First Quarter 2023 Highlights

• CET1 ratio increased 5 basis points to 9.96% and tangible equity ratio increased 25 basis points to 7.03% from the prior quarter
• Delinquencies decreased $7.2 million or 39% to 0.16% of loans from the prior quarter
• Loan growth of $115.2 million (up 7.1% annualized) including $69.2 million for commercial loans excluding PPP (up 6.5% annualized)
• Declared dividend of $0.31 per share, up 3.3% from prior year comparable period

Premier Financial Corp. (Nasdaq: PFC) (“Premier” or the “Company”) announced today 2023 first quarter results including net income of $18.1 million or $0.51 per diluted common share, compared to $25.3 million, or $0.71 per diluted common share, for the fourth quarter of 2022. First quarter 2023 results include the impact of the following items: i) equity investment losses of $1.4 million pre-tax or $0.03 per diluted share after-tax; ii) a negative mortgage pipeline hedge adjustment of $1.5 million pre-tax or $0.03 per diluted share after-tax; iii) a commercial loan charge-off related to an annual appraisal update of $1.5 million pre-tax or $0.03 per diluted share after-tax; and iv) timing-related expenses, including payroll taxes and benefits on annual incentive payouts, of $1.5 million pre-tax or $0.03 per diluted share after-tax. Excluding the impact of these items, first quarter 2023 earnings would be $0.63 per diluted share. Separately, expense savings planned for the remainder of the year represent an estimated $3.0 million pre-tax per quarter. Additionally, the Company estimates that each 25 basis point change in the Federal Funds rate could impact net interest income by approximately $1.5 million on a pre-tax annualized basis based on the Company’s balance sheet as of March 31, 2023.

“Over the course of the first quarter, the organization was fully engaged in deposit retention and expansion efforts with our consumer, wealth, commercial, and public funds clients,” said Gary Small, President and CEO of Premier. “The industry is operating in a very dynamic rate environment and we feel the impact of increasing deposit costs and margin compression when combining the Fed’s first quarter rate increases with the full quarter impact of the fourth quarter 2022 increases. Pricing and promotional adjustments over the course of the quarter resulted in a leveling off of funding costs in February and March. The well-documented industry challenges faced in March prompted additional outreach and conversation with our clients. Topics ranged from deposit insurance to safety and soundness, liquidity, and capital. The Premier team did an excellent job of sharing our organization’s strengths in these areas and by providing solutions as needed. I want to thank our clients for their confidence in the organization. March saw a slight increase in customer deposits for Premier, demonstrating the effective effort by our team of banking professionals. As outlined above, the reported earnings figure reflected a number of issues unique to the quarter. The impact was such that we felt it prudent to provide a bridge to a more normalized quarterly expectation for 2023. We have included the impact of cost reduction initiatives and the expected effect on ongoing performance. The leadership team is committed to taking appropriate steps to help offset margin challenges, while continuing to execute on strategic initiatives important to the long-term health of the organization.”

Quarterly results

Capital, deposits and liquidity

Capital and ratios continued to improve during the first quarter of 2023. Total equity increased $26.7 million, or 3%, including a $19.8 million improvement in accumulated other comprehensive income (“AOCI”) primarily due to a positive valuation adjustment on the available-for-sale (“AFS”) securities portfolio. Tangible equity increased $28.0 million, or 5%, and the tangible equity ratio increased 25 basis points to 7.03%, or 8.90% excluding AOCI. Regulatory ratios also improved during the first quarter of 2023 including CET1 of 9.96%, Tier 1 of 10.43% and Total Capital of 12.18%, each up 4-5 basis points. All of these ratios also exceed well-capitalized guidelines pro forma for AOCI, including CET1 of 7.88%, Tier 1 of 8.35% and Total Capital of 10.11%.

Total deposits declined 2% or $132.7 million during the first quarter of 2023, due to a $219.8 million decline in non-interest bearing deposits offset partly by increases of $75.9 million of interest-bearing customer deposits and $11.2 million of brokered deposits. The net decrease in non-brokered deposits occurred prior to the recent industry turmoil as total customer deposits increased by $14.2 million during the month of March. The full quarter decline in total and non-interest bearing deposits was primarily related to $107 million of funds used by commercial clients for non-recurring business dispositions and acquisitions, as well as a utilization of funds drawn on commercial lines of credit prior to year-end and then repaid in early 2023. Separately, $67 million of the decrease in non-interest-bearing deposits was due to transfers into IntraFi Cash Service (“ICS”) and other interest-bearing deposits or invested via wealth management with the Company.

Average interest-bearing deposit costs increased 62 basis points to 1.69% for the first quarter of 2023. This increase was primarily due to Public/ICS/CDARS as customers sought additional deposit insurance protection, money market accounts as a result of recent Company promotions and re-pricing, and time deposits as customers migrated to obtain yield compared to savings and checking accounts. However, the pace of increase slowed during the quarter as a result of actions taken by the Company, such that average interest-bearing deposit costs only increased two basis points to 1.79% during the month of March (from 1.77% in February), representing a cumulative beta of 35% compared to the change in the monthly average effective Federal Funds rate that increased 457 basis points to 4.65% since December 2021, as reported by the Federal Reserve Economic Data.

Uninsured deposits at March 31, 2023 were 32.3% of total deposits, or 19.6% adjusting for collateralized deposits, other uninsured deposits and internal company accounts. Total quantifiable liquidity sources totaled $2.45 billion, or 183.2% of adjusted uninsured deposits, and were comprised of the following at March 31, 2023:

• $157.0 million of cash and cash equivalents with a 4.90% Federal Reserve rate;
• $211.5 million of unpledged securities with an average yield of 2.97%;
• $1.36 billion of FHLB borrowing capacity with an overnight borrowing rate of 4.86%;
• $524.9 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 5.80%; and
• $129.9 million of borrowing capacity at the Federal Reserve with an average rate of 4.89%.

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 $73.2 million over the next 12 months. Further, the Company is in the process of establishing eligibility for the Federal Reserve Borrower-In-Custody Collateral Program, which is estimated to increase borrowing capacity by at least $300 million.

Net interest income and margin

Net interest income of $56.4 million on a tax equivalent (“TE”) basis in the first quarter of 2023 was down 10% from $62.8 million in the fourth quarter of 2022 and 3% from $58.1 million in the first quarter of 2022. The TE net interest margin of 2.90% in the first quarter of 2023 decreased 38 basis points from 3.28% in the fourth quarter of 2022 and 54 basis points from 3.44% in the first quarter of 2022. Results for all periods include the impact of PPP as well as acquisition marks and related accretion. First quarter 2023 includes $166 thousand of accretion in interest income, $221 thousand of accretion in interest expense, and $6 thousand of interest income on average balances of $965 thousand for PPP.

Excluding the impact of acquisition marks accretion and PPP loans, core net interest income was $56.0 million, down 10% from $62.2 million in the fourth quarter of 2022 but up 4% from $53.7 million in the first quarter of 2022. Additionally, the core net interest margin was 2.88% for the first quarter of 2023, down 37 basis points from 3.25% for the fourth quarter of 2022 and 32 basis points from 3.20% for the first quarter of 2022. These results are positively impacted by the combination of loan growth and higher loan yields, which were 4.66% for the first quarter of 2023 compared to 4.54% in the fourth quarter of 2022 and 4.11% in the first quarter of 2022. Excluding the impact of PPP, the balance sheet hedge and acquisition marks accretion, loan yields were 4.89% in March 2023 for an increase of 117 basis points since December 2021, which represents a cumulative beta of 25% compared to the change in the monthly average effective Federal Funds rate for the same period.

The cost of funds in the first quarter of 2023 was 1.51%, up 51 basis points from the fourth quarter of 2022 and up 133 basis points from the first quarter 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. The linked quarter increase is due to higher rates on FHLB borrowings and higher average deposit costs discussed above.

“Loan balances increased 1.8% for the quarter primarily driven by funding on construction commitments made in prior periods,” Small added. “Loan growth is expected to be modest over the course of the year in light of economic uncertainties and our focus on shoring up funding costs during the year.”

Non-interest income

Total non-interest income in the first quarter of 2023 of $12.5 million was down 12% from $14.2 million in the fourth quarter of 2022 and 26% from $16.9 million in the first quarter of 2022, primarily due to fluctuations in mortgage banking and gains/losses on securities. Mortgage banking income was essentially flat on a linked quarter basis but decreased $4.5 million year-over-year as a result of a $3.4 million decrease in gains primarily from a decrease in hedge valuations and a $0.1 million MSR valuation loss in the first quarter of 2023 compared to a $1.2 million gain in the first quarter of 2022. While mortgage pipeline hedges effectively net out over the life of the loans, individual periods can be volatile as market rates and prices change. Valuations generally decrease during periods when rates decrease and/or prices increase as experienced in the first quarter of 2023. However, the valuations will generally increase over the remaining term of the related loans such that no material net impact is expected over the life of the loans.

Security losses were $1.4 million in the first quarter of 2023, primarily due to decreased valuations on equity securities. This compares to a gain of $1.2 million in the fourth quarter of 2022 from $1.3 million of gains on the sale of $8.7 million of equity securities, partially offset by $0.1 million of decreased valuations on remaining equity securities, and to $0.6 million of losses from decreased valuations on equity securities in the first quarter of 2022. The company also sold $16 million of AFS securities for a $34 thousand gain with average yields less than FHLB borrowing rates during the first quarter of 2023. Service fees in the first quarter of 2023 were $6.4 million, a 3% decrease from $6.6 million in the fourth quarter of 2022 but a 7% increase from $6.0 million in the first quarter of 2022, primarily due to fluctuations in consumer activity for interchange and ATM/NSF charges. Insurance revenues included $0.9 million in contingent commissions in the first quarter of 2023, compared to $1.1 million in the first quarter of 2022. BOLI income of $1.4 million in the first quarter of 2023 increased from $1.0 million in the fourth and first quarters of 2022 due to $0.4 million of claim gains in 2023 compared to none in the 2022 periods.

“A good start to the year on consumer fees, wealth management income and insurance,” Small added. “Mortgage origination activity in the first quarter performed at a lighter pace than previous periods, consistent with the industry.”

Non-interest expenses

Non-interest expenses in the first quarter of 2023 were $42.8 million, a 1% decrease from $43.0 million in the fourth quarter of 2022 and a 4% increase from $41.3 million in the first quarter of 2022. Compensation and benefits were $25.7 million in the first quarter of 2023, compared to $25.0 million in the fourth quarter of 2022 and $25.5 million in the first quarter of 2022. The linked quarter increase was primarily due to higher base compensation, including 2023 annual adjustments. The year-over-year increase was primarily due to costs related to higher staffing levels for our 2022 growth initiatives and higher base compensation, including 2022 mid-year adjustments. Other expenses decreased $1.1 million on a linked quarter basis due to cost saving initiatives, and all other non-interest expenses increased a net $0.2 million on a linked quarter basis. Data processing and FDIC premiums increased $0.5 million and $0.7 million on a year-over-year basis, respectively, due to our 2022 growth initiatives, and all other non-interest expenses increased a net $0.3 million on a year-over-year basis. The efficiency ratio for the first quarter of 2023 of 60.9% worsened from 56.76% in the fourth quarter of 2022 and from 54.60% in the first quarter of 2022, primarily due to lower revenues.

“Approximately $2 million of expenses in the first quarter were either non-recurring or timing related, such that our efficiency ratio would have been approximately 58% excluding those,” said Paul Nungester, CFO of Premier. “In response to the net interest margin challenges being faced, we have identified cost savings totaling approximately $9 million to be realized during the remainder of the year such that total expenses this year are now estimated to be $163 million, compared to our prior estimate of $170 million.”

Credit quality

Non-performing assets totaled $34.8 million, or 0.41% of assets, at March 31, 2023, an increase from $34.4 million at December 31, 2022, but a decrease from $47.6 million at March 31, 2022. Loan delinquencies decreased to $11.1 million, or 0.16% of loans, at March 31, 2023, from $18.3 million at December 31, 2022, but increased from $7.6 million at March 31, 2022. Classified loans totaled $44.9 million, or 0.63% of loans, as of March 31, 2023, an increase from $43.8 million at December 31, 2022, but a decrease from $60.3 million at March 31, 2022.

The 2023 first quarter results include net loan charge-offs of $2.5 million and a total provision expense of $3.7 million, compared with net loan recoveries of $0.1 million and a total provision expense of $0.9 million for the same period in 2022. The current quarter charge-offs are primarily due to an annual appraisal update for a commercial relationship that will not recur during the remainder of 2023. The allowance for credit losses as a percentage of total loans was 1.13% at March 31, 2023, compared with 1.13% at December 31, 2022, and 1.25% at March 31, 2022. The allowance for credit losses as a percentage of total loans excluding PPP and including unaccreted acquisition marks was 1.16% at March 31, 2023, compared with 1.17% at December 31, 2022, and 1.34% at March 31, 2022. The continued economic improvement following the 2020 pandemic-related downturn has resulted in a year-over-year decrease in the allowance percentages.

Total assets at $8.56 billion

Total assets at March 31, 2023, were $8.56 billion, compared to $8.46 billion at December 31, 2022, and $7.59 billion at March 31, 2022. Gross loans receivable were $6.58 billion at March 31, 2023, compared to $6.46 billion at December 31, 2022, and $5.39 billion at March 31, 2022. At March 31, 2023, gross loans receivable increased $115.2 million on a linked quarter basis, or 7% annualized. Commercial loans excluding PPP increased by $69.2 million from December 31, 2022, or 6.5% annualized. Securities at March 31, 2023, were $1.00 billion, compared to $1.05 billion at December 31, 2022, and $1.23 billion at March 31, 2022. All securities are either AFS or trading and are reflected at fair value on the balance sheet. Also, at March 31, 2023, goodwill and other intangible assets totaled $335.8 million compared to $337.1 million at December 31, 2022, and $340.6 million at March 31, 2022, with the decreases attributable to intangibles amortization.

Total non-brokered deposits at March 31, 2023, were $6.62 billion, compared with $6.76 billion at December 31, 2022, and $6.32 billion at March 31, 2022. At March 31, 2023, customer deposits increased $301.9 million on a year-over-year basis, or 5%. Brokered deposits were $154.9 million at March 31, 2023, compared to $143.7 million at December 31, 2022 and none at March 31, 2022.

Total stockholders’ equity was $914.5 million at March 31, 2023, compared to $887.7 million at December 31, 2022, and $943.3 million at March 31, 2022. The quarterly increase in stockholders’ equity was primarily due to net earnings after dividends and an increase in AOCI, which was primarily related to $14.5 million for a positive valuation adjustment on the AFS securities portfolio. The year-over-year decrease was primarily due to a decrease in AOCI, which was primarily related to $65.1 million of negative valuation adjustments on the AFS securities portfolio. At March 31, 2023, 1,199,634 common shares remained available for repurchase under the Company’s existing repurchase program.

Dividend to be paid May 12

The Board of Directors declared a quarterly cash dividend of $0.31 per common share payable May 12, 2023, to shareholders of record at the close of business on May 5, 2023. The dividend represents an annual dividend of 6.6 percent based on the Premier common stock closing price on April 24, 2023. Premier has approximately 35,706,000 common shares outstanding.

Conference call

Premier will host a conference call at 11:00 a.m. ET on Wednesday, April 26, 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 019302. Internet access to the call is also available (in listen-only mode) at the following URL: https://events.q4inc.com/attendee/343832535. 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 and First Insurance Group. Premier Bank, headquartered in Youngstown, Ohio, operates 75 branches and 10 loan offices in Ohio, Michigan, Indiana, Pennsylvania and West Virginia (West Virginia office operates as Home Savings Bank) and serves clients through a team of wealth professionals dedicated to each community banking branch. First Insurance Group is a full-service insurance agency with ten offices in Ohio. 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 March 31, 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 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 believe that this metric is a useful supplemental measure of operating performance because investors and equity analysts may use this measure 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 and purchase accounting marks accretion. 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.