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PF

PREMIER FINANCIAL CORP (PFC)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 EPS was $0.50 and net income $17.8M; tax‑equivalent NIM compressed to 2.50% (−15 bps QoQ; −40 bps YoY), driven by higher deposit costs, mix migration into interest-bearing products, and modestly lower average loans .
  • Management cut full‑year 2024 net interest income guidance from +2% YoY to −2% YoY and trimmed expense guidance to ~$156M from $160M; raised non‑interest income outlook to ~$49M+; NIM now expected in “low‑260s to ~265 bps” with only two Fed cuts assumed—down from three previously; credit loss assumption improved (net charge‑offs 5 bps vs 10 bps prior) .
  • Deposits grew 2.3% annualized QoQ (avg +2.6% annualized); brokered deposits rose while customer deposits were modestly higher; management began deposit repricing in March to lower funding costs—early results “encouraging” .
  • Mortgage banking rebounded (total $2.35M) on higher gain margins and a $0.5M MSR valuation gain, offset by small equity security losses; efficiency ratio rose to 64.2% on margin pressure .
  • Near‑term stock catalysts: the repricing program’s traction on deposit costs, revised NIM/NII guidance trajectory, and stable credit metrics (NCOs 2 bps; ACL/loans 1.15%) .

What Went Well and What Went Wrong

What Went Well

  • Consumer deposits strength: average consumer deposits grew 7.5% annualized; public funds up $66M point‑to‑point; management initiated repricing actions to reduce funding costs with “encouraging” early results .
  • Non‑interest income: Mortgage banking increased to $2.35M, supported by better unit gains and MSR valuation (+$0.5M); wealth management income remained resilient at $1.7M .
  • Credit quality: NCOs at 0.02% of average loans; delinquencies declined QoQ; ACL/loans at 1.15%; capital ratios strengthened (CET1 11.99%, Tier 1 12.49%, Total Capital 14.35%) .

What Went Wrong

  • Net interest margin/ income: TE NII fell to $49.6M and NIM to 2.50% on higher deposit costs and mix migration; commercial NIB balances fell sharply in January, creating a 6–7 bps NIM hit for the quarter .
  • Efficiency ratio deteriorated to 64.2% (from 59.5% in Q4 2023) given margin compression and seasonal expenses, despite ongoing cost initiatives .
  • Equity securities valuation: $37K securities losses vs $665K gains in Q4; customer migration from non‑interest bearing into higher‑cost time/money market deposits pressured cost of funds .

Financial Results

MetricQ1 2023Q4 2023Q1 2024
Tax-Equivalent Net Interest Income ($MM)$56.391 $52.593 $49.649
Total Non-Interest Income ($MM)$12.462 $11.789 $12.496
Total Core Revenues ($MM, TE NII + core non-interest ex sec gains/losses)$70.264 $63.707 $62.182
Net Income ($MM)$18.149 $20.070 $17.789
Diluted EPS ($)$0.51 $0.56 $0.50
TE Net Interest Margin (%)2.90% 2.65% 2.50%

Non-Interest Income Breakdown

Component ($MM)Q1 2023Q4 2023Q1 2024
Service Fees & Other Charges$6.428 $6.761 $6.467
Mortgage Banking Income$(0.274) $0.802 $2.350
Wealth Management Income$1.485 $1.791 $1.713
BOLI Income$1.417 $1.532 $1.697
Gain/(Loss) on Equity Securities$(1.445) $0.665 $(0.037)

Key KPIs

KPIQ1 2023Q4 2023Q1 2024
Loan Yield (avg)4.66% 5.21% 5.19%
Interest-Bearing Deposit Cost1.69% 2.83% 3.01%
Efficiency Ratio60.90% 59.48% 64.17%
Loans/Deposits Ratio93.5% 94.3% 93.2%
NPA / Total Assets0.41% 0.41% 0.46%
ACL / Loans1.13% 1.14% 1.15%
Net Charge-Offs / Avg Loans0.15% 0.13% 0.02%

Estimates vs. Actuals

  • S&P Global consensus estimates were unavailable for PFC for Q1 2024 via our feed; comparison to Wall Street consensus cannot be provided at this time (S&P Global data unavailable).

Guidance Changes

MetricPeriodPrevious Guidance (Q4 2023 call)Current Guidance (Q1 2024 call)Change
Earning Asset Growth (point-to-point)FY 2024~4% ~4% (affirmed) Maintained
Loan Growth (total)FY 2024~2%+; Commercial ~3.5%; Residential down ~2%; Commercial ~3%; Residential down Maintained/slightly refined
Deposits GrowthFY 2024In line with earning assets In line with earning assets Maintained
NIM (TE)FY 2024Trend up from Q1 with 3 Fed cuts (May, Aug, Nov) Low‑260s to ~265 bps; only 2 Fed cuts (Q3, Q4) Lowered (range, fewer cuts)
Net Interest Income YoYFY 2024+~2% ~−2% Lowered
Net Charge-OffsFY 2024~10 bps ~5 bps Lowered (more favorable)
ACL Coverage RatioFY 2024“Couple of bps higher” vs YE23 “Couple of bps higher” maintained Maintained
Non-Interest IncomeFY 2024~$48M ~$49M+ Raised
Expenses (Run-rate)FY 2024~$160M; Q1 ~$41M+ ~$156M (deferring select projects) Lowered
Quarterly Earnings TrajectoryFY 2024“Hockey stick”: Q1 down slightly; rising Q2–Q4 Flatter in Q2; upward slope Q3–Q4 Adjusted cadence

Earnings Call Themes & Trends

TopicQ3 2023 (Prior-2)Q4 2023 (Prior-1)Q1 2024 (Current)Trend
Deposit mix migration & funding costsMix shifting to higher-yield deposits; deposit costs +47 bps; core deposit growth stabilized NIM Deposit promos in select markets; deposit costs +29 bps; wholesale reduced $90M NIB commercial balances fell in Jan; deposit repricing launched in March to lower costs; early results positive Pressure easing with active repricing
NIM management & Fed pathNIM stabilized (+1 bp QoQ); swaps help; cautious outlook NIM −8 bps QoQ; modeled 3 cuts; NIM to rise from Q1 NIM 2.50%; outlook lowered to low‑260s–265 bps on 2 cuts; NII guide cut Near-term lower; recovery later
Mortgage banking/MSRStronger gains and hedge benefits in rising rates Seasonally weaker; hedge/ MSR marks negative on late‑Q rate drop Better gains; MSR +$0.5M valuation; improved margins Rebound
Commercial loan demand & pricingSelective growth; new money ~8% yields; line utilization down Modest growth; new loans at high‑7%/8%+; competition manageable March activity normalized; pipeline expanding; pricing discipline maintained (~8%+ commercial) Gradual improvement
Digital platformNew consumer digital banking launched; SMB platform early 2024 Continuing build; pace moderated for SMB Ongoing; supports deposit gathering momentum Execution continuing
Capital/RegulatoryRatios improving (CET1 ~11.08%) Ratios strengthened; TBV up; buyback optionality discussed Capital ratios up ~30 bps; CET1 11.99%, Tier 1 12.49% Strengthening
Credit quality/criticized assetsSpecial mention uptick from two loans; overall steady Criticized assets rose on a few accrual credits; reserves modest Movement within categories; NCOs very low; coverage steady Stable/contained

Management Commentary

  • “Premier’s overall financial performance for the first quarter was generally in line with our expectations… Many elements of the business are off to a strong start” — Gary Small, CEO .
  • “Net interest income remains the most challenging profitability component… lower commercial non‑interest-bearing deposit balances… mix migration… slightly below plan average loan balances” — Gary Small, CEO .
  • “Our deposit book… we’ve been aggregating into buckets… starting to roll [rates] back… testing elasticity… early results are encouraging” — Paul Nungester, CFO .
  • “We… revised full year forecast margin [to] low‑260s to… about 265… full year net interest income… now… down 2%” — Gary Small, CEO .
  • “Provision… $560K for loans… net charge‑offs… only 2 basis points of average loans… allowance coverage ratio… 1.15%” — Paul Nungester, CFO .

Q&A Highlights

  • Funding/wholesale: Management aims to keep wholesale flat; deposit growth to match earning asset growth; mix to vary based on pricing .
  • Credit migration: Special mention to substandard largely a reclassification of the same accruing credit with a remediation plan; not systemic .
  • Deposit repricing: Targeted roll‑backs across buckets (money market promos, CDs); testing market elasticity; retention focus; flexibility maintained for rapid repricing when Fed cuts begin .
  • Loan pricing/new originations: Commercial new money generally ~8–8.25%; residential ~7.35–7.50% on pristine 30‑yr; holding pricing discipline despite competition .
  • Margin sensitivity: If Fed does not cut in 2024, NII would be lower than prior guide; bank remains liability‑sensitive albeit less so than mid‑2023 .

Estimates Context

  • S&P Global consensus for PFC Q1 2024 EPS and revenue was unavailable via our feed; therefore, we cannot benchmark reported results vs Wall Street consensus at this time (S&P Global data unavailable).
  • Management characterized results as “generally in line with our expectations” but lowered full‑year NII and NIM outlooks, implying potential estimate downgrades for FY 2024 given fewer assumed Fed cuts and deposit mix pressures .

Key Takeaways for Investors

  • Near-term NIM/NII pressure persists, but deposit repricing actions are underway; watch evidence of reduced deposit costs and stabilization/recovery in NIM into 2H 2024 given updated Fed path assumptions .
  • Credit remains a ballast: very low NCOs (2 bps), steady ACL coverage, and manageable criticized assets; supports downside protection while margins normalize .
  • Non‑interest income momentum (mortgage banking rebound, steady wealth) partially offsets NII pressure; monitor sustainability of better gain-on-sale margins and MSR marks with rate volatility .
  • Expense discipline is tangible (FY guide to $156M); improved efficiency awaits margin recovery; any incremental cost saves would be meaningful to 2024 EPS .
  • Commercial activity/pipeline improved in March; pricing discipline (~8%+) maintained; loan growth guide modest (~2%) aligns with funding environment .
  • Capital positions are strong with rising ratios; optionality (buybacks/M&A) remains but not in near-term plan; capital strength supports valuation resilience .
  • Trading lens: Near-term sentiment hinges on deposit cost trajectory and confidence in the lowered NIM/NII path; medium-term thesis is leverage to rate cuts, deposit repricing, and operating efficiency gains .