Good morning, and welcome to Peoples Bancorp's conference call. My name is Maureen, and I will be your conference facilitator today. Today's call will cover a discussion of the results of operations for the quarter ended March 31, 2014. [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 will contain projections or other forward-looking statements regarding Peoples' future financial performance or future events. 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 detailed in Peoples' Securities and Exchange Commission filings. These include, but are not limited to, the success, impact and timing of strategic initiatives; the successful completion and integration of planned acquisitions; the competitive nature of the financial service industry; the interest rate environment; the effect of federal and/or state banking, insurance and tax regulations; and changes in economic conditions. Management believes the forward-looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of Peoples' business and operations. However, it is possible actual results may differ materially from these projections. Peoples disclaims any responsibility to update these forward-looking statements after this call. Peoples' first quarter 2014 earnings release was issued this morning and is available at peoplesbancorp.com. This call will include about 20 to 30 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 peoplesbancorp.com. 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, Maureen. Good morning, and thanks for joining us today. It was a productive first quarter for us, and there is much to talk about during this call. In addition to the quarterly results, Ed and I will discuss the recently announced bank acquisitions and update you on our 2014 outlook. This is truly an exciting time for our company. I will begin with the acquisitions. We are extremely pleased to build upon prior successes during the first quarter. The 2 deals we announced this month, Ohio Heritage Bancorp and North Akron Savings Bank, fit nicely into our M&A strategy. Both banks operate in markets with characteristics similar to our existing footprint. Thus, we will be successful in growing business in these new areas. These 2 deals, plus the Midwest Bancshares transaction discussed last quarter, demonstrate our willingness to grow through acquisitions. Further, all 3 opportunities were the result of our proactive calling on banks in and around our footprint. None of these banks used a bidding process in their decision-making. Instead, they responded to our culture and saw how our products, services and lending capabilities can help their clients and communities. We are pleased to be considered a great strategic partner for these companies rather than simply the highest bidder. Over the next several months, our management team will work to integrate these 3 different banks within a relatively short timeframe. We gave careful consideration to the timing of each transaction. Our goal is to make each transaction seamless for both our existing and newly acquired customers. We are confident in our ability to execute given the level of talent and systems we have here in place. This includes the top 4 individuals leading the operations and systems integration. Combined, they have over 100 years of experience at…

Thanks, Chuck. Our continued success with acquisitions was a major highlight for the quarter. Although the 3 pending transactions should have minimal impact on 2014 earnings, we will see some significant changes to our company immediately upon their completion. First, we will increase our branch network by nearly 30% once all 3 deals are done. The newly acquired offices will help to enhance operating efficiencies. We also will be connecting our network along the I-77 corridor between Marietta and Cleveland. In terms of our balance sheet, we expect total assets to grow by over $400 million due to the pending deals. This amount would consist almost entirely of loans. As we would look to deleverage the acquired balance sheets where practical. This strategy would involve liquidating some or all the acquired investments and using the proceeds to repay borrowings. Thus, we would improve our balance sheet structure by reducing investments to around 25% of our total assets. Beyond 2014, the combined earnings accretion of the 3 deals is expected to be meaningful at over $0.22 per year. This contribution considers potential cost savings but no revenue synergies. Our expectation of cost savings for the Midwest transaction remains unchanged from the 40% to 45%, as stated during last quarter's call. For the 2 recent deals, we anticipate the cost savings to be at least 35%. The overall dilution of our capital from the 3 deals combined should be very manageable. As stated in our press releases, we will be using a mix of stock and cash with the transactions. As a result, we could see anywhere from 4% to 5% dilution of our tangible book value. The reduction in our tangible common equity ratio also should be less than 30 basis points. These amounts consider the required market value adjustments on…

Thanks, Ed. Overall, we are pleased with the positive progress made in the first quarter with several key goals. We achieved positive operating leverage, which helps us to build our earnings momentum. New loan production is on pace to generate another year of double-digit growth. Acquisitions are allowing us to achieve profitable growth. We are also remaining prudent with the use of capital. As we begin the second quarter, the outlook for the rest of 2014 is very promising. Revenue generation has grown stronger across the company due to our improved sales execution. At this point, we remain confident overall revenue growth in 2014 will exceed 10%. This expectation does not consider the impact of our pending bank deals, which should add another $7 million to $9 million to 2014's revenue. In total, we could see between 18% and 20% revenue growth in 2014. On the expense side, we tend to hold -- we intend to hold the line on our core operating cost, as Ed indicated earlier. With that said, our ability to control certain expenses, such as our employee medical and pension costs, remain very limited. Thus, we will still expect some unevenness with our quarterly operating leverage. Overall, our outlook for 2014 continues to include a 1% to 2% gap between organic revenue and expense growth. When you add on the 3 bank deals, we would expect the gap to widen to as much as 4% before the onetime merger cost. We continue to have a solid commercial pipeline, and consumer lending activity is growing steadily. In the first quarter, commercial production was 6% stronger than a year ago. Our current pipeline includes over $200 million of new loans. Of this amount, nearly $85 million is likely to close in fund over the remainder of the year.…

[Operator Instructions] And our first call is from Scott Siefers from Sandler O'Neill & Partners.

Ed, I think the first question is probably for you. First of all, I appreciate all the color on the specificity of the guidance. Just on expenses, you had noted a number of, I think, $18.4 million to $18.5 million quarterly run rate. So is that like a purely organic number? In other words, is that before you layer in any of the deals? Or is there kind of an average of what you would expect once all the deals end up getting layered in?

Yes, I would say that's purely organic. Yes, we separated the pension expense from that as well, as I mentioned.

Yes. And then so you -- I guess you go from -- this quarter, it's -- call it $18.2 million. Is there anything in particular that drives it up again in the second quarter? Is it just kind of this benefit-related cost that you guys refer to?

Right. I think that's exactly right. So medical expenses...

Yes.

Medical expenses potentially could be higher during the course of this year and certainly, some trickling of the pension expense. Keep in mind, Scott, that our focus is on the revenue growth side of it. We would expect to surpass our goals on the revenue side of things and maintain that gap that we've been commenting on a number of times, that 1% to 2% positive operating leverage. And as you start to add on the deals, we would expect that gap to continue to grow.

Yes. Okay, good. That's helpful, and I appreciate it. And then just switching gears a little, Chuck, I guess just some more strategic questions. You've got kind of an unusual dynamic development with the M&A where you look at each of the individual deals and they're all -- they're very small, make eminent financial and strategic sense. But then by the same token, you've got a lot of them going on at the same time, particularly in sort of the newer types of environment or insight. Just curious on your thoughts on additional deals. In other words, would you -- now you've got 3 in the works. Would you maybe take a little bit of a digestion phase or would you be willing to entertain additional transactions even though these are pending? How are you thinking about that dynamic?

Well, a couple of different thoughts. First off, we have said all along that we had the management infrastructure in place to double the size of the bank a couple of times. And from my perspective, we're putting that infrastructure to work with these transactions. As far as this year is concerned, we would very much like to do an insurance acquisition. We very much would like to do investment acquisitions. The deals have been spaced out in terms of when they close. The deals close in May, in August and October, so the second, third and fourth quarter. If we were to do deals -- another bank deal, it would close in 2015. We continue to have conversations with institutions that look at us as a positive partner. And I think the attraction to us is the capabilities we bring in terms of electronic banking services, the insurance business, the investment business and the fact that we are a true community bank, not a large regional bank. So we certainly have work to do to get all 3 of these put into PEBO. But I'm really not worried about it. The folks that manage the process have got over 100 years of experience. The 4 people at Peoples have done this many times. Because the stress that these transactions cause on the organization affect different parts of the organization at different points in time, it's not as complicated or difficult as it sounds. So when marketing is busy with one, training may not be or systems may not be or operations may not be and so forth. So if you do them sequentially and if you have good process flow and if you have good management discipline, you can do it. Now it's not our intention to do 4 transactions a year for many years to come. But it is our expectation that we'll be doing a couple major bank deals a year for years to come. There's a lot of stress out there in the marketplace for small banks. Our footprint is enormous in terms of geographic distance and, as you know, over 100 small banks in that footprint. And we can be good partners with them. If they can help us in terms of serving our customers and communities better, we're going to do it. Does that help you, Scott?

Yes. No, that's perfect in terms of the color I was looking for. So I definitely appreciate it.

Our next question comes from Michael Perito from KBW.

I was wondering maybe if I could start on the -- the loan yields look like they came down quite a bit sequentially. Just looking at the makeup of your loan growth, there was still pretty strong growth in consumers. Is that -- was that the main culprit in terms of the compressing loan yields? Is it still very competitive on that side? Any color there would be great.

Yes, we had in -- this is Ed, Michael -- in the commercial portfolio, in the fourth quarter, we had some onetime income posting there, some prepayment fees, some interest recoveries that posted in. So if you take those out, the movement in the yield was relatively slight.

And actually, with the new business that's going on, we're really pleased with our margins, both on consumer and commercial.

All right. So would you guys -- would it be fair to say that the new business is accretive to the loan yields? Or are you guys still kind of flat or...

No, we feel that it would be accretive. And then we also have the Ohio Commerce transaction from October of last year that has some accretion income associated with it that's rolling in this year. So I no, it's -- I think it's fairly accretive. And then on top of that, we're continuing to move the mix in our asset base. Reducing the size of our investment portfolio and making the loan portfolio a higher percentage of total, that's one of our key strategic initiatives during the course of this year.

Okay, great. And then just one more on the loan book. When you guys -- on asset deals and I looked, it looked as both the Midwest deal and Ohio Heritage were both a little more heavy on the residential real estate than your loan mix and your current portfolio. Could you guys maybe comment on, I guess, will there need to be additional hires to bolster the commercial lending? Or is it just a matter of over time redeploying your lenders with a bit more commercial focus and away from the real estate and those new branches and lenders coming on?

It'll be a little bit of both. First off, in the case of Ohio Heritage, we have commercial lenders to the South, to the West and to the North of it that go into those territories, and it'll just help them be more effective. In North Akron and in Cleveland, we see opportunities to hire commercial lenders. We see opportunities to do acquisitions of insurance agencies and also of investment business.

There won't be any intentional remix, though, that would potentially affect your net loan growth, though, right, in terms of trying to rightsize those portfolios to your mix today or anything like that? Or just you guys are comfortable doing it over time?

Correct. We will do that over time.

Our next question comes from Daniel Cardenas from Raymond James.

I think it might have been Chuck or Ed, I'm not sure who, but when you were going through the pipeline, I missed that amount. Could you tell me what the pipeline stood and what you thought of that pipeline could fund, how much of that pipeline you thought could fund?

Over $200 million in commercial, and we anticipate $85 million of that funding over the rest of the year.

All right. So that's about, what, 42% or so? Is that kind of typical what you see from your pipeline funding? Or is that a little bit lower than historical average?

Well, the size of the pipeline is large, slightly larger than it has been. The percentage of funding, we're not counting those unless we're very, very certain. So the actual percentages of that we will get funded, I believe, will be more than that percentage that you hit on. But until we do it, we're not counting it.

Okay. I mean, given the size of the pipeline, I mean, is that a pretty granular pipeline? Or is there a number of larger credits in there that make that up?

No, it's pretty granular. We don't really do a whole ton of $10 million to $20 million deals. Most of them are pretty small.

Excellent, excellent. And then as you talk about M&A, I mean, what's the thought about -- I mean, you're doing a great job of building up the I-77 corridor. But thoughts about maybe going to the Western part of the state, any desire to expand there?

We -- as I've mentioned before, we have a very large footprint from Cleveland to Charleston, from New Martinsville up the Ohio River, down to Ashland. So we would look for things in Ohio, West Virginia and Kentucky. If it's going to be in Ohio, it's going to be South of 70 and East of I-71. For those of you that aren't up on your Ohio geography, that would be pretty much everything but the Northwest corner. In West Virginia, it's going to be the Western side of the state. In Kentucky, it's going to be the Eastern side of the state is where we're going to focus on. We've had conversations in all 3 states and continue to have conversations. It just so happens by coincidence that the deals that we've gotten done the last few have been in Ohio. I think it's just as likely that the next ones will be in West Virginia or Kentucky.

Our next question comes from Patrick O'Brien from Fox Asset.

Guys, I'm new to the stock, and I just wonder if you could talk about the efficiency ratio. It's high, but you still have real good returns on capital. Does that come down over time or does it remain in the current region?

It comes down over time slowly. We have said that ours is a revenue play, not an expense play. We are -- the mix of our businesses are such that we're very high fee income. So the trust and investment business and the insurance business have high ROE, little more burdensome expense characteristics. We want to give them proportionately the same size over time. The bank acquisitions give us an opportunity to manage the efficiency, as Ed mentioned in his comments, the widening of that operating leverage to 4% with those acquisitions coming in. So what we are to drive the expense ratio down, but we are probably less focused on the -- we are less focused on the expense ratio as it compares to focusing on profitable revenue growth. I realize there's 2 components to that, but I think the 17% revenue growth stands on its own. We think that we can build the company by going to market more aggressively in terms of how our people sell and service clients.

You guys talked about what I thought was organic revenue growth. I think it was 8%. How much of that had to do with playing with the funding? Did that contribute a lot? I thought your NIM went up quite a bit.

No, no. Very little of it has to do with the funding. We did have some NIM expansion related to the Ohio Commerce acquisition that we've documented, both in the call -- in the prior call, but very little of it is -- the NIM expansion, if you go back at the first quarter of last year to this -- to where we are right now, is driven by favorable loan pricing primarily and managing the deposit book.

[Operator Instructions] Our next question comes from Michael Perito from KBW.

Just one quick follow-up. I was wondering if you guys could -- all the acquisitions that you guys have closing, there's very little, or if at all, on the insurance side. I was wondering if you guys could just speak to that opportunity and how -- potentially how quickly you could see a benefit from cross-selling insurance to those depositors and clients and et cetera?

We have -- in all of our comments on the revenue side and on all of our comments on the deals, we have put nothing in for our synergies. We are very optimistic about the benefits of those synergies, both in terms of acquisitions of insurance and investment business but also over time, with the cross-sell. We will be able to introduce more of a commercial focus to these acquired institutions. We will be able to help on the lending side. Most of them have legal lending limits. Our lending house limit is less than $200 million, where ours is $20 million. So that will get a larger customer, that will have larger commercial insurance opportunities. The big source of our personal lines insurance is branch referrals. I'm very confident, 12 to 18 months after these deals close, that these branches will be performing at the same level as our existing branches. So there's opportunities there. There's also opportunities on the investment side. We're fortunate to have a superior retirement plan. 401(k) offering, that's growing revenue in the neighborhood of 30% right now. And as we make that product available to more businesses, I think that growth can continue. So we see lots of upside. Also, in the North Akron acquisition, combined with the Ohio Commerce acquisition done in the fourth quarter last year in Beechwood, we believe that there's great opportunity for insurance acquisition and investment acquisitions in an area that's densely populated and rich with opportunities.

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

This concludes our commentary, and -- nope, nope, nope, take that back. This does not conclude our commentary. I want to thank everybody for participating. Please remember that our earnings release and webcast of this call will be archived on peoplesbancorp.com under the Investor Relations section. Thanks for your time, and have a great day.

This will conclude today's conference call.