Charles Sulerzyski - CEO, President, Director John Rogers - CFO, EVP, Treasurer.

Brendan Nosal - Sandler O'Neill Michael Perito - KBW Kevin Fitzsimmons - Hovde Group Daniel Cardenas - Raymond James & Associates, Inc. Kevin Reevey - D.A. Davidson & Co..

Welcome to the Peoples Bancorp Inc. 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, 2017. [Operator Instructions].

Please be advised that the commentary in this call will contain projections or other forward-looking statements regarding Peoples' future financial performance or future events. These statements are based on management's current expectations.

The statements in this call which are not historical fact, are forward-looking statements and involve a number of risks and uncertainties detailed in Peoples' Securities and Exchange Commission filings.

These include, but are not limited to, the success, impact and timing of the implementation of Peoples' business strategies, including the successful integration of acquisitions and the expansion of consumer lending activity.

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, changes in policy and other regulatory and legal developments, including uncertainty or speculation about the enactment of changes by the current presidential administration, Peoples' ability to leverage the core banking system upgrade that occurred in the fourth quarter of 2016 without complications or difficulties 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 may be required by applicable legal requirements. Peoples' first quarter 2017 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 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 1 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 the opening statements. Mr.

Sulerzyski, you may begin your conference..

Thank you, Denise. Good morning and thank you for joining us for a review of our first quarter 2017 results. We released our results earlier this morning. We're delighted to have achieved the highest quarterly net income ever reported for our company. We reported net income of $8.8 million or $0.48 per diluted share for the first quarter of 2017.

This compares to net income of $7.4 million in the fourth quarter of 2016 or $0.41 per diluted share. In the first quarter of 2016, net income was $8 million or $0.44 per diluted share. As anticipated, we had no noncore cost during the first quarter of 2017. Many of our asset quality metrics showed improvement during the first quarter of 2017.

Nonperforming loans declined $3.8 million or 15% compared to December 31, 2016, as we received several payoffs on larger relationships during the quarter. Nonperforming loans as a percent of total loans declined to 0.95% compared to 1.13% at December 31, 2016. Classified loans also declined $1.2 million during the first quarter of 2017.

Also during the first quarter, delinquency trends improved as loans past due 30 days or more declined 30% compared to December 31, 2016. At March 31, 2017, approximately 98.6% of our loan portfolio was considered current. We were able to generate 4% annualized loan growth during the first quarter compared to the end of the prior quarter.

Commercial loan growth was 3% annualized during the first quarter, consumer loans grew 6% annualized during the first quarter, with indirect lending providing most of the growth. Compared to March 31, 2016, our period-end loan balances grew 7% which was evenly distributed between commercial and consumer loans.

Provision for loan losses declined slightly during the quarter. The allowance for loan losses at March 31, 2017, was relatively flat compared to December 31, 2016, as loan growth during the quarter was offset by the improvements in nonperforming loans.

The allowance for loan losses as a percent of originated loans, net of deferred fees and cost was 1.05% at March 31, 2017, compared to 1.08% at December 31, 2016. During the first quarter, total fee-based income grew 10% compared to the linked quarter, with most of the increase in insurance income.

This increase was driven by performance-based insurance commissions that are primarily received in the first quarter of each year and is a core component of our insurance income.

The amount we receive fluctuates each year and is based on a combination of factors, such as loss experience of policy sold, production volumes and overall financial performance of the individual insurance carriers. Compared to the first quarter of 2016, total fee-based income increased 2%.

Contributing to this increase was growth in trust and investment income of 13% which was driven by quality core selling of products and additional retirement plans services business, coupled with higher bank-owned life insurance income. Fee-based revenues were 33% of total revenues during the first quarter of 2017.

Compared to 31% in the fourth quarter and 34% in the first quarter of 2016. Total revenue grew 4% compared to both the fourth quarter and the first quarter of 2016.

The increase compared to the fourth quarter was largely due to higher insurance income and net interest income, while the growth compared to the first quarter of 2016 was primarily from increased net interest income. Total noninterest expense was flat compared to the linked quarter and was up 4% compared to the first quarter of 2016.

Although we recorded no noncore costs during the quarter, we experienced higher employee benefit costs than in the fourth quarter which is mostly due to health insurance costs from higher claims, coupled with increased stock-based compensation.

Compared to the first quarter of 2016, salaries and employee benefit costs increased due to higher health insurance costs, stock-based compensation and incentive compensation, with the last 2 being tied to respective corporate incentive plan.

Also contributing to the increase in total noninterest expense compared to the first quarter of 2016, were higher data processing and software costs, while communications in FDIC insurance expense declined.

The efficiency ratio, as reported, declined to 64.9% for the first quarter of 2017 compared to 66.9% for the fourth quarter and was flat compared to the first quarter of 2016.

The efficiency ratio adjusted for noncore items has remained below 65% for the last 6 quarters, while it increased slightly over the first quarter of 2016, because of higher noninterest expenses. At the end of March, we closed 4 full service bank branches.

As we have stated before, we continually evaluate our branch structure in an effort to optimize our efficiency. I will now turn the call over to John to provide additional details around net interest income and margin, fee-based income, income tax expense and balance sheet and capital activities..

Thanks, Chuck. Net interest income grew 1% in the first quarter compared to the linked quarter and was 5% higher than the first quarter of 2016. Net interest margin grew 1 basis point from the linked quarter and 2 basis points compared to the first quarter of 2016.

The recent rise in interest rates has led to a higher funding cost and overnight borrowings which is more immediate impact, while increases in interest rates and our variable rate loans depended upon contractual terms and will be realized over time. In addition, we termed out some overnight borrowings in the first quarter.

This action was taken in anticipation of rising rate environment throughout 2017 and then a slightly negative impact on margin. As we have seen for several quarters, loan growth has had a positive impact on net interest income. This quarter, solid deposit growth assisted us in exceeding our expectations on net interest margin.

Compared to the fourth quarter, average loan balances grew $61 million or 3% and were up $157 million or 7% compared to the first quarter of 2016. Compared to the first quarter of 2016, average interest-bearing deposits excluding certificate of deposits, increased almost $38 million or 3%.

While average noninterest-bearing deposits grew by $48 million or 7%. Accretion income which is net of amortization expense from acquisitions declined during the quarter to $829,000 compared to $874,000 in the fourth quarter and $951,000 in the first quarter of 2016.

The impact of accretion income on net interest margin was relatively consistent compared with prior periods as it added 11 basis points during the first quarter of 2017 and fourth quarter of 2016 and 12 basis points in the first quarter of 2016.

During the first quarter, fee-based income increased 10% and as Chuck mentioned, it was largely due to performance-based insurance commissions. Commercial loan swap fee income also grew during the quarter, more than tripling the amount from the fourth quarter and increasing 63% over the first quarter of 2016.

As we continue to experience commercial loan growth, we see relatively steady demand for commercial loan swaps, based upon the current interest rate environment. The deposits account service charges declined 9% compared to the fourth quarter as overdraft fees are seasonally lower in the first quarter of each year.

Compared to the first quarter of 2016, fee-based income grew 2% and was mostly due to higher bank-owned life insurance, trust in investment and mortgage banking income.

Insurance income declined compared to the first quarter of 2016 due to lower performance-based insurance commissions, coupled with lower property and casualty commissions related to a soft commercial insurance market.

Deposit account service charges, specifically overdraft fees and deposit accounts also decreased compared to the first quarter of 2016. During the first quarter of 2017, we recognized a reduction to income tax expense from approximately $100,000 related to the recent implementation of accounting guidance for stock-based compensation.

Previously, this adjustment would have been recorded in stockholders' equity. During the first quarter of 2017, the effective tax rate was 30.4%. The securities portfolio remains stable at 25% of total assets at March 31, 2017.

The investment securities yield increased 7 basis points compared to the linked quarter and was up 6 basis points compared to the first quarter of 2016 which was primarily driven by rate increases. Period-end core deposits which exclude $462 million of CDs, grew $131 million or 6% compared to December 31, 2016.

The increase was largely due to higher governmental deposits which were up $79 million and noninterest-bearing deposits which grew $51 million. As we mentioned last quarter, we typically see increases in governmental deposits during the first quarter of each year.

Compared to March 31, 2016, core deposits increased 6% or $127 million, mostly due to increases in noninterest-bearing deposits, coupled with higher interest-bearing demand accounts and governmental deposits. Noninterest-bearing deposits continue to comprise 29% of total deposits at March 31, 2017.

During the first quarter of 2017, broker CDs increased $68 million compared to December 31, 2016, short term borrowings decreased $200 million from December 31, 2016, as deposit growth funded loan growth during the first quarter. Our stockholders' equity increased $8 million during the first quarter compared to December 31, 2016.

Most of the increase was attributed to net income, coupled with a slight recovery in the market value of investment securities. Our tangible equity to tangible assets ratio increased to 8.98% at March 31, 2017. This is an 18 basis point increase compared to the fourth quarter and a 10 basis point over the first quarter of 2016.

Our tangible book value per common share grew to $16.28 at March 31, 2017, an increase over $15.89 at December 31, 2016 and $15.39 at March 31, 2016. We continue to maintain regulatory capital levels higher than well-capitalized status.

At March 31, 2017, our common equity Tier 1 capital ratio was 13.05%, our Tier 1 capital ratio was 13.34% and our total risk-based capital ratio was 14.27%. The increase in our capital ratio was compared to December 31, 2016, it was largely due to net income increase in our stockholders' equity, along with relatively stable net risk-weighted assets.

Earlier this morning, we announced our quarterly dividend. The dividend remained at $0.20 per share which is approximately 41.5% of our reported net income for the quarter. As we stated last quarter, our target dividend payout ratio range is 40% to 50% of net income. I will now turn the call back to Chuck for his final comments..

Thanks, John. The first quarter included several positives. Our return on average assets was 1.04% which is the highest reported since the first quarter of 2013, when earnings were driven by high levels of loan recoveries. Our return on average stockholders' equity increased to 8.14%. Our return on average tangible stockholders' equity grew to 12.95%.

Our nonperforming assets declined to 0.98% of total loans in OREO. Total deposits grew 8% compared to December 31, 2016 and the deposit growth in the first quarter helped to improve net interest margins slightly and our tangible book value per common share increased 6% from a year ago to $16.28.

Looking forward to the remainder of 2017, we expect to achieve point-to-point loan growth of 5% to 7%, we continue to expect higher credit cost as we do not expect to continue long term with net charge-off rates of 11 basis points. We believe net interest margin for the year will be relatively stable with the first quarter.

Our fee-based revenue growth is expected to be in the mid-single digits. We plan to generate positive operating leverage for the full year of 2017. We expect second quarter noninterest expense to be below $27 million, with a similar amount being recorded for the last 2 quarters of 2017.

We believe our effective tax rate for 2017 will be around 31% and we're targeting an efficiency ratio of 62% to 64% for the full year of 2017. We're pleased with our first quarter results. However, we know that maintaining the momentum is key. We have the system upgrade behind us and are looking towards the future.

We're pleased with our progress on reducing nonperforming assets in the first quarter and we will continue to focus on this for the remainder of the year. We're still exploring acquisition opportunities as they arise, including bank, insurance and trust and investment prospects.

In the meantime, we're making meaningful progress on improving our business as a whole. 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 will now turn the call back to the hands of our call facilitator. Thank you..

[Operator Instructions]. And your first question will come from Scott Siefers of Sandler O'Neill & Partners..

This is actually Brendan on the line for Scott. So I appreciate the guidance on expenses. Coming in around $27 million in the 2Q and then holding there throughout the remainder of the year. I think, that's a little bit better than we were looking for originally even given this quarter is a little bit higher expenses.

Can you talk about, what is driving the ability to hold the expenses at that level through the remainder of the year?.

Well, we mentioned the branch closings in the script. As probably announced earlier we had the retirements of Dan McGill and we had benefits cost more heavily weighted to the first quarter.

John, what I missed?.

Yes, Brendan, I kind of summarize it as this. We have held savings account contributions that we make in the first quarter doesn't reoccur the rest of the year. So that's about $400,000. Some of our stock gets granted in the first quarter to retirement-eligible employees and that gets expensed upfront. That's a good number.

And we had the retirements, as Chuck mentioned and the branch closures. And when you kind of add all that up it's probably about $700,000 to $800,000 in expenses that should not benefit going forward or should not reoccur in the second quarter and thereafter.

So I think we have the positives of the insurance income, but we also have some onetime expenses that happens in the first quarter as well. So that's how we're looking at expenses as we move forward. And I think the guidance, as I said, we're expecting to be below $27 million for the rest of - for the next quarter..

Fantastic. I appreciate the color there. And then just switching gears a little bit I want to spend a minute on the indirect portfolio. You guys have seen some very nice growth there over the past year or so.

And I was hoping, one, you could remind us of the complexion of that book and then, two, any updated thoughts you have on the credit quality there and then pricing within the indirect book?.

It continues to evolve. We continue to do within the auto sector, the amount of new cars as a percentage is slightly increasing. Within the overall portfolio, it remains about 80% auto, 20% motorcycles, all-terrains and RV. In terms of the credit quality, we continue to see improvement in our credit scores.

Our average score last quarter on what we produced is 738, I will give you the first quarter scores for the last 4 years. In 2014, it was 697. In 2015, it was 709. In 2016, it was 727. In 2017, it was 738. So you continue to see score improvement and I don't know how long that trend will continue. But we're delighted.

Delinquencies are lower this quarter in indirect auto than they were in the first quarter of last year. So we're happy with the credit quality. We're thrilled with the volume. In terms of the pricing, it is competitive. There is no doubt about it. But we remain optimistic that it is going to be - that spreads on it will be increasing.

So overall, we're very happy with the portfolio..

And, Brendan, it's John. We did increase our pricing in the first quarter. We're willing to sacrifice some volume for an increased price. But with the - I think we did quite well in the volume side even though we did increase our pricing. And we will continue to look at that as we move forward..

The next question will come from Michael Perito of KBW..

A quick question on the insurance line.

Do you guys have the dollar amount of the performance income this quarter and then in the first quarter of last year?.

Yes, if you give us a second. We can - we can come up with that..

And then any - maybe in the meantime, Chuck, any thoughts on - I think in the prepared remarks, you mentioned that the insurance market is still a little slower than normal. I guess, any kind of outlook.

I know you guys give the overall noninterest income guidance, but specific to the insurance outlook, any updated thoughts on what you think you can accomplish over the remainder of the year?.

Yes, first on the first part of your question. This year, it was $1.3 million in contingent, last year it was $1.6 million in contingent. And the fact is that half of that erosion have to do with claims, primarily driven by claims against some of the accounts that we have.

Our business is about 2/3 commercial, the other third is personal insurance and benefits. The personal insurance and the benefits business is doing well and increasing, the commercial is under pressure. We see flattening to decreasing of premiums continuing.

I hate to say it, but it kind of makes you root for hurricane, that's what will drive the carriers to firm up prices and the increase price is some catastrophic losses and if you follow that business for a period of time, you generally have longer cycles. So that will turn at some point in time. We remain optimistic on the business.

We see great opportunities in terms of cross-selling into our commercial portfolio from insurance and from commercial banking into insurance.

So we like this and as we get towards the end of the cycle, I - the credit cycle, I remain optimistic that this product line and our fee income basis will be a strong protector during any potential downturn that may be around the corner..

So, I mean, is it fair to say that when you think about the mid-single digits growth rates for noninterest income, it seems like you're talking about probably it would be driven mainly by the trust and electronic banking.

Is that fair? Is that where you're seeing the momentum that supports that or is there anything else that I'm missing?.

No. I think that's fair. Swaps is a big piece of it. Swaps are going good this year, we expect that to continue..

Okay.

And then in terms of the loan growth, any updates on kind of - on the commercial side of things? What kind of pipelines in demand you are seeing? Line utilization, anything along those lines in your markets?.

Line utilization is about 6% less this year than it was last year. The loan demand remains soft. It has been soft the last few years. We've grown loan 6%, 7%, 8% in that environment, we expect to be able to continue that. Pipeline and anticipated fundings are in sync with the guidance that we've given in terms of total loan growth of 5% to 7%.

It is - we're not seeing a great deal of demand for capital from businesses. We're seeing more real estate and we've kind of become a hair more cautious on real estate. We continue to grow our book by taking business away from primarily larger regional institutions..

Okay. And then just 1 last one from me for now. On the kind of on the overall size of the balance sheet, you mentioned securities are at 25% of assets which, I think longer term was kind of your target range that you guys were looking for.

You had a nice deposit growth quarter obviously, any thoughts on kind of the size of the investment portfolio going forward, John and how guys are thinking about that as the year unfolds?.

Yes, I think if we continue to see loan growth at the high end of our range, you might see some shrinkage a little bit down in the investment, brought down to probably 24%. If we stay near the low end our range on the loans, we'd probably stick around this 25% number. So the more we grow loans we're willing to shrink the investment book some..

Okay. So you guys are, I mean, that 25% kind of longer term target obviously.

That was, I think, Chuck, it was few years back, when that number was really being discussed but it sounds like you guys are comfortable bringing it down below that at this point?.

Yes. I mean, when we set that number of 25%, I think at the time that we set it we were up around 40%..

Yes, it was few years back. Yes..

In the high 30s. So if we can keep growing loans, we'll keep whittling it away over time..

Yes, aspirationally, I think that we had a good solid loan growth and continue that, we probably would prefer to be in the lower end of the 20s..

The next question will come from Kevin Fitzsimmons of Hovde Group..

I have just a few questions. On the insurance topic, given that, I guess, we saw a little bit of a softer seasonal balance this quarter than we might have thought. Should we still expect the same kind of seasonal decline next quarter, I think last - a year ago, it was about 25%.

Like, should we make any revision to our thoughts about that for going into the second quarter?.

When you say 25%, you comment in particular, on the insurance revenue or?.

Right. Just specific on insurance. I think it was down linked quarter, in second quarter of a year ago, about 25% somewhere around that....

Yes, I mean, the $1.3 million of contingent does not repeat. So that will be - that will be gone. But if you look at last year, at the bank level, we were - revenue between Q1 and Q2 went down $150,000. So we had some things that mitigated that decrease in fee income and in insurance..

Got it. Okay. Can I just ask a question on the - I know there was a question earlier on indirect and the growth rate. And I know for a few calls in a row, I think, Chuck, you've said that you don't expect that kind of growth to continue.

But it's not going to be about you guys doing anything differently, it's just going to be just about law of large numbers, as it gets bigger it's harder to grow.

But with this kind of rate, is it more than it is just that healthy or maybe other to the portfolio on growing like you might have thought a year ago or so when you were talking about that growth in the indirect slowing?.

Well, eventually the rate of growth will slow down. just because the denominator will continue to get bigger. But we continue to originate more loans each month. Part of it is, we don't do indirect lending over our total footprint. So we're getting in some more dealers. We also are optimistic.

We're expanding an initiative into more dealer-financed opportunities, floor plan lending, we've been able to pick up very - the president of a - person who ran that for a large regional bank and that may help our indirect business too. but I wouldn't sit and tell you that we're going to grow 54% year-over-year, on the other - consistently over time.

But it's not going to get down to normal growth, single digits anytime soon. We're going to keep growing at a nice clip. And as long as we can do it, make money and get a fair rate, a little bit of it is - we're lucky in that, what are people buying? They're buying big trucks and SUVs and our footprint is overwhelmingly trucks and SUVs.

Sedans are relatively unpopular. And we've been the beneficiary of that. And that will continue especially with the gas prices being relatively low..

Got it. That's great color. And then just 1 last one, if I could slip it in on the margin. I appreciate the outlook on that being stable over the course of the year.

Can you guys just drill down a bit into some of the components? I would assume that you refer to in the prepared comments about the benefit of fed hikes taking time to really work through the balance sheet and get into the income statement so I think that's one, one positive tailwind you have.

Accretion income, I would suspect is going to slow very gradually over next several quarters, you mentioned deposit price competition being likely.

And then, I guess, on just of the short term basis, the average earning asset mix, if those public fund deposits come in next quarters, does that make the earning asset mix a little less favorable versus this quarter and maybe a little bit of a headwind on the margin? I know that's a lot, but just to....

No, I think you're pretty much summed it up good. I mean, I think the accretion income will slow. It's been dropping anywhere probably from $50,000 to $100,000 a quarter. But it's been hanging in there, I think as we get near the end the shrinkage will slow down a little bit. I think you're right, some of the public funds will go away.

We'll have more days as we go out, right, first quarter is short on days compared to the rest. But we will continue to work on deposit growth and other areas. I mean, we a see a good influx of tax money this quarter too a little bit. So I think net-net, yes, we probably incur a little bit more on the wholesale borrowing side going forward.

But I think, we'll continue to see loan growth, et cetera and then hopefully maintain some of this - the margin pretty close to where it's at. And we'll see additional loan reprice as you said, about 2/3, 70% of our book reprices within a given month and other ones take a little bit longer to reprice on the commercial loan side.

So we'll continue to see some benefit of those in the quarters to come..

[Operator Instructions]. Your next question will come from Daniel Cardenas of Raymond James..

Just a couple of quick questions.

Could you maybe give us a little bit of color as to what impact, if any, paydowns and payoffs had on loan growth this quarter?.

Really nothing out of the usual.

I mean, we got some of the criticized loans to pay off, that may be a little bit unusual in terms of the amount of those, but it's a single-digit of millions of dollars, more than normal, that would be - I thought - we had mentioned a loan that was refrigerator supply - excuse me, a refrigeration, a food refrigeration storage facility, that was challenged and that paid us off, that was in the neighborhood of $15 million, but kind of other than that nothing..

I think we got 1 commercial real estate loan payoff in January that was expected. I think that was close to $10 million. But those always - there's always 1 or 2 of those a quarter that kind of comes due and goes permanent, but we have draws, et cetera, on the other one, so kind of normal business there..

All right. Kind of business as usual on that side. And then John, I think you mentioned that you increased your pricing on the indirect portfolio.

Was that kind of a late quarter event? Or did you guys do that earlier in the quarter?.

It was probably a mid quarter timeframe. I would say February, I believe sometime in there..

Right, okay and then--.

We'll keep looking at it..

Perfect. Okay. And then looking at your deposits, we saw some growth in the broker deposits.

Was that due to a reclassification or was that just broker deposits - just straight broker deposit growth?.

Some of it was reclass. It was generally CDARS that we've been buying. And we bought a few more this quarter. So when we looked at the numbers, we said, "Boy! We probably should take those out of retail and put them in brokers." But they're not very long term in nature, most of them mature in '17, '18.

We're kind of just leaning into the curve a little bit here as we expected overnight borrowings to increase. So that was kind of our strategy there..

Okay. And then jumping over quickly to the income statement.

Your FDIC insurance expense increased linked quarter, was that really related to deposit growth or what was the driver there?.

Yes, we had a true-up in the fourth quarter, given the new rates that came out. So we were kind of lower there than normal, so we've kind of just gone back up to the new level now. So I would kind of use that as you go forward..

And then some other question on the amortization expense saw a fairly significant drop on a percentage basis.

Is that kind of the new run rate for you guys on your amortization of intangibles?.

That's correct. As we kind of turn the quarter, the CDI drops and a new year. So that'll - that should be pretty consistent throughout the rest of the year..

The next question will come from Kevin Reevey of D.A. Davidson..

So going back to your last comment on the percentage of your loan portfolio, the reprices, did you say 70% reprices in a month, I just want to make sure I heard that correctly?.

70% reprices and it was in the first month. The commercial side. The commercial loan side..

Right, the commercial side, that's what I thought.

And then as far as the loan growth from a geographic standpoint, was most of the growth then coming from Marietta or was it spread out between Marietta and Wilmington and some of your other markets?.

Generally, relatively evenly spread. A little higher in Northeast Ohio, a little lower in Southwest Ohio, but still generally evenly..

And then on the commercial real estate as a percent of total risk-based capital, where does that number stand at the end of the first quarter?.

It's less than 200%..

Okay..

It wouldn't think it's dramatically different than prior quarters..

Okay.

And then on the brokered CD side, it looks like your yields declined about 13 basis points sequentially, even though it will - even though rates were increasing in the market, can you kind of talk about what was going there, did you shorten the duration there?.

Yes, I mean, as I stated earlier, what we did recently was leaned into the curve a little bit and got some shorter-duration later '17, '18 maturity type stuff. So we came with lower rate so that dropped the yield. The overall rate pay down on that book..

The next question will be a follow-up from Michael Perito of KBW..

Just one quick last question for Chuck. Just on the M&A side. Just curious if you can maybe give us all some updated thoughts, I mean, it's been a little over 2 years, I think, you guys closed NB&T.

And I think in that couple of years, I think couple of your local competitors seem to be a little bit more vocal participating in M&A on the small and mid-cap side.

Just curious on what you're seeing competitively and sizing up the opportunity that's out there for you?.

Well, we continue to have conversations, I think banks that don't have a public currency or heavily traded currency are smarting from missing the run-up over the last 5 or 6 months, so I think they may be more open to doing something.

But I think that there may be more optimism today in smaller banks that they may be able to have a better chance of keep going. So I would say that - at other times, I've had more opportunities than I do today, but I do have opportunities, I do think that I would be disappointed if we don't announce something in this calendar year.

But if we don't, I will get over it, as long as we keep putting up earnings, improving the run rate of the bank, that's okay too. So we could be happy either way..

The next question will be a follow-up from Daniel Cardenas of Raymond James..

Just quickly on your branch rationalization efforts.

Were you pretty much done in Q1 or could we expect to see perhaps 1 or 2 more branches get consolidated here in the future?.

We continue to look at it. Our branches on average are smaller than the average bank branches. Clients continue to move to electronic capabilities. So I think that it's likely that over time, we'll continue to refine our network. Does that mean we're going to do something in 2017? Maybe, maybe not. Again, we want to digest the changes that we just made.

We closed some in the back half of last year. So we continue to look at it. And if there are opportunities, we'll take it..

Okay. And then last question, as I look at your capital base you're at about a 9% TCE ratio right now.

Is that kind of optimally where you'd like to operate or do you think that number could potentially come down over time?.

I think that's kind of where we'd like to stay at definitely. If we were doing acquisition, we might be okay with temporarily going below that, but I think generally that's kind of where we'd like to operate at..

And at this time, there are no further questions.

Sir, do you have any closing remarks?.

Yes. 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. As a reminder, our Annual Meeting of Shareholders will be held on Thursday, April 27, in Marietta, Ohio. Thanks for your time and have a good day..

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines..