Premier Financial Corp. (NASDAQ:PFC) 2024 Q1 Financial Results Call Record April 24, 2024
Premier Financial Corp. wasn't among the 30 most popular stocks among hedge funds at the end of the third quarter (see the details).
operator: good morning. Welcome to the Premier Financial Corp. 2024 First Quarter Earnings Conference Call. [Operator Instructions] Please note that this event is being logged. I would now like to turn the conference over to Paul Nungester from Premier Financial Corp. Please do.
Paul Nungester: thank you. Good morning everyone. Thank you for joining us for today's 2024 First Quarter Earnings Conference Call. The call was also webcast, with an audio replay available on Premier Financial Corp.'s website (premierfincorp.com). Following your prepared comments on the company's strategy and performance, we will be taking questions. Before we begin, we would like to remind you that during today's conference call, including the question and answer period, you may hear forward-looking statements relating to Premier Financial Corporation's future financial results and operations. I would like to have it. Factors beyond our control may cause our results to differ materially from current management expectations and projections.
Additional information regarding these risk factors and forward-looking statements is contained in news releases and our reports filed with the Securities and Exchange Commission. I would now like to turn the call over to Gary for some opening comments.
Gary Small: Thank you, Paul, and good morning everyone, and thank you for joining us today. In short, we reported net income for the quarter of $17.8 million, or $0.50 per share. First, I would like to comment on the most important topics of this quarter. Average annual deposit growth for the quarter was a respectable 2.6%. Consumer deposits were once again a strong storyline, with average balances increasing by 7.5% per annum and continuing to grow by 6.7% per annum in the second half of 2023. So that's a very strong third quarter on the consumer side. Public funding increased by $66 million from point to point throughout the quarter, or approximately 4%. Commercial deposits had an unfavorable surprise in the quarter, with commercial non-interest deposit balances decreasing by $86 million. This is about 8% of January, which is much more than the normal post-year balance decline. They are used to paying taxes, distributing them, etc.
We take a close look at our customer relationships and find that deposit liquidity is highly utilized to fund more general capital investment funding and other loanable working capital borrowing needs. became. Customers are utilizing their capital efficiently, the movement of NIB balances stabilized from February to March, and balances began to be replenished in April. Premier has secured higher cost funding to replace these NIB balances and expects the majority of lost NIB balances to be recovered over the next two quarters as businesses replenish their coffers. Unusual events in January reduced Premier's net interest margin by 6-7 basis points in the quarter. It was more of an episode than a general decline.
I would add that starting in early March, the Fed began a pre-emptive repricing program, selectively lowering deposit rates and testing the resiliency of deposit portfolios. Early results are encouraging and we expect further pricing action ahead of any rate cuts triggered by the Fed's future rate-cutting moves. Switching gears, loan balances for the quarter were basically flat on a consolidated quarterly basis, commercial profits were generated for each plan, and the pace of new business capital inflow was slightly slower than expected at the beginning of the year. is. Although more typical commercial loan business activity returned in March, our full-year growth expectations announced in January remain unchanged.
During the quarter, we experienced excellent expense management and non-interest income benefited from a rebound in occupancy driven by mortgage loan volumes and increased unit sales prices related to those mortgage loans. Asset management fee income also remained strong and actually exceeded expectations for the quarter. On the credit side, the consumer portion of the loan portfolio has seen a decline in delinquencies, gross non-performing loans are well contained, and net charge-off levels remain at very modest levels. The Capitals are in great shape and Paul has some numbers so I'm going to ask Paul for his perspective.
Paul Nungester: Thank you Gary. Starting with the balance sheet, he also had four quarters of deposit growth, including a 2.3% annualized rate on point-to-point and a 2.6% annualized rate on average balances. Mixed migration continued, with interest-free savings and current accounts declining, but CDs, money, market and pub fund deposits all increasing. Meanwhile, loans and advances decreased slightly in the quarter, while total earning assets increased primarily as a result of security investments. Our deposit-to-loan ratio improved by 110 basis points and we were able to keep wholesale funding flat. This intermediation further compressed net interest margin in the first quarter due to a combination of a slight decline in lending, a larger than expected decline in non-interest bearing deposits, and additional interest-bearing deposits.
The impact of PPP, balance sheet hedging and acquisition mark increases exploded, with loan yields in March at 5.29%, up 5 basis points from 5.24% in December 2023. This is also an increase of 153 basis points from December 2021. This compares to a 525 basis point increase in the average monthly effective federal funds rate over the same period, corresponding to a cumulative beta of 29%. Also, excluding the impact of PPP balance sheet hedging and acquisition mark increases, the total yield on earning assets was 4.95% in his March, with a cumulative beta of 31%. Meanwhile, excluding acquisition mark increases, March total deposits were 2.45% for a cumulative beta of 43%, and excluding acquisition mark increases and balance sheet hedges, March total cost of funds was cumulative Beta 45 was 2.59%. %.
Second, non-interest income increased $0.7 million to $12.5 million in the first quarter. This was primarily due to income from mortgage banking operations, which increased his profit by $800,000 from the previous quarter due to higher margins, including hedging gains related to the rise in the 10-year Treasury rate. The continued slowdown in the previous quarter plus an increase in finance rates led to an increase in MSR valuation of $500,000 compared to his $200,000 loss in the previous quarter. This was partially offset by a security loss of $37,000, compared to a gain of $665,000 in the prior quarter. Expenses of $39.9 million increased $2.0 million on a consolidated quarterly basis due to annual benefit increases and the seasonality of items that occur only in the first quarter of each year, such as taxes and annual incentive payment benefits.
Compared to the same period last year, expenses were down 7% or almost flat, excluding expenses from the insurance agency sold in June 2023. The average expense to assets ratio also improved by 19 basis points compared to the previous year, to 1.87%. The reserve for the quarter was a gain of $133,000, consisting of financing costs of $560,000 and a gain from the related quarterly reduction in unfunded commitments of $693,000. The loan reserve was primarily due to net charge-offs of $393,000, representing only 2 basis points of the average loan amount. Provision coverage increased by 1 basis point to 1.15% of loans. I conclude by mentioning the continuous improvement of capital. Our regulatory ratios have been further strengthened, with our TE ratio remaining above 8%, CET1 at 12%, and total capital at 14.35%.
These enhancements provide a solid foundation to weather near-term uncertainties. Once the financial review is complete, I will return your call to Gary.
Gary Small: Thanks again, Paul. I would like to take a moment to make some adjustments to her 2024 guidance that she provided in January to incorporate the first quarter results and adjustments to assumptions for the remainder of the year. First, we expect earning asset growth to be 4% on a point-to-point basis, which supports our January guidance. We expect gross loan growth to move 2%, with commercial up 3%, offset by a decline in the lower-yield mortgage portfolio, so there is no change there, which is the same as in January. As stated. The increase in deposits is consistent with our initial expectations and is consistent with the expected increase in earning assets. From a net interest margin perspective, our forecast is for the Fed to change policy in just two turns in 2024.
We removed the turns in May and now just have one turn sitting in the middle of the third quarter and one in the middle of the fourth quarter. The expectation of one less Fed turn, combined with factors from the unfavorable margin results in the first quarter, plus the impact of favorable price adjustments initiated in March, results in a revised full-year margin in the low 260% range. Probably in the top range. All things being equal, out of about 265. This represents a 10%, or 10 basis point, downward adjustment from the original guidance. Full-year net interest income was expected to increase 2% in January, but due to the changes I mentioned earlier, it is now expected to be 2% lower starting in 2023. From a reserves perspective, net charge-off expectations continue to be very strong this year.
We have re-forecasted a level of 5 basis points compared to the 10 basis points expected in January, and we still expect the full-year coverage ratio to be several bip higher. Non-interest income is an adjustment to the original full-year estimate of $48 million. We expect an additional $49 million based on our strong first quarter and outlook. . On expenses, he said there was run-rate reduction, a strong first quarter, and he has revised spending levels downward over the remaining quarters, with full-year guidance of $156 compared to the $160 he provided in January. It's going to be a range. We are deferring some projects and associated FTE additions, consulting fees, etc.
Premier's earnings trend is expected to be one less Fed rate cut, and the hockey stick mentioned in the first quarter has flattened out somewhat compared to the quarterly earnings trend, and the second quarter is expected to flatten further. , with a further upward trend in the third and fourth quarters. We still expect to perform as planned, but we're winning in a slightly different way, not by margin, but by the other factors we mentioned. Therefore, our full-year earnings forecast remains on target in January, reflecting lower interest income offset by higher non-interest income, lower expenses, and continued strong credit performance. Achieved. That operator is always available to answer your questions.
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