Good morning and welcome to Peoples Bancorp's Conference Call. My name is Denise 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 of 2016. Please be advised all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will a question-and-answer period. [Operator Instructions]. This call is also being recorded. If you object to the recording, please disconnect your line 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 facts 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 implementation of business strategies, including the successful integration of recently completed acquisitions and the expansion of consumer lending activity; the competitive nature of financial services industry; the industry 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, except as may be required by applicable law requirements. Peoples' first quarter 2016 earnings release was issued this morning and is available at peoplesbancorp.com under the Investor Relations tab. A reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP financial measures is included at the end of the earnings release. This call will include about 15 minutes of prepared commentary, followed by a question-and-answer period which I will facilitate. An archived web cast of this call will be available on peoplesbancorp.com in the Investor Relations section for one year. Participants in today's call will be Chuck Sulerzyski, President and Chief Executive Officer and John Rogers, Chief Financial Officer and Treasurer; and each will be available for questions following opening statements. Mr. Sulerzyski, you may begin your conference.

Thank you, Denise. Good morning and thanks for joining us for a review of our first quarter results. Earlier this morning, we reported first quarter earnings. We reported net income of $8 million or $0.44 per diluted share for the first quarter of 2016, this is compared to net income of $2.6 million or $0.14 per diluted share in the fourth quarter of 2015 and a net loss of $689,000 or $0.04 per diluted share a year ago. During the first quarter, we were able to effectively control expenses, reduce our efficiency ratio and generate period end loan growth of 6% annualized compared to year end 2015. Our efficiency ratio continued to decline, and was 64.3% for the quarter. Total revenue increased 2% compared to the prior quarter. Fee-based revenues were 34% of total revenues compared to 32% in the fourth quarter. This increase was driven by insurance contingency income that is primarily received in the first quarter each year, and we view it as a core component of insurance income. Insurance contingency income fluctuates each year, and is based on a combination of factors, such as loss experience of policy sold, production volumes in overall financial performance of the individual insurance carriers. During the first quarter of 2016, reported non-interest expenses declined 4% compared to the fourth quarter and 20% compared to the first quarter of 2015. Non-interest expenses were $26.3 million in the first quarter of 2016, which was slightly higher than last quarter's non-interest expenses, excluding non-core charges of $26 million. This increase was primarily driven by higher sales based and incentive compensation. We generated positive operating leverage compared to the fourth quarter, with 2% revenue growth outpacing 1% in core expense growth. We had positive operating leverage compared to the first quarter of 2015, with revenue…

Thanks Chuck. For the quarter, net interest income was flat compared to the fourth quarter and increased 20% compared to a year ago, due mainly to a full quarter of NB&T in 2016. Our reported net interest margin decreased slightly during the quarter to 3.53%. The net interest margin, excluding net accretion income was 3.41% compared to 3.4% last quarter and 3.28% a year ago. Accretion income was $1 million this quarter compared to $1.2 million for the fourth quarter and first quarter of 2015. As such, net interest income, excluding accretion income was $25.3 million for the first quarter compared to $25.2 million in the fourth quarter and $20.7 million in the first quarter of 2015. This accretion income added 12 basis points to the margin in the first quarter compared to 16 basis points in the fourth quarter and 18 basis points in the first quarter of 2015. We expect the accretion income to reduce over time, as the acquired portfolios get smaller in size, leading to a lower impact on margin as we move forward. One of the highlights of the quarter, was 8% growth in non-interest income compared to the prior year quarter, which is mainly driven by the insurance contingency income that Chuck previously mentioned. In contrast, the revenue from our investment business for the quarter was impacted by market conditions, and was down approximately $100,000 from the prior quarter. Compared to the first quarter of 2015, we had double digit growth in many categories, as we experienced a lift from the full quarter impact of NB&T acquisition. Non-interest income comprised 34% of our total revenue for the quarter, an increase from 32% in the fourth quarter. We also had minimal gains on investment securities during the quarter. Moving to the balance sheet, the investment…

Thanks John. The quarter included several positives; we were below our targeted efficiency ratio of 65%, annualized loan growth within the 6% to 8% range, which we had indicated previously. Loan growth has been steady over the last couple of quarters. We have already funded several commercial loans since quarter end. Our current commercial loan pipeline is sitting at $248 million, with $39 million in scheduled fundings expected during the second quarter; and fee-based revenues increased to 34% of total revenue. Overall, we are happy with the results and pleased to present improved earnings to our shareholders. In the fourth quarter, we will be converting our core banking systems to one of the best in class third party systems available. We anticipate onetime costs associated with conversion of approximately $1.2 million, as we convert our banking platform. The costs will be recorded in each of the remaining quarters of 2016, with a significant majority in the third and fourth quarters. The conversion will support our future growth, and will provide efficiencies for our back office area. We are really excited about the enhancements and capabilities offered with this new system. The conversion will have a positive impact on our customer experience, as well as our internal processes. Looking ahead, we continue to expect to achieve point-to-point loan growth of 6% to 8%, with the growth more balanced between commercial and consumer than reflected in the first quarter. Our net interest margin was in line with our prior guidance in the low 3.50s and we believe we can maintain that throughout the remainder of the year. Total revenue is expected to be 4% to 6% in 2016, with low single digit growth in expenses. We expect to generate positive operating leverage for the full year of 2016 compared to 2015. We…

[Operator Instructions]. And our first question will come from Scott Siefers from Sandler O'Neill and Partners. Please go ahead, sir.

Good morning guys.

Good morning Scott.

Chuck, I was wondering if you could maybe provide any update to the extent, if there is any, on the couple criticized assets or NPAs that got brought up last quarter. One, if there have been any new developments with them, and what would be sort of the outlook for their migration? Kind of positive or negative as the year progresses?

No, I think that we had kind of a pretty steady quarter. I anticipate our credit metrics improving, as we move out throughout the remainder of the year. I would say, there is really nothing of any significance in any of the credits that have been previously mentioned in prior calls and again, I expect that you will see the credit metrics improve over the remainder of the year.

Okay. Perfect, thank you. And then, just switching gears to capital management; so you're kind of active, as you guys had disclosed previously in the share repurchase this quarter. Just given -- sort of the recovery in the stock price over the last couple of months, what the appetite is for continued repurchase and how you guys are thinking about that dynamic.

Yeah Scott, it's John. I will take that. I think we still have an appetite to consider repurchases at the right price. But I think you were very accurate in saying that the market has recovered some lately, and probably somewhat -- at this point in time, a little bit rich for our appetite to buy back at those prices. We still are definitely open to buying back at the appropriate price, should it arise.

All right. Perfect. Thank you very much.

You're welcome.

And our next question comes from Kevin Fitzsimmons from Hovde Group. Please go ahead.

Hey, good morning guys.

Hey Kevin.

Good morning Kevin.

I was wondering if you could give an update on where we stand in your direct and indirect energy exposure? I know one of those loans that was -- I believe it was one of the classified ones from last quarter, was a fracking related one. But just given the discussion on the topic industry-wide, it was probably worth getting an update if you had it. Thanks.

Yeah. We continue to make progress. I think the total exposure of the energy portfolio is down to 1.6% of total assets. So 1.56% commitments of total loans, from 1.68% at the end of the year. So we are down to $38.2 million. That $38 million is not as good as the rest of the portfolio, but it's not doing horrifically. Most of that, we feel pretty good about, couple that we are watching pretty closely. But we don't anticipate that to have a significant impact in the future. You okay, Kevin.

Yeah sorry Chuck. Just if you can give us also a little bit of outlook on how you are looking at the pace of provision? You described it as moderate this quarter, and it has bounced around over the past year or so. So looking out and seeing what you see now, would you expect to stay roughly at that range for it to be simply more of a byproduct of loan growth that you have put up?

I think it's going to be mainly a byproduct of loan growth that we put up.

Great. And Chuck, one last one, when you have talked about M&A in the past, you have said bank acquisitions are probably off the table, unless they were cash deals in the near term, but you always expressed an interest in more insurance agency deals. Anything on that front that you are seeing or conversations happening?

Well just a couple of thoughts; first with the bank deals, obviously we mentioned the core conversion in November. So if we were to do a bank deal, it would be something that would be closing mid 2017. We would love to do insurance deals. We would love to do investment deals. We are having conversations in both categories. But again, these are generally pretty small deals, many of them less than $1 million. But we would love -- I would be disappointed if we don't get several of these done in 2016.

Okay, great. Thank you.

And our next question is from Michael Perito from KBW. Please go ahead.

Hey, good morning guys.

Hi Michael.

Michael, how are you?

Good. Thanks. Wanted to ask a quick question on the indirect auto; can you remind us some of the parameters of that portfolio like the average FICO scores percentage of new versus used, anything like that you guys can offer us?

Yeah. First up, in terms of new and used were usually about 50-50 over time, and we see that change a little bit, but not too much. In terms of the scores for the first quarter, they were at 716, that's four quarters of rising scores. In general, we are between 700 and 720, and the portfolio continues to perform respectably.

Great. Thanks. But just I guess as a follow-up, going forward I guess, it sounds like the growth, at least as you see it today, is not going to be as strong, and Q1 is going to be a bit more balanced over the back half of the year, more tilted, maybe hopefully towards commercial. Is that fair?

Yeah, I think that that is fair. I think you will see good indirect performance over the remainder of the year. But I don't see us accelerating the growth on a growing portfolio, that will taper a little bit. Part of that growth is from the west, where we brought the bank last year. We go back five years, NB&T had a $75 million indirect portfolio, and we have been trying to reintroduce ourselves to dealers there. We have also been at it for several years in our core footprint, and have expanded both the number of dealers, but more importantly, getting more business from many of the dealers that we have been doing business with.

Okay. Great, thanks. Quick question on the expenses, the salaries and benefits line, a little over $40 million this quarter, does that incorporate some of the newer higher level hires that you guys brought on, and is that -- is there anything else you guys would note in that number, that wouldn't make that -- I guess even more stickier, or maybe there could be an adjustment in Q2 going forward?

Doug and Cindy are not in those numbers in Q1, and will be in there partially in Q2. So you might see a modest uptick.

Until you look at other expense ideas and etcetera, I wouldn't expect that to be a major impact to our results in the future quarters, etcetera. Just remember, on the incentive side, last year, late last year, there was a significant cut in the executive compensation incentive pools, given the results, and given our results, we will bump up those accruals this year, and you will probably be seeing an impact to that as well, if you look at that numbers on a linked quarter basis.

Okay. And then, just one last question for me, maybe asking a capital question in a different way. I mean, you guys sit in a pretty good standing right now. I mean, you should approach 9% over the course of the year. It sounds like bank M&A is on hold for at least another quarter or two, just given the conversion and then anything on the fee income side would be relatively small. So I guess why the -- even with the recent outperformance, why the hesitation to maybe continue using the buyback here? I mean, it's still relative to where you guys have been over the past two years, significantly cheaper on book value?

Yeah. I mean, as I said earlier, we continue to evaluate that, and look at what we believe to be a fair price. I don't think, as Chuck mentioned, I don't think we plan on any back to acquisition deals this year, and we wouldn't close anything early as to mid next year. But I do think in the longer term, that's still a part of our strategy and we need to keep that -- [indiscernible] thoughts, as we look at our capital plan and what we envision the company to be. And we will continue to evaluate the share buybacks, in light of where we think we are headed, and we will give consideration with that, as we move forward.

And sorry, just one more on that front; just any updates, Chuck, on the dividends and how the Board is thinking about it today?

I think there is more. I think that there is upside opportunity in the dividend is what I would say.

Okay. That's perfect. Thanks.

We will consider to evaluate that as well, as we move forward.

Thank you.

And our next question is from Daniel Cardenas from Raymond James. Please go ahead.

Good morning guys.

Hey Dan, how are you doing?

Good morning Dan. How are you?

Good. Good. Just focusing on the loan side for a minute; what impact if any, did paydowns and pay-off have this quarter on your loan balances?

Nothing out of the usual. We had some meaningful -- we probably will experience more paydowns in the first quarter, than we will in the next two quarters. So we had a little bit more than expected. But again, nothing unreasonable. We are optimistic on the second quarter on the commercial side.

Okay. And then, maybe a quick update on the Dayton, Cincinnati marketplace; what does the loan growth look like? Going forward, do you expect to see that be kind of the driver on the commercial side, or is the commercial going to come from other areas of your footprint?

Well I think, we have added talent across our footprint, and we would love to see all that aspects of the geography perform extremely well. But I think that, we will see growth in the west, but we will see growth across the footprint. As I mentioned, the hiring of Cindy and Doug, we continue to add high caliber folks and there is business to be head everywhere. The other thing that I would mention in the west, that I am really excited about, is the first quarter. We have had meaningful DDA growth in the west, growing at a 2.5% to 3% rate, which marries what we have done in our core footprint. This was a franchise that was trading checking accounts at a pretty high level, when we acquired it. So a year into it, we got growth and we sit at that 28% non-interest bearing checking account, and we see that as a key, in terms of cost of funds but also, source of future mortgages, insurance sales, investment sales. So I am excited about what they are doing out there on loan growth, but I am really excited to see the core checking account, because I think, in the long run, I do believe that a lot of franchise value is derived from the deposit base, and I think we can make our deposit base even more attractive over time.

Okay, good. And then, just in terms of the deposits, are you seeing any changes in the competitive factors within your footprint? Is anybody getting aggressive on pricing right now?

Not extremely aggressive, I guess, is what I would say. For the most part, over the past, there have always been banks out there that have been higher than us, and I don't really see anything really meaningful happening there.

I think the uncertainty around what the feds are going to do and everything else, most banks are kind of just hanging relatively steady. And we might see an occasional outlier here and there, but nothing of any magnitude.

Okay. Good, and then if you could just remind me of a balance sheet position, are you guys fairly neutral right now, and how in a rising rate environment --?

We are asset sensitive.

Okay. And last question for me, I know distributable amortization was down about $100,000 on a sequential quarter basis. That $1 million number, is that kind of a good run rate to work off for the rest of this year?

Yeah it is, that's just kind of the calendar amortization taken down a little bit, as we move through some of the past acquisitions and declining core deposit amortization.

All right guys. Thank you.

Thank you.

You're welcome.

[Operator Instructions]. Our next question is from Scott Berry from Boenning and Scattergood. Please go ahead.

Hey Scott.

Sir, is your line muted? Mr. Berry, is your line muted?

Hello. Good morning. Sorry about that. I was just looking -- the loan growth obviously was pretty strong, but we did see some more run-off in the acquired portfolio, and I was just wondering if you could give a little color on, maybe what was driving that specifically, if it was concentrated in any specific loans, and what you are kind of forecasting internally -- generally speaking, for future run-off?

When you say -- could you put us on mute for one second?

Scott?

Yes.

I mean, the acquired loan book is a segregated book, so once it gets acquired, its only ever going to go down, it's not going to go up. So basically, the new originations from those loans move up into the originated loan category, so there is no real due loans or anything that goes out with those -- moves up into the originated loan bucket. So that's a declining balance from day one with each acquisition.

Understood. So it was really just standard payouts?

Right. And it just relates to the amount of PCI loans, etcetera, that you booked, and for acquisitions.

For a second, you scared me Scott.

Sorry about that.

It's one of those accounting anomalies [indiscernible], bookkeeping.

Understood. I guess one other kind of housekeeping question; in terms of the accretion income, can you just remind me what's kind of left there, based on the -- in the accretion income to run-off? I mean, expecting I think, based on your prior comments through completely some time, mid-2017, I mean, anything specific there?

No. So they are looking up at detail about the number, I didn't have that handy. But I'd tell you, during the quarter, when we did the work, we are actually seeing a little bit more of accretable income that got recorded over future periods. So we would actually expect that our accretable income, even thought it has declined, will be with us for a little bit longer, as we move forward, as some of the cash flow projections that we ran, show that there was somewhat of an improvement in those, and we will get a greater number. So our accretable number, $7 million we have left, that's creating the income, and that will occur over the next number of years. I mean, that could go for a while, but at some time, you are just going to get relatively de minimis and we will start talking about it in a couple of year probably.

Understood. All right. Well most of my other questions have been answered already. So thank you.

Thank you.

You're welcome.

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

Yes. Thank you all for listening to our call. We appreciate it. And please remember our earnings release and a web cast of this call will be archived on peoplesbankcorp.com, under the Investor Relations section. As a reminder, our annual shareholder meeting will be held on Thursday, April 28, in Marietta, Ohio. Thank you for your time, and have a good day.

This concludes today's call. Thank you for your attendance. You may now disconnect your lines.