Chuck Sulerzyski - President & Chief Executive Officer Ed Sloane - Chief Financial Officer & Treasurer.

Scott Siefers - Sandler O'Neill & Partners Christopher McGratty - Keefe, Bruyette & Woods Rick Weiss - Boenning Pat O'Brien - Fox Asset Management Daniel Cardenas - Raymond James.

Good morning and welcome to the Peoples Bancorp conference call. My name is Keith and I will be your conference facilitator today. Today’s call will cover a discussion of the results of operations for the quarter ended September 30, 2014. Please be advised, 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 this 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 called – detailed rather in Peoples Securities and Exchange Commission filings.

These including but are not limited to best impact and timing of strategic initiatives, successful completion and integration of planned acquisitions, competitive nature of the financial service industry, the interest rate environment, the effect of federal and/or state’s banking, insurance and tax regulations, changes in economic conditions.

Management believes that these 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 that actual results may differ materially from these projections.

Peoples disclaims any responsibility to update these forward-looking statements after this call. Peoples third quarter 2014 earnings release was issued this morning and is available at www.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 www.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 today’s statements. Mr. Sulerzyski, you may begin your conference. .

Thank you Keith. Good morning and thanks for joining us for a review of our third quarter results. It’s been an exciting year for Peoples with the announcement of four bank acquisitions. To-date we have successfully completed the Midwest acquisitions in May and the Ohio Heritage acquisition in August.

North Akron will close this weekend and NB&T is expected to close in the first quarter of 2015. These four banks combined add over $1.1 billion in assets and 34 branches to our company. After all deals are complete, Peoples will exceed $3.2 billion in total assets with 81 branch locations throughout the states of Ohio, West Virginia and Kentucky.

We would discuss these acquisitions in more detail later. First, we begin with a review of the third quarter. Peoples reported net income of $4.2 million or $0.33 per share. This included $1.6 million in acquisition cost, primarily related to Ohio Heritage and $361,000 in pension settlement costs.

Combined, these one time costs reduced earnings per share by $0.10. Earning per share were $0.33 for the linked quarter and $0.23 for the third quarter of 2013. One time cost in the linked quarter and third quarter last year reduced earnings per share by $0.12 and $0.17 respectively.

On a year-to-date basis net income was $12.5 million or $1.08 per share and included $3.2 million in acquisition cost and $1.4 million in pension settlement cost. These one time costs reduced year-to-date earnings per share by $0.26.

Without the one time cost we continued to experience positive operating leverage as revenue grew 17% year-to-date compared to prior year and expenses grew 14%. Pre-provisioned net revenue was $22.9 million or 1.43% of average assets, a steady improvement compared to $18.4 million or 1.29% of average assets for the same period last year.

Cost savings from acquisitions are contributing to our improved efficiency. Combined annual operating cost savings for Midwest and Ohio Commerce acquisitions are estimated at $3.7 million.

As we phase in the recently completed Ohio Heritage acquisition and our two pending deals over the next 12 months, we expect additional annual cost savings of approximately $12 million in the first year following their close.

Continuing our discussion around acquisitions, the Ohio Heritage deal was successfully closed and converted on August 22 and the North Akron transaction will close and convert this weakened. Integration and training efforts are now in full swing with both acquisitions.

We are excited about our new partners and the expanded capabilities we can provide to their market teams and customers. Our post-close integration process is a testament to why banks see Peoples as a good partner. It starts with taking care of our customers and employees.

We provide our new partners with the capabilities and products to go to market and be successful. Our new customers and communities benefit from an increased lending capacity, exceptional system capabilities, a full suite of electronic products and well-established business lines such as insurance and wealth management.

These non-banking business lines work seamlessly with our retail and commercial banking teams to meet our customers’ needs. To update you on the recently announced NB&T acquisition, we are working towards completing all required regulatory filings and approvals.

Our initial timeline called for a close either in the fourth quarter 2014 or the first quarter 2015. It is now likely we will close and convert in the first quarter. Given our busy close and conversion schedules with North Akron this quarter and planning for NB&T in the first quarter, there will be no other bank deals announced this year.

Aside from bank deals, we remain optimistic about acquisition opportunities in our insurance and investment businesses. Growth in these fee-based operations is crucial to our commitment to building the company on a diversified platform of banking, insurance and investments.

Our fee-based income accounted for 38% of total revenue year-to-date and after our pending deals we dropped to approximately 33% of total revenue. Our long-term strategic goal is to maintain a diversified revenue stream with 35% to 40% fee income.

Turning back to financial results, the balance sheet reflected strong organic growth in several areas during the quarter. The loan portfolio grew organically at a 6% annualized rate for the quarter, with most of the growth coming from indirect auto loan production.

Commercial loans were generally flat for the quarter as a result of several large payoffs. These payoffs helped to contribute to the decrease in classified assets for the quarter. For the year the loan portfolio has experienced steady organic growth at an annualized rate of 11%, which exceeded our expected growth rate of 8% to 10%.

The outlook for the remainder of the year and well into next year looks positive as our commercial pipeline continues to build. The pipeline includes over $200 million in new loans of which $49 million are expected to fund in the fourth quarter. Asset quarter continues to trend in a favorable direction.

Non-performing assets dropped to 67 basis points of loans plus OREO at September 30. Loan loss recoveries exceeded loan charge offs by $552,000 for the quarter. This was also the case year-to-date as loan loss recoveries exceeded charge-offs by $280,000.

Our net charge-off rate of three basis points during September 30, 2014 remains well below pre-crisis levels. Deposit balances were up 12% of a linked quarter basis and 18% for the year.

Commercial non-interest bearing checking contributed to most of the increase for the quarter, as a couple of large commercial customers increased balances during the quarter. Non-interest-bearing DDA balances were 27% of total deposits at quarter end, compared to 26% at the end of last year.

We are seeing positive results on our balance sheet from executing our strategy of shifting balances from our oversized securities portfolio into loans. Acquisitions are providing an opportunity to accelerate this effort as we evaluate each deal to either restructure or sell off all or a portion of the acquired securities portfolio.

At September 30 securities assets dropped to 29% compared to 33% at the end of last year. This asset mix strategy has helped to stabilize asset yields in 2014.

Combined with a lower cost of deposits due to strong growth in non-interest bearing DDA, we have seen a steady expansion of the net interest margins starting in mid-2013 to the third quarter this year.

Overall, we are pleased with our third quarter results as our employees are working diligently to balance a strong organic growth strategy with a successful acquisition plan.

The quarter highlights these efforts with a successful close of Ohio Heritage, steady improvement in core earnings, sustained organic loan growth and favorable asset quality trends. Now I will turn the call over to Ed for his comments on the quarter. .

Thanks Chuck. It has been a transformative year for our company. We are executing on our strategic plan and with each passing quarter the positive results are becoming more apparent. As Chuck mentioned earlier, pre-provisioned net revenue excluding one time costs has improved throughout the year.

While this was due in part to cost takeout from acquisitions, just as apparent as the strong revenue growth we have experienced for the last several quarters. One big driver has been a growing net interest margin in the midst of a long sustained low interest rate environment.

Third quarter last year net interest margin was 3.23% and expanded to 3.46% in the third quarter of this year. The margin outperformed our expected range from the quarter in the upper 330s to lower 340s. Loan yields have stabilized year-over-year, while cost of funds declined steadily during this time period.

Accretions from the acquisitions added approximately 12 basis points of the 23 basis point margin expansion. Another key driver of revenue growth has been steady performance within our fee-based businesses. Insurance income grew 15% year-to-date, compared to prior year.

This growth was due to a combination of strong core growth and performance based contingency income, which increased $946,000 compared to last year. Trust and investment income increased 8% and electronic banking income increased 6%.

The only year-over-year decline came from mortgage banking income as refinancing activity continued to lag well below last year. Production levels this year fell 47% from last year. Loan refinancing activity comprised approximately 34% of total production through September of this year, down from 58% for 2013.

We are emerging from acquisitions a more efficient company. Excluding one-time costs, our efficiency ratio has improved to 69.1% year-to-date, compared to 71.1% in the prior year. This efficiency improvement is also evident in our core operations through a strong discipline to control costs and monitor performance at all levels of the organization.

Each of our business lines is contributing to the overall efficiency of the company. While we are becoming a more efficient company, there are some pressure points to deal with this year and beyond. Regulatory costs continue to grow as requirements become more stringent and complex.

Medical costs have also been on an upswing this year due to a rise in claim activity, increasing 40% year-to-date compared to prior year. Costs associated with debit card security breaches are also on the rise. For the third quarter alone these costs approached $200,000.

Turning next to the recently completed Ohio Heritage acquisition, our integration and training teams moved seamlessly from conversion to integration, putting weeks of preparation and training into practice. Our sales teams and customer support staff are well prepared to service customers with minimal interruption.

With each acquisition we further refine and tighten our integration process. These experienced professionals have the capacity to integrate multiple deals during the course of the year.

From a financial perspective, we expect the Ohio Heritage acquisition to be nicely accretive to earnings in the range of $0.12 to $0.14 per share over the next 12 months. Cost savings should approximate 37% and net interest margin should improve five to seven basis points.

Valuation marks on the balance sheet that are closed are preliminary and subject to adjustment over the next several quarters. Total assets of Ohio Heritage at close were $234.9 million. Loans totaled $177.9 million and represented 76% of acquired assets. The loan portfolio was comprised of 34% commercial balances and 66% consumer balances.

The securities portfolio, which totaled $25 million was sold, and a portion of the proceeds reinvested in agency mortgage backed securities. Deposits totaled $175.3 million and were comprised of 18% non-interest bearing DDA and 82% interest bearing deposits.

Ohio Heritage had a balance sheet structure that was fairly neutral to changes in interest rates. On a combined basis there should be minimal impact to Peoples interest rate risk profile. Looking forward to the fourth quarter, we expect continued net interest margin and expansion.

Assuming no significant change in interest rates, we are targeting a net interest margin to be in the upper 340’s. As noted earlier, Ohio Heritage will have a positive impact on margin, as will our pending North Akron acquisition, which is expected to add four to six basis points to margin on an annual basis.

Excluding one-time costs, we expect continued improvement in the efficiency ratio during the fourth quarter towards the low end of our target range of 68% to 70%. A key driver will be cost savings from the Ohio Heritage and North Akron transactions.

Ohio Heritage cost savings will be fully phased in during the fourth quarter and North Akron with an estimated cost savings rate in excess of 40% will be fully phased in starting in the first quarter of 2015. Finally, fourth quarter loan growth should be consistent with the third quarter.

We expect to achieve our annual organic loan growth target of 8% to 10% for 2014. The commercial loan pipeline has produced steady growth throughout the year. Consumer indirect auto production has been exceptional as balances are up 43% so far this year and are expected to continue at this pace through the fourth quarter.

Mortgage production should continue below last year’s production levels, due to a significant drop in refinancing activity. I’ll now turn the call back over to Chuck for his final comments..

We are projecting organic loan growth to be sustained in the range of 5% to 7% throughout the year. Commercial loan growth is anticipated to be in the 6% to 8% range and consumer loan growth in the 3% to 5% range. Mortgage production is expected to be consistent with 2014 levels. Asset quality trends are expected to remain favorable in 2015.

We continue to experience the benefit of strong underwriting standards and a disciplined approach to managing our loan portfolio. This discipline also carries over to our acquired loan portfolios. However, as we finalize our acquisitions, we expect to experience some minor fluctuations in asset quality trends in the upcoming quarters.

Net charge-off trends have been favorable over the last couple of years due to several large commercial loan recoveries. As we have experienced in 2014, gross charge-off rates are becoming more normalized and large recoveries are diminishing.

This trend is expected to continue in 2015 and we are planning for a more normalized net charge off rate of 20 to 30 basis points to average loans. The net interest margin outlook in 2015 is positive. Assuming no adverse movement in interest rates, we are planning to be in the low 350s during the year.

We will continue our mix shift from securities and from loans with the expectation of maintaining the securities portfolio at approximately 25% of total assets. As we move through the second quarter of 2015, most of the noise from the NB&T acquisition should be out with the numbers and cost saving fully based in.

Starting in the third quarter and assuming no one-time cost, we are projecting our efficiency ratio to improve to below 65%. Finally, we expect 2015 to be another busy year of acquisitions. As I indicated earlier, our focus now is around acquisitions in our insurance and investment businesses.

We would be disappointed if we do not announce an insurance or investment deal by early 2015. Also, we are continuing to look at potential bank acquisition opportunities, large and small, throughout our market areas in Ohio, West Virginia and Kentucky.

Overall, we remain committed to profitable growth of the company, in building long-term shareholder value. I am confident we will succeed through disciplined execution of our strategies and providing extraordinary service to our customers and communities. 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 Ed Sloane, Chief Financial Officer. I will now turn the call back to the hands of our call facilitator, Keith. Thank you..

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Scott Siefers with Sandler O'Neill. .

Good morning guys..

Hey Scott..

Hi Scott..

So Chuck, I was hoping you could maybe expand a little on your thoughts on overall loan growth. It sounds like the pipeline should be stronger than what would be indicated by just looking at the organic growth rates for the third quarter, which were impacted by the payoffs, so it sounds like the full year number.

I think last quarter you had sort of suggested you meet or exceed the 8% to 10% number now that sounds maybe just a little soft. I’m wondering, is that just because of the third quarter actual results and then just as you look also to 2015, it looks like a little bit of a slowdown as I anticipated on an organic basis, at least relative to this year.

So maybe we can just kind of expand on all those thoughts and just sort of give us your thinking as you look over the next few quarters..

Sure. For the full year this year we will hit the 8% to 10% loan growth number. The slowdown this quarter was not in the production. The slowdown was really in the payoffs. Frankly, the payoffs as I indicated in the script, for the most part we would go out to see some more questionable credits. So the portfolio quality continues to improve.

Going forward we’ve had probably five, six quarters now of really great production and we’re doing it by taking share away from others. Its not that there’s true demand in the marketplace. As the portfolio begins to grow, we see the production level staying in the neighborhood of where it has been, but the percentage growth slightly tailing off.

We’re no less bullish than we were previously. We obviously don’t have many bad credits left if you look at the credit statistics, so the chances of us getting payoffs from questionable credits is not great going forward. We hope that we provide a level of service and quality to the customers that were not surprised by good customers leaving us. .

Okay, perfect. I appreciate that and then maybe Ed, I was hoping you could give some further thoughts on the margin specifically. I appreciate both your and Chucks thoughts as you look through the next several quarters, but you’ll be still impacted by purchase accounting adjustments for some time.

So maybe if you could direct your comments to kind of what’s going on with the core margin. I think it was down a couple of basis points this quarter and I guess looking forward what are sort of the pressure points you see and then how much additional remix opportunity will you see.

I guess you could still do a little something with the recently closed deals and then you’ve got next year’s close as well.

So how are you looking at the puts and takes as you look at the core margin for the next few quarters?.

I think really on a core basis we see this as relatively flat in terms of what happens to the margin. If I look at the accretion income that we’ve had this year on the acquisitions versus what we are anticipating for next year, its comparable and that doesn’t even include any accretion income from North Akron or NB&T at this point.

So I think if you look at core, that would stay relatively flat and then with the accretion income maybe add a little bit and then obviously some expectation from accretion from NB&T and North Akron. So that’s where we’re able to move the needle somewhat in our margin overall up in the low 350s.

If we see an increase in interest rates like there is an expectation, there could be in the middle of next year, then that could be a 25 basis point movement there, you could add another five to seven basis points in net interest margin. So borrowing that we would expect it to be flat or just up slightly.

Did that answer your question around that?.

Yes it does. I appreciate it Ed. All right, thanks a lot guys. .

Thanks. .

Thank you. Bye. .

Thank you. And the next question comes from Chris McGratty with KBW. .

Hey, good morning guys. .

Doing good.

How about yourself?.

I’m great. Thanks for taking the questions. Just a follow up to Scott, to Chick or Ed, in your asset disclosure – liability disclosed in your Q you screamed (ph) fairly asset sensitive. I was wondering if you can remind me of a couple of things.

One, the proportion of your loans that are fixed versus variable and then again, given the recent flat end of the curve, what part of the curve are you most sanative to?.

Right, I’ll answer that Chris.

Its about 50/50 fixed versus variable in our loan portfolio and in terms of where are we most sensitive, I think if you look at that 10 year and I think if the 10 year flattens out more and lets say drops down below the 2% mark like we saw, at least one point the past several days, then you could start to see a little bit of pressure on the net interest margin.

But truly, if its up above that 2%, then I think as I mentioned to Scott’s question, we would see a rather flat net interest margin without the acquisitions in it. .

Okay, and just (inaudible) your guidance for next year, you kind of, that you provided, does that assume like kind of the consensus moving rates that we get some sort of a move in kind of the middle of the fall..

Just ever so slight. Yes, more or less not. Like I said, we see cores being relatively flat and what would really move the needle is around accretion income, around the acquisitions. .

All right. Just a question on consumer growth, can you remind me of the size of the auto book. Kind of the cycle (ph) of the yields, because it’s obviously getting a lot of attention from the regulators for banks in general. Thanks..

Actually we just had the regulators in here and that went through it and they were very comfortable. The indirect portfolio just went over $100 million earlier this year. Its mainly A and B credits. Our C and D, the volume of C and D purchase really has not changed over time.

It’s really as well kind of a A and B portfolio and I think the average credit score, the average credit score is in the neighborhood of 7-10..

Okay, and kind of where in new deals – it seems like you guys fallen a little back on consumer and your guidance, but what are the new deals that consumer pays for today for auto?.

What are the new deals, the pricing (Cross Talk) in the high 3s after the deal of premium. .

Great. That’s all I got. Thanks a lot guys. .

Thanks Chris. .

Thank you. And the next question comes from Rick Weiss with Boenning..

Hey, good morning. .

Good morning, Rick.

Welcome!.

Thank you. When you are talking about next year, the charge-off rate, I think you said 20 basis points kind of to model.

Will it be fair to match that with provisioning?.

Yes. .

Okay, great. And the second question is with regard to the lending environment, are you seeing more competition this quarter than you were in the past and also I guess is there any more competition on pricing coming from the larger banks. .

No. I mean I think we still see some silliness here and there and I think we walk away from time to time. I mean if any of those large banks really want something at LIBOR plus a schemer, they can have it, but I think we – I think we are pretty comfortable with what we are able to get and how we get it.

But I can’t say that the last quarter got more competitive. I would say that there’s a lot of banks hungry for loans. .

Okay great and then finally I guess, what’s a good tax rate to use for modeling purposes?.

32% is a reasonable rate for the short term. .

Okay, got it. Okay, thank you very much. .

Thank you. .

Thank you. (Operator Instructions). And the next question comes from Pat O'Brien with Fox Asset Management..

Guys, you mentioned a number, revenue growth 7% to 8%.

Is that an organic number?.

Yes..

Okay. I’m calculating. When I look at growth of revenues, I look at growth of revenues per share and I’m calculating 0% growth per share. Do you guys look at that number? That’s the number that matters to me, because I own the stock. .

Yes, we do look at growth in revenue per share and earnings per share. Everything that we are doing is trying to improve the per share performance of the company. .

So am I missing something here? I mean 0% growth means, looks like the acquired guidance, $0.110 on the dollar. .

I’m not following your calculation. .

Pat, if you would like – this is Ed. If you’d like we can talk afterwards when we go through some of the detail. Yes, I mean it’s hard for us to envision what you are looking at versus what we are. So it would probably be best to take that offline. .

Okay. .

But our pre-provision net revenue next year is up quite handsomely. And that would translate. I may agree with Chucks comment. We make the comment in the script, that if you look at pre-provision net revenue as a percentage of assets like an ROA, then you see that up nicely. .

I see that share is up 19%, pre-tax pre-provision up 23% and the way I measure it’s a little bit different for I don’t know why, but….

Another things Pat to point out to you is we completed the capital raise in – I think it was April – I’m sorry, August 4 of this year and that capital raise was done in conjunction with the NB&T. So you have about 1.8 million in additional shares associated with that that. So that might be diluting your numbers a little bit. .

That’s the number, that’s what’s making the calculation look funny. .

Don’t be trying to be giving me a hear attack on my earnings call. Thank you. .

Thank you..

Call me Pat if you have any more questions around that. .

Yes I would like to go through that and how the additional capital figures into the plans. Obviously some of the acquisitions you are making are with cash. So you are eating into excess capital by acquiring. So you have to issue more and you are issuing it faster than you are acquiring.

I mean you have excess capital, which I assume will be taken up by the future acquisitions. .

Well, it’s hard to tell, but we certainly are looking at acquisitions and I think that’s a reasonable assumption. .

Its part of our capital planning strategy. We look at each deal individually to determine how much cash and stock and how that fits into the overall capital structure of the organization. .

Okay, I’ll give you a call later. .

Okay, I appreciate the ownership. .

Okay. .

Thank you. And the next question comes from Daniel Cardenas with Raymond James..

Good morning guys. .

Hi, Dan..

Ed Sloane:.

.

A couple of quick questions here. On the pension settlement charges this quarter, does that kind of finish you guys up or could we expect may be some more somewhere down the future. .

Yes, just from what I know at this point, that should continue to drop-off. It dropped a bit in the third quarter from the activity we had in the first half of the year and that should come down even more from there. Next year should be much, much lighter than what we saw this year. .

And then in terms of integration of the transactions, is that pretty much on schedule with what you are you internally sketched out or a little bit ahead, a little bit lower.

Any color there?.

Yes, its right no line, North Akron going this weekend. As mentioned in the script, NB&T is going to close and convert in the first quarter. Originally we had hopes that we could close it 12/31. That does not look possible at this time. .

And then in terms of the loan guidance you gave for 4Q, when you expect 4Q to look like third Q does that – that’s not including the $37 million or $36 million and the loans that paid of this quarter, correct?.

Not following you. On the loan side….

Yes, in terms of expected loan growth, is that – the number that you are looking or expecting, does that – quarter to quarter is that going to be the same or is it going to actually factor in an additional $36 million in pay-off. .

Yes, we are factoring growth in the fourth quarter and the expectation for the full year is to be in that targeted range of 8% to 10%..

All right, great. Thanks guys. .

Thanks. .

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

Yes. I want to thank everyone 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. .

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