Q3 2021 Peoples Bancorp Inc Earnings Call
Good morning, everyone and welcome to Peoples Bancorp, Inc Conference call.
My name is Jamie and I will be your conference facilitator.
Today's call will cover a discussion of the results of operations for the quarterly period and nine months ended September 30th 2021.
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, she would like to ask a question. During this time.
Simply press Star and one on your telephone keypad and questions will be taken in the order in which they are received.
But he would like to withdraw your question you May press Star two.
Please also note today's event is being recorded.
Do object to the recording.
Please note that you may disconnect at this time.
Please be advised that the commentary in this call will contain projections and other forward looking statements regarding peoples' future financial performance or future events.
These statements are based on management's current expectations.
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.
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.
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.
People with third quarter 2021 earnings release was issued this morning and is available at peoples Bancorp Dot com under Investor Relations.
A reconciliation of the non generally accepted accounting principles or 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 a question and answer period, which I will facilitate.
An archived webcast of this call will be available at peoples Bancorp Dot com in the Investor Relations section for one year.
Participants on today's call will be Chuck solar Soliris ski President and Chief Executive Officer, and Katie Bailey, Chief Financial Officer and Treasurer.
And each will be available for questions following opening statements.
Mr. Fuller risky you may begin your conference. Thank.
Thank you Jamie good morning, everyone. Thank you for joining us.
We are delighted to have officially closed our merger with Premier Financial Bancorp, Inc.
Timber 17th 2021, and welcome their associates and clients to our organization.
We have successfully converted all system with minimal customer impact all of our team members, who worked hard to accomplish a smooth conversion.
We are excited about the opportunities the acquisition has created for us and our ability to execute on our strength of interactions between lines of business.
At this point, we have already had customers within the Premier footprint, we had worked with our insurance and wealth management groups and are now able to move their banking from other institutions to people with our expanded network of banking locations.
We have also engaged wealth management and insurance talent to help facilitate the open lines of communication between the new office locations.
For the third quarter, we had several highlights I would like to mention including.
Premium finance and leasing division, both had over 60% annualized growth in loan and lease balances compared to the linked quarter.
Our net interest margin was positively impacted by the leasing division during the quarter, while we maintained our focus on controlling funding cost.
I am enthusiastic about our fee businesses as we have had great growth. This year in trust and investment income up 22% and insurance income of 9% compared to 2020.
We had a nice surprise as our deposit account service charges recovered this quarter and were up 25% compared to the linked quarter.
Our fee based income from our leasing Division has also been a wonderful addition, adding $716000 year to date.
We continue to have growth in our total revenue, which increased at an annualized rate of 26% compared to the linked quarter.
Loan to deposit ratio declined to 77% at September 30th.
And our regulatory capital level ratios improved compared to the linked quarter end, which had been negatively impacted by the acquisition of Northstar leasing earlier this year, which was an all cash deal.
The common equity tier one ratio improved 72 basis points to 12, 1% and.
Our total risk based capital ratio improved to 84 basis points to 13, 6% compared to June 30.
Moving on to our financial performance, we reported a net loss of $5 8 million or <unk> 28 per diluted share for the third quarter, we had anticipated reduced earnings due to the acquisition related cost incurred.
As well as the provision for credit losses needed to establish the allowance for the acquired loans.
For the first nine months of 2021 earnings per diluted share with 99 cents compared to 72020.
We had several one time items during the quarter, which were primarily acquisition related costs, which totaled $16 5 million for the quarter and $28 million year to date. These.
These cost impacted diluted earnings per share by 62 for the third quarter and by 81% and by 81 cents per share for the first nine months of the year.
We recognized onetime expenses of $1 9 million for professional services related to our renegotiation of our core processing and digital banking contracts, which will provide us cost savings over the next several years.
These costs reduced EPS by <unk> <unk> for the quarter.
During the third quarter, we recognized an additional $425000 of other non interest expense as our projections for the leasing division indicated that production would exceed our original expectations, leading to potentially higher subsequent earn out payments related to the acquisition.
I would like to add more color around our increased provision for credit losses for the quarter.
The acquired loans had a significant impact driving the increase in our allowance for credit losses during the third quarter.
At the acquisition date, the purchased credit deteriorated loans that we acquired contributed $22 $3 million to the allowance for credit losses.
Which was not a part of our provision for credit losses as they are part of the acquisition accounting.
As a result of the Premier acquisition, we recorded $11 million of provision for credit losses to establish the allowance for credit losses for the acquired non purchased credit deteriorated loans.
The remainder of the change in provision for credit losses was a reduction and was mostly attributed attributable to continued improvement in economic loss factors and loss drivers utilized within the <unk> model.
As far as the PPP lending, we continue to be in the forefront and we will and are well ahead of most and receiving forgiveness proceeds.
We anticipate that we will have received 90% of the PPP income by the ended the year with little remaining to be recognized next year.
Our credit quality metrics remained stable post acquisition.
The current portion of the loan portfolio stood at 98, 9% down slightly from 99, 1% at June 30.
Our quarterly annualized net charge off rate grew to 18 basis points. This the increase in charge offs was driven by a half million dollar charge off of one commercial and industrial loan relationship coupled with higher indirect consumer loan charge offs.
Our nonperforming assets nearly doubled compared to the linked quarter and with the increase being driven by the Premier acquisition.
<unk> had a much higher other real estate owned balance at around $11 million compared to a few hundred thousand dollars for people to storage late <unk>.
Most of the increase in nonperforming loans within the non accrual category, which increased $13 million due to acquired loans.
Our loans, our allowance for credit losses as a percent of total loans grew 30 basis points compared to the linked quarter end.
And was driven by the accounting for the acquired loan portfolio.
Moving on our total loan portfolio grew by 33% compared to the linked quarter and was driven by the Premier acquisition.
At September 30 acquired loans totaled $1 1 billion.
We had an exceptional quarter with respect to our new premium finance and leasing division.
The premium finance division added nearly $18 million in loans during the quarter equating to 60% annualized growth compared to the linked quarter and at the same time, our leasing division added almost $16 million in leases was 66% annualized growth compared to the linked quarter end.
And.
We have been pleased with the production results and total loan quality of these two new lending areas and have the ability and focus to continue to allow them to grow in the future quarters.
If you exclude the acquired loans and PPP loans, our loan growth was 6% annualized compared to the linked quarter end.
Our commercial and industrial balances grew nearly $14 million, while our construction loans increased almost $10 million.
Our PPP loans now stand at about $135 million, which includes acquired PPP loans.
Have received forgiveness on over 80% of the PPP loans, we had originated excluding the acquired loans another bright spot for the quarter was our line of credit utilization rates increased resulting in about $10 million of higher commercial line of credit outstanding balances at September.
Remember 30 compared to June 30th.
Half of the increase in balances was in advance we anticipate will be repaid by year end.
We have finally seen recent utilization rates start to recover after the bottom bottoming out during the first quarter of the year I will now turn the call over to Katy for additional details around our financial performance and the acquisition.
Thank you track our net interest income continued to improve in the third quarter, increasing 7% compared to the linked quarter and 21% over the prior year quarter.
At the same time, our net interest margin expanded by five basis points and 36 basis points respectively.
Contributing to the increases over the linked quarter, where higher loan yield mostly due to the leases and premium finance loans.
A continued decline in deposit costs, which decreased three basis points also positive positively impacted net interest margin compared to the linked quarter.
Compared to the prior year quarter, the leading cause of the higher net interest margin was the positive impact from our new lease portfolio, which had a yield of 19, 4% for the quarter.
We have had strong control over our funding cost, which declined 13 basis points compared to the third quarter of 2020.
During the quarter, we recognized $3 $1 million of income related to deferred fees and costs on the PPP loans compared to $3 4 million for the linked quarter.
In total PPP income added 18 basis points to net interest margin for the quarter compared to 15 basis points for the linked quarter.
Compared to the first nine months of 2020, our net interest income grew 13% and our net interest margin increased 14 basis points.
Again, these improvements were driven by our leases and premium finance loans benefiting loan yields while we worked hard to reduce our deposit cost.
E P P deferred fee and cost income totaled $11 $2 million for the first nine months of 2021 compared to $3 8 million during 2020.
For the quarter, our reported efficiency ratio grew mostly due to the noncore items, which were significant during the third quarter as Chuck previously mentioned.
When adjusted for noncore items, our adjusted efficiency ratio was 63, 9%, which is flat compared to the linked quarter.
On a year to date basis, our adjusted efficiency ratio was 64, 3% and 62, 4% for 2020.
Our fee based income, which is noninterest income excluding gains and losses grew 4% compared to the linked quarter. Our deposit account service charges had a substantial increase and were up 25% or $505000, which was driven by higher customer activity associated with overdraft and insufficient funds fees.
Our leasing division also had significant growth during the quarter and generated a 50% increase in their fee based income.
Compared to the prior year quarter fee based income was up slightly.
Had considerable growth in trust and investment income, which was up 21%.
Led by higher electronic banking income and deposit account service charges.
These increases were nearly offset by lower mortgage banking income, which declined 71% after the high refinance and purchase volume during 2020, which has diminished in recent quarters.
For the first nine months of 2021 fee based income grew 7% and was led by a 22% increase in trust and investment income.
Also contributing to the growth was higher electronic banking income, which was up 20% while insurance income increased 9% compared to the prior year.
The leasing division also provided $716000 of fee based income for the six months post acquisition.
These increases were partially offset by lower mortgage banking income and commercial loan swap fees, coupled with decline in deposit account service charges.
For the expense side.
Total noninterest expense was up 45% from the linked quarter.
Third quarter included a non included noncore expenses of $18 $4 million, which were mostly related to the premier acquisition and vendor contract negotiation expenses and drove much of the increase.
Our FDIC insurance expense increased $481000 compared to the linked quarter. This.
This increase was associated with our lower leverage ratio for the second quarter of 2021, which is part which is a part of the FDIC insurance calculation.
We anticipate this increase to be temporary as our leverage ratio recovered during the third quarter.
The remainder of the increase in our non interest expenses compared to the linked quarter was driven by the additional operating costs of the expanded footprint. Following the premier acquisition, along with the additional $425000 of expense in connection with the increased production estimates for the leasing business.
Driving a higher anticipated earn out payment.
Compared to the prior year quarter total noninterest expense grew 69% and again was heavily impacted by noncore expenses associated with the Premier acquisition.
Also contributing to the overall increase was higher amortization of intangible assets associated with other recent acquisitions, along with increased data processing and software costs.
We have continued operating costs.
The continued operating cost of the recently acquired businesses, which have also increased our total noninterest expense by nearly $3 million over the prior year quarter.
Higher salaries and employee benefit costs, along with increased marketing expenses also impacted total noninterest expense compared to the third quarter of 2020.
For the first nine months of 2021 total noninterest expense grew 35% as I mentioned the tone on the noncore expenses were much higher this year, along with continued operating cost of the acquired businesses.
Our amortization of intangibles continues to grow as we complete acquisition and our data processing and software costs have increased compared to the last year.
Salaries and employee benefit costs continue to add to the overall increase it as we have worked towards increasing our corporate minimum wage along with implementing higher 401, K matches, well, we also recognized higher medical costs and incentive costs associated with the increased production.
Our FDIC insurance expense grew $879000 compared to the first nine months of 2020 as our assets continue to grow coupled with a lower leverage ratio during the second quarter of 2021 further impacting this calculation.
During early 2020, we utilized credits related to the to our FDIC insurance, which lowered our expense for first nine months of 2020.
We view the increased costs that we have incurred in recent periods as part of the necessary process to grow our business.
While these costs are high they are one time and help us to position ourselves to provide great greater shareholder return in future.
Our overall balance sheet grew nearly $2 billion from June 30.
At the end of the Premier acquisition.
The investment portfolio grew by nearly 50% from the linked quarter end, which was due to the acquired investments.
At the end of September our investments to total assets ratio was 22%.
Our investment portfolio is a little higher than we would like it to be which is due to our excess liquidity in the premier acquisition.
We anticipate that as loan growth materializes and our line of credit utilization rates increase we should be able to decrease the size of our investment portfolio relative to total assets over time.
The acquisition accounting for Premier is preliminary at September 30th.
The overall impact of the Premier acquisition included total assets acquired of over $2 billion liabilities assumed of $1 8 billion core.
Intangibles of $4 $2 million and goodwill of around $71 million.
Our total deposits at quarter end included acquired balances of $1 8 billion, we had some runoff in our organic deposits, which had we had anticipated as deposit balances from customers had been inflated due to the pandemic coupled with reductions in our brokered CD balances.
At the end of the third quarter. We also had higher governmental deposits, which is a seasonal increase and we anticipate much of that running off during the fourth quarter.
With the acquired deposit balances our demand deposits as a percent of total deposits grew to 46% up.
From 45% at the linked quarter end.
Our capital ratios improved compared to the linked quarter end, mostly due to the premier acquisition.
The acquisition of the North Star leasing business had a negative impact on our capital ratios during the year as it was an all cash deal, but our ratios improved upon completion of the Premier acquisition.
The non core items during the third quarter also had a negative impact on our ratios as we recorded a net loss, but we anticipate future quarters to continue to improve our ratios as we move away from the costs associated with the Premier acquisition.
Our common equity tier one capital ratio improved 72 basis points to 12, 1%. Our total risk based capital ratio increased 84 basis points to 13, 6% and our leverage ratio grew 11 grew to 11% at quarter end.
At September 30, our leverage ratio was inflated due to the partial quarter impact of the premier assets on our average assets and we anticipate the full quarter impact during the fourth quarter will cause the ratio to decline.
Our tangible book value per share also grew 3% compared to June 30th and was $18 98 at quarter end.
I will now turn the call back to Chuck for his final comments.
Thank you Katie moving forward to 2022, we are enthusiastically embracing our business model, which has proven to be effective our team is top notch and we will look to continue to grow and expand our brand across our new footprint.
We will work hard to ensure that each client is taking care of our respected and heard we separate ourselves from the competition by doing the right thing and doing what we say we will do this resonates within the communities, we serve and distinguishes our services from others.
We believe that 2022 was separate the winners from the losers. We continue to wrecking, we continued to be recognized not only in local communities, but also by nationally distinguished publications I mentioned last quarter that we were recognized by Forbes as a best in state Bank in both states of Ohio, and West Virginia.
The smallest of the 16 banks in the country to be recognized in two or more states. This year.
Strive to execute effectively which is evidenced in our results.
I'd like to circle back on some of the highlights for the quarter, which include phenomenal performance by our premium finance and leasing division.
Accessible closing of the Premier acquisition, which could not have been possible without dedicated effort by everyone involved overall.
Overall growth in our fee based businesses, which continue to contribute to our revenue growth and the persistence of our lending teams, who have worked hard to obtain forgiveness of our PPP loans.
For the remainder of 2021, we have a few thoughts on our performance and anticipate fourth quarter noninterest expenses, excluding noncore expenses will range somewhere between 46 and $48 million.
We expect net interest margin will grow and settle between three 5% and three 6% for the fourth quarter.
We believe fee based income will increase between 3% to 5% for the fourth quarter, and we anticipate loan growth of 4% to 6% annualized for the fourth quarter.
Also looking forward to 2022 here with some early guidance as we see it now excluding noncore items.
Loan growth of between 5% to 7%, excluding PPP loans as.
Stabilization in credit cost as the economy potentially comes out of the pandemic.
Net interest margin of between 355% and 375%.
Fee based income growth between 14, and 16% compared to 2021.
Our quarterly total noninterest expense between 46 and $48 million.
And then the efficiency ratio in the high Fifty's.
We're excited about the execution the connections with our clients. Our teams have made during 2021 and plan to look forward to an even better 2022.
This concludes our commentary and we will open the call for questions. Once again. This is Chuck <unk> and joining me for the Q&A session is Katie Bailey Chief Financial Officer, I will now turn the call back into the hands of our call facilitator. Thank you.
Ladies and gentlemen at this time well begin the question and answer session.
To ask a question you May press Star and then one on your Touchtone telephone.
If you are using a speaker phone, we do ask that you. Please pick up the handset before pressing the keys.
So it's all your questions you May press star two.
Once again that is star and then one to join the question queue.
We will pause momentarily to assemble the roster.
Our first question today comes from Scott <unk> from Piper Sandler. Please go ahead with your question.
Good morning, guys. Thanks for taking the question Hey, Scott.
I wanted to ask just about the some of the credit metrics on a reported basis, obviously quite a bit of noise due to layering in premier, but just on that reported deterioration just wanted to sort of make sure you're still comfortable with the credit quality of what you purchased.
Sort of estimate the MTA as they would have been improved were it not for premier So would be curious to hear your thoughts on underlying quality and then the final question on that is how do you see those higher levels of non accruals and Oreo balances kind of getting resolved over time.
I think the credit came in right, where we thought it was very consistent with our mark so very much in line with what we thought.
I am very comfortable and very confident that we'll be able to knock those numbers more in line with our historic performance.
And I don't think it will take us a long time to do that.
Okay.
Alright, perfect and then maybe just given all the noise that we've had this year between the.
The leasing transaction.
Now letting in premier.
Maybe a thought on where sort of the steady state.
<unk> kind of flushes out.
I think everybody is sort of using as a bogey. The seasonal day. One you guys have had a lot more M&A activity than most since that was established so would be curious to hear your thoughts on where the reserve flushes out.
Well I think you tell us what the.
What the GDP forecast are in the unemployment forecast and I could probably give you a little better answer I think as we improve the.
The credit the reserves will come down.
<unk>.
I think we have some opportunity there.
Okay, Yeah, and I would just add I mean, I think see airplane.
It is elevated at 930, and you saw that jump from 638% to 930 because of the Premier acquisition.
Really familiar with PCB loans, and the Mark there going through the allowance so as we work through those.
As the economy continues to improve I think we could get back closer to on a coverage ratio percentage to where we were upon adoption, but it will take time to work through the credit.
Yes, just so I'm kind of on the same page I mean that that was you.
Reserve.
Post diesel of about a percent right.
So there'll be quite a quite a gap between the 172, where you are now and where it could go down to is that the right way to look at it.
Yes.
Okay perfect Alright, Thank you guys very much.
Thanks Scott.
Our next question comes from Steve Moss from B Riley. Please go ahead with your question.
Good morning, Chuck and Katy This is Steve associate sitting in for him quick question. It seems like the pipeline is looking strong mid single digits here.
Just curious where you guys in particular are seeing strength in the pipeline and as a follow up to that curious how loan pricing is rolling on these days.
Yes, we feel good about the pipeline I will say that we've had great production all year long.
Production has been much greater than loan growth.
And I think that will continue to be the case.
As far as from where we see it.
From a geographic perspective.
Pretty much spread across the footprint, where there have been times when it's been more concentrated.
But we're seeing great opportunities in.
Mcdonald's portfolio, we're seeing great opportunities.
Multifamily and I.
I would say those are the leaving of the core businesses, obviously, the premium finance and.
Leasing businesses had extraordinary growth in.
We expect them to have excellent growth in.
In the fourth quarter, we've experienced a little bit of a tapering of our consumer businesses.
Indirect still going strong with little less robust than it has been in the same with mortgage.
Thank you and what sort of role on yields are you guys seeing he says.
We're not seeing a ton of.
Pricing.
Sure Thats any more crazy than it has been for <unk>.
Last year.
A year or two.
So I would say the prices are stable there are some.
Some CRE deals that we walk away from on pricing.
But that's.
Always always been that way.
Okay. Thank you that's helpful and.
The capital ratios have picked up here as well.
I know you guys said that it looks like it could taper off here in the fourth quarter.
So I'm sort of curious what are your Basel.
What's the capacity for capital deployment, whether that be additional M&A or.
Share repurchases.
Well, we don't see ourselves doing share repurchases at the current price as we've stated historically, we look at share repurchases as an acquisition and we will do it when the earn back is three years or less so at the current prices that's not the case.
In terms of Corona acquisitions.
We'd certainly like to digest.
What we have.
<unk>.
Done this year.
What would would look favorably at some nonbank nonbank deals if we can help the insurance business the investment business.
The leasing business.
We would be open to it I think that.
From a bank standpoint.
We would be we would not be disappointed if it took us a few quarters to get to some place.
And just back to your comment on the capital ratios tapering a bit that comment was specific to the leverage ratio and the way that it's calculated it's using an ending equity number and an average asset number and given we did the premier deal late in the third quarter. The average assets wasn't really reflective of.
That deal at 930.
Gotcha. Thank you Lasse.
Last question from me just curious if I could get an update on utilization rates, particularly.
Particularly in the commercial side.
Yes as mentioned visits.
As mentioned in the script they were up a few percent to 34% about $10 million.
One customer was a big piece of that we expect that piece to pay off between now and the end of the year.
Thank you that's it from me.
Okay.
Our next question comes from Michael Perito from CDW. Please go with your question.
Hey, Chuck Katy Thanks for taking my questions, Hey, Mike Hi, Mike.
I wanted to ask on the on the.
The Opex guide of.
<unk> $46 million to $48 million in the fourth quarter. It sounds like that carries through to next year as well I was just curious you know what what kind of assumptions are you guys, making around kind of.
Personnel costs.
And you know maybe personnel turnover and is it fair to assume that there's some conservatism around items, such as that which could trend higher which might offset some of that.
Benefits of the cost savings and moving the run rate down below where you are in the fourth quarter.
We have a budget of merit pool of 375%, which is higher than we've had.
And the 10 years that I have been here.
And so I think we have accounted for some of that.
I would also say that year to date, our turnover rate is 2% less than the prior year. So while there is a lot in the market I think that.
Yes, I think that we've been fortunate to retain folks and I think it is.
A testament to how we.
Partner with employees.
From a.
Compensation and benefits, but from a culture.
Standpoint, it's a pretty decent place.
To work.
Our internal surveys.
Show.
Employee satisfaction levels and the 90 percentiles.
Anything over 75% is considered extraordinary.
That being said, we do have we do have more vacancies than normal and we are having trouble filling those vacancies.
And.
It's a crazy, it's a crazy employment market out there.
Right, Yeah, no I mean that makes sense in those numbers out very good on a relative basis actually but I guess it is fair to say that you know based on your opening remarks. There I mean do you guys feel like you factored in a little bit more conservatism into that expense guide in terms of kind of labor related items than perhaps historically.
Yes, Bob.
Yes.
Okay.
And then on the kind of a damn well balanced question.
No.
IMAX is just some of the better NIM is due to some of the growth you're seeing in like the leasing and the premium finance.
Portfolios.
And obviously benefiting from the funding you're bringing on from Premier as we looked at the next your guide, but I guess question is is how can you remind us your thought process around how you kind of view those those portfolios within your overall loan mix moving forward or maybe said another way I mean, I should take a kind of about what youre comfortable bringing.
You know remixing the loan talk to in terms of leasing and premium finance and consumer just a refresher on that would be great. Yeah. What we have said is that we would keep the specialty finance businesses to less than 10% of the asset size of the corporation. So we're 7 billion Thats 700.
<unk> million dollars and right now so we've got 250 260 odd million. So we have room to grow, but we're never going to let it get oversized compared to the total company.
And obviously, we will do thanks.
Bank deals over time.
Helpful. So then just to make sure I understand that correctly.
Referring to the leasing and the premium finance portfolios combined won't become larger than 10% of the overall loan book.
Correct.
Yes.
<unk> actually I'm, sorry, acetize policies.
Also helpful. And then just lastly for me.
Curious you mentioned.
We try to guide you a preliminary guide in the prepared remarks. So clearly you guys have spent some time budgeting for next year already and are probably still kind of finalizing maybe some of the five points of that process, but just curious if truck or maybe you guys could talk about any other kind of maybe more organic new business development opportunities that are on your radar whether that be.
Key opportunities in the west, Virginia market, or new lending or deposit type customers or if there's anything that we should be aware of that we might see next year that that could be additive to the growth.
So certainly introducing insurance and investments into the portions of West, Virginia, Kentucky, DC in Maryland that Premier does not offer those products.
As an opportunity.
For us we also things bringing in.
Floor plan deal.
Our floor plan and the Mcdonald lending businesses over that geography.
Is an opportunity.
In terms of new businesses.
We have an interest.
We think we have we think we have purchased a very high quality small ticket leasing company and we would have interest over time.
Giving a mid.
Mid level leasing company amid ticket and hope to get that accomplished at some point in time and I would just add on that fee based income category and we mentioned it in the script a couple of times just the.
Fee income associated with our leasing.
Division today, and I think there's opportunity there.
Next year.
Got it helpful. I appreciate the insights guys. Thanks.
Thank you.
Our next question comes from Russell Gunther from D. A Davidson. Please go ahead with your question.
Hi, good morning, guys.
Hey, How're you doing.
Well thanks Chuck.
I appreciate the early look at 2022.
I wanted to circle back to the margin guide of $3 55 to $3 75 fairly wide and I was hoping to get your view as to sort of what the glide path from the low end to the high end is what the drivers would be and if youre contemplating any.
Rate hikes in that number specifically.
Oh, no rate hikes in that guidance I think.
Little more steepening of the curve and the higher end of that range for sure I think when we think about margin of course for 'twenty 'twenty. One it's been heavily impacted by P. P. P. As we stated in the script much of that will go away, but we have to look at the cash that's been held on the balance sheet.
Didn't quoted in the script, but I think that was about a drag on margin of about 14 basis points in the third quarter. So you get to the low end you pick up a little bit of accretion from the Premier acquisition.
So your lead.
$3 50 was what we were for Q3.
We carry that out replacing some of the P. P P margin.
Benefit with the cash deployment and then the loan growth that we had quoted with the next thing you know the growth being heavily weighted to in the Perm leasing division, which has a greater yield than the core kind of loans that we do I think thats, how you get to the middle of that.
<unk> again.
On the high end would take some steepening.
Okay, I have more I am a bit more optimistic than my wonderful CFO. So.
That's what I would say.
Alright fair enough I appreciate that guys and then to be clear you don't contemplate the fed raising in 2022.
Chuck your optimistic regardless, but if that were to materialize.
What how do you feel youre positioned for rising rates, where assets that will be a benefit.
Very good and then just switching gears to follow up on the E.
Conversation Katie you mentioned that the leasing opportunity.
Any other.
Verticals in particular that you see as drivers of that 14% to 16% growth rate that you provided.
Also got good opportunity with Treasury management, and the new geographies that really.
We just bring a much richer product set.
For those.
For their customers.
So and they were historically.
CRE lender, which doesn't have a fee opportunities that the C&I business does so.
I think all of that is going.
Kind of help us.
Great. Thank you both that's it for me thanks.
Thank you.
Yeah.
Our next question comes from David Long from Raymond James. Please go ahead with your question.
Good morning, Chuck Good morning, Katy Thanks for taking my question.
<unk>.
Looking at the NIM just to continue the discussion there a little bit the premier what was their standalone NIM coming into <unk>.
To this transaction.
It was a little higher than three.
$363 70.
Okay great.
Then Chuck I'd be curious talking about the NIM and you are being a little bit more optimistic than Katie work, where is it that you may be more optimistic.
I look at it and I see 25 basis points of PPP fee pressure.
But I get there's some upsides to where youre at but just curious on the app.
You're more optimistic audits date right now.
Product mix, where we're seeing.
We're seeing the growth.
Probably a hair more optimistic on the ability of some of the higher margin products to grow.
Got it.
Okay.
And then.
Last thing switching gears back to the operating expenses of $46 million to $48 million run rate.
With the Premier deal being done and getting some savings out of that.
And Keith I was a little bit surprised at the operating expense number may be flat from the fourth quarter into next year, we remind us of the pace of some of the savings that you expect with the Premier transaction.
Yes, we expected 75% of the cost save in 'twenty, one with 100% being realized early in starting early in 'twenty two.
Yeah.
We traditionally close and convert on the same weekend, which gives us the opportunity to cut the cost out pretty quickly.
Got it okay, great. Thank you I appreciate it thank you.
<unk>.
And our next question is a follow up from Scott <unk> from Piper Sandler. Please go with your follow up.
Hey, guys. Thank you.
I wanted to return to that margin discussion a bit as well.
Give us an outlook for what purchase accounting benefits would be in 2022 and to what degree are those embedded in that $3 55 to 375 guide.
Yeah. So for the third quarter, we had about eight basis points of accretion I think that will go up to 10 to 15 basis points.
And 'twenty two.
Okay, perfect Alright, I think that I think that actually does it. So thank you very much. Thank you Scott.
And ladies and gentlemen, with that we'll be ending today's question and answer session I would like to turn the floor back over to Mr. <unk> for any closing remarks.
Yes, I want to thank everyone for joining our call. This morning. Please remember that our earnings release and a webcast of this call will be archived at peoples Bancorp Dot com under the Investor Relations section. Thank you for your time I wish everyone. Good health and have a great day.
Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending you may now disconnect your lines.
Yeah.