PEOPLES BANCORP INC. - P.O. BOX 738 - MARIETTA, OHIO - 45750 www.peoplesbancorp.com NEWS RELEASE FOR IMMEDIATE RELEASE Contact:John W. Conlon - --------------------- Chief Financial Officer April 15, 2004 (740) 373-3155 PEOPLES BANCORP INC. REPORTS FIRST QUARTER EARNINGS --------------------------------------------------------------------- MARIETTA, Ohio - Peoples Bancorp Inc. (NASDAQ: PEBO) announced net income of $5,366,000 for the first quarter of 2004, up 7% from $5,014,000 a year ago. Earnings per diluted shares were $0.50 for the three months ended March 31, 2004, compared to $0.49 earned in last year's first quarter. Peoples' increased first quarter earnings were attributable to higher levels of net interest income and non-interest revenues, primarily the result of the Kentucky Bancshares Incorporated ("KBI") acquisition completed in mid-2003 and balance sheet restructuring initiatives in late 2003. "Completing the first quarter with a 7% net income growth over the same quarter last year is a good start for the year," said Robert E. Evans, Chairman, President and CEO. "We are confident that recent strategic actions provide us with a solid foundation for long-term earnings growth." Evans added, "We continue the drive to expand our financial and insurance customer base through selective business acquisitions, like the recently announced addition of the Putnam Agency in the Ashland, Kentucky and Huntington, West Virginia markets. The Putnam Agency has been developing relationships since 1904." Through the first three months of 2004, net interest income totaled $13,548,000 compared to $13,058,000 in 2003's first quarter. This increase was due to earning assets added through the KBI acquisition, as well as Peoples' efforts to reduce cost of funds more than the corresponding decline in yields from assets repricing downward in the current rate environment. For the quarter ended March 31, 2004, Peoples' average cost of funds was 2.28% compared to 3.03% for the same quarter a year ago, while the average yield on earning assets was 5.60% and 6.41% for the same periods, respectively. Although these factors have produced additional net interest income, they have also contributed to compression of net interest margin from a year ago. In the first quarter of 2004, net interest margin was 3.56% versus 3.70% for the same quarter in 2003 and 3.32% for the fourth quarter of 2003. The net interest margin for fourth quarter of 2003 was also impacted by $376,000 of combined additional premium amortization and reduction in interest income on mortgage-backed securities. Excluding these adjustments, the fourth quarter net interest margin would have been 3.41%. "The Federal Reserve's decision to leave rates at such low levels for an unprecedented period continues to impact Peoples' net interest income and margin," said Jack Conlon, Peoples' Chief Financial Officer. "However, a modest increase in earning assets, due to acquisitions and an investment growth strategy, plus the balance sheet restructuring in late 2003, mitigated some of the impact of declining asset yields. Since net interest income remains a key component of our earnings, we continue to manage Peoples' interest rate risk position for the inevitable increase in market rates, while attempting to make the best of current conditions." Non-interest income was $4,825,000 for the first quarter of 2004, up 23% from $3,935,000 a year ago. Revenues from offices added in the KBI acquisition, primarily deposit account service charges and fiduciary income, and additional business owned life insurance ("BOLI") were the main factors contributing to the overall increase in non-interest income. "Our disciplined acquisition and expansion strategy over the last several years has afforded us the ability to grow both traditional and non-traditional revenues," commented Mark Bradley, Peoples' Chief Operating Officer. "In addition, we believe non-traditional revenues, such as insurance and investment commissions and fiduciary revenues, remain viable sources for future non-interest income growth. With earnings pressures from net interest margin compression likely to linger, we continue to focus our efforts on further diversifying revenues and reducing Peoples' reliance on net interest income." Deposit account service charges totaled $2,253,000 for the first quarter of 2004, a 31% increase compared to the same period in 2003. This increase was primarily the result of a combination of higher volumes of overdraft and non-sufficient funds fees and an overall increase in the number of checking accounts from the KBI acquisition, as well as an increase in the per item amount of certain cost recovery fees. Peoples' fiduciary revenues improved to $774,000 in the first quarter, from $586,000 for the same period in 2003, attributable to additional assets under management. E-banking revenues, primarily ATM and debit card fees, grew 15% from a year ago, totaling $523,000 for the first quarter of 2004. Peoples' mortgage banking activities produced revenues of $199,000 for the three months ended March 31, 2004, versus $230,000 for 2003's first quarter, reflecting lower levels of real estate loan refinance activity. Non-interest expense was $10,290,000 in the first quarter of 2004 versus $9,119,000 for the same period in 2003. Salaries and benefits, Peoples' largest expense, totaled $5,389,000 for the quarter ended March 31, 2004, an increase of 14% from a year ago, due mostly to annual salary adjustments necessary to retain and recruit key associates and the addition of approximately 30 associates in conjunction with the KBI acquisition. For the first quarter of 2004, occupancy and equipment costs increased 11%, as acquisitions and investments in technology produced additional depreciation expense in 2004, while intangible amortization doubled from a year ago due to the KBI acquisition. Compared to the fourth quarter of 2003, non-interest expense was down $7,039,000 in the first quarter of 2004, with long-term debt prepayment penalties which occurred in the fourth quarter of 2003 accounting for $6,817,000 of the decline. Excluding the prepayment penalties and intangible amortization, non-interest expense decreased 2% due to a reduction in various operating expenses. The non-interest leverage ratio serves as a measurement of efficiency and performance and is a key performance indicator for Peoples. The ratio, defined as non-interest income as a percentage of operating expenses, excludes gains and losses on securities transactions and asset disposals, as well as intangible asset amortization. For the three months ended March 31, 2004, the non-interest leverage ratio was 46.7%, an improvement from 44.1% a year ago. "The improvement in the non-interest leverage ratio is a reflection of our commitment to grow non-interest revenues without proportional increases in operating expense," commented Bradley. "We continue to analyze opportunities to enhance revenues and limit expenses, as we work towards our strategic goal of a non-interest leverage ratio in excess of 50%." In the first quarter of 2004, Peoples' tax advantaged investments produced additional benefits, which reduced Peoples' effective tax rate to 27.0% compared to 28.8% a year ago. The lower effective tax rate also accounted for a portion of Peoples' first quarter earnings growth. The tax strategies employed are long-term and will help Peoples manage its overall tax burden in future years. Nonperforming loans comprised 0.76% of total loans at March 31, 2004, compared to 0.73% at December 31, 2003, while nonperforming assets comprised 0.43% and 0.41% of total assets for the same periods, respectively. In the first quarter of 2004, Peoples' provision for loan losses was $794,000, down from $915,000 in the prior quarter and down from $831,000 a year ago. At March 31, 2004, the allowance for loan losses was $14.8 million, or 1.62% of total loans, compared to $14.6 million, or 1.59% of total loans, at year-end 2003. "Our long-standing commitment to sound underwriting standards, coupled with a diligent loan review process, have produced good quality loans," stated Bradley. "In addition, our loan delinquencies have decreased modestly, and we have maintained solid asset quality ratios that compare favorably to our peers." In the first quarter of 2004, net loan chargeoffs were $595,000, up from $554,000 a year ago but down from $763,000 in the fourth quarter of 2003. Consumer loans comprised the largest portion of net chargeoffs, totaling $275,000 and $201,000 for the three months ended March 31, 2004 and 2003, respectively. Net chargeoffs relating to the Overdraft Privilege Program were $135,000 in the first quarter of 2004 versus $117,000 in 2003's first quarter. Real estate net chargeoffs totaled $155,000 for the first three months of 2004, up from $7,000 for the same period in 2003. In the first quarter of 2004, Peoples' commercial loan recoveries exceeded chargeoffs, resulting in net recoveries of $100,000 compared to net chargeoffs of $186,000 in 2003's first quarter. A significant portion of the commercial loan recoveries relate to a group of loans, in a single customer relationship, which had been charged-down in the first half of 2002. At March 31, 2004, loans totaled $910.8 million, down $4.2 million since year-end 2003, due to declines in real estate and consumer loans. Peoples also had $2.2 million of fixed-rate real estate loans originated and held for sale into the secondary market. Peoples is also servicing $85 million of fixed-rate real estate loans previously sold into the secondary markets due to the associated interest rate risk. In late 2003, Peoples entered into an agreement to sell its existing credit card portfolio and formed an affiliation with an unrelated financial institution to serve the credit card needs of Peoples' customers. Final settlement of the sale, which did not materially impact Peoples' results of operation or financial position, occurred in the first quarter of 2004. "Our first quarter results reflect the challenge of growing earnings with interest rates remaining at extremely low levels," summarized Bradley. "We remain committed to a needs-based approach that fulfills the financial needs of our customers as a means of enhancing Peoples' profitability. Our long-term objectives are best achieved in more normal economic and interest rate conditions." Peoples Bancorp Inc., a diversified financial products and services company with $1.7 billion in assets, makes available a complete line of banking, investment, insurance, and trust solutions through Peoples Bank's 49 locations and 32 ATMs in Ohio, West Virginia and Kentucky. Peoples' common shares are traded on the NASDAQ national market under the symbol "PEBO", and Peoples is a member of the Russell 3000 index of US publicly traded companies. Learn more about Peoples or enroll in Peoples' Internet banking product at www.peoplesbancorp.com. Conference Call to Discuss Earnings: - ------------------------------------ Peoples will conduct a facilitated conference call to discuss first quarter results of operations on April 16, 2004, at 4:00 p.m. eastern time, with members of Peoples' executive management participating. Analysts, media and individual investors are invited to participate in the conference call by calling (888) 424-5801. A simultaneous Webcast of the conference call audio will be available online via the home page and/or Investor Relations section of www.peoplesbancorp.com. Participants are encouraged to call or sign in at least 15 minutes prior to the scheduled conference call time to ensure participation or download and install the necessary software. A replay of the call will be available on Peoples' website for 30 days. Safe Harbor Statement: - ---------------------- This press release may contain certain forward-looking statements with respect to Peoples' financial condition, results of operations, plans, objectives, future performance and business. Except for the historical and present factual information contained in this press release, the matters discussed in this press release, and other statements identified by words such as "expects," "believes," "plans," "will," "would," "should," "could" and similar expressions are forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially. Factors that might cause such a difference include, but are not limited to: (1) competitive pressures among depository institutions increase significantly; (2) changes in the interest rate environment impact interest margins; (3) prepayment speeds, loan sale volumes, charge-offs and loan loss provisions; (4) general economic conditions are less favorable than expected; (5) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (6) legislative or regulatory changes or actions adversely affect Peoples' business; (7) changes and trends in the securities markets; (8) a delayed or incomplete resolution of regulatory issues; (9) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity; (10) the outcome of regulatory and legal proceedings and (11) other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the Securities and Exchange Commission ("SEC"). Peoples undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this release. Copies of documents filed with the SEC are available free of charge at the Commission's website at http://www.sec.gov and/or from Peoples' website. PEOPLES BANCORP INC. (NASDAQ: PEBO) Financial Highlights (Unaudited) ----------------------------------- Three Months Ended March 31, (in $000's, except per share data) 2004 2003 ----------------------------------- PER SHARE DATA (a) Net income per share: Basic $ 0.51 $ 0.50 Diluted $ 0.50 $ 0.49 Cash dividends declared per share $ 0.18 $ 0.14 Book value per share $ 16.70 $ 15.61 Tangible book value per share (b) $ 12.05 $ 12.59 Closing stock price at end of period $ 27.97 $ 22.06 Dividend payout as a percentage of net income 35.41% 28.86% Actual shares outstanding (net of treasury shares) 10,500,409 10,030,170 Weighted average shares outstanding: Basic 10,560,241 10,056,615 Diluted 10,808,007 10,255,705 PERFORMANCE RATIOS (c) Return on average equity 12.50% 13.00% Return on average assets 1.25% 1.27% Non-interest leverage ratio (d) 46.67% 44.12% Efficiency ratio (e) 53.24% 51.24% Net interest margin (fully tax equivalent) 3.56% 3.70% Net loan chargeoffs as a percentage of average loans 0.26% 0.28% NET CHARGEOFFS Gross chargeoffs $ 1,230 $ 785 Recoveries $ 635 $ 231 ---------------- ---------------- Net chargeoffs $ 595 $ 554 ----------------------------------- <FN> (a) Amounts adjusted for a 5% stock dividend issued August 29, 2003. (b) Excludes balance sheet impact of intangible assets acquired through use of purchase accounting for acquisitions. (c) Ratios presented on an annualized basis. (d) Non-interest income (less securities and asset disposal gains/losses) as a percentage of non-interest expense (less intangible amortization). (e) Non-interest expense (less intangible amortization) as a percentage of fully tax equivalent net interest income plus non-interest income. </FN> PEOPLES BANCORP INC. CONSOLIDATED STATEMENTS OF INCOME ----------------------------------- Three Months Ended March 31, (in $000's) 2004 2003 ----------------------------------- Interest income $ 21,586 $ 22,777 Interest expense 8,038 9,719 --------------- ---------------- Net interest income 13,548 13,058 Provision for loan losses 794 831 --------------- ---------------- Net interest income after provision for loan losses 12,754 12,227 Net gain on securities transactions 32 2 Net gain (loss) on asset disposals 30 (2) Non-interest income: Service charges on deposits 2,253 1,725 Fiduciary revenues 774 586 Electronic banking revenues 523 454 Business owned life insurance 416 365 Insurance and investment commissions 299 442 Mortgage banking income 199 230 Other non-interest income 361 133 --------------- ---------------- Total non-interest income 4,825 3,935 Non-interest expense: Salaries and benefits 5,389 4,724 Occupancy and equipment 1,221 1,098 Data processing and software 472 330 Professional fees 456 464 Amortization of intangible assets 401 201 Franchise taxes 341 257 Bankcard costs 324 305 Marketing 108 276 Other non-interest expense 1,578 1,464 --------------- ---------------- Total non-interest expense 10,290 9,119 --------------- ---------------- Income before income taxes 7,351 7,043 Income tax expense 1,985 2,029 --------------- ---------------- Net income $ 5,366 $ 5,014 =================================== Fully tax equivalent net interest income $ 13,962 $ 13,450 PEOPLES BANCORP INC. CONSOLIDATED AVERAGE BALANCES ------------------------------------------------------ Three Months Ended March 31, December 31, March 31, (in $000's) 2004 2003 2003 ------------------------------------------------------ Average gross loans $ 912,242 $ 920,903 $ 850,967 Average earning assets 1,575,126 1,608,011 1,455,211 Average intangible assets 48,652 46,378 30,661 Average total assets 1,731,528 1,753,326 1,575,673 Average non-interest-bearing deposits 135,505 132,263 108,315 Average interest-bearing deposits: Savings 170,945 178,886 150,168 Interest-bearing demand deposits 262,864 267,029 270,835 Time deposits 460,957 462,919 422,158 Total average interest bearing deposits 894,766 908,834 843,161 Average stockholders' equity $ 172,647 $ 172,049 $ 154,302 ------------------------------------------------------ PEOPLES BANCORP INC. SELECTED FINANCIAL INFORMATION ----------------- ----------------- ----------------- (in $000's, end of period) March 31, December 31, March 31, 2004 2003 2003 ----------------- ----------------- ----------------- LOAN PORTFOLIO Commercial, mortgage $ 413,167 $ 380,372 $ 316,115 Commercial, other 102,918 131,697 106,667 Real estate, construction 20,196 21,056 10,523 Real estate, mortgage 299,967 301,726 322,169 Consumer 74,545 79,926 96,857 Credit card (a) - 221 6,065 -------------------------------------------------------- Total loans $ 910,793 $ 914,998 $ 858,396 ASSET QUALITY Allowance for loan losses as a percent of total loans 1.62% 1.59% 1.55% Allowance for loan losses as a percent of nonperforming loans (b) 214.4% 216.1% 280.6% Nonperforming loans as a percent of total loans (b) 0.76% 0.73% 0.55% Nonperforming assets as a percent of total assets 0.43% 0.41% 0.34% Nonperforming assets as a percent of total loans and other real estate owned real estate owned 0.81% 0.78% 0.66% Nonperforming assets (in $000's, end of period): Loans 90 days or more past due $ 235 $ 188 $ 337 Renegotiated loans $ - $ - $ 685 Nonaccrual loans $ 6,656 $ 6,556 $ 3,741 Other real estate owned $ 470 $ 392 $ 924 ----------------- ----------------- ----------------- Total nonperforming assets $ 7,361 $ 7,136 $ 5,687 REGULATORY CAPITAL (c) Tier 1 risk-based capital 13.85% 14.08% 15.43% Total risk-based capital ratio (Tier 1 and Tier 2) 15.24% 15.43% 16.79% Leverage ratio 8.80% 8.68% 10.56% Tier 1 capital $ 147,274 $ 147,591 $ 139,208 Total capital (Tier 1 and Tier 2) $ 162,113 $ 161,780 $ 151,404 Total risk-weighted assets $ 1,063,572 $ 1,048,295 $ 901,973 SUPPLEMENTAL DATA Trust assets under management $ 633,736 $ 632,868 $ 460,945 Employees (full-time equivalent) 497 511 451 Full service offices 42 42 39 Supermarket offices 4 4 4 ATMs 32 32 30 Announced treasury share plans: (d) Total shares authorized for plan 425,000 315,000 315,000 Shares purchased 141,200 61,300 42,000 Average price $ 29.14 $ 27.96 $ 20.99 ----------------- ----------------- ----------------- <FN> (a) Balance at December 31, 2003, represents nonqualifying balances not included in preliminary settlement of the credit card portfolio sale subject to final settlement. (b) Nonperforming loans include loans 90 days past due and accruing, renegotiated loans and nonaccrual loans. (c) March 31, 2004 data based on preliminary analysis and is subject to revision. (d) 2004 data reflects 2004 Stock Repurchase Program of 425,000 shares. 2003 data reflects 2003 Stock Repurchase Program of 315,000 shares. Reflects treasury shares purchased and average price paid for the three-month period ended on the date indicated. All share amounts have been adjusted for stock dividends. </FN> PEOPLES BANCORP INC. CONSOLIDATED BALANCE SHEETS ------------------ ------------------ (in $000's) March 31, December 31, 2004 2003 ------------------ ------------------ ASSETS Cash and cash equivalents $ 30,860 $ 73,426 Available-for-sale investment securities, at estimated fair value (amortized cost of $643,602 at March 31, 2004, and $634,801 at December 31, 2003) 657,300 641,464 Loans held for sale 2,177 2,847 Loans, net of unearned interest 910,793 914,998 Allowance for loan losses (14,774) (14,575) ------------------ ------------------ Net loans 896,019 900,423 Bank premises and equipment, net of accumulated depreciation 21,764 22,155 Goodwill 41,989 41,407 Other intangible assets 6,928 7,298 Other real estate owned 470 392 Business owned life insurance 43,770 23,355 Other assets 20,759 23,337 ------------------ ------------------ TOTAL ASSETS $ 1,722,036 $ 1,736,104 ================== ================== LIABILITIES Non-interest-bearing deposits $ 134,284 $ 133,709 Interest-bearing deposits 895,280 894,821 ------------------ ------------------ Total deposits 1,029,564 1,028,530 Federal funds purchased, securities sold under repurchase agreements, and other short term borrowings 87,329 108,768 Long-term borrowings 390,998 388,647 Junior subordinated notes held by subsidiary trusts 29,198 29,177 Accrued expenses and other liabilities 9,547 10,102 ------------------ ------------------ TOTAL LIABILITIES 1,546,636 1,565,224 STOCKHOLDERS' EQUITY Common stock, no par value (24,000,000 shares authorized, 10,709,081 shares issued at March 31, 2004, and 10,704,938 shares issued at December 31, 2003) 160,617 161,005 Accumulated comprehensive income, net of deferred income taxes 8,930 4,255 Retained earnings 11,247 7,781 Treasury stock, at cost (208,672 shares at March 31, 2004, and 101,146 shares at December 31, 2004) (5,394) (2,161) ------------------ ------------------ TOTAL STOCKHOLDERS' EQUITY 175,400 170,880 ------------------ ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,722,036 $ 1,736,104 ================== ================== END OF RELEASE