Good morning, and welcome to Peoples Bancorp Incorporated Conference Call. My name is Brian and I will be the conference facilitator today. Today's call will cover discussion of the results of operations for the quarterly and nine month period ended September 30, 2018. Please be advised that 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 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 the implementation of Peoples' business strategies, including the ability to integrate acquisitions, including any future acquisitions, which may be unsuccessful, more difficult, time consuming or costly than expected, the success impact and timing of the expansion of consumer lending activity. The competitive nature of the financial service industry changes in the interest rate environment, slowing a reversal of the current U.S. economic expansion; uncertainty regarding the nature, timing, cost and effect of federal and/or state banking insurance and tax legislative or regulatory changes or actions; the effects of easing restrictions on participants in the financial service industry; changes and policy and other regulatory and legal developments accompanying the current presidential administration, including the Tax Cuts and Jobs Act and uncertainty or speculation pending the enactment of such changes; uncertainties and Peoples' preliminary review and additional analysis of the impact of the Tax Cuts and Jobs Act and changes and economic conditions and/or activities. 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 forward-looking statements. Peoples' disclaim any responsibility to update these forward-looking statements after this call, except as they may be required by applicable legal requirements. Peoples' third quarter 2018 earnings release was issued this morning and is available at peoplesbankcorp.com under the Investor Relations tab. A reconciliation of the 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 20 to 25 minutes of prepared commentary followed by question and answer period, which I will facilitate. An archived webcast of this call will be available on peoplesbankcorp.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 available for questions during the following opening statements. Mr. Sulerzyski, you may begin.

Thank you, Brian. Good morning. Thank you for joining us for a review of our third quarter and year-to-date results. This morning we announced another record quarter of net income. We also increased our dividend rate to $0.30 per share. We continue to make progress on providing positive reliable results for our shareholders. During the third quarter, we were able to generate the best quarterly earnings per diluted share in recent company history. We see the benefit of a full quarter's impact of our recent acquisition of ASB Financial Corp; increased a quarterly commercial loan yields to over 5%; generate considerable growth in total noninterest income, excluding net gains and losses compared to the linked quarter; control our expenses, which included an additional $675,000 of acquisition related expenses and $176,000 of pension settlement charges during the third quarter. To pass the $4 billion mark in total assets as of September 30, 2018, reduced our loan to deposit ratio to 89%, increased our tangible book value per share to $17.44, decreased our classified assets by $8 million or 19% compared to September 30, 2017, and maintain a relatively low net charge-off rate. Our third quarter results included net income of $12.7 million or $0.65 per diluted share. In comparison, we reported net income of $7.9 million or $0.41 per diluted share for the linked quarter and $10.9 million or $0.60 per diluted share for the third quarter of 2017. During the first nine months of 2018, our net income was $32.4 million or $1.69 per diluted share compared to $29.5 million or $1.61 per diluted share in 2017. During the third quarter, we recorded additional acquisition related costs of $674,000, which reduced earnings per diluted share by $0.03. We also recognized pension settlement charges of $176,000, which negatively impacted earnings per…

Thanks, Chuck. Our net interest income continues to improve and was up 2% compared to the linked quarter, and increased 14% compare to the third quarter of 2017. The improvement during the quarter was mostly due to loan growth, which was partially offset by higher deposit costs. Our net interest margin for the third quarter was 3.68% compared to 3.74% for the linked quarter and 3.67% for the third quarter of 2017. We had anticipated a slightly higher margin for the third quarter, but it was negatively impacted by the rise in deposit costs while loan yield only rose slightly given the relatively flat LIBOR rates during the quarter. We also had a 3 basis point benefit to the margin for the second quarter from the $248,000 of proceeds on investment security for which we have previously recognized and other-than-temporary impairment. Compared to the third quarter of 2017, we have benefited from the higher loan yields, which were partially offset by higher borrowing costs and slight rise and deposit costs. For the third quarter of 2017, we had also recognized proceeds of $611,000 on the security for which we previously recorded and other-than-temporary impairment, which added 8 basis points to net interest margin during that period. Net interest income has grown 13% for the first nine months of 2018 compared to the same period in 2017, while net interest margin was 3.69% and 3.61% respectively. The increase in net interest income during 2018 has been primarily due to the ASB acquisition and organic loan growth. Our higher loan yields, which were partially offset by our controlled rise in deposit rates and the increased borrowing costs, have driven the increase in net interest margin during 2018. Accretion income from acquisitions, which is net of amortization expense, increased $89,000 compared to the…

Thanks, John. We continue to focus on how to bring our appealing services to clients. From our frontline retail specialists providing the daily services to our customers, to our lenders, financial advisors, insurance consultants and mortgage bankers, we are committed to providing high quality service. We strive to maintain our reputation and are embarking on spreading the news within the ASB footprint. As we make referrals from one line of business to the next, I'm confident that we can continue to grow our market share within the new geographic area. As far as our results, we experienced several positives during the third quarter compared to the linked quarter. We generated a considerable growth of 4% in total noninterest income, excluding net gains and losses. We controlled our expenses, which were relatively flat excluding acquisition related expenses. We experienced deposit growth of $91.9 million or 3% from June 30, 2018. We reduced our classified assets by $7 million or 12% compared to June 30, 2018. And we maintained a relatively low net charge-off rate at 10 basis points. As we move into the fourth quarter, we anticipate the following results. Annualized organic loan growth of 5% to 7%, quarterly credit costs similar to those recognized during the third quarter, a net interest margin of approximately 3.7%, total noninterest income excluding net gains and losses of between $13 million and $14 million, total noninterest expense similar to the third quarter of 2018, quarterly efficiency ratio between 60% and 62%, a 19% effective federal income tax rate and minimal acquisition costs related to ASB. We would also like to provide some early guidance around 2019. We expect point-to-point loan growth of 6% to 8%. We expect an increase in credit costs in 2019. This expectation does not reflect any specific concern about our portfolio rather -- it reflects to belief that the industry is enjoying unusually low charge offs. We believe net interest margin will be between $375 and $380 for the full year, which anticipates one rate increase during the remainder of 2018 and three rate increases in 2019. Fee based revenue growth is expected to be between 7% and 9%. We expect total revenue growth to be in the upper-single-digits. We expect noninterest expense will to be in the mid-single-digits, including the impact of ASB. Our target efficiency ratio for 2019 is between 59% and 61%. We are pleased with the results we have been able to provide to our shareholders in the recent quarters along with the increase in our dividends. We believe in delivering reliable results and improving our core business, while still having an appetite for acquisitions. This concludes our commentary. And we will open the call for questions. Once again, this is Chuck Sulerzyski, and joining me for the Q&A session is John Rogers, Chief Financial Officer. I would now like to turn the call back to the hands of our call facilitator, Brian.

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] And today's first question will come from Scott Siefers with Sandler O'Neill. Please go ahead.

Thanks. Good morning. This is actually Gene on for Scott. So, thank you for the color on margin. So LIBOR was a headwind in the third quarter and presumably that abates. But funding cost become more of an issue. So as you see them, what are the main puts and takes for the core margin going forward? A – Chuck Sulerzyski: So I think you’re definitely right. I mean, LIBOR, especially one in three months, which is where we’re more sensitive to in the loan book, has continued -- has shown some improvement late in the September into October that will be good. We did increase our deposit rates during the course of the second -- third quarter. Most of that was in the quarter, I think, those went into effect around August 1st. We still continue to believe that the deposit franchise is at the end of the day is going to drive evaluations of the company. And we do not perceive to take the risk. We’re trying to be too easy on deposit costs. So we decided to do a decent rise in our deposit costs. We don’t see us need to do that in the fourth quarter at this point in time. People have been relatively consistent competitors on deposit pricing side, on the consumer side. We will continue to see probably some pressure from our corporate customers, commercial clients, some maybe from public funds, but we've been more aggressive in managing that business and considering the solid relationships like a loan relationship, and have been adjusting pricing and having the right conversation with them. So I think we’re doing the right thing there as well. So, overall, I think, summing up, we get some benefit on a LIBOR. We’re managing our deposit costs. I think our deposit betas have been relatively low compared to our competitors over the last year and half years, two years. This was just a little bit of a catch up this quarter. And we think we will be able to manage appropriately going forward.

And then on expenses, you had previously guided to $30 million per quarter in the second half. Does that still hold true in light of updated guidance? A – Chuck Sulerzyski: Yes. I think, we said consensus would be by generally consistent. I think once you adjust for the acquisition costs and the pension settlement, we’re right around at $30 million number.

Our today’s next question will be from Michael Perito with KBW. Please go ahead.

I got a couple -- kind of relative questions for you guys. I guess, firstly on the loan growth outlook for next year 6% to 8%, which is just kind of acceleration from the 5% to 7% for this year. Kind of an outlier, I would say, at least in some of the covered -- the companies I cover, I mean, there's a bit more conservative commentary around competition, especially in some -- both from bank and non-bank lenders that are making it more challenging to get quality credits on the balance sheet. I'm just curious to know what you guys seeing. Obviously, the pipeline commentary sounds good. But what are you guys seeing that gives you kind of some confidence to raise the loan growth balance year-over-year for 2019 at this point? A – Chuck Sulerzyski: I think the 5% to 7% was the number for the fourth quarter. I think, for the year it will be around that 6%. I think we've been 6% to 11% for the last 5 years. Our proposition is not really based on economic growth. It's based on the fact that we believe we can liberate clients and prospects from competitors because the $5 million, $10 million, $15 million borrower is ignored at the 6 large banks that we primarily compete against. So as far as the credit quality comments, I think, the credit statistics speak for themselves. Our credit statistics are certainly above the $1 billion to $10 billion peer universe. So we have a lot of faith in our go to market proposition. We're getting opportunities not only by commercial bankers being out in the markets, but we're also getting opportunities by insurance professionals and investment professionals. And I think those three businesses working in tandem with our retail people. And the realization that there's not going to be new developments in our area, there's not going to be new business expansion. 85% to 90% of our loan growth is dependent again on stealing it from the competition. And as long as large institutions do the things that they do, we can find the $5 million, $10 million, $15 million customer that needs a little love, and we can take care of them. And in some cases, we've got a client that we want in the third quarter that came to us, as a sizable client, came to us at a half of percent higher interest rate because they were tired of what they were living with at a large institution. So I have confidence to the 6% to 8% because I don't have any confidence that all of those competitors will do great things consistently. All of them are great companies, but fortunately, in the markets where we are, two hours away from where they're located. We're not competing against them at their best.

And then just, secondly, obviously, the initial outlook for next year seems pretty favorable, decent growth, good revenue growth, the margin expanding from at least recent levels. As you look at the capital deployment options for Peoples', right now, I mean, obviously, you guys have used the dividend this year pretty aggressively as earnings have improved the profitability, has increased post-tax reform. But as you think about some of the broader weakness in the bank stocks recently and the TC ratio, which seemingly will continue to grow almost towards 10% in the next couple years outside of any M&A. I mean the share repurchases kind of creep up into the Board's discussions at all at this point. I mean, is that something that you guys are throwing around to try and broaden the capital deployment kind of tool bag? Or are you still kind of anticipating mostly growth and dividends with the remaining powder being saved for M&A? A – Chuck Sulerzyski: I think at 33 bucks, I think, that will continue to increase the dividend and to do M&A, and to see if we can get a little bit more cash into some of the M&A deals. I don't know if the market goes down much further, I think, that the share repurchases would come into play. But that $33, I don't see them coming into play.

Next question will be from Kevin Reevey with D.A. Davidson. Please go ahead.

So Chuck, on the 7% to 9% fee income growth outlook for 2019, could you give us some clarity is to what line items you expect to gain the volume share that grows from? And then also could you talk about any synergies from the ASB deal that you see that could impact that growth? A – Chuck Sulerzyski: Yes, I think, we’ll see a lift in SBA, a continued lift in SBA. I think we’ll see a lift in some of the former Mac programs that we've been doing that will be incremental in terms of ASB. We will see some more mortgage fee income than what we’ve historically enjoyed for the mortgage business. And those in combination with what we do in insurance and investments, is all positive. A – John Rogers: Yes, just to add on that, I still think we considered heavy growth in the trust and investments world, perhaps not a strong as we’ve had, which is close to double digits, but still high single digit respectable number. Chuck mentioned mortgage, which covers both your questions. And we allow that we will leverage that franchise we purchased from ASB, and I think we'll see good growth there. That growth does come with some of the expenses on the commission side. So there's someone of loss at there, could drive the expenses a little bit. And I still think we'll still see good income in electronic banking. People still use our debit cards more and more all the time. So that’s where we're seeing it to go.

And then speaking of electronic banking, does your 2019 outlook for your noninterest expense number? Does that also include any additional investments you may need to make in technology and digital in order to remain competitive? A – Chuck Sulerzyski: Yes. And consistent with our practice, we have been making investments ongoing. We have a new core system, we have a new mortgage system, we have a new deal of flow plan system. We are making all of the investments necessary to get all of our businesses competitive in a mobile and digital format over the next 12 to 36 months.

[Operator Instructions] And our next question will be from Daniel Cardenas with Raymond James. Please go ahead.

So maybe a little bit of color on the level of paydowns kind of coming into Q4, are you beginning to see that slow? And does that -- again, maybe and some color as to what the normal level of paydowns and payoffs in any given quarter could look like? A – John Rogers: I’d just make a general comment about paydowns. And you see a lot of the banks reporting and complaining about paydowns. I think it’s a complement to the construct of our portfolio being less dependent on CRE that we’re seeing less concern and able to put some loan growth up. We’re going to have paydowns in the fourth quarter like we do every quarter, do expect it to be any more or less. Not really. It's a part of the business. So I remain optimistic that we can have decent loan growth. I will make an editorial comment that you guys probably don't want to hear. I think some of the reactions to bank missing loan growth for quarter overdone. We’ve been fortunate to avoid that now for a little over five years, but I am sure sooner or later, we’ll have a flat quarter. But I wouldn't get too depressed about it. It says what can a bank consistently do.

Got you. Got you. One quarter doesn't make the trend right. So and then maybe some color on the deposit growth side as you kind of project that kind of that mid-single-digit loan growth. Are your expectations for deposit growth to kind of keep pace on a percentage basis? Or is that going to be a little bit more of a challenge? A – Chuck Sulerzyski: I think that growing deposits at the rate that we've been growing loans would be a little bit of a challenge. I think that it function of pricing, we're happy to see the loan to deposit ratio come down. We're optimistic as we look in the years ahead that we'll be able to do some acquisitions that may help with the funding side. But we're also doing more aggressive marketing and testing of different specials in different markets to see if we can selectively penetrate clients and prospects. And do so in a way that's not damning to the overall cost of deposits.

Okay. And then, as you think about deposit growth, I mean, I'm assuming that's going to be kind of market share takeaway as well. It maybe not so much from the bigger competitors, but are you seeing some increased competition from -- kind of your smaller brethren?

You know we do. But I really don't think it's a factor. When I look at the market, I mean, one of the larger regional's that we compete against, has been particularly aggressive. That's why causes more problems than any little bank doing something may -- small bank doing something may hurt us around a branch or two or three. But across the footprint, it's really has not been -- has not yet been problematic.

Good. And then last question, maybe a little color on the M&A environment. What's that like right now -- our discussions perking up or they kind of quieting down here?

We're having discussions. We remain interested in the leasing business. We may remain interested in the banking business, the insurance business. I think that you probably have had more conversations in the last, I don't know, 4 or 5 months, than I probably had in the prior 12 months. So I think there's more stuff out there. And hopefully, we can remain diligent to buying things that are at a good price. And I'm optimistic that we have not done our last deal.

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

Yes. Thank you for participating. Please remember that our earnings release and webcast of this call will be archived on peoplesbankcorp.com under the Investor Relations section. Thanks for your time. And have a good day.

The conference is now concluded. Everyone, thank you for attending today's presentation. And at this time, you may now disconnect.