Q1 2022 Premier Financial Corp (OHIO) Earnings Call
Hello, everyone and welcome to the Premier financial Cold first quarter Chi Fong from 20 <unk> earnings Conference call.
My name is Victoria, and I'll be equally as Jack will today.
Like to ask a question during the presentation you might G site by pressing star one on your telephone keypad. If he wishes to ask a question. Please press star two if you are joining US online. Please press the red icon what surprised you asked your question. Please ensure that your line is on mute to likely I'll now pass over to a high school, none just US you begin.
Please go ahead.
Good morning, everyone and thank you for joining us for today's first quarter 2022 earnings conference call.
This call is also being webcast and the audio replay will be available.
Premier Financial Corp website at Premier Fin Corp, Dot com.
Following our prepared comments on the Companys strategy and performance, we will 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.
May hear forward looking statements related to the 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 the news release and in the company's reports on file with the Securities and Exchange Commission.
And now I'll turn the call over to Gary for his comments.
Thank you Paul and good morning, Thank each of you for joining us today.
<unk> results for the first quarter built on some familiar themes from prior quarters.
Very good loan growth across the board with the commercial banking group, achieving double digit growth for the second consecutive quarter and they are up over seven 6% versus Q1 of last year strong performance in each of our markets with excellent C&I growth.
Consumer lending in Q1 was very active as well our HELOC origination activity was ahead of our internal plan for the quarter and we experienced the highest auto finance origination numbers.
In our history in the month of March and based on what we see in April will eclipse that record in April .
Consumer households are maintaining strong cash positions they seem well prepared to weather the near term bumps that are brought about by inflation and other news of the day.
Mortgage application activity was very good for the quarter. We were 15% ahead of our expectations from our application dollar standpoint, we added originators to our teams across the markets and we also established a new team and the very strong Ann Arbor market.
And then wanted to some performance highlights for the quarter, we reported net income of $26 4 million or <unk> 73, a share.
ROA and ROE were $1 42, and <unk> 34, respectively, and our average tangible equity return was 15 point or for these figures were generally matched our expectations for the quarter.
Loan growth was strong as mentioned for the quarter adjusted for PPP annualized loan growth was 10, 1% commercial loans led the way with 11%.
Net interest income for the quarter expanded three basis points and that was aided by some additional PPP fee income recognition as the portfolio rolls down our core margin was relatively flat for the quarter and with the fed action not really affecting the result is up $3 31.
Our noninterest income met expectations.
When you adjust for the $642000 Mark to market, we took on our bank equities portfolio.
We're happy with that portfolio, it's a dividend yield play as most of the valuation play, but again you do feel the mark to market time to time.
Residential mortgage income of $4 3 million was actually ahead of our expectations, but we do anticipate we'll see a challenging environment going forward.
On sale margin is expected to be under pressure into the third quarter.
On the plus side Bank service fees. This would be debit credit card account fees and so forth continue to climb we were up nine 7% versus the first quarter of 'twenty, one and clearly households are out there active in spending as they have been the last couple of quarters.
Expenses are generally in check we saw an uptick in variable comp related to our commercial loan production. So that's a good rationale, but we also see our healthcare expenses continuing to run higher than normal. This is the third quarter in a row for that.
Certainly deferred maintenance for some of us coming out of the Covid environment.
We're keeping a close eye on how much of it is that versus inflationary driven.
Capital Wise in addition to capital reductions that all banks are experiencing this quarter due to mark.
Securities and so forth.
We were also reasonably active in buybacks in the first quarter, two 2% of our shares.
We are comfortable with our capital position as we head into what appears to be an active period for the fed over the next couple of months with that I'll turn it over to Paul.
We'll provide some 22 performance info as well.
Thank you Gary.
Turning to the balance sheet deposits were up almost 2.25% from prior quarter annualized our.
Our mix was stable and we again improved our all in deposit costs, which dropped another two basis points to 0.14% this quarter.
Total cost of funds declined one basis point to 0.19%.
For assets, we are pleased to report $132 4 million in core loan growth this quarter or 10, 1% annualized led by commercial which increased $97 4 million or 11% annualized.
NIM expanded another three basis points to 344% on a reported basis, including PPP and purchase accounting marks accretion.
It was 320% excluding those items and we expect that to begin expanding as loan growth continues and rising rates take effect.
Next is the allowance, which increased <unk> 7 million due to a provision expense for loan growth of <unk> 6 million.
And net recoveries of <unk> 1 million.
Our asset quality improved during the quarter with decreases in nonperforming assets classified loans and loan delinquencies.
At March 31, our allowance coverage, excluding PPP loans, and including acquisition marks was 134%, which is down slightly from $12 31, but still higher than our pre pandemic level of 121%.
Finishing the balance sheet as capital with a quarterly decrease primarily due to a $59 million negative valuation adjustment on the available for sale securities portfolio plus buybacks.
During the quarter, we completed approximately 793000 of share buybacks for a total of $24 2 million.
At March 31, our tangible equity ratio was eight 3% down from nine 5% at 12 31.
However, our regulatory ratios, which are not impacted by the securities marks remained solid including 11, 2% for tier one and 13, 8% for total risk based capital.
Yes.
Next I'll turn to the income statement, starting with net interest income of $58 million, which is up two 4% from prior year's first quarter or seven 5%, excluding PPP and purchasing purchase accounting mark accretion from both periods.
Year over year improvement is primarily due to our efforts on the deposit side of our costs decreased $2 million as a result of a 13 basis point reduction in our average cost of deposits.
On the income side loans interest income declined due to less PPP and Marcus accretion, but this was mostly offset by increases in our securities interest income.
Going forward the combination of our recent loan growth trends in rising rates will generate increasing levels of loans interest income.
Noninterest income was $16 9 million for <unk>, which is down from prior quarter and prior year, primarily due to mortgage banking and security gains.
Mortgage banking income was up $1 2 million from prior quarter, but down from prior year.
Mortgage gains in <unk> were $2 5 million down <unk> 2 million from <unk> and $3 1 million for the first quarter of 2021, primarily due to lower production compressed margins and lower saleable mix.
Separately, the 10 year increased 81 basis points to 232% from 12 31.
Resulting in a meaningful gain in the MSR evaluation for $1 2 million after only a $150000 gain in <unk>.
However, we had a $5 3 million MSR gain in the first quarter of 2021, when the 10 year had a similarly large increase but from a much lower starting point.
Overall, we had a $1 2 million dollar increase in mortgage banking on a linked quarter basis, but a $6 $3 million decreased on a year over year basis.
Separately, we experienced a <unk> 6 million unrealized loss on our bank equities in the first quarter compared to $1 1 million of gains last quarter and $1 6 million of gains in the first quarter of 2021.
Next is expenses, which were $41 3 million a decrease of <unk> 4 million from <unk>, but an increase of.
$2 5 million from the first quarter of 2021.
The increases were due to the combination of higher costs related to enhanced staffing levels for our growth initiatives.
<unk> higher health care benefit costs, and lower deferred costs related to lower residential mortgage production.
We now expect expenses to be around $162 million for 2022.
To wrap up our first quarter pre tax pre provision income was over $33 7 million, which generated a robust one 8% ROA.
Bottom line, we reported net income of $26 4 million or <unk> 73 per share.
That completes my financial review and I'll now turn the call over to Matt for a discussion of lending and credit.
Thanks, Paul.
We're very pleased with our first quarter lending performance with overall loan growth was more than 10% led by commercial growth of 11%.
In our commercial business, our balanced growth of 97 $4 million for the quarter was consistent with our expectations and it represents another solid quarter of portfolio growth following a strong fourth quarter performance C&I.
C&I loan production was once again solid in the first quarter accounting for approximately 43% of our total commercial originations.
Line utilization rates remained suppressed in the low 30% range, which should act as a further accelerating for a loan growth once line usage returns.
Given the high level of loan production, we generated in the first quarter. We're also very encouraged by the continued expansion of our commercial loan pipeline heading into the second quarter.
In terms of loan growth, we expect another very good quarter of performance there.
In our residential mortgage business, we experienced a softer start to the year in terms of mortgage gain on sale largely driven by the industry's ongoing margin challenges that comes with overcapacity.
In addition, our decision to portfolio a greater percentage of our first quarter production was influenced by the margin challenges in the quarter.
While this represents better execution in the long run it obviously impacts mortgage revenue on a quarterly basis.
As we mentioned on last quarters call. We expect this environment to remain with us during the second quarter.
As we've discussed previously residential mortgage lending is an important part of our overall business and as such we tend to take a long term view as we manage the business.
As Gary mentioned earlier, we're very pleased with the launch of our Ann Arbor market in the first quarter as well as the overall growth of our mortgage sales team, adding 14, new members. So far this year as a reminder, our Salesforce is primarily commission based so the fixed cost investment is relatively modest this expansion.
Which is consistent with our strategy for mortgage positions us to participate more actively as industry conditions improve in the future.
In terms of asset quality, we experienced another quarter of overall improvement as levels of classified and criticized loans improved by $13, three 2% and 11, 65% respectively.
Net charge offs for the quarter were a net recovery of $101000.
With respect to the individual nonperforming C&I credit discussed on previous calls there are no updates from last quarter's call and we continue to believe we are adequately reserved for a range of outcomes.
While there is uncertainty with respect to the overall economy with concerns about the impacts of inflation in a rising rate environment. Our portfolio continues to perform well, while we continue to monitor the performance of our portfolio for signs of stress our outlook for the second quarter remains stable.
I'd now like to turn the call back over to Gary small.
Thank you, Matt and now I'll provide guidance update on our performance for the remainder of 'twenty two.
From a balance sheet perspective, I want to affirm our expectation the expectation that we expressed in our January call for full year loan growth at 8%.
In that January guidance, we projected commercial loan growth of 10% for the year and we remain comfortable with 10% for the first half of the year.
We do have some appropriate caution due to the economic uncertainty in the second half of the year. This would be the magnitude of fed actions world events et cetera, we have no specific segments of concern, but Vince may cause a pause in the business cycle.
We still target, 10% commercial growth that remains our target through the year and we remind ourselves that we did some very good loan growth at these rates in prior periods. The money is still relatively inexpensive.
From a net interest income perspective, again, I will affirm our net interest range of 8% to 10% when you exclude the impact of PPP or margin outlined in the January call for a year over year average basis was three to five basis points.
Certainly with the news of the day. It appears that we're likely lie we only had two turns in for us.
Bed turns into the 'twenty two budget assumption so.
So you'd have to count that as a likely tailwind for the year.
On the fee business side, if you exclude the security gains and losses in our <unk>.
Bank equity gain and loss categories I would say we are revising the mortgage fee income guidance downward a bit from our first quarter discussion in.
In that first quarter income was on target.
For us for the year, but we do feel that on a full year basis, we're likely to be about 10% off the number we posted in 'twenty one our guidance in the first quarter was that we'd be up 5%. So directionally.
The same but just a little bit more.
Caution for the remainder of the year, we expect mortgage production to be on target with the gain on sale is challenging and our salable versus portfolio mix dynamics are changing a bit we may see a higher percentage of being assigned to the portfolio in the near term.
Affirming that bank fees will be up 5% over the 21 consistent with our prior guidance.
But I would also revise the wealth.
Fee income line downward just a bit to high single digit we were 10% plus coming out of the January period, and Thats really reflective of the valuation weakening that we've seen in the equity and fixed income marketplace. During the first quarter, we'll wait till that rebounds before week.
To revise upward.
From an expense standpoint.
We had projected a $162 million for the year, we're going to bump that up $1 million for the items that Paul and I have commented on earlier.
We see strong commercial activity in the variable comp that comes with that that's a good guide, but as I mentioned healthcare of higher than typical.
Okay.
Not seeing that stemmed over over recent history.
Additional revenue producing roles lift outs market expansions, and so forth and the commercial and residential mortgage business, particularly you know that we're always on the move when talent becomes available because we do think are playing the long game.
And we incorporate that typically.
And are your expectations and we continue to do that.
Would affirm that our efficiency ratio.
<unk>, 52% was in the <unk>.
Range that we projected back in January so no change there.
We always run a little higher in the first quarter.
Credit wise.
This provision is driving the loan growth or loan growth is being driven I should say by the loss.
This is driving the loan provision for.
For the quarter net charge offs are running favorable to plan in our underwriting approach protects us against the unfavorable impact of reasonable rate hikes.
The portfolio characteristics continue to be strong improving and I'd have to say this potential tailwind as well.
On the equity front, we did repurchase 800000 shares in the first quarter, that's really not a pace that we would anticipate.
Staying on for the remainder of the year by any means.
Two 2% and based on our typical business model Thats about a full year's take however, we will remain opportunistic as things may make themselves available as we go through the year.
With that operator, I will turn it over to you for questions.
Perfect. Thank you.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
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And our first question comes from Scott <unk> from Piper Sandler. Please go ahead. Your line is open.
Good morning, guys. Thanks for taking the question.
Let's see.
Hugh.
So I think sort of the starting point for the margin on sort of the core core basis is roughly 320 years or so.
We still thinking.
About 2% benefit to NII from each fed rate hike.
Yes, yes, yes, it's just that now we're seeing that.
And expectation for more of those hikes than we had previously thought.
Okay and.
And can you talk a little bit about how you see the margin trajectory at the beginning of the cycle, meaning say these first 100 basis points or so versus how it does later in the cycle than maybe another way of asking is how are you thinking about deposit betas through the cycle as well.
Yes, yes, good question so.
So the first few of the early ones will be.
And our feet on deposit costs, and helping our veda and things like that.
But on the flip side, we still get it cleared some hurdles on some loan floors and whatnot and then once we get through that and the pace of these fed funds that fund bond start to take place that will accelerate some of the deposit costs, but we will have cleared our floors on the variables. So net net it's going to be somewhat.
Smooth kind of rise in our NIM just due to some offsetting factors that are in there.
But.
Gary was saying earlier, our guidance for the year obviously.
Previously thinking to total for the year versus now.
We'll see what they are.
The recent talk at $50 50, but.
100 bps doesn't seem unreasonable over the relatively near term.
Yeah.
Perfect. Thank you very much.
Yep.
Thank you Scott for your question.
Our next question comes from Michael Perito from <unk>. Please go ahead.
Hey, Gary Paul Matt how are you guys.
Hey, good morning, Greg.
Good.
So just a quick clarification on Scotts kind of line of questioning, but so the 8% to 10% NII growth in 2022 ex PPP. That's incorporating just the the two hikes that you guys had laid out in your January guide correct.
Correct, yes, okay.
And it sounds like just to make sure I was hearing now.
Second answer there correctly that between the floors and the accelerating debate as to the 2% pickup for each hike.
So that largely will actually stayed fairly constant through the first call. It.
Three to six hikes, just because of the dynamics of timing around when the poorest blow through and when the betas accelerated kind of offset each other.
Yeah. So we've already gotten one bump and then we had previously thought about 50 bps two bombs.
Essentially clears from Florida, and we're still seeing that.
So once we get to this 50 and certainly alright. They do 50 at this next one we've essentially cleared those hurdles I mean, there might be a couple of old ones that.
That need a little bit more than that but it won't it won't mean anything to the numbers will be 98% 90, 899% at that point yeah yeah.
Got it.
And then just.
Yes.
Gary I appreciate kind of the uncertainty around it.
Back half of the year from a growth perspective, it's just hard to know.
With where we're at.
Everything frankly.
But I guess just competitively.
Any updates in the markets you're in.
Are you seeing worst conditions or are you seeing currently.
Some of your smaller.
Porting peers have said that some lenders have moved around are you seeing any talent move around or already accelerated opportunities to bring other people on or or has that is labor.
Price wages and what have you made that very hard to do just curious competitively what the update is from our commercial lending standpoint.
Good question, Mike and I'm going to turn that over to math, but first I'll say.
Hub.
Getting some comment for Matt on where we're at on the current pipeline and how Q2 looks could be a little bit instructive to the second half of the year as well.
Let's just say.
The second half it seems like it's appropriate to at least curb the enthusiasm, but theres actually no reason on paper that would put us in that position as we see it right now and with that Matt I'll turn that over to Steven sure sure.
Sure well just a quick pipeline comment before we move to talent, yes, we're actually entering second quarter with a larger pipeline.
Where we entered the year at and we had a really good first quarter production and very good balanced growth. So we're very comfortable with another really good quarter here in Q2 on the growth side and as the quarter progresses, and as we get toward the latter stat.
Stages, if Q2, I think we'll have better visibility on the second half of the year, we will see how those pipelines react but theres nothing in front of US right now that that suggests a slowdown, but I think that the.
The wariness on the second half is probably appropriate given the times that we're in today on the talent front. It is still a very active market for talent.
The Tcf Huntington merger, although that's a few months in the rearview window continues to be something that provides opportunities for us to have conversations as people have found themselves in their new chairs and they don't necessarily like those.
Yeah in a new organization, so those conversations continue to happen.
And we remain very active.
On the talent front in commercial banking in particular.
Over a couple of new folks.
Here in Q1, and you should expect us to continue to do that throughout the balance of the year as well as continuing to have conversations around market lift outs and things like that so those activities are still very very robust I would say.
The residential side as we talked about in the earnings call a moment ago.
We're off to a really good start on the sales front, there so 14, new folks and a new market in Ann Arbor, which we've had.
<unk> track record of having successful team lift outs in newer markets with success. If you go back to when we entered Morgantown. For example, this should pay those types of dividends for us.
That's helpful. Matt Thank you.
And then just.
I'll come back, but just one last quick one just Paul on the tax rate moving forward.
This is the first quarter, a good level or it seemed a little lower than I was thinking just a quick update there before I, let someone else jump in.
Yeah on a full year, we're still expecting about a 20% effective tax rate for the year, we're not assuming any change on corporate tax rate front, especially with mid terms coming up.
Great. Thank you.
Yes.
Thank you Mike quick question and just a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Okay.
And our next question comes from Christopher <unk> from Janney Montgomery Scott. Please go ahead.
Thanks, Good morning, Paul Gary. Thank you for the information on the margin for the call I just wanted to throw one more layer. If you will in the month of April how have loan yields acted with the first fed hike and then how do you think that will play out in May and June just in terms of loan yields.
Our actual competition.
Yes, no there are definitely on the rise so.
The competitive market, obviously, we're all chasing loans now in this environment, but we're all.
Reacting to our funding costs as well so those are starting to rise.
April has.
It started off well from that perspective.
Didn't see that the NIM per se in these first quarter results given the timing of that will start to feel that here in <unk> and then depend.
Depending on what actually happens here in May as I do 50 BP.
Bps like they are currently talking.
I will now.
It helps set us up for a strong second quarter.
Yes.
Great Thanks for that.
Just given your footprint density competitor installer, Ohio create any issue for funding for you Scott.
Deposits or is that just not a focus at this point.
Yes.
It does not.
To a large extent, we do have to react to that for sure some of our depositors.
Use that as a benchmark when we think of our.
Data, we use about 30% beta on deposits and that'll probably be met or.
Paul was mentioning earlier, a little slower, but we do have deposits that will move and we have a product that's tied to the Saar, Ohio for Treasury management, that's going to move and we have some wealth management variable.
Money market, that's going to move so, but when you get down to the real deposit rates sensitive piece that needs to be.
Talking less than $1 billion, probably less than $700 million that would be on the move.
And that's consistent with our 30% thought on the beta overall okay.
Great now that makes sense and just wanted to.
Flushing it out thank you very much I appreciate it.
Sure.
Perfect. Thank you so much question Paul for your question.
A final reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Yeah.
At this time there are no further questions I would like to pass back over to Gary small for any final remarks.
Well. Thank you we pass a lot of information.
Feel free to follow up with us as needed to Claire for clarification.
<unk> with it feels like we are.
Pluses on the growth and pluses on the NIM, a little caution and mark on the fee income side and the provision side looks very good as well.
So directionally I think versus where we started the year.
That kind of sums it up and as Matt was saying.
A.
That generation standpoint.
There is plenty of activity in this market right now and we're taking full advantage of it.
So thanks again, we look forward to talking to you next quarter.
Yeah.
Yeah.
Okay.
Thank you everybody for joining today's call you may now disconnect your lines.
Yes.
Uh huh.
Uh huh.
Uh huh.
Okay.
Okay.
Yeah.
Okay.
Sure.