Peoples Bancorp Q1 net loss $0.7 million
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In comparison, net income was $4.2 million, or $0.28 per diluted common share, for the fourth quarter of 2014, and $4.8 million, or $0.44 per diluted common share, for the first quarter of 2014. The net loss recorded for the first quarter was primarily a result of the acquisition costs incurred, mainly related to the acquisition of NB&T Financial Group (NB&T).
As previously announced, Peoples completed the NB&T acquisition as of the close of business on March 6, 2015. This transaction resulted in Peoples acquiring 22 full-service banking offices in southwest Ohio, adding approximately $156.4 million of investment securities, $390.0 million of loans and $629.5 million of deposits, after fair value adjustments, as of the acquisition date.
The acquisition was accounted for as a business combination with the total merger consideration valued at approximately $102.7 million, consisting of an aggregate of 3.2 million Peoples' common shares and an aggregate of $26.7 million in cash. The fair value adjustments are preliminary.
In conjunction with the announcement of execution of the NB&T merger agreement, Peoples announced the completion of a capital raise through the sale of 1.8 million common shares to institutional investors through a private placement on August 7, 2014. Peoples received net proceeds of $40.2 million from the sale, and used the proceeds, in part, to fund the cash consideration for the NB&T acquisition.
Net interest income was $21.4 million, up 6% compared to the linked quarter and 38% higher than the prior year's first quarter, while net interest margin for these periods was 3.46%, 3.53% and 3.35%, respectively. The improvement in net interest income was driven largely by growth in earning assets due to higher loan balances, the change in the asset mix, a reduction in funding costs and accretion income from the acquisitions completed to date.
The net interest margin below 3.50% for the quarter was due largely to the higher than normal cash balance that was carried for part of the quarter, mainly due to the $130.3 million of cash acquired as part of the NB&T acquisition, which accounted for 3 basis points of the compression.
Average investment securities, as a percentage of average earning assets, were 30% for the first quarter of 2015, compared to 31% for the linked quarter and 36% for the first quarter of 2014. The accretion income and amortization expense from the acquisitions completed to date added 8 basis points of net interest margin in the first quarter of 2015, compared to 20 basis points for the linked quarter and 7 basis points for the first quarter of 2014.
Total non-interest income for the first quarter of 2015 grew compared to the linked quarter and the prior year first quarter, by 13% and 12%, respectively. The growth over the linked quarter was due largely to annual performance-based insurance income, for which a majority is recognized in the first quarter each year.
All categories comprising total non-interest income were up compared to the first quarter of 2014, most notably electronic banking income, trust and investment income, and insurance income, with growth of 29%, 11% and 5%, respectively. Annual performance-based insurance income was $1.4 million for the first quarter of 2015, $0.1 million for the linked quarter, and $1.2 million for the first quarter of 2014.
Non-interest expenses totaled $32.9 million, $8.9 million higher than the linked quarter and $14.1 million higher than the prior year first quarter. The majority of the increase was attributable to acquisition costs recognized in each period, for which $9.0 million was recognized in non-interest expenses during the first quarter of 2015, compared to $1.9 million in the linked quarter and $0.2 million in the first quarter of 2014.
The $9.0 million recorded in the first quarter of 2015 consisted primarily of severance costs, deconversion costs, and professional and legal fees related to the acquisition. Salaries and employee benefit costs accounted for much of the remainder of the growth in non-interest expenses compared to both periods, as the number of employees increased significantly, largely as a result of the acquisitions completed.
The number of full-time equivalent employees was 847 at March 31, 2015, 699 at December 31, 2014 and 557 at March 31, 2014. Additionally, during the first quarter of 2015, Peoples incurred pension settlement charges of $269,000, compared to $17,000 in the fourth quarter of 2014 and $486,000 in the first quarter of 2014.
The efficiency ratio for the first quarter of 2015 was 96.71%, compared to 76.55% for the fourth quarter of 2014 and 71.13% for the first quarter of 2014. The increase in the ratio for the quarter was the result of the increase in non-interest expenses, mainly due to non-core charges incurred.
As noted previously, period-end organic loan balances, which only exclude the loans acquired from NB&T, declined $11.7 million, which was driven by declines in mortgage balances and commercial loan balances. Non-mortgage consumer loans grew $5.3 million, or 11% annualized. The decline in mortgage balances was due largely to the run-off of portfolios acquired in the three merger transactions that closed in 2014.
Commercial loan balances experienced some large payoffs during the first quarter, comprised mainly of five large relationships totaling $16.5 million, made up of $9.6 million of commercial and industrial and $6.9 million of commercial real estate loans. The payoffs in commercial loans were largely anticipated, and were partially offset by another quarter of strong production.
The NB&T acquisition added $387.1 million of loans to the balances as of March 31, 2015, of which $210.9 million were commercial real estate, $103.4 million were residential real estate loans, $48.4 million were commercial and industrial loans, $21.6 million were home equity lines of credit, and $2.8 million were consumer loans.
The combination of organic decline and balances acquired from NB&T resulted in an increase of $132.1 million in average net loan balances for the quarter compared to the linked quarter.
During the quarter, Peoples recorded net charge-offs of $143,000, compared to net recoveries of $197,000 during the linked quarter, resulting in a net charge-off rate of 3 basis points, which remained well below the historical rates of 30 basis points to 50 basis points.
Total nonperforming assets increased by $1.5 million during the quarter mainly because of a previously acquired commercial real estate loan that was more than 90 days past due and accruing, as well as the fair value of the other real estate owned ("OREO") balance acquired from NB&T of $648,000.
Organic criticized assets, which are those classified as watch, substandard or doubtful, increased due largely to one commercial relationship for $13.7 million, comprised of three commercial and industrial loan balances, being downgraded during the quarter.
As a percentage of total loans plus OREO, total nonperforming assets were 0.68% at quarter-end versus 0.75% at year-end 2014 and 0.79% a year ago. At quarter-end, the ratio of the allowance for loan losses as a percent of originated loans, net of deferred fees and costs, was 1.48%, consistent with December 31, 2014, which does not include acquired loan balances.
Peoples' retail deposits grew $649.6 million, or 34%, during the quarter, as the NB&T acquisition added $607.1 million of deposits as of March 31, 2015. The organic growth of $42.6 million, or 2%, was largely a result of an increase in governmental and savings account balances, and non-interest bearing balances.
Balances in each of these account types normally are higher in the first quarter of each year compared to other quarters. Organic growth and acquired balances resulted in an increase of $173.7 million, or 9%, in average retail deposits for the quarter compared to the linked quarter.
The board declared a quarterly cash dividend of $0.15 per common share, payable on May 26, 2015, to shareholders of record on May 11, 2015.
This dividend represents a payout of approximately $2.8 million. Based on the closing stock price of Peoples' common shares of $23.59 on April 29, 2015, the quarterly dividend produces an annualized yield of 2.54%. ■