Premier Financial Stock: Setting Up For A 2023 Run (NASDAQ:PFC)

Premier Financial Corp. (NASDAQ:PFC) is a regional bank, and insurance company, that we think is setting up for a run in its stock in 2023. Stocks of financials have started taking a brief breather recently, and we think it is setting the stock up here to be bought for a better price. The reason we like this name, among others that are very similar, is that the ongoing rising rate environment is now having a pretty positive effect on net interest income of the financials. The spreads are favorable on what it takes in and pays for deposits and what it lends out. This is driving margin improvement and when combined with outstanding loan growth, the company is in great shape. Yes the inverted yield curve is flashing some warning signs, and that is why we see a recession landing in H1 2023. However, we think that as stocks fall in Q1 2023, you do some buying. You can start buying here in December and plan to add more if and when the market really hiccups. We think Q4 earnings reports could be the catalyst to take markets lower, as earnings expectations will likely reflect a weaker consumer and economy as a whole. The multiple on the market will dictate trading ranges.

Fundamentally, with Premier, we have a growing regional bank. This one is based out of Ohio and has expanded into Michigan, Indiana, and Pennsylvania. In this column, we check back in on PFC stock, and the recently reported earnings show improvement. In our opinion, the return metrics are strong. On top of that, the dividend yield is definitely attractive at 4.4%. The bank has also raised its dividend each year as well the last few years. We like the setup, the stock falling, ahead of what should be a strong 2023, particularly as we advance into the back half of 2023.

Premier Financial Corp. Q3 2022 performance

In Q3 we saw the bank expand its deposit base, grow loans, and generate decent margins. The overarching view we have is that Premier Financial Corp. is performing well. The headline performance on the Q3 report came in slightly above expectations. The revenues were up minimally from a year ago.

In Q3 2022, Premier reported top-line revenues of $80 million. The bank saw a 1.0% increase in this key metric year-over-year. This was above estimates by $1.3 million. Overall performance for banks was rather decent in Q3, but Premier had a strong report in our estimation. Now, as this is a smaller regional bank, keep in mind the bank is subject to revenue fluctuation quarter to quarter. That said, the key metrics are mostly all moving in the right direction, but the higher loan balances and decent portfolio yields are setting the bank up for success moving forward, but with a concern of recession in H1 2023, the bank upped its loan loss provisions.

The provision for credit losses increased to $4.0 million rising from a credit of $1.8 million in Q3 2021. A lot of this was from more overall loans on the books, as well as the general macro situation, the bank is preparing for increased delinquencies due to a more precarious economic situation in 2023. That said, net income for Q3 2022 was $28.2 million or $0.79 per share. This was up from $0.76 per share a year ago. We like the growth.

Growth was in part driven by increasing net interest income of $63.5 million, which is up 7.6% alone from the sequential Q2 2022. We expect net interest income to continue to improve moving forward, and earnings will be fueled even further by loan growth.

Loans and deposits grew in Q3

Premier Financial actually saw some strong growth in loans in Q3. In fact, loans jumped $300.9 million, or up 19.9% over Q3 2021. This growth came from strength across all categories, most notably, on residential mortgages and commercial loans. Overall, loan demand is robust, despite the huge increases in interest rates and the Fed taking action to slow the economy.

Now the other side of the equation is deposits. Well we saw growth here too folks. There is a lot of competition for deposit dollars right now so this impressive. Total deposits increased $146 million, or 9% from a year ago. Winning. More deposits translates to more assets on hand to lend out to customers. We love having more deposits now because the bank will be able to lend this money out at much higher rates in 2023 versus most 2022 loans. What is more, asset quality metrics are strong.

Strong asset quality metrics

The company also boasts favorable quality metrics. One key metric to watch is the bank’s allowance for credit losses. Well, the allowance for credit losses to total loans was just 1.14% at the end of Q3 2022. This was a 25 basis point improvement from a year ago, and flat from Q2. This is strong. Nonperforming assets were just $33.6 million, or 0.41% of assets at the end of Q3 2022, which is a nice sequential improvement from $35.0 million to start Q3 2022.

We also watch return metrics. That said, the return on assets rose to 1.37% from 1.16% in Q2 2022. That is great. The return on equity rose from 9.73% to 12.26% in Q2 2022. Also a very favorable trend. Finally, the return on tangible equity was really eyepopping at 19.50%, up from an already strong 15.41% last year. We see these trends continuing through 2023, though if recession is moderate or strong, we could have a weak Q1 and or Q2, but we suspect things ramp back up in Q3.

Finally, book value is $24.32, meaning the premium to book is minimal, although a touch expensive relative to tangible book of $14.82. Still, with the growth profile, we think book starts to improve as rates stabilize.

Take home

There is a lot to like here. We love the favorable moves in loans and deposits, as well as the strong yield, at 4.4. Dividends are also raised every year. The credit quality metrics are improving. So, let the market knock the stock down. We would add every $0.75 lower from here, and look to exit over $31 as traders.