Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 for Defiance, Ohio-based Premier Financial Corp. (NASDAQ: PFC) ("Premier Financial" or "the company"). In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for its subsidiary, Premier Bank. The Outlook for all long-term ratings is Stable.
The ratings are reinforced by PFC’s robust earnings capacity, which has been very stable over numerous years, and more recently, has been strengthened due to the effective integration of the merger with United Community Financial Corporation (closed in 1Q20) – resulting in improved operating efficiency. Given this, the company’s core ROA, which tracked above 1.50% for 2018-2019, surpassed 1.80% for 2Q20. Moreover, the earnings profile is diverse – with noninterest income generally accounting for 25%-30% of revenues, which is typically derived from more durable fee income sources, including insurance and wealth management. Another ratings driver is the company’s strong credit position entering the COVID-19 pandemic. Premier Financial has demonstrated solid credit performance in recent years (NCO ratio averaged 1 bp from 2015-2019), which illustrates management’s knowledge of local markets/borrowers, and their conservative underwriting. To prepare for potentially higher credit issues (deferral trends and Phase-1 exposures are in line with peers), management has effectively constructed the balance sheet to weather the pandemic from a loss absorption standpoint – with a higher level of loan loss reserves and a solid capital position, in our view. KBRA also acknowledges PFC’s favorable deposit composition (core deposits represent 97% of deposits), facilitating below-peer funding costs.
Premier Financial’s balance sheet reflects a higher concentration of loans in the earning asset mix, which translates into a modestly higher risk profile (above-peer risk weighted density). Moreover, the loan portfolio has an above average exposure to real estate lending, predominantly concentrated in Ohio, which presents some geographic risks. KBRA also recognizes the limited operating history of the combined bank following the MOE, though it appears integration has been relatively seamless.
KBRA continues to monitor the potential direct and indirect effects of the coronavirus on the banking sector, among others. Please refer to our publication U.S. Bank 2Q 2020 Ratings Compendium for our latest thoughts.
The ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
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