Securities" of the Notes to the Unaudited Consolidated Financial Statements.
Loans
The following table provides information regarding outstanding loan balances: | | (Dollars in thousands) | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Gross originated loans: | | |
Commercial real estate, construction | $ | 103,562 |
| $ | 107,255 |
| $ | 99,757 |
| $ | 107,118 |
| $ | 111,187 |
| $ | 102,904 |
| $ | 116,992 |
| $ | 124,013 |
| $ | 103,562 |
| $ | 107,255 |
|
Commercial real estate, other | 630,720 |
| 650,512 |
| 627,932 |
| 595,447 |
| 573,256 |
| 641,061 |
| 630,679 |
| 632,200 |
| 630,720 |
| 650,512 |
|
Commercial real estate | 734,282 |
| 757,767 |
| 727,689 |
| 702,565 |
| 684,443 |
| 743,965 |
| 747,671 |
| 756,213 |
| 734,282 |
| 757,767 |
|
Commercial and industrial | 510,591 |
| 471,270 |
| 455,243 |
| 438,051 |
| 407,468 |
| 548,460 |
| 558,070 |
| 530,207 |
| 510,591 |
| 471,270 |
|
Residential real estate | 299,768 |
| 299,934 |
| 302,890 |
| 304,523 |
| 304,094 |
| 299,173 |
| 297,667 |
| 296,860 |
| 299,768 |
| 299,934 |
|
Home equity lines of credit | 92,892 |
| 89,957 |
| 87,722 |
| 88,902 |
| 88,421 |
| 90,374 |
| 90,831 |
| 93,326 |
| 92,892 |
| 89,957 |
|
Consumer, indirect | 396,701 |
| 373,384 |
| 347,607 |
| 340,390 |
| 335,436 |
| 419,595 |
| 410,172 |
| 407,167 |
| 396,701 |
| 373,384 |
|
Consumer, direct | 72,601 |
| 71,545 |
| 67,386 |
| 67,010 |
| 68,286 |
| 72,209 |
| 69,710 |
| 71,674 |
| 72,601 |
| 71,545 |
|
Consumer | 469,302 |
| 444,929 |
| 414,993 |
| 407,400 |
| 403,722 |
| 491,804 |
| 479,882 |
| 478,841 |
| 469,302 |
| 444,929 |
|
Deposit account overdrafts | 649 |
| 860 |
| 543 |
| 849 |
| 507 |
| 676 |
| 518 |
| 583 |
| 649 |
| 860 |
|
Total originated loans | $ | 2,107,484 |
| $ | 2,064,717 |
| $ | 1,989,080 |
| $ | 1,942,290 |
| $ | 1,888,655 |
| $ | 2,174,452 |
| $ | 2,174,639 |
| $ | 2,156,030 |
| $ | 2,107,484 |
| $ | 2,064,717 |
|
Gross acquired loans (a): | | |
Commercial real estate, construction | $ | 13,050 |
| $ | 14,780 |
| $ | 8,054 |
| $ | 8,319 |
| $ | 8,565 |
| $ | 6,775 |
| $ | 7,966 |
| $ | 12,404 |
| $ | 13,050 |
| $ | 14,780 |
|
Commercial real estate, other | 191,993 |
| 207,195 |
| 156,115 |
| 165,120 |
| 174,157 |
| 201,909 |
| 171,785 |
| 184,711 |
| 191,993 |
| 207,195 |
|
Commercial real estate | 205,043 |
| 221,975 |
| 164,169 |
| 173,439 |
| 182,722 |
| 208,684 |
| 179,751 |
| 197,115 |
| 205,043 |
| 221,975 |
|
Commercial and industrial | 41,188 |
| 40,938 |
| 33,815 |
| 34,493 |
| 36,462 |
| 51,506 |
| 34,837 |
| 35,537 |
| 41,188 |
| 40,938 |
|
Residential real estate | 308,178 |
| 309,629 |
| 194,063 |
| 184,864 |
| 194,950 |
| 348,439 |
| 308,137 |
| 296,937 |
| 308,178 |
| 309,629 |
|
Home equity lines of credit | 42,961 |
| 45,933 |
| 20,008 |
| 20,575 |
| 22,366 |
| 41,262 |
| 38,084 |
| 40,653 |
| 42,961 |
| 45,933 |
|
Consumer, indirect | 161 |
| 198 |
| 253 |
| 329 |
| 408 |
| 90 |
| 111 |
| 136 |
| 161 |
| 198 |
|
Consumer, direct | 2,712 |
| 3,101 |
| 940 |
| 1,147 |
| 1,472 |
| 9,100 |
| 2,021 |
| 2,370 |
| 2,712 |
| 3,101 |
|
Consumer | 2,873 |
| 3,299 |
| 1,193 |
| 1,476 |
| 1,880 |
| 9,190 |
| 2,132 |
| 2,506 |
| 2,873 |
| 3,299 |
|
Total acquired loans | $ | 600,243 |
| $ | 621,774 |
| $ | 413,248 |
| $ | 414,847 |
| $ | 438,380 |
| $ | 659,081 |
| $ | 562,941 |
| $ | 572,748 |
| $ | 600,243 |
| $ | 621,774 |
|
Total loans | $ | 2,707,727 |
| $ | 2,686,491 |
| $ | 2,402,328 |
| $ | 2,357,137 |
| $ | 2,327,035 |
| $ | 2,833,533 |
| $ | 2,737,580 |
| $ | 2,728,778 |
| $ | 2,707,727 |
| $ | 2,686,491 |
|
Average total loans | | $ | 2,830,558 |
| $ | 2,734,592 |
| $ | 2,718,620 |
| $ | 2,717,200 |
| $ | 2,627,777 |
|
Average allowance for loan losses | | (21,311 | ) | (20,406 | ) | (20,079 | ) | (19,584 | ) | (19,071 | ) |
Average loans, net of average allowance for loan losses | | $ | 2,809,247 |
| $ | 2,714,186 |
| $ | 2,698,541 |
| $ | 2,697,616 |
| $ | 2,608,706 |
|
Percent of loans to total loans: | | |
Commercial real estate, construction | 4.3 | % | 4.5 | % | 4.5 | % | 4.9 | % | 5.1 | % | 3.9 | % | 4.6 | % | 5.1 | % | 4.3 | % | 4.5 | % |
Commercial real estate, other | 30.4 | % | 31.9 | % | 32.6 | % | 32.3 | % | 32.2 | % | 29.7 | % | 29.3 | % | 29.9 | % | 30.4 | % | 31.9 | % |
Commercial real estate | 34.7 | % | 36.4 | % | 37.1 | % | 37.2 | % | 37.3 | % | 33.6 | % | 33.9 | % | 35.0 | % | 34.7 | % | 36.4 | % |
Commercial and industrial | 20.3 | % | 19.1 | % | 20.4 | % | 20.0 | % | 19.1 | % | 21.2 | % | 21.7 | % | 20.7 | % | 20.3 | % | 19.1 | % |
Residential real estate | 22.5 | % | 22.7 | % | 20.7 | % | 20.8 | % | 21.4 | % | 22.9 | % | 22.1 | % | 21.8 | % | 22.5 | % | 22.7 | % |
Home equity lines of credit | 5.0 | % | 5.1 | % | 4.5 | % | 4.6 | % | 4.8 | % | 4.6 | % | 4.7 | % | 4.9 | % | 5.0 | % | 5.1 | % |
Consumer, indirect | 14.7 | % | 13.9 | % | 14.5 | % | 14.5 | % | 14.4 | % | 14.8 | % | 15.0 | % | 14.9 | % | 14.7 | % | 13.9 | % |
Consumer, direct | 2.8 | % | 2.8 | % | 2.8 | % | 2.9 | % | 3.0 | % | 2.9 | % | 2.6 | % | 2.7 | % | 2.8 | % | 2.8 | % |
Consumer | 17.5 | % | 16.7 | % | 17.3 | % | 17.4 | % | 17.4 | % | 17.7 | % | 17.6 | % | 17.6 | % | 17.5 | % | 16.7 | % |
Deposit account overdrafts (b) | NM |
| NM |
| NM |
| NM |
| NM |
| NM |
| NM |
| NM |
| NM |
| NM |
|
Total percentage | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Residential real estate loans being serviced for others | $ | 458,999 |
| $ | 451,391 |
| $ | 412,154 |
| $ | 412,965 |
| $ | 409,199 |
| $ | 473,443 |
| $ | 464,575 |
| $ | 461,256 |
| $ | 458,999 |
| $ | 451,391 |
|
| |
(a) | Includes all loans acquired, and related loan discount or premium, recorded as part of acquisition accounting, in 2012 andor thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit). |
As of SeptemberJune 30, 2018,2019, balances in loan accounts acquired from ASBFirst Prestonsburg totaled $216.6$125.3 million, including $119.8$52.1 million in residential real estate loans, $52.0$42.4 million in commercial real estate loans, $25.4$7.4 million in consumer, direct loans, $17.7 million in commercial and industrial loans, and $5.8 million in home equity lines of credit, $10.0 million in commercial and industrial loans, $7.5 million in construction loans, and $1.9 million in consumer loans.credit.
Period-end total loan balances at SeptemberJune 30, 2019 increased $96.0 million compared to March 31, 2019, $104.8 million compared to December 31, 2018, increased $21.2and $147.0 million or 3% annualized, compared to June 30, 2018. Originated loan balances declined $187,000 compared to March 31, 2019, and increased $18.4 million compared to December 31, 2018, dueand $109.7 million compared to organicJune 30, 2018. Loan originations during the first half of 2019 were higher than in recent years for the same period, however, significantly higher loan paydowns experienced during the first half of 2019 minimized the impact of the increased production on loan growth for all comparison periods. Compared to period-end total loan balances at March 31, 2019, originated commercial and industrial loan balances declined $9.6 million, partially offset by growth in originated consumer indirect loans of $33.4 million, or 5% annualized, that was muted by $30.4 million of payoffs and paydowns related to several large commercial real estate loan relationships. $9.4 million.
Commercial and industrial loan balances experienced significant organic growthgrew $18.3 million compared to December 31, 2018. Growth in residential real estate loans of $71.2 million was driven by the First Prestonsburg acquisition, combined with the purchase of $19.0 million of 1-4 family first lien mortgages, during the first quarter of 2019.
Compared to June 30, 2018, and increased $41.5originated loan growth of $109.7 million, or 8%. Consumer indirect lending continued to provide additional organic growth, with balances increasing $25.6 million, or 28% annualized, compared to June 30, 2018. Compared to December 31, 2017, total loan balances increased $350.6 million, or 20% annualized, and were up $380.7 million, or 16%5%, from September 30, 2017. The increases in the first nine months of 2018, were mostly due to acquired loans from ASB, coupled with organic growthwas led by an increase in commercial and industrial loans of $69.3$77.2 million, or 16%, and indirect consumer indirect loanslending growth of $56.1 million.$46.2 million, or 12%.
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, continued 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 SeptemberJune 30, 20182019:
| | (Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total | Outstanding Balance | Loan Commitments | Total Exposure | % of Total |
Commercial real estate, construction: | | | | |
Assisted living facilities and nursing homes | | $ | 17,745 |
| $ | 29,268 |
| $ | 47,013 |
| 23.7 | % |
Apartment complexes | $ | 33,795 |
| $ | 36,989 |
| $ | 70,784 |
| 35.3 | % | 15,767 |
| 14,818 |
| 30,585 |
| 15.4 | % |
Educational services | | 8,538 |
| 19,895 |
| 28,433 |
| 14.3 | % |
Office buildings | 10,582 |
| 14,351 |
| 24,933 |
| 12.4 | % | 15,775 |
| 7,702 |
| 23,477 |
| 11.8 | % |
Assisted living facilities and nursing homes | 6,501 |
| 17,690 |
| 24,191 |
| 12.1 | % | |
Mixed used facility | 14,153 |
| 8,783 |
| 22,936 |
| 11.4 | % | 17,729 |
| 4,902 |
| 22,631 |
| 11.4 | % |
Educational services | 8,777 |
| — |
| 8,777 |
| 4.4 | % | |
Light industrial | 8,507 |
| 108 |
| 8,615 |
| 4.3 | % | |
Industrial | | 8,271 |
| — |
| 8,271 |
| 4.2 | % |
Child care | 3,750 |
| 2,345 |
| 6,095 |
| 3.0 | % | 5,930 |
| 95 |
| 6,025 |
| 3.0 | % |
Residential Property | 2,032 |
| 1,962 |
| 3,994 |
| 2.0 | % | |
Retail | | 1,797 |
| 4,035 |
| 5,832 |
| 2.9 | % |
Warehouse | | 4,280 |
| 1,333 |
| 5,613 |
| 2.9 | % |
Residential property | | 2,465 |
| 2,714 |
| 5,179 |
| 2.6 | % |
Other (a) | 28,515 |
| 1,482 |
| 29,997 |
| 15.1 | % | 11,382 |
| 4,057 |
| 15,439 |
| 7.8 | % |
Total commercial real estate, construction | $ | 116,612 |
| $ | 83,710 |
| $ | 200,322 |
| 100.0 | % | $ | 109,679 |
| $ | 88,819 |
| $ | 198,498 |
| 100.0 | % |
| |
(a) | All other outstanding balances are less than 2% of the total loan portfolio. |
| | (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 | | $ | 73,617 |
| $ | 1,822 |
| $ | 75,439 |
| 8.6 | % |
Non-owner occupied | | 52,739 |
| 4,591 |
| 57,330 |
| 6.5 | % |
Total office buildings and complexes | | 126,356 |
| 6,413 |
| 132,769 |
| 15.1 | % |
Mixed-use facilities: | | | | |
Owner occupied | 35,350 |
| 726 |
| 36,076 |
| 4.2 | % | 36,567 |
| 864 |
| 37,431 |
| 4.3 | % |
Non-owner occupied | 72,255 |
| 2,334 |
| 74,589 |
| 8.7 | % | 71,527 |
| 785 |
| 72,312 |
| 8.2 | % |
Total mixed-use facilities | 107,605 |
| 3,060 |
| 110,665 |
| 12.9 | % | 108,094 |
| 1,649 |
| 109,743 |
| 12.5 | % |
Office buildings and complexes: | | | | |
Owner occupied | $ | 44,389 |
| $ | 2,789 |
| $ | 47,178 |
| 5.5 | % | |
Non-owner occupied | 48,831 |
| 796 |
| 49,627 |
| 5.8 | % | |
Total office buildings and complexes | 93,220 |
| 3,585 |
| 96,805 |
| 11.3 | % | |
Apartment complexes | 92,372 |
| 662 |
| 93,034 |
| 10.9 | % | 77,535 |
| 849 |
| 78,384 |
| 8.9 | % |
Light industrial facilities: | | | |
Owner occupied | 48,346 |
| 3,779 |
| 52,125 |
| 6.1 | % | |
Non-owner occupied | 17,896 |
| 1,088 |
| 18,984 |
| 2.2 | % | |
Total light industrial facilities | 66,242 |
| 4,867 |
| 71,109 |
| 8.3 | % | |
Retail facilities: | | | | | | |
Owner occupied | 27,979 |
| 1,439 |
| 29,418 |
| 3.4 | % | 29,202 |
| 714 |
| 29,916 |
| 3.5 | % |
Non-owner occupied | 32,361 |
| 98 |
| 32,459 |
| 3.8 | % | 39,602 |
| 98 |
| 39,700 |
| 4.5 | % |
Total retail facilities | 60,340 |
| 1,537 |
| 61,877 |
| 7.2 | % | 68,804 |
| 812 |
| 69,616 |
| 8.0 | % |
Industrial facilities: | | | |
Owner occupied | | 46,056 |
| 127 |
| 46,183 |
| 5.2 | % |
Non-owner occupied | | 16,782 |
| 1,088 |
| 17,870 |
| 2.0 | % |
Total light industrial facilities | | 62,838 |
| 1,215 |
| 64,053 |
| 7.2 | % |
Warehouse facilities | | 56,048 |
| 4,898 |
| 60,946 |
| 6.9 | % |
Lodging and lodging related | 33,089 |
| 347 |
| 33,436 |
| 3.9 | % | 30,901 |
| — |
| 30,901 |
| 3.5 | % |
Warehouse facilities | 30,747 |
| 669 |
| 31,416 |
| 3.7 | % | |
Assisted living facilities and nursing homes | 29,890 |
| 256 |
| 30,146 |
| 3.5 | % | 30,915 |
| 282 |
| 31,197 |
| 3.5 | % |
Other | 309,208 |
| 20,765 |
| 327,973 |
| 38.3 | % | |
Land only | | 16,383 |
| 2,177 |
| 18,560 |
| 2.1 | % |
Other (a) | | 265,096 |
| 18,693 |
| 283,788 |
| 32.3 | % |
Total commercial real estate, other | $ | 822,713 |
| $ | 35,748 |
| $ | 856,461 |
| 100.0 | % | $ | 842,970 |
| $ | 36,988 |
| $ | 879,957 |
| 100.0 | % |
| |
(a) | All other outstanding balances are less than 2% of the total loan portfolio. |
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 not material at either SeptemberJune 30, 20182019 or December 31, 2017.2018.
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, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 |
Commercial real estate | $ | 7,966 |
| $ | 8,271 |
| $ | 8,062 |
| $ | 7,797 |
| $ | 7,534 |
|
Commercial and industrial | 6,138 |
| 5,365 |
| 5,269 |
| 5,813 |
| 6,415 |
|
Total commercial | 14,104 |
| 13,636 |
| 13,331 |
| 13,610 |
| 13,949 |
|
Residential real estate | 999 |
| 1,005 |
| 1,086 |
| 904 |
| 924 |
|
Home equity lines of credit | 708 |
| 618 |
| 690 |
| 693 |
| 679 |
|
Consumer, indirect | 3,423 |
| 3,339 |
| 3,034 |
| 2,944 |
| 2,814 |
|
Consumer, direct | 395 |
| 465 |
| 473 |
| 464 |
| 441 |
|
Consumer | 3,818 |
| 3,804 |
| 3,507 |
| 3,408 |
| 3,255 |
|
Deposit account overdrafts | 95 |
| 95 |
| 76 |
| 70 |
| 70 |
|
Originated allowance for loan losses | 19,724 |
| 19,158 |
| 18,690 |
| 18,685 |
| 18,877 |
|
Acquired allowance for loan losses | 155 |
| 108 |
| 108 |
| 108 |
| 115 |
|
Allowance for loan losses | $ | 19,879 |
| $ | 19,266 |
| $ | 18,798 |
| $ | 18,793 |
| $ | 18,992 |
|
As a percent of total loans, net of deferred fees and costs | 0.73 | % | 0.72 | % | 0.78 | % | 0.80 | % | 0.82 | % |
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Commercial real estate | $ | 8,245 |
| $ | 8,297 |
| $ | 8,003 |
| $ | 7,966 |
| $ | 8,271 |
|
Commercial and industrial | 7,197 |
| 6,743 |
| 6,178 |
| 6,138 |
| 5,365 |
|
Total commercial | 15,442 |
| 15,040 |
| 14,181 |
| 14,104 |
| 13,636 |
|
Residential real estate | 1,184 |
| 1,213 |
| 1,214 |
| 999 |
| 1,005 |
|
Home equity lines of credit | 598 |
| 608 |
| 618 |
| 708 |
| 618 |
|
Consumer, indirect | 3,172 |
| 3,133 |
| 3,214 |
| 3,423 |
| 3,339 |
|
Consumer, direct | 342 |
| 351 |
| 351 |
| 395 |
| 465 |
|
Consumer | 3,514 |
| 3,484 |
| 3,565 |
| 3,818 |
| 3,804 |
|
Deposit account overdrafts | 86 |
| 61 |
| 81 |
| 95 |
| 95 |
|
Originated allowance for loan losses | 20,824 |
| 20,406 |
| 19,659 |
| 19,724 |
| 19,158 |
|
Acquired allowance for loan losses | 533 |
| 533 |
| 536 |
| 155 |
| 108 |
|
Allowance for loan losses | $ | 21,357 |
| $ | 20,939 |
| $ | 20,195 |
| $ | 19,879 |
| $ | 19,266 |
|
As a percent of total loans | 0.75 | % | 0.76 | % | 0.74 | % | 0.73 | % | 0.72 | % |
At SeptemberJune 30, 2018,2019, the allowance for loan losses was $19.9$21.4 million, compared to $18.9 million at September 30, 2017 and $18.8$20.2 million at December 31, 2017.2018 and $19.3 million at June 30, 2018. The ratio of the allowance for loan losses as a percent of total loans net of deferred fees and costs, was 0.73%0.75% at SeptemberJune 30, 2018,2019, compared to 0.82% at September 30, 2017 and 0.80%0.74% at December 31, 2017.2018 and 0.72% at June 30, 2018. The ratio includes all acquired loans, from both ASBFirst Prestonsburg and previous acquisitions since 2012, of $600.2$659.1 million and allowance for acquired loan losses of $155,000.$533,000. The declinesincrease in the ratio were attributable to stable asset quality metrics, and to the ASB acquisition, as the loans acquired from ASB were recorded at a preliminary fair value, in accordance with generally accepted accounting principles, and no allowance for loan loss related to these loans has been recorded basedlosses over time was mainly the result of loan growth. The increase during the first quarter of 2019 was also impacted by the specific reserve on an analysis of the loans as of September 30, 2018. The allowance for loan loss continued to increase slightly as consumer indirect lending balances increased $25.6 million, or 28% annualized, compared to June 30, 2018.a non-accrual loan.
The significant allocations of allowance for loan losses 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, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Gross charge-offs: | | | | | | | | | | |
Commercial real estate, other | $ | — |
| $ | 7 |
| $ | 842 |
| $ | 383 |
| $ | — |
| $ | 43 |
| $ | 113 |
| $ | — |
| $ | — |
| $ | 7 |
|
Commercial and industrial | — |
| 7 |
| 31 |
| 10 |
| 48 |
| — |
| 63 |
| — |
| — |
| 7 |
|
Residential real estate | 66 |
| 82 |
| 145 |
| 186 |
| 245 |
| 67 |
| 109 |
| 64 |
| 66 |
| 82 |
|
Home equity lines of credit | 10 |
| 20 |
| 37 |
| 31 |
| 80 |
| — |
| 9 |
| 40 |
| 10 |
| 20 |
|
Consumer, indirect | 488 |
| 550 |
| 929 |
| 617 |
| 494 |
| 346 |
| 473 |
| 548 |
| 488 |
| 550 |
|
Consumer, direct | 78 |
| 109 |
| 110 |
| 104 |
| 106 |
| 33 |
| 63 |
| 61 |
| 78 |
| 109 |
|
Consumer | 566 |
| 659 |
| 1,039 |
| 721 |
| 600 |
| 379 |
| 536 |
| 609 |
| 566 |
| 659 |
|
Deposit account overdrafts | 311 |
| 215 |
| 205 |
| 271 |
| 246 |
| 176 |
| 173 |
| 234 |
| 311 |
| 215 |
|
Total gross charge-offs | $ | 953 |
| $ | 990 |
| $ | 2,299 |
| $ | 1,602 |
| $ | 1,219 |
| $ | 665 |
| $ | 1,003 |
| $ | 947 |
| $ | 953 |
| $ | 990 |
|
Recoveries: | | |
Commercial real estate, other | $ | 15 |
| $ | 28 |
| $ | 15 |
| $ | 11 |
| $ | 19 |
| $ | 2 |
| $ | 10 |
| $ | 2 |
| $ | 15 |
| $ | 28 |
|
Commercial and industrial | 10 |
| — |
| — |
| — |
| 1 |
| 228 |
| 1,784 |
| 8 |
| 10 |
| — |
|
Residential real estate | 32 |
| 41 |
| 26 |
| 24 |
| 19 |
| 102 |
| 31 |
| 133 |
| 32 |
| 41 |
|
Home equity lines of credit | 3 |
| 2 |
| 7 |
| 4 |
| 3 |
| 1 |
| 1 |
| 2 |
| 3 |
| 2 |
|
Consumer, indirect | 131 |
| 138 |
| 134 |
| 166 |
| 175 |
| 47 |
| 115 |
| 71 |
| 131 |
| 138 |
|
Consumer, direct | 31 |
| 15 |
| 69 |
| 27 |
| 46 |
| 27 |
| 13 |
| 25 |
| 31 |
| 15 |
|
Consumer | 162 |
| 153 |
| 203 |
| 193 |
| 221 |
| 74 |
| 128 |
| 96 |
| 162 |
| 153 |
|
Deposit account overdrafts | 44 |
| 46 |
| 70 |
| 56 |
| 47 |
| 50 |
| 56 |
| 45 |
| 44 |
| 46 |
|
Total recoveries | $ | 266 |
| $ | 270 |
| $ | 321 |
| $ | 288 |
| $ | 310 |
| $ | 457 |
| $ | 2,010 |
| $ | 286 |
| $ | 266 |
| $ | 270 |
|
Net charge-offs (recoveries): | | |
Commercial real estate, other | $ | (15 | ) | $ | (21 | ) | $ | 827 |
| $ | 372 |
| $ | (19 | ) | $ | 41 |
| $ | 103 |
| $ | (2 | ) | $ | (15 | ) | $ | (21 | ) |
Commercial and industrial | (10 | ) | 7 |
| 31 |
| 10 |
| 47 |
| (228 | ) | (1,721 | ) | (8 | ) | (10 | ) | 7 |
|
Residential real estate | 34 |
| 41 |
| 119 |
| 162 |
| 226 |
| (35 | ) | 78 |
| (69 | ) | 34 |
| 41 |
|
Home equity lines of credit | 7 |
| 18 |
| 30 |
| 27 |
| 77 |
| (1 | ) | 8 |
| 38 |
| 7 |
| 18 |
|
Consumer, indirect | 357 |
| 412 |
| 795 |
| 451 |
| 319 |
| 299 |
| 358 |
| 477 |
| 357 |
| 412 |
|
Consumer, direct | 47 |
| 94 |
| 41 |
| 77 |
| 60 |
| 6 |
| 50 |
| 36 |
| 47 |
| 94 |
|
Consumer | 404 |
| 506 |
| 836 |
| 528 |
| 379 |
| 305 |
| 408 |
| 513 |
| 404 |
| 506 |
|
Deposit account overdrafts | 267 |
| 169 |
| 135 |
| 215 |
| 199 |
| 126 |
| 117 |
| 189 |
| 267 |
| 169 |
|
Total net charge-offs | $ | 687 |
| $ | 720 |
| $ | 1,978 |
| $ | 1,314 |
| $ | 909 |
| |
Total net charge-offs (recoveries) | | $ | 208 |
| $ | (1,007 | ) | $ | 661 |
| $ | 687 |
| $ | 720 |
|
Ratio of net charge-offs to average total loans (annualized): | Ratio of net charge-offs to average total loans (annualized): | | Ratio of net charge-offs to average total loans (annualized): |
Commercial real estate | — | % | — | % | 0.14 | % | 0.06 | % | — | % | 0.01 | % | 0.02 | % | — | % | — | % | — | % |
Commercial and industrial | — | % | — | % | 0.01 | % | — | % | 0.01 | % | (0.03 | )% | (0.26 | )% | — | % | — | % | — | % |
Residential real estate | — | % | 0.01 | % | 0.02 | % | 0.03 | % | 0.04 | % | — | % | 0.01 | % | (0.01 | )% | — | % | 0.01 | % |
Home equity lines of credit | — | % | — | % | 0.01 | % | — | % | 0.02 | % | — | % | — | % | — | % | — | % | — | % |
Consumer, indirect | 0.05 | % | 0.06 | % | 0.13 | % | 0.08 | % | 0.05 | % | 0.03 | % | 0.05 | % | 0.07 | % | 0.05 | % | 0.06 | % |
Consumer, other | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | — | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % |
Consumer | 0.06 | % | 0.07 | % | 0.14 | % | 0.09 | % | 0.06 | % | 0.03 | % | 0.06 | % | 0.08 | % | 0.06 | % | 0.07 | % |
Deposit account overdrafts | 0.04 | % | 0.03 | % | 0.02 | % | 0.04 | % | 0.03 | % | 0.02 | % | 0.02 | % | 0.03 | % | 0.04 | % | 0.03 | % |
Total | 0.10 | % | 0.11 | % | 0.34 | % | 0.22 | % | 0.16 | % | 0.03 | % | (0.15 | )% | 0.10 | % | 0.10 | % | 0.11 | % |
Each with "--%" not meaningful.
The increase inDuring the second quarter of 2019, net charge-offs remained low, as gross charge-offs were down compared to prior periods. The net recoveries during the first quarter of 2018 had been primarily related to one acquired2019 were driven by the recognition of a $1.8 million recovery on a previously charged-off commercial loan relationship and increased consumer indirect charge-offs related to the increased portfolio.loan. During the secondthird and thirdfourth quarters of 2018, the net charge-offs decreased as Peoples' asset quality remained stable.
The following table details Peoples’ nonperforming assets:
| | (Dollars in thousands) | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Loans 90+ days past due and accruing: | | |
Commercial real estate, construction | $ | 401 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 230 |
| $ | — |
| $ | — |
| $ | 401 |
| $ | — |
|
Commercial real estate, other | 60 |
| 615 |
| 71 |
| 215 |
| 1,272 |
| 557 |
| 15 |
| 801 |
| 60 |
| 615 |
|
Commercial real estate | 461 |
| 615 |
| 71 |
| 215 |
| 1,272 |
| 787 |
| 15 |
| 801 |
| 461 |
| 615 |
|
Commercial and industrial | — |
| — |
| — |
| 45 |
| 832 |
| 261 |
| 50 |
| 18 |
| — |
| — |
|
Residential real estate | 1,338 |
| 1,308 |
| 930 |
| 1,278 |
| 1,415 |
| 2,291 |
| 963 |
| 1,430 |
| 1,338 |
| 1,308 |
|
Home equity lines of credit | 84 |
| 6 |
| 29 |
| 72 |
| 15 |
| 53 |
| 42 |
| 7 |
| 84 |
| 6 |
|
Consumer, indirect | 2 |
| — |
| — |
| — |
| — |
| — |
| 4 |
| — |
| 2 |
| — |
|
Consumer, direct | — |
| 46 |
| — |
| 16 |
| 8 |
| 57 |
| — |
| — |
| — |
| 46 |
|
Consumer | 2 |
| 46 |
| — |
| 16 |
| 8 |
| 57 |
| 4 |
| — |
| 2 |
| 46 |
|
Total loans 90+ days past due and accruing | $ | 1,885 |
| $ | 1,975 |
| $ | 1,030 |
| $ | 1,626 |
| $ | 3,542 |
| $ | 3,449 |
| $ | 1,074 |
| $ | 2,256 |
| $ | 1,885 |
| $ | 1,975 |
|
Nonaccrual loans: | | |
Commercial real estate, construction | $ | 725 |
| $ | 725 |
| $ | 732 |
| $ | 754 |
| $ | 776 |
| $ | 688 |
| $ | 703 |
| $ | 710 |
| $ | 725 |
| $ | 725 |
|
Commercial real estate, other | 6,751 |
| 6,422 |
| 6,268 |
| 6,348 |
| 7,321 |
| 6,427 |
| 6,459 |
| 6,730 |
| 6,751 |
| 6,422 |
|
Commercial real estate | 7,476 |
| 7,147 |
| 7,000 |
| 7,102 |
| 8,097 |
| 7,115 |
| 7,162 |
| 7,440 |
| 7,476 |
| 7,147 |
|
Commercial and industrial | 939 |
| 1,265 |
| 1,252 |
| 506 |
| 584 |
| 1,748 |
| 1,719 |
| 1,304 |
| 939 |
| 1,265 |
|
Residential real estate | 3,725 |
| 3,770 |
| 3,967 |
| 4,267 |
| 4,055 |
| 3,868 |
| 4,479 |
| 4,075 |
| 3,725 |
| 3,770 |
|
Home equity lines of credit | 796 |
| 681 |
| 656 |
| 772 |
| 589 |
| 1,001 |
| 1,065 |
| 1,023 |
| 796 |
| 681 |
|
Consumer, indirect | 286 |
| 221 |
| 180 |
| 158 |
| 79 |
| 383 |
| 440 |
| 324 |
| 286 |
| 221 |
|
Consumer, direct | 14 |
| 12 |
| 11 |
| 32 |
| 31 |
| 13 |
| 17 |
| 56 |
| 14 |
| 12 |
|
Consumer | 300 |
| 233 |
| 191 |
| 190 |
| 110 |
| 396 |
| 457 |
| 380 |
| 300 |
| 233 |
|
Total nonaccrual loans | $ | 13,236 |
| $ | 13,096 |
| $ | 13,066 |
| $ | 12,837 |
| $ | 13,435 |
| $ | 14,128 |
| $ | 14,882 |
| $ | 14,222 |
| $ | 13,236 |
| $ | 13,096 |
|
Nonaccrual troubled debt restructurings (TDRs): | | |
Nonaccrual troubled debt restructurings ("TDRs"): | | |
Commercial real estate, other | $ | 186 |
| $ | 236 |
| $ | 674 |
| $ | 721 |
| $ | 336 |
| $ | 122 |
| $ | 127 |
| $ | 154 |
| $ | 186 |
| $ | 236 |
|
Commercial and industrial | 430 |
| 436 |
| 487 |
| 492 |
| 694 |
| 332 |
| 332 |
| 405 |
| 430 |
| 436 |
|
Residential real estate | 2,087 |
| 2,132 |
| 1,761 |
| 1,447 |
| 1,592 |
| 1,664 |
| 1,389 |
| 1,951 |
| 2,087 |
| 2,132 |
|
Home equity lines of credit | 160 |
| 71 |
| 81 |
| 90 |
| 85 |
| 193 |
| 195 |
| 210 |
| 160 |
| 71 |
|
Consumer, indirect | 119 |
| 93 |
| 126 |
| 98 |
| 75 |
| 152 |
| 159 |
| 156 |
| 119 |
| 93 |
|
Consumer, direct | 17 |
| 5 |
| 7 |
| 7 |
| 2 |
| — |
| 5 |
| — |
| 17 |
| 5 |
|
Consumer | 136 |
| 98 |
| 133 |
| 105 |
| 77 |
| 152 |
| 164 |
| 156 |
| 136 |
| 98 |
|
Total nonaccrual TDRs | $ | 2,999 |
| $ | 2,973 |
| $ | 3,136 |
| $ | 2,855 |
| $ | 2,784 |
| $ | 2,463 |
| $ | 2,207 |
| $ | 2,876 |
| $ | 2,999 |
| $ | 2,973 |
|
Total nonperforming loans (NPLs) | $ | 18,120 |
| $ | 18,044 |
| $ | 17,232 |
| $ | 17,318 |
| $ | 19,761 |
| |
Other real estate owned (OREO): | | |
Commercial | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 167 |
| |
Total nonperforming loans ("NPLs") | | $ | 20,040 |
| $ | 18,163 |
| $ | 19,354 |
| $ | 18,120 |
| $ | 18,044 |
|
OREO: | | |
Residential | 106 |
| 63 |
| 99 |
| 208 |
| 109 |
| $ | 123 |
| $ | 81 |
| $ | 94 |
| $ | 106 |
| $ | 63 |
|
Total OREO | $ | 106 |
| $ | 63 |
| $ | 99 |
| $ | 208 |
| $ | 276 |
| $ | 123 |
| $ | 81 |
| $ | 94 |
| $ | 106 |
| $ | 63 |
|
Total nonperforming assets (NPAs) | $ | 18,226 |
| $ | 18,107 |
| $ | 17,331 |
| $ | 17,526 |
| $ | 20,037 |
| |
Total nonperforming assets ("NPAs") | | $ | 20,163 |
| $ | 18,244 |
| $ | 19,448 |
| $ | 18,226 |
| $ | 18,107 |
|
Criticized loans (a) | $ | 118,703 |
| $ | 120,809 |
| $ | 116,243 |
| $ | 90,418 |
| $ | 96,671 |
| $ | 97,016 |
| $ | 89,812 |
| $ | 114,188 |
| $ | 118,703 |
| $ | 120,809 |
|
Classified loans (b) | 49,058 |
| 55,596 |
| 44,661 |
| 46,380 |
| 41,233 |
| 63,048 |
| 47,327 |
| 43,818 |
| 49,058 |
| 55,596 |
|
| | (Dollars in thousands) | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Asset Quality Ratios: | | |
NPLs as a percent of total loans (c)(d) | 0.67 | % | 0.67 | % | 0.72 | % | 0.73 | % | 0.85 | % | 0.71 | % | 0.66 | % | 0.71 | % | 0.67 | % | 0.67 | % |
NPAs as a percent of total assets (c)(d) | 0.46 | % | 0.46 | % | 0.48 | % | 0.49 | % | 0.56 | % | 0.47 | % | 0.45 | % | 0.49 | % | 0.46 | % | 0.46 | % |
NPAs as a percent of total loans and OREO (c)(d) | 0.67 | % | 0.67 | % | 0.72 | % | 0.74 | % | 0.86 | % | 0.71 | % | 0.67 | % | 0.71 | % | 0.67 | % | 0.67 | % |
Allowance for loan losses as a percent of NPLs (c) | 109.71 | % | 106.77 | % | 109.08 | % | 108.52 | % | 96.11 | % | 106.57 | % | 115.28 | % | 104.35 | % | 109.71 | % | 106.77 | % |
Criticized loans as a percent of total loans (c) | 4.38 | % | 4.50 | % | 4.84 | % | 3.84 | % | 4.15 | % | |
Classified loans as a percent of total loans (c) | 1.81 | % | 2.07 | % | 1.86 | % | 1.97 | % | 1.77 | % | |
Criticized loans as a percent of total loans (a)(c) | | 3.42 | % | 3.28 | % | 4.18 | % | 4.38 | % | 4.50 | % |
Classified loans as a percent of total loans (b)(c) | | 2.23 | % | 1.73 | % | 1.61 | % | 1.81 | % | 2.07 | % |
(a) Includes loans categorized as special mention, substandard or doubtful.
(b) Includes loans categorized as substandard or doubtful.
(c) Data presented as of the end of the period indicated.
(d) Nonperforming loans include loans 90+ days past due and accruing, troubled debt restructured loansrestructurings and nonaccrual loans. Nonperforming assets include nonperforming loans and OREO.
Nonperforming loansassets increased $1.9 million, or 11%, compared to March 31, 2019, and were relatively unchangedup $2.1 million, or 11%, compared to June 30, 2018, and declined $1.6 million, or 8%,2018. The increase compared to SeptemberMarch 31, 2019, was partially due to acquired loans from First Prestonsburg, which comprised $0.7 million of nonperforming assets at June 30, 2017.2019, with the remainder due to smaller relationships that have become 90+ days past due and are still accruing. Classified loans, which are those categorized as substandard or doubtful, declined $6.5increased $15.7 million, or 12%33%, compared to June 30, 2018,March 31, 2019, and were up $7.8$7.5 million, or 19%13%, from September 30, 2017. Compared to June 30, 2018, the improvement2018. The increase in classified loans was mostly duelargely related to a singleacquired First Prestonsburg loans, coupled with downgrades of two commercial relationship that was upgraded from substandard to special mentionloan relationships totaling $8.5 million during the quarter.second quarter of 2019. Criticized loans, which are those categorized as special mention, substandard or doubtful, decreased $2.1increased $7.2 million, or 2%8%, compared to March 31, 2019, and decreased $23.8 million, or 20%, compared to June 30, 2018, and increased $22.0 million, or 23%, compared2018. The increase in criticized loans was largely related to September 30, 2017.
acquired First Prestonsburg loans.
Deposits
The following table details Peoples’ deposit balances:
| | (Dollars in thousands) | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Non-interest-bearing deposits (a) | $ | 617,447 |
| $ | 585,861 |
| $ | 570,804 |
| $ | 556,010 |
| $ | 724,846 |
| $ | 643,058 |
| $ | 628,464 |
| $ | 607,877 |
| $ | 617,447 |
| $ | 585,861 |
|
Interest-bearing deposits: | | |
Interest-bearing demand accounts (a) | 547,172 |
| 570,359 |
| 584,563 |
| 593,415 |
| 384,261 |
| 610,464 |
| 572,316 |
| 573,702 |
| 547,172 |
| 570,359 |
|
Savings accounts | 473,240 |
| 480,615 |
| 461,440 |
| 446,714 |
| 440,633 |
| 526,746 |
| 477,824 |
| 468,500 |
| 473,240 |
| 480,615 |
|
Retail certificates of deposit ("CDs") | | 497,221 |
| 404,186 |
| 394,335 |
| 402,309 |
| 406,214 |
|
Money market deposit accounts | 391,377 |
| 389,893 |
| 364,232 |
| 371,376 |
| 388,876 |
| 428,213 |
| 403,642 |
| 379,878 |
| 391,377 |
| 389,893 |
|
Governmental deposit accounts | 344,320 |
| 305,255 |
| 341,920 |
| 264,524 |
| 289,895 |
| 331,754 |
| 363,636 |
| 267,319 |
| 344,320 |
| 305,255 |
|
Retail certificates of deposit (CDs) | 402,309 |
| 406,214 |
| 335,843 |
| 338,673 |
| 343,122 |
| |
Brokered CDs | 265,258 |
| 211,062 |
| 154,379 |
| 159,618 |
| 93,049 |
| 326,157 |
| 287,345 |
| 263,854 |
| 265,258 |
| 211,062 |
|
Total interest-bearing deposits | 2,423,676 |
| 2,363,398 |
| 2,242,377 |
| 2,174,320 |
| 1,939,836 |
| 2,720,555 |
| 2,508,949 |
| 2,347,588 |
| 2,423,676 |
| 2,363,398 |
|
Total deposits | $ | 3,041,123 |
| $ | 2,949,259 |
| $ | 2,813,181 |
| $ | 2,730,330 |
| $ | 2,664,682 |
| $ | 3,363,613 |
| $ | 3,137,413 |
| $ | 2,955,465 |
| $ | 3,041,123 |
| $ | 2,949,259 |
|
| |
(a) | The sum of amounts presented is considered total demand deposits. |
As of June 30, 2019, the balances in deposit accounts acquired from First Prestonsburg totaled $232.2 million, including $65.3 million of retail CDs, $62.8 million of interest-bearing demand accounts, $55.7 million of savings accounts, $33.4 million of non-interest-bearing demand accounts, and $15.1 million of money market accounts.
At SeptemberJune 30, 2018,2019, period-end deposits increased $91.9$226.2 million, or 3%7%, compared to June 30, 2018; $310.8 million, or 11%, compared to DecemberMarch 31, 2017; and $376.42019, $408.1 million, or 14%, compared to SeptemberDecember 31, 2018, and $414.4 million, or 14%, compared to June 30, 2017. The growth from December 2017 and September 2017 was largely due to $198.6 million of balances in deposit accounts acquired from ASB on April 13, 2018. ContributingCompared to the linked quarter, the growth were increaseswas driven by the First Prestonsburg acquisition, partially offset by a seasonal decline of $39.1$31.9 million in governmental deposits, and $31.6 million in non-interest-bearing deposits, coupled with higher one-way buy Certificate of Deposit Account Registry Services ("CDARs") deposits, which are includedtypically higher during the first quarter of each year. During the second quarter of 2019, Peoples issued $30.0 million of 90-day brokered CDs to fund three $10.0 million interest rate swaps with a notional value in the aggregate of $30.0 million during the second quarter of 2019. The swaps will pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered CD balances. The increase in period-end deposit balances compared to September 30, 2017 was largely due to the acquired deposit balances from ASB remaining at September 30, 2018, coupled with higher one-way buy CDARs deposit balances.CDs.
Total demand deposit accounts comprised 37% of total deposits at June 30, 2019, compared to 38% of total deposits at March 31, 2019, 40% at December 31, 2018, 38% at September 30, 2018, compared toand 39% at June 30, 2018 and 42% at September 30, 2017.2018. Peoples continues its deposit strategy of growing low-cost core deposits, such as checking and savings accounts and retail CDs when possible, and relying on higher-cost, non-core deposits, such as brokered CDs when deposits are not available in Peoples' footprint.
Borrowed Funds
The following table details Peoples’ short-term and long-term borrowings:
| | (Dollars in thousands) | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Short-term borrowings: | | |
FHLB advances | $ | 232,000 |
| $ | 284,566 |
| $ | 104,579 |
| $ | 92,592 |
| $ | 116,597 |
| |
FHLB overnight borrowings | | $ | — |
| $ | 24,000 |
| $ | 165,000 |
| $ | 102,000 |
| $ | 173,000 |
|
FHLB 90-day advances | | 117,200 |
| 110,000 |
| 110,000 |
| 100,000 |
| 13,000 |
|
Current portion of long-term FHLB advances | | 23,129 |
| 13,188 |
| 30,000 |
| 30,000 |
| 98,566 |
|
Retail repurchase agreements | 64,840 |
| 76,177 |
| 98,896 |
| 116,899 |
| 77,120 |
| 46,128 |
| 44,175 |
| 51,202 |
| 64,840 |
| 76,177 |
|
Unamortized debt issuance cost | (10 | ) | (16 | ) | — |
| — |
| — |
| |
Unamortized debt issuance cost (a) | | — |
| — |
| (4 | ) | (10 | ) | (16 | ) |
Total short-term borrowings | 296,830 |
| 360,727 |
| 203,475 |
| 209,491 |
| 193,717 |
| $ | 186,457 |
| $ | 191,363 |
| $ | 356,198 |
| $ | 296,830 |
| $ | 360,727 |
|
Long-term borrowings: | | |
FHLB advances | 103,860 |
| 105,890 |
| 116,352 |
| 136,939 |
| 148,862 |
| $ | 78,324 |
| $ | 98,670 |
| $ | 102,361 |
| $ | 103,860 |
| $ | 105,890 |
|
National market repurchase agreements | — |
| — |
| — |
| — |
| 40,000 |
| |
Unamortized debt issuance costs | — |
| — |
| (22 | ) | (27 | ) | (33 | ) | |
Junior subordinated debt securities | 7,239 |
| 7,195 |
| 7,151 |
| 7,107 |
| 7,061 |
| 7,367 |
| 7,325 |
| 7,283 |
| 7,239 |
| 7,195 |
|
Total long-term borrowings | 111,099 |
| 113,085 |
| 123,481 |
| 144,019 |
| 195,890 |
| $ | 85,691 |
| $ | 105,995 |
| $ | 109,644 |
| $ | 111,099 |
| $ | 113,085 |
|
Total borrowed funds | $ | 407,929 |
| $ | 473,812 |
| $ | 326,956 |
| $ | 353,510 |
| $ | 389,607 |
| $ | 272,148 |
| $ | 297,358 |
| $ | 465,842 |
| $ | 407,929 |
| $ | 473,812 |
|
| |
(a) | Unamortized debt issuance cost is related to the cost associated with the Credit Agreement with Raymond James Bank, N.A. which was a short-term obligation as of March 31, 2019. |
Peoples' short-term FHLB advances generally consist of overnight borrowings maintained in connection with the management of Peoples' daily liquidity position. Borrowed funds, in total, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances. Overnight borrowings as of June 30, 2019 declined $24 million compared to March 31, 2019, primarily due to the increase in deposit balances during the quarter. As of SeptemberJune 30, 2018, this included 90-day advances used to fund $100.0 million in2019, Peoples had fifteen effective interest rate swaps, with an aggregate notional value of $140.0 million, $110.0 million of which was funded by FHLB 90-day advances, which are expected to extend every 90 days through the maturity dates of the swaps. The remaining $30.0 million of interest rate swaps with maturity dates ranging from 2021 to 2028. These advances are expected towas funded by 90-day brokered CDs, which will also be extended every 90 days through the maturity dates of the swaps. Peoples' short-term FHLB advances at September 30, 2018 decreased $63.9 million, and increased $87.3 million, compared to June 30, 2018 and December 31, 2017, respectively. The increase in short-term borrowings compared to December 31, 2017 was primarily related to the funding of the interest rate swaps and long-term FHLB advances being reclassified to short-term borrowings due to the advances maturing within one year, coupled with loan growth out-pacing deposit growth. The increase at June 30, 2018 from March 31, 2018 also includes $21.0 million in short-term FHLB advances acquired from ASB, of which all $21.0 million matured in July of 2018. Peoples continually evaluates the overall balance sheet position given the interest rate environment.
Peoples acquired three interest rate swaps with the ASB acquisition in the second quarter of 2018, which had a notional value of $7.0 million, and all of which matured in July 2018. As of September Long-term FHLB advances declined at June 30, 2018, Peoples had ten effective interest rate swaps, for an aggregate notional value of $100.0 million, and two additional swaps, with an aggregate notional value of $10.0 million, became effective in October of 2018. These interest rate swaps are associated with Peoples' cash outflows for various FHLB advances. The $43.0 million increase in notional value during the third quarter of 2018 was2019 compared to March 31, 2019 due to Peoples entering into an additional five interest rate swaps, partially offset by the three acquired interest rate swaps maturing in July 2018. These dates roughly coincide with the maturity of existingtransfers to short-term borrowings. At March 31, 2019 compared to December 31, 2018, long-term FHLB advances.advances declined due to principal payments.
Additional information regarding Peoples' interest rate swaps can be found in Note"Note 9 Derivative Financial Instruments" of the Notes to the Unconsolidated Financial Statements.
Capital/Stockholders’ Equity
At SeptemberJune 30, 2018,2019, 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. 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 beingwas 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 SeptemberJune 30, 2018, Peoples'2019, Peoples had a capital conservation buffer of 6.30%7.14%, compared to 2.50% for the fully phased-in capital conservation buffer required byat January 1, 2019. As such, Peoples exceeded the minimum ratios including the capital conservation buffer at SeptemberJune 30, 2018.2019.
The following table details Peoples' risk-based capital levels and corresponding ratios:
| | (Dollars in thousands) | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Capital Amounts: | |
| | |
| |
Common Equity Tier 1 | 368,195 |
| $ | 359,645 |
| $ | 335,393 |
| $ | 327,172 |
| $ | 326,966 |
| $ | 410,979 |
| $ | 389,393 |
| $ | 378,855 |
| $ | 367,537 |
| $ | 358,987 |
|
Tier 1 | 375,433 |
| 366,840 |
| 342,544 |
| 334,279 |
| 334,027 |
| 418,347 |
| 396,719 |
| 386,138 |
| 374,776 |
| 366,182 |
|
Total (Tier 1 and Tier 2) | 395,313 |
| 386,105 |
| 361,343 |
| 355,977 |
| 355,951 |
| 439,704 |
| 417,657 |
| 406,333 |
| 394,655 |
| 385,448 |
|
Net risk-weighted assets | $ | 2,765,328 |
| $ | 2,765,769 |
| $ | 2,524,970 |
| $ | 2,473,329 |
| $ | 2,456,797 |
| $ | 2,903,387 |
| $ | 2,788,934 |
| $ | 2,782,995 |
| $ | 2,764,951 |
| $ | 2,755,112 |
|
Capital Ratios: | | |
Common Equity Tier 1 | 13.31 | % | 13.00 | % | 13.28 | % | 13.23 | % | 13.31 | % | 14.16 | % | 13.96 | % | 13.61 | % | 13.29 | % | 13.03 | % |
Tier 1 | 13.58 | % | 13.26 | % | 13.57 | % | 13.52 | % | 13.60 | % | 14.41 | % | 14.22 | % | 13.87 | % | 13.55 | % | 13.29 | % |
Total (Tier 1 and Tier 2) | 14.30 | % | 13.96 | % | 14.31 | % | 14.39 | % | 14.49 | % | 15.14 | % | 14.98 | % | 14.60 | % | 14.27 | % | 13.99 | % |
Leverage ratio | 9.71 | % | 9.75 | % | 9.86 | % | 9.75 | % | 9.81 | % | 10.26 | % | 10.31 | % | 9.99 | % | 9.69 | % | 9.73 | % |
Peoples' capital ratios at June 30, 2019 increased compared to the linked quarter due to earnings during the second quarter of 2019, which exceeded the dividends declared and paid during the quarter by $2.6 million. The capital ratios at June 30, 2019 were also impacted by the increase in risk-weighted assets, which was largely attributable to the First Prestonsburg merger. The capital ratios increased at March 31, 2019 compared to December 31, 2018 due to increased equity as earnings exceeded the dividends declared. Peoples' capital ratios at December 31, 2018 increased compared to September 30, 2018 due primarily to increased earnings, which was largely driven by loan growth. The capital ratios increased at September 30, 2018 compared to June 30, 2018 due to increased equity as earnings exceeded the dividends declared, while net risk-weighted assets decreased slightly in relation to some large payoffs that were higher volatility commercial real estate loans. Peoples' capital ratiosThe leverage ratio at September 30, 2018 decreased slightly compared to June 30, 2018 decreased compared to the linked quarter and December 31, 2017 largely due to the percentage of risk-weighted assets acquired from the ASB acquisition that were greater than capital added, net of goodwill, from the ASB acquisition. Leverage ratio decreased slightly due to the increase in average assets in the third quarter of 2018 compared to the second quarter as ASB was acquired on April 13, 2018.
In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity. Such ratios represent non-GAAPnon-US GAAP financial measures since their calculation removes the impact of goodwill and other intangible assets acquired through acquisitions on amounts reported in 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 Peoples to incur losses but remain solvent.
The following table reconciles the calculation of these non-GAAPnon-US GAAP financial measures to amounts reported in Peoples' Unaudited Consolidated Financial Statements:
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 |
Tangible equity: | | | | | |
Total stockholders' equity | $ | 504,290 |
| $ | 499,339 |
| $ | 456,815 |
| $ | 458,592 |
| $ | 457,386 |
|
Less: goodwill and other intangible assets | 163,401 |
| 163,953 |
| 143,820 |
| 144,576 |
| 143,859 |
|
Tangible equity | $ | 340,889 |
| $ | 335,386 |
| $ | 312,995 |
| $ | 314,016 |
| $ | 313,527 |
|
Tangible assets: | | | | | |
Total assets | $ | 4,003,089 |
| $ | 3,972,091 |
| $ | 3,634,929 |
| $ | 3,581,686 |
| $ | 3,552,412 |
|
Less: goodwill and other intangible assets | 163,401 |
| 163,953 |
| 143,820 |
| 144,576 |
| 143,859 |
|
Tangible assets | $ | 3,839,688 |
| $ | 3,808,138 |
| $ | 3,491,109 |
| $ | 3,437,110 |
| $ | 3,408,553 |
|
Tangible book value per common share: | | | | |
Tangible equity | $ | 340,889 |
| $ | 335,386 |
| $ | 312,995 |
| $ | 314,016 |
| $ | 313,527 |
|
Common shares outstanding | 19,550,014 |
| 19,528,952 |
| 18,365,035 |
| 18,287,449 |
| 18,281,194 |
|
Tangible book value per common share | $ | 17.44 |
| $ | 17.17 |
| $ | 17.04 |
| $ | 17.17 |
| $ | 17.15 |
|
Tangible equity to tangible assets ratio: | | | | |
Tangible equity | $ | 340,889 |
| $ | 335,386 |
| $ | 312,995 |
| $ | 314,016 |
| $ | 313,527 |
|
Tangible assets | $ | 3,839,688 |
| $ | 3,808,138 |
| $ | 3,491,109 |
| $ | 3,437,110 |
| $ | 3,408,553 |
|
Tangible equity to tangible assets | 8.88 | % | 8.81 | % | 8.97 | % | 9.14 | % | 9.20 | % |
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Tangible equity: | | | | | |
Total stockholders' equity | $ | 579,022 |
| $ | 535,121 |
| $ | 520,140 |
| $ | 504,290 |
| $ | 499,339 |
|
Less: goodwill and other intangible assets | 176,763 |
| 161,242 |
| 162,085 |
| 163,401 |
| 163,953 |
|
Tangible equity | $ | 402,259 |
| $ | 373,879 |
| $ | 358,055 |
| $ | 340,889 |
| $ | 335,386 |
|
Tangible assets: | | | | | |
Total assets | $ | 4,276,376 |
| $ | 4,017,119 |
| $ | 3,991,454 |
| $ | 4,003,089 |
| $ | 3,972,091 |
|
Less: goodwill and other intangible assets | 176,763 |
| 161,242 |
| 162,085 |
| 163,401 |
| 163,953 |
|
Tangible assets | $ | 4,099,613 |
| $ | 3,855,877 |
| $ | 3,829,369 |
| $ | 3,839,688 |
| $ | 3,808,138 |
|
Tangible book value per common share: | | | | |
Tangible equity | $ | 402,259 |
| $ | 373,879 |
| $ | 358,055 |
| $ | 340,889 |
| $ | 335,386 |
|
Common shares outstanding | 20,696,041 |
| 19,681,692 |
| 19,565,029 |
| 19,550,014 |
| 19,528,952 |
|
Tangible book value per common share | $ | 19.44 |
| $ | 19.00 |
| $ | 18.30 |
| $ | 17.44 |
| $ | 17.17 |
|
Tangible equity to tangible assets ratio: | | | | |
Tangible equity | $ | 402,259 |
| $ | 373,879 |
| $ | 358,055 |
| $ | 340,889 |
| $ | 335,386 |
|
Tangible assets | $ | 4,099,613 |
| $ | 3,855,877 |
| $ | 3,829,369 |
| $ | 3,839,688 |
| $ | 3,808,138 |
|
Tangible equity to tangible assets | 9.81 | % | 9.70 | % | 9.35 | % | 8.88 | % | 8.81 | % |
The decreaseincrease in the tangible equity to tangible assets ratio at September 30, 2018 and June 30, 2018,2019 compared to previous periodsMarch 31, 2019, was due largely to higher tangible assets attributable to loan growth and the ASB acquisition, offset partially by the issuance of equity in the form of common shares in connection with the ASB acquisition.First Prestonsburg merger combined with higher retained earnings and other comprehensive income during the second quarter of 2019, offset partially by higher tangible assets attributable primarily to the First Prestonsburg merger. The increase in the tangible equity to tangible assets ratio compared to December 31, 2018, as well as previous periods, was the result of higher retained earnings, combined with an increase in the market value of available-for-sale investment securities.
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/liabilityasset-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 ALMasset-liability management 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”("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 interest-earningearning assets and interest-bearing liabilities. In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can expose Peoplesaffect Peoples' exposure 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 of IRR. The methods used by ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' 20172018 Form 10-K. However during the third quarter
The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis with balances held constant (dollars in thousands):
| | Increase (Decrease) in Interest Rate | Estimated Increase (Decrease) in Net Interest Income | | Estimated (Decrease) Increase in Economic Value of Equity | Estimated Increase (Decrease) in Net Interest Income | | Estimated (Decrease) Increase in Economic Value of Equity |
(in Basis Points) | September 30, 2018 | | December 31, 2017 | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 |
300 | $ | 7,393 |
| | 5.6 | % | | $ | 4,114 |
| 3.5 | % | | $ | (39,550 | ) | | (3.9 | )% | | $ | (83,466 | ) | (11.9 | )% | $ | 13,557 |
| | 10.1 | % | | $ | 7,351 |
| 5.5 | % | | $ | (11,969 | ) | | (1.1 | )% | | $ | (22,088 | ) | (2.1 | )% |
200 | 5,376 |
| | 4.1 | % | | 3,368 |
| 2.9 | % | | (22,337 | ) | | (2.2 | )% | | (56,377 | ) | (8.0 | )% | 11,046 |
| | 8.3 | % | | 5,780 |
| 4.3 | % | | 24,680 |
| | 2.2 | % | | (7,191 | ) | (0.7 | )% |
100 | 3,175 |
| | 2.4 | % | | 2,252 |
| 1.9 | % | | (6,077 | ) | | (0.6 | )% | | (27,710 | ) | (4.0 | )% | 7,478 |
| | 5.6 | % | | 3,588 |
| 2.7 | % | | 25,125 |
| | 2.2 | % | | 3,926 |
| 0.4 | % |
(100) | (8,318 | ) | | (6.3 | )% | | (8,352 | ) | (7.1 | )% | | (31,657 | ) | | (3.1 | )% | | 10,317 |
| 1.5 | % | (11,962 | ) | | (9.0 | )% | | (9,075 | ) | (6.8 | )% | | (41,465 | ) | | (3.7 | )% | | (44,512 | ) | (4.2 | )% |
(200) | | (23,702 | ) | | (17.7 | )% | | (23,712 | ) | (17.6 | )% | | (95,175 | ) | | (8.5 | )% | | (130,769 | ) | (12.4 | )% |
Estimated changes in net interest income and economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest rates. Peoples takes a historically conservative approach when determining what repricing rates (deposit betas) are used in modeling interest rate risk. These assumptions are monitored closely by Peoples and are updated at least annually. The actual deposit betas experienced recently by Peoples in the repricing of non-maturity deposits are lower than those used in Peoples’ current interest rate risk modeling. Peoples has benefited from this trend in the current interest rate and competitor environment as it has provided for growth in Peoples’ net interest income. However, in recent months, Peoples has experienced more pressure on margin expansion and rate competition in it'sits markets.
Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. This includes various flattening and steepening scenarios in which short-term and long-term rates move in different directions with varying magnitude. Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above. At SeptemberJune 30, 2018,2019, the U.S. Treasury and LIBOR swap curves were inverted for certain tenors. Given the shape of market yield curves at June 30, 2019, consideration of the bull steepener scenario yields insights which were not captured by parallel shifts. The key insight presented by the bull steepener scenario highlights the risk to net interest income when long-term yields remain constant while short-term rates fall. In such a scenario, Peoples’ funding costs, which are correlated with short-term rates, decline, while asset yields correlated with long-term rates remain constant.
At June 30, 2019, Peoples' consolidated balance sheet was positioned to benefit from rising interest rates in terms of potential impact on net interest income. The table above illustrates this point as changes to net interest income increase in the rising rate scenarios. The increase in asset sensitivity from December 31, 20172018 was largely attributable to the 90-day advances Peoples entered intohigh balance of governmental deposits. Peoples’ overnight FHLB borrowing position, which had declined substantially from December 31, 2018 to fund the interest rate swaps, effectively reducing the interest rate sensitivity of the liabilities on the balance sheet. However, there was a slight reduction of asset sensitivityJune 30, 2019 as a result of increased public funds deposits, ultimately led to a decline in liability sensitivity in the ASB acquisition.first half of the year. The increased public funds deposit balances are expected to decline through September 2019. While parallel interest rate shock scenarios are useful in assessing the level of IRRinterest rate risk inherent in the 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 might occur as a result of the Federal Reserve increasing short-term interest rates in the future could be offset by an inverse movement in long-term interest rates.
The table also illustrates a significant reduction in long-term interest rate risk as is evidenced by the drop in the negative impact of rising interest rates on economic value of equity. The reduction is largely attributable to the increased functionality of the new interest rate risk model employed by Peoples during the third quarter, primarily the ability to apply enhanced pre-payment estimates on loans.
Peoples has entered into interest rate swaps 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 SeptemberJune 30, 2018,2019, Peoples had entered into twelvefifteen interest rate swap contracts, ten of which were effective with an aggregate notional value of $100.0 million. The remaining two became effective in October 2018 with an aggregate notional value of $10.0$140.0 million. Additional information regarding Peoples' interest rate swaps can be found in Note"Note 14 Derivative Financial Instruments" of the Notes to the Consolidated Financial Statements included in Peoples' 20172018 Form 10-K and Note"Note 9 Derivative Financial Instruments" of the Notes to the Unconsolidated Financial Statements included in this Form 10-Q.
Liquidity
In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity at Peoples Bank.liquidity. The methods used by the ALCO to monitor and evaluate the adequacy of Peoples Bank's liquidity position remain unchanged from those disclosed in Peoples' 20172018 Form 10-K.
At SeptemberJune 30, 2018,2019, Peoples Bank had liquid assets of $169.1$261.9 million, which represented 3.8%5.6% of total assets and unfunded loan commitments. This amount exceeded the minimalminimum level by $80.7$168.2 million, or 2.0%3.6% of total loans and
unfunded commitments, currently required under Peoples' liquidity policy. Peoples also had an additional $74.7$115.0 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 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 performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples Bank's 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 Bank 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 Bank 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.Consolidated Financial Statements. These activities are part of Peoples Bank's 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, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Home equity lines of credit | $ | 101,651 |
| $ | 103,975 |
| $ | 86,787 |
| $ | 83,949 |
| $ | 84,101 |
| $ | 106,456 |
| $ | 103,343 |
| $ | 101,265 |
| $ | 101,651 |
| $ | 103,975 |
|
Unadvanced construction loans | 71,836 |
| 87,477 |
| 106,410 |
| 112,475 |
| 103,732 |
| 95,266 |
| 80,916 |
| 74,734 |
| 71,836 |
| 87,477 |
|
Other loan commitments | 324,059 |
| 319,519 |
| 267,482 |
| 260,552 |
| 280,974 |
| 360,872 |
| 308,103 |
| 314,271 |
| 324,059 |
| 319,519 |
|
Loan commitments | $ | 497,546 |
| $ | 510,971 |
| $ | 460,679 |
| $ | 456,976 |
| $ | 468,807 |
| $ | 562,594 |
| $ | 492,362 |
| $ | 490,270 |
| $ | 497,546 |
| $ | 510,971 |
|
Standby letters of credit | $ | 9,979 |
| $ | 20,354 |
| $ | 20,481 |
| $ | 20,873 |
| $ | 21,788 |
| $ | 14,658 |
| $ | 12,371 |
| $ | 10,214 |
| $ | 9,979 |
| $ | 20,354 |
|
Management does not anticipate that Peoples Bank’s 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 FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in this Quarterly Report on 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 SeptemberJune 30, 20182019. 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 SeptemberJune 30, 20182019, 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
Peoples has entered into interest rate swaps 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 SeptemberJune 30, 2018,2019, Peoples had entered into twelvefifteen interest rate swap contracts, ten of which were effective with an aggregate notional value of $100.0$140.0 million. The remaining two became effective in October 2018 with an aggregate notional value of $10.0 million. Additional information regarding Peoples' interest rate swaps can be found in Note 14 of the Notes to the Consolidated Financial Statements included in Peoples' 2017 Form 10-K and Note 9 of the Notes to the Unconsolidated Financial Statements in this Form 10-Q.
Although Peoples expects that each of the hedging relationships will continue to be highly effective as described above, it has not assumed that there will be no ineffectiveness in the hedging relationships. As of September 30, 2018, the termination value of derivative financial instruments was in a net asset position, which included accrued interest but excluded any adjustment for nonperformance risk, related to the twelveAdditional information regarding Peoples' interest rate swaps was $3.9 million. Ascan be found in "Note 14 Derivative Financial Instruments" of September 30,the Notes to the Consolidated Financial Statements included in Peoples' 2018 Peoples has posted collateralForm 10-K and "Note 9 Derivative Financial Instruments" of $6.6 million against its obligations under these agreements. If Peoples had breached any of these provisions at September 30, 2018, it could have been requiredthe Notes to settle its obligations under the agreements at the termination value.Unconsolidated Financial Statements in this Form 10-Q.
There have been no other material changes from those risk factors previously disclosed in “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 20172018 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 SeptemberJune 30, 2018:2019:
|
| | | | | | | | | | | | |
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, 2018 (2)(3) | 2,189 |
|
| $ | 37.35 |
| | — |
| $ | 15,049,184 |
|
August 1-31, 2018 | — |
| | — |
| | — |
| 15,049,184 |
|
September 1-30, 2018 (3) | 320 |
| | 36.51 |
| | — |
| 15,049,184 |
|
Total | 2,509 |
| | $ | 37.25 |
| | — |
| $ | 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) |
April 1-30, 2019 | — |
|
| $ | — |
| | — |
| $ | 15,049,184 |
|
May 1-31, 2019 (2) (3) | 3,728 |
| | 32.60 |
| | — |
| 15,049,184 |
|
June 1-30, 2019 (2) (3) | 2,724 |
| | 31.23 |
| | — |
| 15,049,184 |
|
Total | 6,452 |
| | $ | 32.02 |
| | — |
| $ | 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 SeptemberJune 30, 2018.2019. |
| |
(2) | Information reported includes 1,5193,160 common shares and 2,239 common shares withheld during July to pay income taxes associated with restricted common shares which vested.vested during May and June, respectively. |
| |
(3) | Information reported includes 670568 common shares and 320485 common shares purchased in open market transactions during JulyMay and September,June, respectively, by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishes 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
|
| | | | |
Exhibit Number | | Description | | Exhibit Location |
| | | | |
2 | | Agreement and Plan of Merger, dated as of October 23, 2017, between Peoples Bancorp Inc. and ASB Financial Corp.+ | | Included as Annex A to the definitive proxy statement / statement/prospectus which forms a part of the Registration Statement on Form S-4 of Peoples Bancorp Inc. ("Peoples") on Form S-4/A (Registration No. 333-222054) |
| | | | |
| | Agreement and Plan of Merger, dated as of October 29, 2018, as amended on December 18, 2018, between Peoples Bancorp Inc. and First Prestonsburg Bancshares Inc.+ | | Included as Annex A to the definitive proxy statement/prospectus which forms a part of the Registration Statement of Peoples on Form S-4/A (Registration No. 333-228745) |
| | | | |
3.1(a) | | Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on May 3, 1993)P | | Incorporated herein by reference to Exhibit 3(a) to Peoples' Registration Statement on Form 8-B filed July 20, 1993 (File No. 0-16772) |
| | | | |
| | 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 3.1(b) to Peoples' Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 (File No. 0-16772) ("Peoples' September 30, 2017 Form 10-Q") |
| | | | |
| | 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 3.1(c) to Peoples' September 30, 2017 Form 10-Q |
| | | | |
| | 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”) |
| | | | |
| | 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) |
| | | | |
| | 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) |
| | | | |
| | Amended Articles of Incorporation of Peoples Bancorp Inc. (This document represents the Amended Articles of Incorporation of Peoples Bancorp Inc. in compiled form incorporating all amendments. The compiled document has not been filed with the 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) |
| | | | |
3.2(a) | | Code of Regulations of Peoples Bancorp Inc.P | | Incorporated herein by reference to Exhibit 3(b) to Peoples’ Registration Statement on Form 8-B filed on July 20, 1993 (File No. 0-16772) |
| | | | |
| | 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 |
| | | | |
| | 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) |
| | | | |
+Schedules and exhibits have beenwere omitted pursuant to Item 601(b)(2) of SEC Regulation S-K.S-K, as in effect at the time of filing of the Agreement and Plan of Merger. A copy of any omitted schedules or exhibits will be furnished supplementally to the SEC upon request. P Filed the exhibit with the SEC in paper originally and has not been filed with the SEC in electronic format. |
| | | | |
|
| | | | |
Exhibit Number | | Description | | Exhibit Location |
| | | | |
| | 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) |
| | | | |
| | 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) |
| | | | |
| | Certificate regarding Adoption of Amendment to Division (D) of Section 2.02 of Code of Regulations of Peoples Bancorp Inc. by the Shareholders at the Annual Meeting of Shareholders on April 26, 2018 | | Incorporated herein by reference to Exhibit 3.1 to Peoples' Current Report on Form 8-K dated and filed on June 28, 2018 (File No. 0-16772) ("Peoples' June 28, 2018 Form 8-K") |
| | | | |
| | Code of Regulations of Peoples Bancorp Inc. (This document represents the Code of Regulations of Peoples Bancorp Inc. in compiled form incorporating all amendments.) | | Incorporated herein by reference to Exhibit 3.2 to Peoples' Current Report on Form 8-K dated and filed on June 28, 2018 (File No. 0-16772)Form 8-K |
| | | | |
| | Loan Agreement, made and entered into as of April 3, 2019, between Peoples Bancorp Inc. Third Amended, as Borrower, and Restated 2006 Equity Plan Time-Based Restricted Stock Award Agreement (for Executives) used and to be used to evidence awards of time-based restricted stock granted to executives of Peoples Bancorp Inc. on and after July 31, 2018U.S. Bank National Association, as Lender | | Filed herewithIncorporated herein by reference to Exhibit 10.1 to Peoples' Current Report on Form 8-K dated and filed on April 9, 2019 (File No. 0-16772) ("Peoples' April 9, 2019 Form 8-K") |
| | | | |
| | Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan Performance-Based Restricted Stock Award Agreement (for Executives) used and to be used to evidence awards of time-based restricted stock granted to executives ofRevolving Credit Note issued by Peoples Bancorp Inc. on April 3, 2019 to U.S. Bank National Association in the principal amount of $20,000,000 | | Incorporated herein by reference to Exhibit 10.2 to Peoples' April 9, 2019 Form 8-K |
| | | | |
| | Peoples Bancorp Inc. Amended and afterRestated Nonqualified Deferred Compensation Plan (adopted effective July 31, 201811, 2019) | | Filed herewith |
| | | | |
| | Rule 13a-14(a)/15d-14(a) Certifications [President and Chief Executive Officer] | | Filed herewith |
| | | | |
| | Rule 13a-14(a)/15d-14(a) Certifications [Executive Vice President, Chief Financial Officer and Treasurer] | | Filed herewith |
| | | | |
| | Section 1350 Certifications | | Furnished herewith |
| | | | |
101.INS | | XBRL Instance Document | | Submitted electronically herewith # |
| | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | Submitted electronically herewith # |
| | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Submitted electronically herewith # |
| | | | �� |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Submitted electronically herewith # |
| | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Submitted electronically herewith # |
| | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Submitted electronically herewith # |
| | | | |
# Attached as Exhibit 101 to the Quarterly Report on Form 10-Q for the quarterly period ended SeptemberJune 30, 20182019 of Peoples Bancorp Inc. are the following documents formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited)(Unaudited) at SeptemberJune 30, 20182019 and December 31, 2017;2018; (ii) Consolidated Statements of Income (unaudited)(Unaudited) for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017;2018; (iii) Consolidated Statements of Comprehensive Income (unaudited)(Unaudited) for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017;2018; (iv) Consolidated Statement of Stockholders' Equity (unaudited)(Unaudited) for the ninesix months ended SeptemberJune 30, 2018;2019; (v) Condensed Consolidated Statements of Cash Flows (unaudited)(Unaudited) for the ninesix months ended September 30, 2018March 31, 2019 and 2017;2018; and (vi) Notes to the Unaudited Consolidated Financial Statements. |
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.
|
| | | |
| | | PEOPLES BANCORP INC. |
| | | |
Date: | November 7, 2018August 1, 2019 | By: /s/ | CHARLES W. SULERZYSKI |
| | | Charles W. Sulerzyski |
| | | President and Chief Executive Officer |
| | | |
| | | |
Date: | November 7, 2018August 1, 2019 | By: /s/ | JOHN C. ROGERS |
| | | John C. Rogers |
| | | Executive Vice President, |
| | | Chief Financial Officer and Treasurer |