Q4 2021 Premier Financial Corp (OHIO) Earnings Call
Okay.
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Hello, and thank you for joining the <unk> Financial Corporation fourth quarter 'twenty to 'twenty one earnings call. We will begin shortly thank you for your patience.
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Good morning, and welcome to the Premier Financial Corp, fourth quarter 'twenty, One 'twenty one earnings conference call. My name is Gemma and I'll be the operator for this call all participants will be in listen only mode. After today's presentation there'll be opportunity to ask questions did you say he's pressed off but if I wanted your telephone keypad.
And if you change your mind, it's dolphin it by two.
This event is being recorded.
I would like to hand, the conference over to Paul now Mr. <unk> from <unk> Financial Corp. Please go ahead. Thank you.
Thank you John .
Good morning, everyone and thank you for joining us for today's fourth quarter 2021 earnings Conference call.
This call is also being webcast and the audio replay will be available at the Premier Financial Corp website at Premier Fin Corp Dot com.
Following our prepared comments on the Companys strategy and performance.
We'll be available to take your questions.
Before we begin I would like to remind you that during the conference call today, including during the question and answer period, you may hear forward looking statements related to future financial results and business operations for Premier Financial Corp.
Actual results may differ materially from current management forecast and projections as a result of factors over which the company has no control.
Information on these risk factors and additional information on forward looking statements are included in our news release and in the company's reports on file with the Securities and Exchange Commission.
Now I'll turn the call over to Gary for his comments.
Thank you Paul and good morning to everyone. We appreciate you joining us today.
Let me start by affirming our message delivered on last quarter's call the business environment across our markets continues to be strong and our current new business loan portfolio pipeline reflects the extensive opportunities.
While labor availability continues to be a constraint for some folks are managing through the impacts and reasonable fashion.
<unk> household balance sheets remain in very good shape with plenty of excess cash on hand.
Really just need the supply to catch up with the demand we.
We have premier maintain a very positive outlook for 'twenty two now.
Now onto our performance results highlights for 'twenty one.
Fourth quarter for the quarter, we reported $25 $3 million and net income for 69 cents, a share which brings our full year to a $126 million and $3 39, a share respectively.
Full year, ROA, and ROE were 168, and $12 four nine respectively and very solid.
The fourth quarter pretax pre provision ROA came in at 176 figures a bit low versus our normal standard and it's due to a combination of the seasonal slowdown in residential mortgage revenue.
And an incremental spending increase relative to some specific cost reduction initiatives and efforts, we put underway in the fourth quarter.
Loan growth was strong for the quarter as expected on a P. P. P. Adjusted basis annual loan growth for the quarter totaled eight 7% with commercial growth leading the way at 10, 3%, it's worth noting that T.
Annualized loan growth for the combined third and fourth quarters was over 7% and that reflects the growth trajectory that we expect for 2022.
Net interest income for the quarter expanded to $3 41, while core margin remained steady at $3 21, we continue to see reductions in our cost of funds.
Noninterest income results were lower than expected for the quarter as I mentioned residential mortgage income of $3 million reflected a tight pricing environment and a seasonal slowdown in the second half of the fourth quarter, certainly COVID-19 Escalations in December contributed to that outcome.
We are very pleased with the full year residential mortgage results.
The profit contribution is second only to the record performance of 2020.
On the plus side banking service fees climbed to 17% in the fourth quarter ahead of last year's results.
Expenses were elevated in the fourth quarter to quarter included onetime expenses of approximately $2 million as I mentioned four initiatives designed to immediately improve our expense run rate for 'twenty two and beyond.
From a credit perspective.
More topic here than is typical for us on our last quarter call. We discussed the specific credit that was placed on nonaccrual, reflecting uncertainties regarding a key contract with the federal government, which was negatively affected by ongoing moratorium on the collection of student loan debt.
Unfortunately that contract was formally terminated by the department of education in the fourth quarter.
While the loan remains current and our client has other revenue flows the elevated level of repayment uncertainty made it prudent to take a charge off significant charge off during the quarter.
As you'll hear laden later comments the portfolio as a whole is performing very well and all leading indicators credit performance remains strong now.
Now I'll turn it over to Paul and I'll provide some thoughts on the 22 performance expectations at the end of our presentation.
Thank you Gary I'll provide some more details for our fourth quarter and full year results.
Starting with the balance sheet deposits were up 2% from prior quarter annualized and 4% for the year.
<unk> also improved as businesses accrued liquidity at year end. So we improved our all in cost of funds, which dropped another three basis points to 0.21% this quarter largely due to further reducing our total deposit costs down to only 16 basis points.
For assets, we generated $111 6 million of core loan growth or eight 7% annualized this quarter led by commercial which increased $88 5 million or 10, 3% annualized.
NIM expanded another three basis points on a reported basis, including Pvp and purchase accounting marks amortization and.
And it was three 1% excluding those items can.
Can we expect it to generally remain at this level and begin to tick up as loan growth continues.
Next to the allowance, which decreased $6 7 million due to a provision expense for loans of $2 8 million and net charge offs of $9 6 million.
This was primarily related to a charge off for the commercial relationship that turn nonperforming in the prior quarter.
And provision would have been a recovery excluding.
At December 31, our allowance coverage, excluding PPP loans, and including acquisition Mark was 137%, which is down from 930, but still higher than our pre pandemic level of 121%.
Finishing the balance sheet as capital, where we ended the year with over $1 billion of equity.
With a quarterly increase primarily due to the netting net income in excess of dividends.
And we also completed about 595000 of share buybacks for $18 8 million in the quarter.
And just announced an increased authorization to 2 million shares.
At December 31, our tangible equity ratio was nine 6%, excluding PPP loans down from nine 9% at 930.
And our total risk based capital was about 13, 2%.
Next I'll turn to the income statement, starting with net interest income of $57 2 million, which is up 4% from the prior year fourth quarter.
Year over year improvement is primarily due to our efforts on the deposit side, where costs decrease over two and a half million. Thanks to the decrease in our average cost of deposits by 18 basis points to only 0.16% in the fourth quarter.
On the income side, we are pleased with our efforts to keep it relatively flat year over year by investing excess funds in such a way that investment income increased enough to mostly offset our decrease in loan interest driven by the down rate environment in 2021.
Noninterest income was $17 8 million for <unk>, which is down from prior quarter and prior year, primarily due to mortgage banking.
Mortgage gains were $2 8 million or <unk>, which is down $2 6 million for <unk> and down $3 4 million from the fourth quarter of 2020.
Total mortgage production continues to generally meet expectations and a decrease from last quarter was due to seasonally lower originations.
Separately, the 10 year was flat at 152% from 930, So we only had a minor gain in the MSR valuation after the <unk> 8 million in gain in <unk> when the 10 year increased.
Overall, we had a $3 million decrease in mortgage banking on a linked quarter basis.
However that was mostly offset by Bali, which had $1 1 million of claim gain.
Plus $1 1 million of unrealized gains on our bank equities portfolio.
Next is expenses, which were $41 7 million for the quarter.
$158 million for the year.
This is higher than previously expected primarily due to approximately $2 million of one time costs related to executive office realignment and operational enhancement projects.
In addition, healthcare costs were further elevated partly due to the ongoing COVID-19 environment, but also higher claims activity.
We currently expect expenses to increase to $160 million or so in 2022.
Which would represent an increase of about three to three 5% from 2021, excluding the unusual items in the fourth quarter.
Our full year efficiency ratio was just under 52% and we expect it to remain in the low fifties for 2022.
To wrap up our full year pre tax pre provision income was over 149 million, which represents a strong to point out percent ROA for the year.
Bottom line, we reported net income of 126 million or $3 39 per share for 2021 up significantly from $99 million or $2 76 per share of core earnings in 2020, excluding merger provisioning cost.
That completes my financial review and I'll now turn the call over to Matt for a discussion of lending and credit.
Thanks, Paul I'll be providing an update on our commercial and residential mortgage areas as well as an update on asset quality.
Overall, we're pleased with annualized loan growth of approximately 9% for the quarter with contributions coming from commercial residential mortgage and consumer lending.
In our commercial business, we saw solid improvement in loan growth during the fourth quarter as we had expected and communicated during last quarter's call commercial balance growth was approximately $88 $5 million for the fourth quarter a growth rate of 10, 3% on it.
Wise basis.
Loan growth for the second half of 2021 was approximately seven 3%.
Annualized basis.
Line utilization for the portfolio remains in the low 30% range with overall utilization declining for the quarter and full year.
Loan production improved by approximately 19% in the fourth quarter compared to the third quarter with continued strong contributions from the C&I category.
We entered 2022 with strong momentum in our commercial business with pipeline levels, having doubled when comparing year end 2021 to year end 2020, our expectations for the year of four 8% to 10% growth for 2022.
In our residential mortgage business, we experienced a seasonal decline with respect to overall mortgage activity, including loan production in mortgage banking revenue sale will mix was also a factor in terms of in terms of mortgage banking revenue somewhat reflective of the competitive landscape as we have discussed on prior calls.
Margin compression driven by market overcapacity impacted the quarter.
While mortgage banking income fell on a comparative year basis. Following an extraordinary 2020 overall originations in 2021 were 87% of the prior year.
We did achieve some measure of balanced growth in the residential mortgage portfolio of approximately $32 million in the second half of the year, which represents a five 1% annualized growth rate is.
As the year progressed, we were also able to effectively improve our expense base and mortgage primarily as a result of position nutrition.
Looking ahead, while we expect the current competitive and operating environment to persist during the first half of 2022, our expectation is for a more rational environment as the year progresses.
In terms of asset quality, we saw improvement across our asset quality indicators for the quarter and full year, while we experienced net charge offs for the first time this year.
Criticized and classified loan levels improved by 20% and 22, 8%, respectively. When comparing the fourth quarter of 2021 to the prior quarter.
On a year over year basis criticized and classified loan levels improved by 23% and 23, 1%, respectively. Additionally, nonaccrual loans declined approximately 20% when comparing the fourth quarter of 2021 to the prior quarter.
While on a year over year basis, they declined seven 6%.
Net charge offs for the quarter were $9 million 565000, largely driven by charges taken to the C&I relationships, which were.
As discussed on last quarter's call.
The business has been impacted by the cancellation of a student loan collection contract that was with the department of education, which occurred during the fourth quarter given.
Given that development the charge taken on the credit reflects the uncertainty of outcome and in conjunction with the established reserve on the credit. We believe we are adequately positioned for a range of resolutions.
Overall with the exception of this individual credit which is more episodic in nature. We are pleased with the overall direction of the portfolio.
I'd now like to turn the call over to Gary small Gary.
Thank you, Matt now I'll provide some color on our performance expectations for 'twenty to start with the balance sheet.
You should expect total loan growth to be north of 8% for the year with commercial loan growth projected to come in at 10% for at 12, 31 point to point growth and there is no assumption for line utilization improvement in 'twenty, two and those figures.
In total interest, earning assets are expected to be up seven 5% should help with modeling.
Net interest income up 8% to 10%, excluding the impact of PPP and that was true for the balance numbers that I, just gave you as well and PPP adjusted.
Expected year over year core margin expansion to be three to five basis points that should take us into the $3 30 to $3 34 range for the full year 2022.
Yes.
Sure.
Fee businesses, excluding securities gains will be relatively flat overall from a component standpoint residential mortgage fee income is projected to be down about 5% in total to flat. If we had put a range on it with the 'twenty one figures very good figures for 'twenty, one and <unk>.
Happy to keep them that way.
Origination remains good margin is a bit of a question mark relative to the timing of the pricing rebound, we haven't cooked anything in until the second half of the year.
And we do expect a favorable impact from MSR and amortization components to the income contribution.
Thanks Pete.
It would be up 5% year over year, our wealth revenue up 10% plus year over year insurance will have moderate growth.
And our boley and other categories, we will come out on favorable versus 'twenty, one and then we never assume.
Anything aggressive relative to bully experience and our bank equities portfolio, which was very favorable in 'twenty, one will assume is flat.
The 22 planning period.
For expenses and $20 million to $161 million as our target, which would be up three 5% of what we would call our normalized 21 expense space.
Unplanned additions to the team in revenue producing roles. So these would be lift outs for market expansions for commercial or residential mortgage groups could always be a potential factor to.
That could impact that number.
Our projected efficiency ratio for 'twenty, two would be 51% to 52%.
And operating leverage excluding PPP and securities impacts from year to year are returning to their normal levels and we expect about 400 basis points of positive operating leverage for the year.
Credit wise the provision calculation for the year works out to be about 20 bps of the outstanding loans.
Driving the loan growth relatively low net charge off assumption.
And that additional.
Favorable environment should see seasonal related environmental factors improving over the course of the year.
From an equity standpoint, as Paul mentioned, we have raised our share repurchase authorization levels of 2 million shares.
And we raised the quarterly dividend to <unk> 30, a share.
Stock repurchase and the dividend activity reflect our commitment to effective capital management and our confidence in future performance and of course, we will continue to keep enough capital available for expansion flexibility.
With that Jim I will turn it back over to you and we can take questions.
Okay.
Thank you very much and as a reminder, if you would like to ask a question. Please press star followed by one of your telephone keypad and if you change your mind. Please press star flip my teeth.
We've had our first question is from Scott <unk> of Piper Sandler your.
Your line is open. Please go ahead with your question.
Thank you. Good morning, guys. Thank you for taking the question I wanted to start off maybe with the loan that got charged off I guess, maybe Matt or Gary.
It's sort of in your minds, what makes that $9 million or $9 million ish I guess, the right amount to charge offs I think the amount that went on MTA last quarter. It was bigger so just curious as to how you came in at that appropriate amount and then are there any recovery options from.
From here as we go forward in your view.
Hey, Scott This is Matt I'll give you a little bit more color on that loan.
First off state.
The company continues to operate and they continue to pass so there they're paying us current so.
Thats still a factor here as we work through this with the client.
Clearly the cancellation of the contract was a moment, where we thought that was where our charge was appropriate.
When we look at the remaining outcomes as the client works through.
<unk> exited their department of education business, along with their ongoing business that was also instrumental in not only the charge that was established for the credit, but the reserve that we established two.
Through the bank relative to the range of those outcomes and how they work out so and to the last part of your question.
As that business continues to operate and rebuild their non department of education revenue streams.
Continue to work with them on.
The entire relationship.
And whats out so hopefully it answered answer to your question.
Yes.
Matt.
Alright.
Scott is that the amount that we did charge off was the.
Fact of ours.
<unk>.
Fuel relative to uncertainty.
There was a calculation that went with that.
Okay perfect. Thank you very much and then maybe Paul next one for you just on the margin so that.
The starting point is sort of the 321 underlying margins excluding PPP in N. P. A's so it sounds like that should advance pretty pretty well from here.
I guess number one a little bit more of the nuance as to what makes it in advance.
What kind of fed rate environment are you assuming in other words, how many fed rate hikes and I guess just to finish it.
Sort of a best estimate for how much your NII or margin benefits from each rate hike upward.
Right.
Thanks Scott.
Youre right. So our current basis theyre down there at that 320 level.
Light quarter over quarter, we had a small good guy and <unk> and a small bags and <unk>.
Kind of makes that spread.
Got it.
$3 20.
More of the current base on a go forward basis.
Expansion from here.
Will primarily be driven by our loan growth.
We're highlighting here not just in the quarter.
Future expectations for 'twenty, two there so that'll start pushing that back up.
As we've said before we'll keep your expert opinion on the funding side.
As that begins to take effect here in 'twenty two.
There's obviously a range of possibilities on the fed forecast right. So we tend not to be too aggressive or too conservative on that.
So you can think of it as we've got.
Baked in assumption of two bumps in the air.
<unk> for the back half of the year.
Show that.
Comment on the NII side and on the margin side.
Allowing us some potential upside if that were to accelerate.
In terms of the number of hikes or how fast they do.
In terms of the.
The impact I think Gary you are saying, we're expecting about 5%.
Our net interest income expansion.
So a couple.
Each turn is probably call it 2% of that.
If you want to think of it that way Scott.
Okay.
Perfect Scott in the fourth quarter. The 321 number was a little crimped by an item in the same way third quarter was to stay high and so the move is not as dramatic from $3 21 to about $3 30 range 34 range or that might appeal.
On a <unk>.
Basis.
Got it alright.
Alright, perfect. Thank you guys very much.
Sure. Thanks, guys.
Thank you Scott next question comes in from Michael Perito of KWE.
Michael Your line has been Aitken. Please go ahead with your question.
Thank you.
Hey, everybody thanks for taking my questions.
Hey, Mike.
On the loan growth guide I was wondering maybe if you guys mentioned I believe that doesn't assume anything on the line utilization side can you maybe map out.
I guess one.
What would a point pickup there could look like for that Guy, but then secondly, you know I mean at this point.
What.
Where is your kind of degree of confidence on seeing that move higher I mean, it sounded like in your very early opening remarks, Garry that there was some pent up demand and maybe that could bode well for that but obviously you guys. At this point aren't budgeting anything yet and just wondering if you could spend a minute breaking that up a little bit more.
Mhm.
Yeah.
Mike just a question when you relative to the utilization rate.
Why.
Got it.
Yes, sorry, the question was basically why.
Some tick up their wood wood due to the loan growth guidance and based on some of the positive economic commentary you had you know why choose to kind of keep the budget flat there.
I think when we look at our normal utilization rate pre COVID-19 versus with a utilization rate. We are experiencing now is $140 million to $150 million in balances or 35 $135 million. It took an enormous and thats where its been sitting for the most part for the majority of the year.
We're sort of from Missouri on this one Mike.
We expect it to go up, but we're not going to count on or be dependent upon it going up for planning purposes. So.
We left it flat and it'll be a gift when it comes but frankly, our commercial deposits continue to grow and so.
Although there's lots of demand out there alone wise and so forth.
We're not feeling and the corresponding reduction in cash on hand that would make them.
And drawdown so forth until we see something demonstrated there we're not going to be too aggressive in our planning on that.
Got it helpful and then on the efficiency ratio the low fifty's.
Target.
Generally speaking where are you guys where.
This year.
Obviously, there was some anomaly items this year with like P. P P and in an elevated mortgage and stuff like that but I guess generally speaking Gary you know.
Do you see any kind of difference in how you guys are are running.
The bank in terms of the positive operating leverage longer term you expect would you be able to generate on an annual basis.
Mike we still start with with operating positive operating leverage as the one of the top priorities. So that whether it is a low growth environment high growth environment, we try to keep three to 400 basis points range between revenue.
Increase in expense increase in any given year.
And the last couple of years, it's been kind of bond with 2020 being the way it was in 'twenty, one being the rebound, but we could look from a normalized 21 to what we have been for 'twenty two.
And we're back to a 400 basis points or so of positive operating leverage.
The Formula should work, we grow assets, a little faster than most we keep overall expenses in check.
Jen did that math with a 50% efficiency ratio will get us to 10% earnings growth year over year that fits our three year, our three year strategic plan sort of horizon.
Great very helpful. Thank you guys.
Okay.
Thank you for your question there Mike.
If you'd like to ask a question as a reminder, please press star followed by one in a telephone keypad and if you change your mind just staff by Chi. Thank you.
Yes.
Okay.
We currently have no further questions registered so I'll hand back to the team for closing remarks.
Well, we thank you all for joining US again this morning follow up questions and so forth are encouraged us.
Remainder of the reporting season.
It comes in and we look forward to talk to you soon.
Thank you bye bye.
Yes.
Thank you very much for joining us today. This concludes today's call you may now disconnect. Your lines. Thank you very much.
Yeah.
Right.
Okay.
Yeah.