Good morning, and welcome to Peoples Bancorp’s Conference Call. My name is Laura, 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, 2013. [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 and other forward-looking statements regarding future events or Peoples Bancorp’s 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 success, impact, and timing of strategic initiatives; the impact of competitive products and pricing; the interest rate environment; the effect of federal and/or state banking; insurance and tax regulations; changes in economic conditions; and other risks detailed in Peoples Bancorp’s 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 Bancorp disclaims any responsibility to update these forward-looking statements. Peoples Bancorp second quarter 2013 earnings release was issued this morning and is available at peoplesbancorp.com. This call will include about 15 minutes of prepared commentary, followed by a question-and-answer period, which I will facilitate. An archived webcast of this call will be available at peoplesbancorp.com. Peoples Bancorp participants in today’s call will be Chuck Sulerzyski, President and Chief Executive Officer; and Ed Sloane, Chief Financial Officer and Treasurer. And each will be available for questions following opening statements. Mr. Sulerzyski, you may begin your conference.

Thank you, Laura. Good morning and welcome to our call. We have a lot to talk about this quarter, and believe it is overwhelmingly positive. Earlier this morning Peoples Bancorp reported net income of $4.9 million for the second quarter of 2013. This amount represents earnings per share of $0.46 comparable to both linked quarter and prior year second quarter. We were pleased to make good progress with several of our 2013 strategic goals during the quarter. Almost notable accomplishment was meaningful loan growth. The higher balances for the second quarter helped to relieve some of the pressure from low rates on our net interest margin. Second quarter earnings also benefited from strong fee based revenue generation, good operating expense control and favorable asset quality trends. Another major accomplishment for the quarter was the success made on the M&A front. First, we expanded our insurance agency with the purchase of 3 benefit practices based in Jackson, Ohio. In total, we added nearly $1.2 million of our annual insurance revenue. These transactions, not only create a stronger presence for our insurance business in southeastern Ohio, they also add key talent to grow our benefits practices across our footprint. We then landed a small bank deal in northern Ohio, which we announced earlier this month. The Acquisition of Ohio Commerce Bank will allow us to enter a very attractive market in the Cleveland region with a proven management team. It also will add over $110 million of assets, including nearly $90 million in loans. We will provide additional color on this exciting opportunity later in the call. Taking a closer look at second quarter loan growth, period end balances increased $50 million since March 31. This 20% annualized growth was divided fairly equally between our consumer and commercial lending activities. On a…

Thanks, Chuck. As Chuck mentioned, the major highlight of the second quarter was our success with acquisitions. Earlier this month, we announced plans to acquire Ohio Commerce Bank located in eastern Cleveland suburb of Beachwood. This affluent area is one of the more attractive markets in northeastern Ohio. We’re excited by the opportunities this transaction will afford us. As noted in our press release, this transaction should be completed during the fourth quarter. This timing means the incremental earnings will be more than offset by one-time acquisition costs. We’re expecting these costs to be $600,000 to $700,000 after taxes. Thus, this transaction would be accretive to our earnings, starting in 2014. Taking a closer look at the deal metrics, the all cash nature of the transaction will result in moderate dilution of our tangible book value. However the impact on a per share basis is expected to be well below our stated limit of 10%, at just over 4%. We also could see a 70 to 80 basis points decrease in our tangible common equity ratio. This level of dilution reflects the expectation of a minimal credit market of 2% to 3% on the loan portfolio. Overall, we project to earn back the tangible book value dilution within our desired 4-year timeframe. Our current modeling indicates accretion potential of $0.11 to $0.14 per year, and this range assumes the cost savings estimate of 37%. We also have not considered any potential synergies from offering our insurance and investment services to existing Ohio Commerce customers. Returning to second quarter operating results, both net interest income and margin benefited from our overall asset yield being held stable with the linked quarter. Meaningful loan growth in the second quarter helped to mitigate the downward pressure from lower reinvestment rates. We also received a…

Thanks, Ed. Overall, second quarter results were marked with success in several areas. We were most pleased with meaningful loan growth and continued progress with acquisitions. These achievements are key elements of our long-term growth plans. They also help to improve our core revenue stream and overall operating efficiency. With the second quarter loan growth, we are over half way to our 2013 goal of 8% to 10% growth. Consumer loan growth will continue to be fueled by our indirect business. We are starting to see benefits of our more proactive calling efforts on dealerships within our footprint. Several new dealers already have been added to our network. During the second half of 2013, we expect production in this segment to remain steady, if not increase, due in part to our new relationships. On the mortgage side, we do not expect to see a repeat of the second quarter growth. The recent uptick and long-term rates has more customers seeking through the year fixed rate loans. We intend to continue selling these long-term loans to the secondary market. Thus mortgage balances should flatten out in the coming quarters. Our commercial loan pipeline is also holding steady. We currently have over $160 million of loans in the works, nearly 1/3 of this amount has a high probability of success. In addition, we have another $50 million in approved loans that should fund over the next 6 months. Given our increased production to date, we feel good about the prospects of achieving at least 8% point-to-point growth by year end. This expectation excludes the impact of loans to be acquired in the pending Ohio Commerce deal. In terms of acquisitions, we believe the Ohio Commerce transaction is a great fit for both sides. Not only when we gain many new customers and…

[Operator Instructions] And our first question is from Scott Siefers of Sandler O’Neill.

Ed, first question for you, you noted some of the cost that are likely to hit the back half of the year in total expenses such as the pension charges and the merger cost, as well, I guess. And for the most part that seem kind of unusual as opposed to run-rate. So, if we were to kind of x out those, and then you got your $16.7 million per quarter in sort of core costs, how would that factor into the way you guys are thinking about the ability to create positive operating leverage for the year? In other words, you might be backing off a bit on a reported basis. On core basis, how are you thinking about things?

We still are hopeful of having positive operating leverage for the year. The slow out of the gate loan growth did not help us. The margin compression did not help us. On the other hand, we’ve managed our cost tighter than we had expected; our actual expenses year-to-date are less than what we were hoping for. So, for us to have positive operating leverage on the core, excluding the acquisition, we’re going to need good continued loan growth -- not necessarily $50 million a quarter but much better than what we’ve done over the last few years prior to this quarter -- and we’re going to benefit from the higher interest rates and the steepening of the curve. So, we’re not giving up the ghost on it, we’re fighting hard to get to it. But it will be close one way or the other, I guess what I would say.

Okay, all right, fair enough. And then, even though it’s a small piece of the total revenue stream, that mortgage banking line item which has got dinged a little from the decision to retain some mortgages. Do you think where sort of a low water mark for that roughly $0.4 million of quarterly mortgages particularly if you’re probably not going to retain production to the same level? I mean, is it possible to grow it off this space, do you think?

I think that is a low water mark. It really -- it really just depends on the impacts from refinancings going through the second half of the year, Scott. Our view is that that definitely is the low water mark; could improve a little bit from there.

Okay, perfect. And then I guess, final question on credit. The NPA base in the aggregate is now getting pretty low, I think you’re under $11 million in total NPA. So I imagine, at some point the potential for this kind of large single recoveries kind of goes away just kind of by the math of it. Do you see any large credits out there that could allow you to have additional net recoveries, or how are you thinking about sort of the overall credit picture here as we look over the next couple of quarters?

But we would never say, never. We’ve still got some things that we’re working. But there is no doubt that the next 4 quarters will be less -- meaningfully less than the previous 4 quarters on the recoveries. I think we’ve done a phenomenal job and I think that discipline that we’ve got in place on the underwriting will serve us for a long-term. I feel pretty good about things. But I think it would also be a mistake to say that we won’t have any more recoveries.

And our next question is from Chris McGratty of KBW.

This is Mike stepping on for Chris. I just had a couple of quick questions. I guess, first starting with the trust business and the insurance business. You had the insurance deals and then trust AUM grew. I think it was for the 4th straight quarter again. And you guys talked about how you were looking on the M&A side. I guess, what’s your outlook more organically on how you guys can grow these businesses going forward with the platforms you have in place currently?

We can grow organically pretty fast on its own, minus the acquisition. If you look at the trust business, we have a 401(k) product. Our assets on the management there, are up about $25 million from this time last year, all that being organic growth. And that growth comes from the fact that we’ve really worked hard in taking the professionals in our various lines of business and teaching them the capabilities of the other lines of business. And we’re getting much, much better quality referrals. We have cases, for instance if you can withstand some more stories, we have -- the bank got into the insurance business in a big way in 2003, 2004 with about $8 million of insurance acquisitions. And one of the more senior level gentlemen in a group between 2004 and 2012, had made no referrals to other lines of business. And so far this year he’s made 11 referrals of really large commercial opportunities, some of that have resulted in commercial business and some of that have resulted in the time and plan services. So, that’s just a taste on the retirement plan basis. On the personal insurance business, again our branch network is doing a much better job than has historically has done in making referrals. And we’re seeing increases in production of 30%, 40%, again some of that is of a small denominator but it will go to the bottom line. So we think there is, lots of capabilities. Obviously, the stock market has behaved well for us in terms of assets under management. But our core production measures and across lines of businesses, show lots of double digit increases. And that’s been many cases in the 20% and 30% range. So we’re pretty optimistic on that front.

And the Ohio Commerce Bank deals, are those both the insurance and trust, are those going to be new services that you guys could potentially cross-sell to those clients? I know you guys didn’t incorporate that in your accretion estimates, but from a strategic point of view?

Very much so, we’ll be able to bring those products from services. And the other thing is, yes, that bank was at $1.8 million as the top -- that they would go to a customer like $2 million. So we’re going to be able to bring more capacity, they had some participations. Both myself and Dan McGill, who runs our commercial banking business have spent a lot of time up there. And I’m comfortable and confident that over time we’d be able to bring talent in from the market that has experienced dealing with larger customers. And I’m very comfortable that we’ll be able to grow the loan business to core commercial business of that bank as well as add these extra services.

All right, that’s great. And then just one more quick one from me. In the loan portfolio, I think it’s still only 2% to 3% of your book. But there was a pretty big swing sequentially in the construction loan balances. Was that predominantly 1 or 2 credits or is that just the breakout of that growth?

No, it’s more than 1 or 2 credits, but it’s -- are you talking about the -- what specifically are you talking about?

So, if you look 4Q to 1Q, the construction loan balances have been down, and then they swung back up. I was just wondering if there was anything in there that...

No, it’s a construction funding that’s been -- that was going on. But some of that frankly we expected to have hit in the first quarter, but I think we had some weather issues. So, this $50 million look real positive for the quarter. I thought we were a little short in the first quarter but I think that you’ll see good -- hopefully both the first quarter and this quarter maybe more outliers I think $20 million to $40 million a quarter is where we’d like to be.

[Operator Instructions] And our next question will come from Dan Cardenas of Raymond James.

Just a couple of quick questions. Going back to the insurance commission revenue, could you maybe give us some sense as to how that looked on a same store basis, 2Q this year versus 2Q last year?

I know it from our internal management reporting. It’s in the kind of the mid-to-high single digits, 5%, 6%, 7%.

Great. And then, maybe if you could give us a sense from for the growth that you saw, the loan growth that you saw this quarter geographically, was there any one portion of your footprint that was more dominant than the others?

The consumer business crosses our footprint; the indirect business is still a little bit more concentrated in a 25-mile circle around Marietta, Ohio. The opportunity for us is to expand that, and that’s what’s helping some of the growth. The commercial business, we’ve had good success across the footprint. We do a lot of business in West Virginia. I guess the West Virginia portion of our business has been growing faster than the Ohio portion, but we’ve got growth in all of it.

Okay. And then, maybe as we look forward to the back half of the year, I mean, what -- can you share with us your thoughts on if you plan to continue to book some of the residential real-estate loans?

I think as we indicated earlier in the comments I think that we will not be putting them on our books going forward. I think the cut line are going to be moving more towards the 30 year mortgages. And so I think that will put less if any in the fourth quarter than we have in the second quarter. And I think you’ll see less on the books in the third quarter than there was in the second.

At this time there are no further questions. Sir, do you have any closing remarks?

Yes, I do. I want to thank everybody for participating. Please remember that our earnings release and a webcast of this call will be archived on peoplesbancorp.com onto the Investor Relations section. Thank you for your time. And have a good day.

Thank you. The conference is now concluded. We thank you for attending today’s presentation. You may now disconnect.