Third Quarter 2023 Highlights

• Core net income up from prior quarter
• Net interest margin increased one basis point to 2.73% from prior quarter
• Deposit growth of $71 million (up 4.1% annualized), including $92 million for core customer deposits excluding brokered (up 5.6% annualized)
• Expenses down 14.5%, or 6.8% excluding transaction costs, and core efficiency ratio improved by 96 basis points from prior quarter
• Loan delinquencies down 9.5% from prior quarter and two consecutive quarters of net recoveries
• Regulatory capital ratios improve by 23 basis points from prior quarter including common equity tier 1 (“CET1”) ratio up to 11.08%
• Declared dividend of $0.31 per share, up 3.3% from prior year comparable period
• Launched new digital banking platform to improve clients’ banking experience in October

Premier Financial Corp. (Nasdaq: PFC) (“Premier” or the “Company”) announced today 2023 third quarter results, including net income of $24.7 million ($0.69 per diluted common share) compared to $48.4 million ($1.35 per diluted common share), or core $24.2 million ($0.68 per diluted common share) excluding the insurance agency sale, for the second quarter of 2023.

“I am pleased to announce Premier’s continued improvement in net income, net interest income, and net interest margin performance for the third quarter,” said Gary Small, President and CEO of Premier. “Average annualized loan growth for the quarter totaled 2.9%, consistent with our focus on serving existing client needs while remaining very selective in the pursuit of new relationships. Continued success in attracting customer deposits (up 5.6% annualized for the quarter) will translate into higher loan growth as we enter 2024.”

“Premier’s credit metrics remain steady with delinquencies down as our consumer and commercial clients continue to manage their resources well. Commercial line usage is drifting lower each month as clients utilize their excess cash to reduce line balances. The business outlook across our markets remains strong, yet conservative. Warehouse vacancy is low and manufacturing order boards remain robust, with labor availability as the major constraint. Many companies are focusing on profit margins versus growth as they work through the uncertain economic environment. The housing market remains very tight in most markets with continuing new job creation, a consistent theme across the network. The Federal Reserve’s more paced approach toward interest rates in recent months has allowed the bank, and our clients, time to address the impacts of the higher rate environment,” added Small.

“We at Premier will continue to build capital and make investments designed to improve our business, our client experience, and benefit the communities we serve,” Small continued. “To that end, all of us at Premier are very excited to have just concluded a major initiative focused on improving our client experience. We’ve recently installed a new state-of-the-art digital banking system designed to improve our clients’ banking experience across all channels of the organization. The new digital banking platform has transformed our mobile and online banking experience, bringing new features and services to our clients. Now that we’ve completed the consumer upgrades, expect to see more regarding business banking improvements in early 2024. Premier remains committed to providing an exceptional customer experience, and are committed to making investments that will best serve our clients today and in the future.”

Quarterly results

Capital, deposits and liquidity

Regulatory ratios all improved during the third quarter of 2023, including CET1 of 11.08%, Tier 1 of 11.55% and Total Capital of 13.33%, each up 23 basis points. All of these ratios also exceed well-capitalized guidelines pro forma for accumulated other comprehensive income (“AOCI”), including CET1 of 8.36%, Tier 1 of 8.84% and Total Capital of 10.61%.

Total deposits increased 4.1% annualized, or $71.2 million, during the third quarter of 2023, due to a $92.3 million increase in customer deposits (up 5.6% annualized), offset partly by a decrease of $21.1 million in brokered deposits. Total average interest-bearing deposit costs increased 47 basis points to 2.54% for the third quarter of 2023. This increase was primarily due to brokered deposits and the migration of customers from non-interest bearing deposits into interest-bearing deposits, including higher cost time deposits, as customers continue to seek better yields. Total average customer deposit costs including non-interest and excluding brokered deposits and acquisition marks were 1.85% during the month of September, representing a cumulative beta of 32% compared to the change in the monthly average effective Federal Funds rate that increased 525 basis points to 5.33% since December 2021, as reported by the Federal Reserve Economic Data.

At September 30, 2023, uninsured deposits were 32.8% of total deposits, or 17.7% adjusting for collateralized deposits, other insured deposits and internal company accounts. Total quantifiable liquidity sources totaled $2.57 billion, or 204.0% of adjusted uninsured deposits, and were comprised of the following at September 30, 2023:

• $117.5 million of cash and cash equivalents with a 5.40% Federal Reserve rate;
• $280.9 million of unpledged securities with an average yield of 3.05%;
• $1.3 billion of Federal Home Loan Bank (“FHLB”) borrowing capacity with an overnight borrowing rate of 5.40%;
• $316.7 million of brokered deposits based on a Company policy limit of 10% of deposits, with market pricing dependent on brokers and duration;
• $70.0 million of unused lines of credit with an average borrowing rate of 6.65%; and
• $471.4 million of borrowing capacity at the Federal Reserve with an average rate of 5.48%.

Additional liquidity sources include deposit growth, cash earnings in excess of dividends, loan repayments/participations/sales, and securities cash flows, which are estimated to be $66.5 million over the next 12 months.

Net interest income and margin

Net interest income of $54.3 million on a tax equivalent (“TE”) basis in the third quarter of 2023 was up 0.5% from $54.1 million in the second quarter of 2023 but down 14.5% from $63.5 million in the third quarter of 2022. The TE net interest margin of 2.73% in the third quarter of 2023 increased one basis point from 2.72% in the second quarter of 2023 but decreased 67 basis points from 3.40% in the third quarter of 2022. Results for all periods include the impact of Paycheck Protection Program (“PPP”) as well as acquisition marks and related accretion. Third quarter 2023 includes $142 thousand of accretion in interest income, $180 thousand of accretion in interest expense, and $4 thousand of interest income on average balances of $553 thousand for PPP.

Excluding the impact of acquisition marks accretion and PPP loans, core net interest income was $54.0 million, up 0.6% from $53.7 million in the second quarter of 2023 but down 14.1% from $62.9 million in the third quarter of 2022. Additionally, the core net interest margin was 2.71% for the third quarter of 2023, up one basis point from 2.70% for the second quarter of 2023 but down 65 basis points from 3.36% for the third quarter of 2022. These results are positively impacted by the combination of loan growth and higher loan yields, which were 5.12% for the third quarter of 2023 compared to 4.86% in the second quarter of 2023 and 4.29% in the third quarter of 2022. Excluding the impact of PPP, balance sheet hedges and acquisition marks accretion, loan yields were 5.16% in September 2023 for an increase of 141 basis points since December 2021, which represents a cumulative beta of 27% compared to the change in the monthly average effective Federal Funds rate for the same period.

The cost of funds in the third quarter of 2023 was 2.17%, up 25 basis points from the second quarter of 2023 and up 162 basis points from the third quarter of 2022. The increases are largely due to the higher average deposit costs discussed above. Excluding the impact of balance sheet hedges and acquisition marks accretion, cost of funds were 2.24% in September 2023 for an increase of 203 basis points since December 2021, which represents a cumulative beta of 39% compared to the change in the monthly average effective Federal Funds rate for the same period.

“Our margin has been very consistent over the past six months as we’ve taken steps to attract new money at the right rate, manage the migration of existing deposits into higher rate offerings, and have appropriately repriced loan renewals to reflect today’s environment,” said Small. “These steps, combined with nimble balance sheet management, will be the key to additional net interest income and margin improvement in the future.”

Non-interest income

Excluding insurance commissions, total non-interest income in the third quarter of 2023 of $13.3 million was up 2.6% from $12.9 million in the second quarter of 2023 excluding the $36.3 million gain on the sale of the insurance agency, and 0.3% from $13.2 million in the third quarter of 2022, primarily due to fluctuations in mortgage banking and gains/losses on securities. Mortgage banking income increased $0.3 million on a linked quarter basis but decreased $0.7 million year-over-year, primarily as a result of fluctuations in gain margins.

Security gains were $256 thousand in the third quarter of 2023, partly due to increased valuations on equity securities. This compares to gains of $64 thousand in the second quarter of 2023 and $43 thousand in the third quarter of 2022, each primarily from increased valuations on equity securities. Service fees in the third quarter of 2023 were $6.9 million, a 3.4% decrease from $7.2 million in the second quarter of 2023 but a 6.1% increase from $6.5 million in the third quarter of 2022. This change was primarily due to fluctuations in loan fees, including commercial customer swap activity. Due to the insurance agency sale in the second quarter of 2023, there were no insurance commissions in the third quarter of 2023, compared to $4.1 million in the second quarter of 2023 and $3.5 million in the third quarter of 2022. Wealth management income of $1.5 million in the third quarter of 2023 was consistent with $1.5 million in the second quarter of 2023 and up from $1.4 million in the third quarter of 2022.

Non-interest expenses

Non-interest expenses in the third quarter of 2023 were $38.1 million, a 6.8% decrease from $40.8 million in the second quarter of 2023, excluding transaction costs for the insurance agency sale, and a 7.4% decrease from $41.1 million in the third quarter of 2022. Compensation and benefits were $21.8 million in the third quarter of 2023, compared to $24.2 million in the second quarter of 2023 and $24.5 million in the third quarter of 2022. The linked quarter decrease was primarily due to the insurance agency sale and cost saving initiatives that began during the second quarter of 2023. The year-over-year decrease was primarily due to the insurance agency sale, partially offset by costs related to higher staffing levels for our 2022 growth initiatives and higher base compensation, including 2022 mid-year adjustments and 2023 annual adjustments. FDIC premiums decreased $0.4 million on a linked quarter basis due to accrual true-up in the prior quarter, but increased $0.4 million from the third quarter of 2022 primarily due to year-over-year growth. All other non-interest expenses increased only a net $11 thousand on a linked quarter basis and decreased a net $0.7 million on a year-over-year basis due to the insurance agency sale and cost saving initiatives. The efficiency ratio for the third quarter of 2023 of 56.5% improved from 57.5% (excluding transaction costs and the insurance agency gain on sale) in the second quarter of 2023 due to cost saving initiatives but worsened from 51.3% in the third quarter of 2022 due to lower revenues.

“We continue to execute on expense reductions and are pleased to have improved our core efficiency ratio almost 100 basis points this quarter,” said Paul Nungester, CFO of Premier. “Through the combination of successful cost save initiatives implemented to-date and the insurance agency sale, we have reduced our expense run-rate 11% to $152 million annualized from our beginning of the year estimate of $170 million.”

Credit quality

Non-performing assets totaled $39.9 million, or 0.47% of assets, at September 30, 2023, an increase from $37.6 million at June 30, 2023, and from $33.6 million at September 30, 2022. Loan delinquencies decreased to $17.2 million, or 0.24% of loans, at September 30, 2023, from $19.0 million at June 30, 2023, but increased from $13.2 million at September 30, 2022. Classified loans totaled $63.5 million, or 0.90% of loans, as of September 30, 2023, an increase from $60.5 million at June 30, 2023, and from $45.0 million at September 30, 2022.

The 2023 third quarter results include net recoveries of $347 thousand and a total provision benefit of $0.8 million, compared with net loan charge-offs of $154 thousand and a total provision expense of $4.0 million for the same period in 2022. The allowance for credit losses as a percentage of total loans was 1.14% at September 30, 2023, compared with 1.13% at June 30, 2023, and 1.14% at September 30, 2022. The allowance for credit losses as a percentage of total loans excluding PPP and including unaccreted acquisition marks was 1.17% at September 30, 2023, compared with 1.16% at June 30, 2023, and 1.19% at September 30, 2022. The continued economic improvement following the 2020 pandemic-related downturn has resulted in a year-over-year decrease in the allowance percentages.

“Our commercial and credit teams have expanded their loan review and analysis routines looking for early warning indicators of potential stress on specific loans and categories (e.g., office), with particular focus on ‘shocking’ the portfolio for the effect of future repricing scenarios,” said Small.

Year to date results

For the nine-month period ended September 30, 2023, net income totaled $91.2 million, or $2.55 per diluted common share, compared to $76.9 million, or $2.15 per diluted common share for the nine months ended September 30, 2022. 2023 results include the impact of the insurance agency sale for a net gain on sale after transaction costs of $32.6 million pre-tax, or $0.67 per diluted share after-tax. Excluding the impact of this item, year-to-date 2023 core net income were $67.1 million, or $1.87 per diluted share.

Net interest income of $164.8 million on a TE basis for the first nine months of 2023 was down 8.9% from $181.0 million for the same period in 2022. The TE net interest margin of 2.78% in the first nine months of 2023 decreased 62 basis points from 3.40% for the same period in 2022. Results for all periods include the impact of PPP as well as acquisition marks and related accretion. 2023 year-to-date includes $475 thousand of accretion in interest income, $613 thousand of accretion in interest expense, and $15 thousand of interest income on average balances of $729 thousand for PPP. Excluding the impact of acquisition marks accretion and PPP loans, core net interest income was $163.7 million, down 6.5% from $175.1 million in the first nine months 2022. Additionally, the core net interest margin was 2.76% for the first nine months of 2023, down 53 basis points from 3.29% for the same period of 2022. These results are positively impacted by the combination of loan growth and higher loan yields, which were 4.88% for the first nine months of 2023 compared to 4.13% for the same period in 2022. The cost of funds in the first nine months of 2023 was 1.87%, up 154 basis points for the same period of 2022. The year-over-year increase is largely due to utilization of higher cost FHLB borrowings in support of loan growth in excess of deposit growth during 2022.

Excluding insurance commissions and the $36.3 million gain on the sale of the insurance agency, total non-interest income in the first nine months of 2023 of $33.9 million was down 5.5% from $35.9 million for the same period of 2022. Insurance commissions were $8.9 million in 2023 down from $12.0 million in the first nine months of 2022 due to the insurance agency sale on June 30, 2023. Mortgage banking income decreased $4.2 million year-over-year as a result of a $3.1 million decrease in gains primarily from lower production and margins, as well as a $155 thousand mortgage servicing rights (“MSR”) valuation gain in the first nine months of 2023 compared to a $1.6 million gain for the same period of 2022.

Security losses were $1.1 million in the nine months of 2023, primarily due to decreased valuations on equity securities. This compares to a loss of $1.8 million from decreased valuations on equity securities in the first nine months 2022. The company also sold $21 million of available-for-sale (“AFS”) securities for a $27 thousand gain with average yields less than FHLB borrowing rates during the first nine months of 2023. Service fees in the first nine months of 2023 were $20.6 million, a 7.0% increase from $19.2 million in the first nine months of 2022, primarily due to fluctuations in loan fees including commercial customer swap activity and consumer activity for interchange and ATM/NSF charges. Wealth management income of $4.5 million in the first nine months of 2023 was up 6.7% from $4.2 million in the first nine months of 2022. Bank owned life insurance income of $3.5 million in the first nine months of 2023 increased from $3.0 million in the first nine months of 2022 with $0.4 million of claim gains in 2023 compared to none in 2022.

Excluding transaction costs for the insurance agency sale, non-interest expenses in the first nine months of 2023 were $121.7 million, essentially flat from $121.5 million in the first nine months of 2022. Compensation and benefits were $71.6 million in the first nine months of 2023, compared to $72.4 million in the first nine months of 2022. The year-over-year decrease was primarily due to the insurance agency sale on June 30, 2023, and cost saving initiatives that began during the second quarter of 2023 partially offset by costs related to higher staffing levels for our 2022 growth initiatives and higher base compensation, including 2022 mid-year adjustments and 2023 annual adjustments. FDIC premiums increased $2.1 million on a year-over-year basis primarily due to higher rates and our 2022 growth initiatives. All other non-interest expenses decreased a net $1.1 million on a year-over-year basis. The efficiency ratio (excluding transaction costs and the insurance agency gain on sale) for the first nine months of 2023 of 58.3% worsened from 52.7% in the first nine months of 2022 due to lower revenues partly offset by cost saving initiatives that began during the second quarter of 2023.

Results for the first nine months of 2023 include net loan charge-offs of $1.9 million and a total provision expense of $3.5 million, compared with net loan charge-offs of $5.3 million and a total provision expense of $11.5 million for the same period in 2022. The provision expense for both years is primarily due to relative loan growth.

Total assets at $8.56 billion

Total assets at September 30, 2023, were $8.56 billion, compared to $8.62 billion at June 30, 2023, and $8.24 billion at September 30, 2022. Loans receivable were $6.70 billion at September 30, 2023, compared to $6.71 billion at June 30, 2023, and $6.21 billion at September 30, 2022. At September 30, 2023, loans receivable increased $489.2 million on a year-over-year basis, or 7.9%. Commercial loans excluding PPP increased by $248.3 million from September 30, 2022, or 6.0%. Securities at September 30, 2023, were $0.92 billion, compared to $0.97 billion at June 30, 2023, and $1.08 billion at September 30, 2022. All securities are either AFS or trading and are reflected at fair value on the balance sheet. Also, at September 30, 2023, goodwill and other intangible assets totaled $308.8 million compared to $309.9 million at June 30, 2023, and $337.9 million at September 30, 2022, with the decreases attributable to intangibles amortization and the insurance agency sale.

Total non-brokered deposits at September 30, 2023, were $6.67 billion, compared with $6.58 billion at June 30, 2023, and $6.67 billion at September 30, 2022. At September 30, 2023, customer deposits increased $92.3 million on a linked quarter basis, or 5.6% annualized. Brokered deposits were $392.2 million at September 30, 2023, compared to $413.2 million at June 30, 2023 and $69.9 million at September 30, 2022.

Total stockholders’ equity was $919.6 million at September 30, 2023, compared to $937.0 million at June 30, 2023, and $865.0 million at September 30, 2022. The quarterly decrease in stockholders’ equity was primarily due to a decrease in AOCI, which was related to $24.9 million for a negative valuation adjustment on the AFS securities portfolio, partly offset by net earnings after dividends. The year-over-year increase was primarily due to net earnings after dividends including the impact the insurance agency sale offset partly by a decrease in AOCI, which was primarily related to $16.3 million of negative valuation adjustments on the AFS securities portfolio. At September 30, 2023, 1,199,634 common shares remained available for repurchase under the Company’s existing repurchase program.

Dividend to be paid November 17

The Board of Directors declared a quarterly cash dividend of $0.31 per common share payable November 17, 2023, to shareholders of record at the close of business on November 10, 2023. The dividend represents an annual dividend of 7.5 percent based on the Premier common stock closing price on October 23, 2023. Premier has approximately 35,731,000 common shares outstanding.

Conference call

Premier will host a conference call at 11:00 a.m. ET on Wednesday, October 25, 2023, to discuss the earnings results and business trends. The conference call may be accessed by calling 1-833-470-1428 and using access code 346494. Internet access to the call is also available (in listen-only mode) at the following URL: https://events.q4inc.com/attendee/320076724. The webcast replay of the conference call will be available at www.PremierFinCorp.com for one year.

About Premier Financial Corp.

Premier Financial Corp. (Nasdaq: PFC), headquartered in Defiance, Ohio, is the holding company for Premier Bank. Premier Bank, headquartered in Youngstown, Ohio, operates 75 branches and 9 loan offices in Ohio, Michigan, Indiana and Pennsylvania and also serves clients through a team of wealth professionals dedicated to each community banking branch. For more information, visit the company’s website at PremierFinCorp.com.

Financial Statements and Highlights Follow-

Safe Harbor Statement

This document may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements may include, but are not limited to, statements regarding projections, forecasts, goals and plans of Premier Financial Corp. and its management, future movements of interests, loan or deposit production levels, future credit quality ratios, future strength in the market area, and growth projections. These statements do not describe historical or current facts and may be identified by words such as “intend,” “intent,” “believe,” “expect,” “estimate,” “target,” “plan,” “anticipate,” or similar words or phrases, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “may,” “can,” or similar verbs. There can be no assurances that the forward-looking statements included in this presentation will prove to be accurate. In light of the significant uncertainties in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Premier or any other persons, that our objectives and plans will be achieved. Forward-looking statements involve numerous risks and uncertainties, any one or more of which could affect Premier’s business and financial results in future periods and could cause actual results to differ materially from plans and projections. These risks and uncertainties include, but not limited to: financial markets, our customers, and our business and results of operation; changes in interest rates; disruptions in the mortgage market; risks and uncertainties inherent in general and local banking, insurance and mortgage conditions; political uncertainty; uncertainty in U.S. fiscal or monetary policy; uncertainty concerning or disruptions relating to tensions surrounding the current socioeconomic landscape; competitive factors specific to markets in which Premier and its subsidiaries operate; increasing competition for financial products from other financial institutions and nonbank financial technology companies; future interest rate levels; legislative or regulatory rulemaking or actions; capital market conditions; security breaches or unauthorized disclosure of confidential customer or Company information; interruptions in the effective operation of information and transaction processing systems of Premier or Premier’s vendors and service providers; failures or delays in integrating or adopting new technology; the impact of the cessation of LIBOR interest rates and implementation of a replacement rate; and other risks and uncertainties detailed from time to time in our Securities and Exchange Commission (SEC) filings, including our Annual Report on Form 10-K for the year ended December 31, 2022 and any further amendments thereto. All forward-looking statements made in this presentation are based on information presently available to the management of Premier and speak only as of the date on which they are made. We assume no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. As required by U.S. GAAP, Premier will evaluate the impact of subsequent events through the issuance date of its September 30, 2023, consolidated financial statements as part of its Quarterly Report on Form 10-Q to be filed with the SEC. Accordingly, subsequent events could occur that may cause Premier to update its critical accounting estimates and to revise its financial information from that which is contained in this news release.

Non-GAAP Reporting Measures

We believe that net income, as defined by U.S. GAAP, is the most appropriate earnings measurement. However, we consider core net interest income, core net income and core pre-tax pre-provision income to be a useful supplemental measure of our operating performance. We define core net interest income as net interest income on a tax-equivalent basis excluding income from PPP loans and purchase accounting marks accretion. We define core net income as net income excluding the after-tax impact of the insurance agency gain on sale and related transaction costs. We define core pre-tax pre-provision income as pre-tax pre-provision income excluding the pre-tax impact of the insurance agency gain on sale and related transaction costs. We believe that these metrics are useful supplemental measures of operating performance because investors and equity analysts may use these measures to compare the operating performance of the Company between periods or as compared to other financial institutions or other companies on a consistent basis without having to account for income from PPP loans, purchase accounting marks accretion or the insurance agency sale. Our supplemental reporting measures and similarly entitled financial measures are widely used by investors, equity and debt analysts and ratings agencies in the valuation, comparison, rating and investment recommendations of companies. Our management uses these financial measures to facilitate internal and external comparisons to historical operating results and in making operating decisions. Additionally, they are utilized by the Board of Directors to evaluate management. The supplemental reporting measures do not represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental reporting measures, as defined by us, may not be comparable to similarly entitled items reported by other financial institutions or other companies. Please see the exhibits for reconciliations of our supplemental reporting measures.