Good morning, and welcome to the Peoples Bancorp Conference Call. My name is Nicole and I will be your conference facilitator today. Today's call will cover a discussion of the results of operations for the quarterly period ended March 31st, 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 successful integration of acquisitions and the expansion of consumer lending activity; the ability to integrate acquisitions, including the manager with ASB Financial Corp.; the competitive nature of the financial services industry, changes in the interest rate environment; uncertainty regarding the nature, timing, cost and effects of federal and/or state banking, insurance and tax regulations; legislative or regulatory changes or actions, changes in policy and other regulatory and legal developments accompanying the current presidential administration, including the recently enacted Tax Cuts and Job Act and uncertainty or speculation pending the enactment of such changes; uncertainties in Peoples' preliminary review of and additional analysis of the impact of the Tax Cuts and Jobs Act and changes in 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 disclaims any responsibility to update these forward-looking statements after this call, except as maybe required by applicable legal requirements. Peoples' first quarter 2018 earnings release was issued this morning and is available at peoplesbancorp.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 15 to 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 peoplesbancorp.com in the Investor Relations section for one year. Participants on 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, Nicole. Good morning. Thank you for joining us for a review of our first quarter 2018 results. Earlier this morning, we reported another quarter of record net income. Our quarterly net income with an $11.7 million or $0.64 per diluted share. This compares to $9 million or $0.49 per diluted share in the fourth quarter of 2017, an $8.8 million or $0.48 per diluted share in the first quarter of 2017. Some of the highlights for the quarter include positive operating leverage with revenue growth of 10% compared to the first quarter of 2017, an expense growth 3%. Pre-provision net revenue to total average assets of 1.81%, an annualized loan growth 8%. There was only one low light in the quarter which was an $827,000 charge off on one acquired commercial loan relationship. We continually focus on growing revenue faster than expenses. The results of this focus have been our ability to generate positive operating leverage ten of the last eleven quarters. Over the last eleven quarters, revenue growth has averaged 12%, while expense growth has averaged 1%. In the last eight quarters, which were those not impacted by an acquisition, revenue growth averaged 6%, while expenses were stable. The revenue growth of 10% for this quarter does reflect two onetime items that John will discuss later. But even if we had not received the benefit of those items, we would have still generated revenue growth of 8% and positive operating leverage of 5%. Total non-interest expense grew 3% compared to the fourth quarter of 2017. The growth was largely attributable to an increase in salaries and employee benefit cost which reflected annual merit increases in higher stock based compensation. Part of the merit increase included an increase in the minimum hourly rate for hourly employees of our…

Thanks Chuck. As Chuck noted, our revenue growth was strong for the quarter as we reported an increase of 10% compared to the first quarter of 2017. Net interest income was up slightly compared to the fourth quarter of 2017. The first quarter net interest income benefited from a growing balance sheet and improving rates with both items being muted by two fewer days in the quarter. The quarter was aided by proceeds of $341,000 that were received on investment security for which we had previously recorded in other than temporary impairment. Net interest income grew 9% compared to the first quarter of 2017. Again, loan growth has provided much of the increase compared to the prior year coupled with the rise in interest rates during 2017. Net interest margin increased 3 basis points to 3.66% during the first quarter of 2017 compared to the fourth quarter of 2017. The proceeds and investment security for which we had previously recorded another temporary impairment added 4 basis points to the net interest margin during the quarter. Additionally, the benefit of tax free securities was reduced due to the tax law changes and had a negative impact on net interest margin of 2 basis points. Compared to the first quarter of 2017, net interest margin expanded 11 basis points, higher investment and loan yields outpaced increases in deposit and short term funding cost. Accretion income from acquisitions which is net of amortization expense declined a $149,000 compared to the fourth quarter and was down 263,000 compared to the first quarter of 2017. Accretion income added 7 basis points to the net interest margin during the first quarter, 8 basis points during the fourth quarter of 2017 and 11 basis points in the first quarter of 2017. Compared to the fourth quarter of…

Thanks, John. We have started off 2018 strong. First quarter included several positives. Our return on average assets was 1.32%. Our return on average stockholder equity was 10.48%. Our return on average tangible stockholder equity was 16.14%. All of which are the highest reported since the first quarter of 2012 when earnings were driven by high levels of loan recoveries. Our pre-provision net revenue to total average asset ratio was 1.81%. This is the best we have performed as it relates to this ratio since the third quarter of 2010. Our loan growth was 8% annualized and our non-performing assets declined to 72 basis points to total loans in OREO. We continue to work hard at improving our core business. We have received as of other banks benefit from the Tax Reform legislation. However, our income before income taxes was up 12% compared to the first quarter of 2012. I believe my dedication has paid off and is evident in our results. This is just the beginning and we are not yet satisfied. While we are pleased with our results, we will continue to maintain our focus and our momentum as we progress throughout 2018. With that in mind, if you note what's around 2018, which exclude the anticipated benefit of the ASB acquisition. We expect point to point loan growth of 5% to 7%. We expect credit costs for the remainder of the year to be elevated from the prior year but well below the provision from the first quarter of 2018. We believe net interest margin will be in the mid-360s, fee-based revenue growth is expected to be between 2% and 4%. We expect non-interest expense growth to be between 2% and 4%, our efficiency ratio will be between 60% and 62% and we anticipate our effective tax…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Scott Siefers of Sandler O'Neill. Please go ahead.

Good morning, guys.

Good morning, Scott.

Chuck or John, you guys bumped up the margin guidance I guess you know sort of mid-single digits range, I think you're 360, I think mid-360s. John, maybe can you just walk through the main puts and takes you see I met and that's all the delta is sort of core margin as opposed to any change in anticipated purchase accounting benefits, but you know is it lower deposit then you would think or if you conversely baked in additional rate increases that you didn't have, you know what are the major nuances in there?

Yes, Scott, I would say there's no changes to the accretion assumptions that we put in there. We did have a slightly higher payouts of some acquired assets in the first quarter drove down that income, but we didn't really play assumptions on that. I'd say from a core perspective, yes we've baked in you know addition, we did not have in our initial guidance a March increase, we only really had one full year, so we baked in, now we got March and we baked in another one. So that's going to help us there. And LIBOR has benefit us as well you know we have a pretty much strong LIBOR based commercial book and that increase in LIBOR has helped as well. So that's kind of how we got there and based on the performance that we had in the first quarter, looking out, we're comfortable with that new guidance.

Okay, perfect. And then I think that's probably just the main driver that slightly improved efficiency ratio right, just a better revenue dynamic and the better margin?

Correct. And we think our core expenses are good. We had the employee stock award, we had HSA contributions, we didn't have really pull it out, it's kind of happens every year, but it's in the earnings release that's another 400,000 plus of expenses as well. And we had a few acquisition cost in the quarter, which you know we don't include there as well.

Yeah. Okay, perfect. And then maybe Chuck just your thoughts on the M&A environment, as you see some banks have, we still alluded to maybe more willing sellers out there you know it's had a little bit of an air pockets in M&A recently. What are your updated thoughts?

What we have been conversations both with banks and non-banks, I can't say it's dramatically more than it has been but it is active. So I'm optimistic that we'll see opportunities in this calendar year.

Okay. Alright, perfect. Thank you guys very much.

Thanks Scott.

Our next question comes from Kevin Reevey of D.A. Davidson. Please go ahead.

Good morning.

Good morning, Kevin.

Chuck or John, I was wondering if you could give us some color on may have a strong commercial loan growth in the quarter, probably the strongest we've seen from at least the banks that I cover?

While we remain optimistic. As I've said in past, most of our business comes from taking clients away from larger national and regional competitors that may not spend the attention on a five, 10, 15 million dollar credit that we do. I mean for us that's the red carpet, the wine bottle and more. So I think that those clients are increasingly ignored and opportunities for us. I'm also optimistic going forward, we think lots of opportunities off of the ASB acquisition and as I mentioned in the script you know $20 million so far and it's the first week. We've obviously been working on for a few weeks. We also see some indication in north eastern parts of Ohio, people making more investments perhaps related to Tax Reform and that's helping the pipeline in that geography you know maybe 10% or 15% of pipeline maybe from extra you know extra investment. So all in all we see it as a good climate and just going to keep trying to roll one quarter after another. I would say we gave loan guidance, we didn't change our loan guidance from 5% to 7%. I would be inclined to increase that, but wanted to see another quarter. I'm optimistic that at a minimum that we can be towards the higher part of that range.

And Chuck, did you see an increase in loan utilization on a linked quarter basis?

Yeah. Give me a second here. We had a little phone logistics here. We're few minutes late to the call, we had to move location, so I am bit of - yeah like utilization was up a little bit 53% at the end of March versus call the 52% at the end of December. So not a whole lot difference but some difference.

And then lastly, in your prepared remarks in the press release, you talked about new pricing it's been implemented in your indirect consumer which was largely responsible for the softness this quarter. Could you give us a little more color on the pricing?

I mean, for me indirect is a math game, you got to keep your risk adjusted margin and as rates and cost of deposit have, funding has increased, we have you know moved the rate accordingly. We've also seen some competitive pressures from banks, one large national player has eliminated the restriction on what it can get back that, what they get back to the dealers and another large regional bank is running in incentive right now and effected by business. And both of those have elected not to follow. So the combination of our pricing and as a combination of a more competitive environment.

Great, thank you.

You're welcome.

Thanks Kevin.

Our next question comes from Michael Perito of KBW. Please go ahead.

Good morning, Mike.

Hey, good morning, guys. How are you?

Okay.

I have few questions, I want to spend a little time just to make sure my head around did to non-interest expense and non-interest income because did seem like as you mentioned in the prepared remarks, there were a few items not necessarily that there weren't recurring or non-core, but maybe you know annually recurring or just unusual items I guess. So I guess starting on the fees, if we think about kind of a starting point off instead 2Q to add ASB fees into the edge around like the $13.1 million range when you account for the normalized insurance revenues, a fair place or is there something major that I'm missing in that range?

Give us a minute again, I'm little out of source.

Yeah, no problem, take your time.

Did you say excluding ASB like or including ASB?

Excluding, yeah. Like a starting point before we layer ASB in.

Yeah, I think that's a reasonable number. Yeah, they'll be a little bit volatility in the equity side, but you're probably to be that to be almost zero like we do, you know as equity securities rev record cost a little bit about volatility. But we're generally seeing good growth in trust and investment income, so still growing. We were at 13.1 in the fourth quarter, I'd probably expect it to be a little bit ahead of that come the second quarter given insurance keep coming at on pace structure and investments growing on decent pace. I consider electronic banking is we're seeing a little few positive signs there. And we're - in between swaps and SBA we've kind of hit our expectations there sometimes one might be up, one might be down, but two of them come together it seems.

And then similarly on the expense side is about somewhere between 27, 28 million kind of a good starting point before we look add in the ASB impact?

Yeah, I'd say we're 28 too right, so you can probably back away hundred and some thousand, 900,000 for kind of the usual items that happen. The stock grant is a onetime event they've happened before but not every year. So it's infrequent and the HSA is basically kind of a spreadable item but we record that in the first quarter when people actually earn that we really don't know what's going to happen there. And we had 149,000-150,000 of acquisition cost. So at a core rate, I'd say you're looking at somewhere below 27.5, so it's somewhere between 27.3 to probably 27.7 so it's kind of core rate I would use an essence. It's all my math.

I do and both those points are helpful. I just want to make sure I had a good starting point. I guess just on the overall competitive dynamics, maybe switching gears a little bit that you're seeing out there, early on in the earning season, we did hear from some larger banks had commercial real estate multifamily competitive, it seems like most of you and your peers in the Ohio area saw some okay growth in the first quarter though, I mean you kind of measured a few things already, but I guess competitively has it intensified it all post-tax reform, Chuck, are you still kind of comfortable with the overall direction of the lending and deposit taking markets that you're operating in?

You know I think we're doing fine. On commercial real estate, we don't, I would say we are highly selective kind of doing business with the best-in-class providers, developers. We seem to be able to do well on C&I, again it goes back to the $5 million, $10 million, $15 million client at key fit there at Huntington, P&C chase U.S. bank is not getting a consistently great experience. At their best, those banks are excellent and had to them, but they are not always at the best, so the client is borrowing $5 million, $10 million, $15 million and we can move the needle doing that and hope to do it all day.

Okay. Great. Well thank you for taking my questions. It's helpful. Appreciated it.

Thank you.

Thanks Mike.

Our next question comes from Scott Beury of Boenning & Scattergood. Please go ahead.

Hey, good morning, guys. I was wondering if you could just provide any color on both the characteristics of the loan or that was charge-off the acquired loans as well as larger credit that drove the increase in criticized assets during the quarter?

Yeah, I'd be glad to do both. First, the charge-off was in the acquired loan in the NB&T acquisition. It was the call wash. Sadly the owner, operator passed away in his late 30's. I will tell you that I mean my 8th year and we have not approved proved a call wash in the time that I have been here. We get him in the acquisitions and unfortunately this one did not have a happy ending. As it relates to the big loan that increased the criticized, it's a hospital, it is a company or an organization that has gone through a conversion of their accounting receivable system and has caused a momentary bleb. We know that they have been profitable in the month of March. I anticipate them be in profitable for the remainder of the year. We anticipate the problem being fixed, but more importantly, they have reduced their expenses significantly to get in line with the lower amounts of receivables that we all believe to be temporary. As I said I do anticipate this credit being upgraded by the end of the year. I would also say that we are now we believe that our criticized classified totals will be at the high point for the year in the first quarter. And while we have almost the minimums amount of NPAs for a bank our size, I suspect we're going to be able to reduce our NPAs in the upcoming quarters. So we're very optimistic from a credit quality standpoint and we think that we can hopefully keep chugging on the commercial loan growth side, we're fine with the slowdown in indirect, we believe with ASB overtime, we see some better mortgage numbers than we have historically experienced. But I would say that we are fine with the credit quality.

Thank you. That's great color, very helpful. I guess just one little follow-up, in terms of the hospital credit, is that multiple loans?

It's two loans.

Okay. So - and it's probably an operating loan as well as a real estate piece?

It's the term loan and the line of credit.

Okay. All right, that's very helpful. All my other questions were actually answered. So thanks. Great quarter, guys.

Thank you.

Our next question comes from Kevin Swanson of Hovde Group. Please go ahead.

Good morning.

Hi, Kevin.

So I appreciate the commentary you kind of make every quarter about the credit cost rightly from historical loans and then the previous commentary on the specific charge-off in criticized loan. I guess more generally in any areas of weakness that you're starting to come up or is it kind of commentary the same as it has been in a past?

No, we feel pretty good right now. We have, I guess I would say that it's been quite a while since I have as so much optimism that we will be able to improve the rating of credits that are criticized over the remainder of the year. Now that being said, there's always something go in the other way that can surprise you. Our delinquency numbers are good. Our credit disciplines are excellent. We are not - we're middle of a fair way lenders. We're not out there on the far end of the risk reward frontier and I'm very optimistic.

I think we showed - just a second, I think we showed our discipline in indirect side outside that we're not going to chase, things we know that business pretty well, we know the margins are inner in that business and you can't be crazy on pricing because you know you are going to have some credit losses in that book.

Okay. I appreciate it. And then, looking at deposit cost, it looks like you guys have been hit the whole line relatively well, can you maybe just talk about the current deposit of competition environment and what you're are seeing in your markets?

You know I think that at these interest rates, I don't think consumers are going to get super excited with the much more pressure on the public fund money and much more movement there. We see rates getting 2%, 3%, you may see more activity. We have done some exploration of some CD specials, we see other competitors doing similar types of things but by and large, it's been relatively tranquil.

Yeah, I mean we're receiving more phone calls from public funds money and corporate side one increases, we've been sure that will do the right thing based on the relationship. If they don't have a strong relationship or they're just looking for more rate on a small interest bearing product, the times will let that go. So we're trying to be disciplined there as well. And as Chuck mentioned, we've had a little bit of success on CD side that's mostly what we're seeing. And we continue to look at our rates, we continue to monitor what's going on in the marketplace. If we did increase anything, it would not be overly substantial. And we're seeing a much decent lift on the asset side. So we think as I mentioned before, we think we can have in the foreseeable future have a decent margin.

Okay. Thanks for your time, I appreciate it.

You're welcome.

[Operator Instructions] Our next question comes from Daniel Cardenas of Raymond James. Please go ahead.

Hey, good morning, guys.

Good morning, Dan.

Hi, Dan.

Just a quick question, you may have mentioned this, I think I missed it. But what were your deposit data this quarter the last rate increase?

As they are here some points not a lot. Total interest bearing deposits about 5% for the quarter, little less.

How about the flip side, one of your asset data it's been looking like here with the rate increases?

The more focus on deposits that I am assets but definitely little higher than that.

Okay, alright. And then just a kind of a quick housekeeping question. In terms of share count, how should we be modelling that for you guys on a go forward basis?

With ASB across, right?

Yes.

About 19.2.

Alright, my other questions have been asked and answered. Thanks guys, good quarter.

Thank you.

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

Yes, I do and thank you for - 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 under the Investor Relations section. Thanks for your time and have a good day.

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