Peoples Bancorp Inc. (PEBO)

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Peoples Bancorp Inc. (PEBO)

Q2 2008 Earnings Call Transcript

July 29, 2008 11:00 am ET


Mark Bradley – President and CEO

Ed Sloane – CFO and Treasurer


Phillip King – Trufton Investment Management

Jason Werner – Howe Barnes Hoefer & Arnett

Michael Lipman – FTN Financial


Good morning and welcome to Peoples Bancorp’s conference call. My name is Ryan, and I will be your conference facilitator today. Today's call will cover Peoples Bancorp's discussion of results of operations for the quarter ended June 30, 2008.

Please be advised all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator instructions) This call is also being recorded. If you object to the recording, please disconnect at this time.

Please be advised that the commentary in this call may contain projections or other forward-looking statements regarding future events or Peoples' future financial performance. These statements are based on management's current expectations. The statements in this call which are not historical fact are forward-looking statements and involve a number of risks and uncertainties, including but not limited to the interest rate environment; the effect of federal and/or state banking, insurance, and tax regulations; the effects of technological changes; the effect of economic conditions; the impact of competitive products and pricing; and other risks detailed in Peoples' Securities and Exchange Commission filings.

Although management believes that 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. Peoples disclaims any responsibility to update these forward-looking statements.

Peoples' second quarter 2008 earnings release was issued this morning and is available at This call will include about 20 minutes of prepared commentary followed by a question-and-answer period, which I will facilitate. An archived webcast of this call will be available on

Peoples Bancorp's participants in today's call will be Mark Bradley, President and Chief Executive Officer, and Ed Sloane, Chief Financial Officer and Treasurer. And both will be available for questions following opening statements.

Mr. Bradley, you may begin your conference.

Mark Bradley

Thank you. Good morning and welcome to Peoples Bancorp's conference call. Today Peoples Bancorp reported second quarter 2008 net income of $2 million, or $0.19 per diluted share, compared to $5.3 million, or $0.51 per diluted share, from last year's second quarter. Peoples' second quarter results included higher net interest income, stronger net interest margin, positive deposit growth, and maintenance of our well capitalized equity position; however, as we disclosed last week in a Form 8-K filing, earnings were negatively impacted by a higher provision for loan losses related to a single credit relationship within our commercial loan portfolio.

Second quarter earnings included an additional provision for loan losses of $4.5 million, or $0.28 per share, after tax related to a single commercial real estate loan of $12.6 million, which was identified as impaired as of June 30, 2008. This specific loan was originated in 2006 when an Ohio-based customer as a $14.8 million real estate construction project in the Tampa, Florida area. The purpose of the loan was to finance the purchase of an apartment complex and subsequent conversion of the apartments to condominium units. When the loan was originated, the project had an appraised value on an as-completed basis, which assumes the planned renovations would be completed, of approximately $21 million or a loan-to-value ratio of 70%.

In second quarter 2008, this loan was exhibiting signs of impairment as the housing market in Florida continued to deteriorate and the liquidity of the borrower became strained. Management's review of updated information received on this loan in discussions with the borrower indicated that the borrower may be unable to meet its contractual payment obligations, and therefore the loan was placed on non-accrual status as of June 30.

Through management's review of a new appraisal received in mid July, we determined the value of the property had declined substantially, which caused the loan to be under-collateralized. At that point, the loan was determined to be impaired and charged down to fair value of the collateral of $6.5 million, less estimated selling costs of $300,000 resulting in an adjusted loan balance of $6.2 million. The allowance for loan losses at June 30, which included a general reserve of approximately $1.8 million on the loan, was therefore impacted by a charge-off of $6.4 million.

Additionally, the second quarter provision for loan losses was increased by $4.5 million and we recorded interest reversals of approximately $170,000 as a result of placing the loan on non-accrual status. We have considered the status of this loan in our quarterly loan loss reserve analysis and believe the remaining balance to be adequately collateralized; however, there can be no assurance that the allowance for loan losses will be sufficient to cover all future possible losses. We were proactive and moved quickly and aggressively to address the situation rather than allowing the uncertainty to linger.

Some good news regarding this loan is that the property is in good condition and sales of the condo units securing our loan have recently increased. The proceeds from the sales come directly to Peoples Bancorp. There is capable management on-site at the project. The apartments provide some positive monthly cash flow as well. We will soon be communicating with the borrower and guarantors to discuss next steps.

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