株探米国株
英語
エドガーで原本を確認する
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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _______________

Commission File Number: 0-26850

 

Premier Financial Corp.

(Exact Name of Registrant as Specified in its Charter)

 

 

Ohio

34-1803915

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

601 Clinton Street

Defiance, OH

43512

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (419) 785-8700

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, Par Value $0.01 Per Share

 

PFC

 

The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☒

Accelerated filer

☐

 

 

 

 

Non-accelerated filer

☐

Smaller reporting company

☐

 

 

 

 

 

 

 

Emerging growth company

 

☐

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 30, 2023, the registrant had 35,732,769 shares of common stock, $.01 par value per share, outstanding.

 

 

 

 

Table of Contents

PREMIER FINANCIAL CORP.

 

INDEX

 

 

Page

Number

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Consolidated Condensed Financial Statements (Unaudited):

2

 

 

 

 

 

 

Consolidated Condensed Statements of Financial Condition – September 30, 2023 and December 31, 2022

2

 

 

 

 

 

 

Consolidated Condensed Statements of Income – three and nine months ended September 30, 2023 and 2022

3

 

 

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income (Loss) – three and nine months ended September 30, 2023 and 2022

4

 

 

 

 

 

 

Consolidated Condensed Statements of Changes in Stockholders’ Equity – three and nine months ended September 30, 2023 and 2022

5

 

 

 

 

 

 

Consolidated Condensed Statements of Cash Flows – nine months ended September 30, 2023 and 2022

7

 

 

 

 

 

 

Notes to Consolidated Condensed Financial Statements

8

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

45

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

62

 

 

 

 

Item 4.

 

Controls and Procedures

64

 

 

 

 

PART II - OTHER INFORMATION:

 

 

 

Item 1.

 

Legal Proceedings

64

 

 

 

 

Item 1A.

 

Risk Factors

65

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

65

 

 

 

 

Item 3.

 

Defaults upon Senior Securities

65

 

 

 

 

Item 4.

 

Mine Safety Disclosures

65

 

 

 

 

Item 5.

 

Other Information

65

 

 

 

 

Item 6.

 

Exhibits

66

 

 

 

 

 

 

Signatures

67

 

 

Table of Contents

 

PART I-FINANCIAL INFORMATION

PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Financial Condition

(UNAUDITED)

(Amounts in Thousands, except share and per share data)

 

 

 

 

September 30,
2023

 

 

December 31,
2022

 

Assets

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

Cash and amounts due from depository institutions

 

$

70,642

 

 

$

88,257

 

Interest-bearing deposits

 

 

46,855

 

 

 

39,903

 

 

 

117,497

 

 

 

128,160

 

Securities available-for-sale, carried at fair value

 

 

911,184

 

 

 

1,040,081

 

Equity securities, carried at fair value

 

 

5,860

 

 

 

7,832

 

Loans held for sale, carried at fair value

 

 

135,218

 

 

 

115,251

 

Loans receivable, net of allowance for credit losses of $76,513 at September 30, 2023 and $72,816 at December 31, 2022, respectively

 

 

6,620,356

 

 

 

6,387,804

 

Mortgage servicing rights

 

 

19,642

 

 

 

21,171

 

Accrued interest receivable

 

 

34,648

 

 

 

28,709

 

Federal Home Loan Bank stock

 

 

25,049

 

 

 

29,185

 

Bank owned life insurance

 

 

172,906

 

 

 

170,713

 

Premises and equipment

 

 

55,679

 

 

 

55,541

 

Real estate and other assets held for sale

 

 

387

 

 

 

619

 

Goodwill

 

 

295,602

 

 

 

317,988

 

Core deposit and other intangibles

 

 

13,220

 

 

 

19,074

 

Other assets

 

 

155,628

 

 

 

133,214

 

Total assets

 

$

8,562,876

 

 

$

8,455,342

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Deposits

 

$

7,065,639

 

 

$

6,906,719

 

Advances from the Federal Home Loan Bank

 

 

339,000

 

 

 

428,000

 

Subordinated debentures

 

 

85,197

 

 

 

85,103

 

Advance payments by borrowers

 

 

22,781

 

 

 

34,188

 

Reserve for credit losses - unfunded commitments

 

 

4,690

 

 

 

6,816

 

Other liabilities

 

 

126,002

 

 

 

106,795

 

Total liabilities

 

 

7,643,309

 

 

 

7,567,621

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $.01 par value per share: 37,000 shares authorized; no
   shares issued

 

 

—

 

 

—

 

Preferred stock, $.01 par value per share: 4,963,000 shares authorized; no
   shares issued

 

—

 

 

—

 

Common stock, $.01 par value per share: 50,000,000 shares authorized;
   43,297,260 and 43,297,260 shares issued and 35,731,275 and 35,591,277
   shares outstanding at September 30, 2023 and December 31, 2022, respectively

 

 

306

 

 

 

306

 

Additional paid-in capital

 

 

690,038

 

 

 

691,453

 

Accumulated other comprehensive loss, net of tax of $(53,239) and
    $(46,323), respectively

 

 

(200,282

)

 

 

(173,460

)

Retained earnings

 

 

560,945

 

 

 

502,909

 

Treasury stock, at cost, 7,565,985 shares at September 30, 2023 and 7,705,983 
    shares at December 31, 2022

 

 

(131,440

)

 

 

(133,487

)

Total stockholders’ equity

 

 

919,567

 

 

 

887,721

 

Total liabilities and stockholders’ equity

 

$

8,562,876

 

 

$

8,455,342

 

See accompanying notes.

2

Table of Contents

 

PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Income

(UNAUDITED)

(Amounts in Thousands, except per share data)

 

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

86,612

 

 

$

65,559

 

 

$

244,285

 

 

$

177,366

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

6,377

 

 

 

5,965

 

 

 

19,392

 

 

 

15,901

 

Non-taxable

 

 

566

 

 

 

849

 

 

 

1,809

 

 

 

2,588

 

Interest-bearing deposits

 

 

652

 

 

 

221

 

 

 

1,737

 

 

 

387

 

FHLB stock dividends

 

 

690

 

 

 

510

 

 

 

1,989

 

 

 

743

 

Total interest income

 

 

94,897

 

 

 

73,104

 

 

 

269,212

 

 

 

196,985

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

34,874

 

 

 

6,855

 

 

 

83,157

 

 

 

11,749

 

FHLB advances and other

 

 

4,597

 

 

 

2,069

 

 

 

18,150

 

 

 

2,609

 

Subordinated debentures

 

 

1,162

 

 

 

868

 

 

 

3,362

 

 

 

2,326

 

Notes payable

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

Total interest expense

 

 

40,633

 

 

 

9,792

 

 

 

104,669

 

 

 

16,685

 

Net interest income

 

 

54,264

 

 

 

63,312

 

 

 

164,543

 

 

 

180,300

 

Credit loss expense - loans and leases

 

 

245

 

 

 

3,706

 

 

 

5,599

 

 

 

9,483

 

Credit loss (benefit) expense - unfunded commitments

 

 

(1,018

)

 

 

306

 

 

 

(2,126

)

 

 

2,030

 

Net interest income after credit loss expense (benefit)

 

 

55,037

 

 

 

59,300

 

 

 

161,070

 

 

 

168,787

 

Non-interest Income

 

 

 

 

 

 

 

 

 

 

 

 

Service fees and other charges

 

 

6,947

 

 

 

6,545

 

 

 

20,564

 

 

 

19,221

 

Insurance commissions

 

 

—

 

 

 

3,488

 

 

 

8,856

 

 

 

12,043

 

Mortgage banking income

 

 

3,274

 

 

 

3,970

 

 

 

5,940

 

 

 

10,170

 

Gain on sale of non-mortgage loans

 

 

—

 

 

 

—

 

 

 

71

 

 

 

—

 

Gain on sale insurance agency

 

 

—

 

 

 

—

 

 

 

36,296

 

 

 

—

 

Gain on sale of securities available for sale

 

 

—

 

 

 

—

 

 

 

27

 

 

 

—

 

Gain (loss) on equity securities

 

 

256

 

 

 

43

 

 

 

(1,118

)

 

 

(1,760

)

Wealth management income

 

 

1,509

 

 

 

1,355

 

 

 

4,531

 

 

 

4,246

 

Income from Bank Owned Life Insurance

 

 

1,050

 

 

 

983

 

 

 

3,482

 

 

 

2,961

 

Other non-interest income

 

 

217

 

 

 

320

 

 

 

412

 

 

 

1,051

 

Total non-interest income

 

 

13,253

 

 

 

16,704

 

 

 

79,061

 

 

 

47,932

 

Non-interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

21,813

 

 

 

24,522

 

 

 

71,646

 

 

 

72,397

 

Occupancy

 

 

3,145

 

 

 

3,463

 

 

 

10,039

 

 

 

10,657

 

FDIC insurance premium

 

 

1,346

 

 

 

976

 

 

 

4,420

 

 

 

2,370

 

Financial institutions tax

 

 

989

 

 

 

1,050

 

 

 

2,802

 

 

 

3,315

 

Data processing

 

 

4,010

 

 

 

3,121

 

 

 

11,513

 

 

 

9,899

 

Amortization of intangibles

 

 

1,078

 

 

 

1,338

 

 

 

3,571

 

 

 

4,156

 

Transaction costs

 

 

—

 

 

 

—

 

 

 

3,652

 

 

 

—

 

Other non-interest expense

 

 

5,671

 

 

 

6,629

 

 

 

17,695

 

 

 

18,689

 

Total non-interest expense

 

 

38,052

 

 

 

41,099

 

 

 

125,338

 

 

 

121,483

 

Income before income taxes

 

 

30,238

 

 

 

34,905

 

 

 

114,793

 

 

 

95,236

 

Income tax expense

 

 

5,551

 

 

 

6,710

 

 

 

23,566

 

 

 

18,324

 

Net income

 

$

24,687

 

 

$

28,195

 

 

$

91,227

 

 

$

76,912

 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.69

 

 

$

0.79

 

 

$

2.55

 

 

$

2.15

 

Diluted

 

$

0.69

 

 

$

0.79

 

 

$

2.55

 

 

$

2.15

 

 

See accompanying notes.

3

Table of Contents

 

PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(UNAUDITED)

(Amounts in Thousands)

 

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

24,687

 

 

$

28,195

 

 

$

91,227

 

 

$

76,912

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities available for sale

 

 

(31,552

)

 

 

(55,350

)

 

 

(28,443

)

 

 

(182,755

)

Reclassification adjustment for securities (gains) losses included in net income

 

 

—

 

 

 

—

 

 

 

(27

)

 

 

—

 

Income tax effect

 

 

6,626

 

 

 

11,624

 

 

 

5,979

 

 

 

38,378

 

Net of tax amount

 

 

(24,926

)

 

 

(43,726

)

 

 

(22,491

)

 

 

(144,377

)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on balance sheet swap

 

 

(11,572

)

 

 

(13,343

)

 

 

(13,468

)

 

 

(43,294

)

Reclassification adjustment for cash flow hedge derivatives gains included in net income

 

 

3,525

 

 

 

(266

)

 

 

7,985

 

 

 

982

 

Income tax effect

 

 

1,412

 

 

 

2,858

 

 

 

1,152

 

 

 

8,886

 

Net of tax amount

 

 

(6,635

)

 

 

(10,751

)

 

 

(4,331

)

 

 

(33,426

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

(31,561

)

 

 

(54,477

)

 

 

(26,822

)

 

 

(177,803

)

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

(6,874

)

 

$

(26,282

)

 

$

64,405

 

 

$

(100,891

)

 

See accompanying notes.

4

Table of Contents

 

PREMIER FINANCIAL CORP.

Consolidated Statement of Changes in Stockholders’ Equity

(UNAUDITED)

(Amounts in Thousands, except share and per share data)

 

 

 

 

Preferred
Stock

 

 

Common
Stock
Shares

 

 

Common
Stock

 

 

Additional
Paid-In
Capital

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Retained
Earnings

 

 

Treasury
Stock

 

 

Total
Stockholders
Equity

 

Balance at January 1, 2023

 

$

—

 

 

 

35,591,277

 

 

$

306

 

 

$

691,453

 

 

$

(173,460

)

 

$

502,909

 

 

$

(133,487

)

 

$

887,721

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,149

 

 

 

 

 

 

18,149

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,751

 

 

 

 

 

 

 

 

 

19,751

 

Deferred compensation plan

 

 

 

 

 

9,196

 

 

 

 

 

 

75

 

 

 

 

 

 

 

 

 

(75

)

 

 

—

 

Stock based compensation expenses

 

 

 

 

 

753

 

 

 

 

 

 

112

 

 

 

 

 

 

 

 

 

13

 

 

 

125

 

Vesting of incentive plans

 

 

 

 

 

62,061

 

 

 

 

 

 

(1,078

)

 

 

 

 

 

 

 

 

1,078

 

 

 

—

 

Restricted share issuance

 

 

 

 

 

60,526

 

 

 

 

 

 

(755

)

 

 

 

 

 

 

 

 

1,051

 

 

 

296

 

Restricted share forfeitures

 

 

 

 

 

(22,178

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(544

)

 

 

(544

)

Shares repurchased

 

 

 

 

 

(391

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

(11

)

Common stock dividend payment ($0.31 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,037

)

 

 

 

 

 

(11,037

)

Balance at March 31, 2023

 

$

—

 

 

 

35,701,244

 

 

$

306

 

 

$

689,807

 

 

$

(153,709

)

 

$

510,021

 

 

$

(131,975

)

 

$

914,450

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48,391

 

 

 

 

 

 

48,391

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,012

)

 

 

 

 

 

 

 

 

(15,012

)

Deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

13

 

 

 

—

 

Stock based compensation expenses

 

 

 

 

 

1,232

 

 

 

 

 

 

282

 

 

 

 

 

 

 

 

 

21

 

 

 

303

 

Vesting of incentive plans

 

 

 

 

 

4,173

 

 

 

 

 

 

(72

)

 

 

 

 

 

 

 

 

72

 

 

 

—

 

Restricted share issuance

 

 

 

 

 

26,545

 

 

 

 

 

 

(461

)

 

 

 

 

 

 

 

 

461

 

 

 

—

 

Restricted share forfeitures

 

 

 

 

 

(6,491

)

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

(121

)

 

 

(85

)

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

Common stock dividend payment ($0.31 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,076

)

 

 

 

 

 

(11,076

)

Balance at June 30, 2023

 

$

—

 

 

 

35,726,703

 

 

$

306

 

 

$

689,579

 

 

$

(168,721

)

 

$

547,336

 

 

$

(131,529

)

 

$

936,971

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,687

 

 

 

 

 

 

24,687

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,561

)

 

 

 

 

 

 

 

 

(31,561

)

Deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

13

 

 

 

—

 

Stock based compensation expenses

 

 

 

 

 

945

 

 

 

 

 

 

532

 

 

 

 

 

 

 

 

 

16

 

 

 

548

 

Vesting of incentive plans

 

 

 

 

 

546

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

9

 

 

 

—

 

Restricted share issuance

 

 

 

 

 

4,059

 

 

 

 

 

 

(71

)

 

 

 

 

 

 

 

 

71

 

 

 

—

 

Restricted share forfeitures

 

 

 

 

 

(2,464

)

 

 

 

 

 

31

 

 

 

 

 

 

 

 

 

(46

)

 

 

(15

)

Shares issued under stock option plan

 

 

 

 

 

1,486

 

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

26

 

 

 

15

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

Common stock dividend payment ($0.31 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,078

)

 

 

 

 

 

(11,078

)

Balance at September 30, 2023

 

$

—

 

 

 

35,731,275

 

 

$

306

 

 

$

690,038

 

 

$

(200,282

)

 

$

560,945

 

 

$

(131,440

)

 

$

919,567

 

 

5

Table of Contents

 

 

 

Preferred
Stock

 

 

Common
Stock
Shares

 

 

Common
Stock

 

 

Additional
Paid-In
Capital

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Retained
Earnings

 

 

Treasury
Stock

 

 

Total
Stockholders
Equity

 

Balance at January 1, 2022

 

$

—

 

 

 

36,383,613

 

 

$

306

 

 

$

691,132

 

 

$

(3,428

)

 

$

443,517

 

 

$

(108,031

)

 

$

1,023,496

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,357

 

 

 

 

 

 

26,357

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(72,069

)

 

 

 

 

 

 

 

 

(72,069

)

Deferred compensation plan

 

 

 

 

 

9,933

 

 

 

 

 

 

(14

)

 

 

 

 

 

 

 

 

14

 

 

 

—

 

Vesting of incentive plans

 

 

 

 

 

5,660

 

 

 

 

 

 

760

 

 

 

 

 

 

 

 

 

246

 

 

 

1,006

 

Restricted share issuance

 

 

 

 

 

19,936

 

 

 

 

 

 

(597

)

 

 

 

 

 

 

 

 

351

 

 

 

(246

)

Restricted share forfeitures

 

 

 

 

 

(5,398

)

 

 

 

 

 

69

 

 

 

 

 

 

 

 

 

(285

)

 

 

(216

)

Shares repurchased

 

 

 

 

 

(793,166

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,245

)

 

 

(24,245

)

Common stock dividend payment ($0.30 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,787

)

 

 

 

 

 

(10,787

)

Balance at March 31, 2022

 

$

—

 

 

 

35,620,578

 

 

$

306

 

 

$

691,350

 

 

$

(75,497

)

 

$

459,087

 

 

$

(131,950

)

 

$

943,296

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,360

 

 

 

 

 

 

22,360

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(51,257

)

 

 

 

 

 

 

 

 

(51,257

)

Deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

 

 

 

 

 

 

14

 

 

 

—

 

Stock based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

157

 

 

 

 

 

 

 

 

 

 

 

 

157

 

Vesting of incentive plans

 

 

 

 

 

5,547

 

 

 

 

 

 

(167

)

 

 

 

 

 

 

 

 

167

 

 

 

—

 

Restricted share issuance

 

 

 

 

 

24,256

 

 

 

 

 

 

(421

)

 

 

 

 

 

 

 

 

421

 

 

 

—

 

Restricted share forfeitures

 

 

 

 

 

(4,033

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(118

)

 

 

(118

)

Shares repurchased

 

 

 

 

 

(90,870

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,623

)

 

 

(2,623

)

Common stock dividend payment ($0.30 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,668

)

 

 

 

 

 

(10,668

)

Balance at June 30, 2022

 

$

—

 

 

 

35,555,478

 

 

$

306

 

 

$

690,905

 

 

$

(126,754

)

 

$

470,779

 

 

$

(134,089

)

 

$

901,147

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,195

 

 

 

 

 

 

28,195

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54,477

)

 

 

 

 

 

 

 

 

(54,477

)

Deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

 

 

 

 

 

 

14

 

 

 

—

 

Stock based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

711

 

 

 

 

 

 

 

 

 

 

 

 

711

 

Shares issued under stock option plan

 

 

 

 

 

3,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53

 

 

 

53

 

Restricted share issuance

 

 

 

 

 

8,521

 

 

 

 

 

 

(148

)

 

 

 

 

 

 

 

 

148

 

 

 

—

 

Restricted share forfeitures

 

 

 

 

 

(4,315

)

 

 

 

 

 

124

 

 

 

 

 

 

 

 

 

(124

)

 

 

—

 

Common stock dividend payment ($0.30 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,669

)

 

 

 

 

 

(10,669

)

Balance at September 30, 2022

 

$

—

 

 

 

35,562,684

 

 

$

306

 

 

$

691,578

 

 

$

(181,231

)

 

$

488,305

 

 

$

(133,998

)

 

$

864,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

6

Table of Contents

 

PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Cash Flows

(UNAUDITED)

(Amounts in Thousands)

 

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

Operating Activities

 

 

 

 

 

 

Net income

 

$

91,227

 

 

$

76,912

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Provision for credit losses

 

 

3,473

 

 

 

11,513

 

Depreciation

 

 

3,980

 

 

 

4,264

 

Amortization of premium and discounts on loans, securities, deposits and debt obligations

 

 

4,301

 

 

 

6,920

 

Amortization of mortgage servicing rights, net of impairment charges/recoveries

 

 

3,632

 

 

 

2,504

 

Amortization of intangibles

 

 

3,571

 

 

 

4,156

 

Change in deferred taxes

 

 

(2,336

)

 

 

(774

)

Proceeds from the sale of loans held for sale

 

 

175,430

 

 

 

264,253

 

Originations of loans held for sale

 

 

(193,511

)

 

 

(227,175

)

Mortgage banking gain, net

 

 

(3,989

)

 

 

(7,072

)

Gain on sale of insurance agency, net

 

 

(32,644

)

 

 

—

 

Loss (gain) on sale / write-down of real estate and other assets held for sale

 

 

99

 

 

 

(78

)

Gain on sale of available for sale securities

 

 

(27

)

 

 

—

 

Loss on equity securities

 

 

1,118

 

 

 

1,760

 

Stock based compensation expense

 

 

1,272

 

 

 

1,628

 

Restricted stock forfeitures for taxes and option exercises

 

 

(644

)

 

 

(334

)

Income from bank owned life insurance

 

 

(3,060

)

 

 

(2,961

)

Changes in:

 

 

 

 

 

 

Accrued interest receivable and other assets

 

 

(20,540

)

 

 

(62,582

)

Other liabilities

 

 

16,779

 

 

 

45,332

 

Net cash provided by operating activities

 

 

48,131

 

 

 

118,266

 

Investing Activities

 

 

 

 

 

 

Proceeds from maturities, calls and pay-downs of available-for-sale securities

 

 

77,783

 

 

 

76,837

 

Proceeds from sale of available-for-sale securities

 

 

21,377

 

 

 

—

 

Proceeds from sale of equity securities

 

 

854

 

 

 

—

 

Proceeds from sale of premises and equipment, real estate and other assets held for sale

 

 

906

 

 

 

475

 

Purchases of available-for-sale securities

 

 

(2,346

)

 

 

(122,458

)

Purchases of equity securities

 

 

—

 

 

 

(2,999

)

Net change in Federal Home Loan Bank stock

 

 

4,136

 

 

 

(16,677

)

Cash received in disposition

 

 

47,354

 

 

 

—

 

Purchases of premises and equipment, net

 

 

(4,560

)

 

 

(2,409

)

Investment in bank owned life insurance

 

 

867

 

 

 

—

 

Net increase in loans receivable

 

 

(231,104

)

 

 

(919,634

)

Net cash used in investing activities

 

 

(84,733

)

 

 

(986,865

)

Financing Activities

 

 

 

 

 

 

Net increase in deposits and advance payments by borrowers

 

 

148,126

 

 

 

459,964

 

Net change in Federal Home Loan Bank advances

 

 

(89,000

)

 

 

411,000

 

Net cash paid for repurchase of common stock

 

 

(11

)

 

 

(26,868

)

Proceeds from exercise of stock options

 

 

15

 

 

 

53

 

Cash dividends paid on common stock

 

 

(33,191

)

 

 

(32,124

)

Net cash provided by financing activities

 

 

25,939

 

 

 

812,025

 

Decrease in cash and cash equivalents

 

 

(10,663

)

 

 

(56,574

)

Cash and cash equivalents at beginning of period

 

 

128,160

 

 

 

161,566

 

Cash and cash equivalents at end of period

 

$

117,497

 

 

$

104,992

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

 

$

93,665

 

 

$

16,529

 

Income taxes paid

 

 

21,293

 

 

 

12,320

 

Initial recognition of right-of-use asset

 

 

505

 

 

 

643

 

Initial recognition of lease liability

 

 

505

 

 

 

643

 

Transfers from loans to real estate and other assets held for sale

 

 

—

 

 

 

—

 

See accompanying notes.

7

Table of Contents

 

PREMIER FINANCIAL CORP.

Notes to Consolidated Condensed Financial Statements (UNAUDITED)

September 30, 2023 and 2022

 

 

1. Basis of Presentation

Premier Financial Corp. (“Premier” or the “Company”) is a financial holding company that conducts business through its wholly-owned subsidiaries, Premier Bank (the "Bank"), First Insurance Group of the Midwest, Inc. (“First Insurance”), PFC Risk Management Inc. (“PFC Risk Management”), and PFC Capital, LLC (“PFC Capital”). All significant intercompany transactions and balances are eliminated in consolidation. Premier’s stock is traded on the NASDAQ Global Select Market under the ticker PFC.

The Bank is primarily engaged in community banking. It attracts deposits from the general public through its offices and website, and uses those and other available sources of funds to originate residential real estate loans, commercial real estate loans, commercial loans, home improvement and home equity loans and consumer loans. In addition, the Bank invests in U.S. Treasury and federal government agency obligations, obligations of states and political subdivisions, mortgage-backed securities ("MBS") that are issued by federal agencies, collateralized mortgage obligations (“CMOs”), and corporate bonds. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a member of the Federal Home Loan Bank (“FHLB”) System.

PFC Risk Management is a wholly-owned insurance company subsidiary of the Company that insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible, in today’s insurance marketplace. PFC Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer. On April 10, 2023, the IRS issued IR-2023-74 proposing regulations that classify 831(b) captives with less than a 65% claims loss ratio as a “listed transaction”. We are currently reviewing the proposed regulations and consulting with tax advisors to understand the impact on PFC Risk Management if the final regulations are substantially similar to the proposed regulations. The ultimate impact of the proposal and the impact on the Company is uncertain.

PFC Capital was formed as an Ohio limited liability company in 2016 for the purpose of providing mezzanine funding for customers. Mezzanine loans are offered by PFC Capital to customers in the Company’s market area and are expected to be repaid from the cash flow from operations of the business.

First Insurance was an insurance agency that conducted business throughout Premier’s markets. First Insurance offered property and casualty insurance, life insurance and group health insurance. On June 30, 2023, the Company completed the sale of substantially all of the assets (including $24.7 million of goodwill and intangibles) of First Insurance Group to Risk Strategies Corporation (“Buyer”). Consideration included a combination of cash and a subordinated note resulting in net cash received of $47.4 million after certain transaction costs at closing, the assumption of certain leases, and contingent consideration subject to certain performance criteria by the Buyer to be determined after the year ended December 31, 2026. The Company recorded a pre-tax gain on sale of $36.3 million, transaction costs of $3.7 million and taxes of $8.5 million for a $24.1 million increase to equity in 2023.

The Company tests goodwill at least annually and, more frequently, if events or changes in circumstances indicate that it may be more likely than not that there is a possible impairment. Due to the ongoing impacts from the closure of large, well-known regional banks in early 2023 that led to a significant decline in bank stock prices, the Company conducted a quantitative interim goodwill impairment assessment at September 30, 2023. The impairment assessment compares the fair value of identified reporting units with their carrying amount (including goodwill).

8

Table of Contents

 

If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. The Company's interim assessment estimated fair value on an income approach that incorporated a discounted cash flow model that involves management assumptions and consideration of future economic forecasts available. Results of the interim assessment indicated no goodwill impairment as of September 30, 2023. The Company will continue to monitor its goodwill for possible impairment.

The consolidated condensed statement of financial condition at December 31, 2022, was derived from the audited financial statements at that date, which were included in Premier’s Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Form 10-K").

The accompanying consolidated condensed financial statements as of September 30, 2023, and for the three and nine months ended September 30, 2023 and 2022 have been prepared by the Company without audit and do not include information or footnotes necessary for the complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). These consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the 2022 Form 10-K. However, in the opinion of management, all adjustments, consisting of only normal recurring items, necessary for the fair presentation of the financial statements have been made. The results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the entire year.

 

2. Significant Accounting Policies

Accounting Standards Update

ASU No. 2020-04: Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848): On March 12, 2020, the FASB issued Accounting Standards Update (ASU) 2020-4, "Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASC 848 contains optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rates expected to be discontinued. The Company has formed a cross-functional project team to lead the transition from LIBOR to adoption of alternative reference rates which include Secured Overnight Financing Rate (“SOFR”). The Company identified outstanding loans with LIBOR-based rates and obtained updated reference rate language either at the time of renewal or through separate amendment, or otherwise established that an alternate reference rate will apply after June 30, 2023. Additionally, management is utilizing the timeline guidance published by the Alternative Reference Rates Committee to develop and achieve internal milestones during this transitional period. The Company has adhered to the International Swaps and Derivatives Association 2020 IBOR Fallbacks Protocol that was released on October 23, 2020. The Company discontinued the use of new LIBOR-based loans by December 31, 2021, according to regulatory guidelines. On December 21, 2022, the FASB issued ASU 2022-06, "Reference Rare Reform (Topic 848): Deferral of the Sunset of Date of Topic 848," which extends the sunset date of ASC Topic 848, "Reference Rate Reform," to December 31, 2024.

 

ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures: On March 30, 2022, the FASB issued ASU 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" which eliminated troubled debt restructuring ("TDR") accounting for entities that have adopted ASU 2016-13, the current expected credit loss ("CECL") model and added new vintage disclosures for gross write-offs. The elimination of TDR accounting could be adopted either prospectively for loan modifications or on a modified retrospective basis that could result in a cumulative effect adjustment to retained earnings in the period of adoption.

9

Table of Contents

 

The Company adopted ASU 2022-02 on January 1, 2023 on a modified retrospective basis. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements. Therefore, the Company did not make an adjustment to retained earnings. The effect of adoption is included in provision for 2023.

 

ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements: On March 27, 2023, the FASB issued ASU 2023-01 “Leases (Topic 842): Common Control Arrangements” in order to improve the guidance for applying this topic to arrangements between entities under common control. This ASU also requires all entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. ASU 2023-01 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, however, if an entity adopts these amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes the interim period. The Company does not anticipate any material effect on the Company upon adoption.

3. Fair Value

FASB ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

FASB ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on the best information available. In that regard, FASB ASC Topic 820 established a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

•
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
•
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by a correlation or other means.

10

Table of Contents

 

•
Level 3: Unobservable inputs for determining fair value of assets and liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Available-for-sale securities - Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs where the Company obtains fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows and the bonds’ terms and conditions, among other things. Securities in Level 2 include U.S. federal government agencies, MBS, asset-backed securities ("ABS"), corporate bonds and municipal securities. Securities in Level 1 include U.S. treasuries.

Equity securities – These securities are reported at fair value utilizing Level 1 inputs where the Company obtains fair value measurements from a broker.

Loans held for sale, carried at fair value – The Company has elected the fair value option for all loans held for sale originated after January 31, 2020.

The fair value of conventional loans held for sale is determined using the current 15 day forward contract price for either 15 or 30 year conventional mortgages (Level 2). The fair value of permanent construction loans held for sale is determined using the current 5 day forward contract price for 15 or 30 years conventional mortgages which is then adjusted for unobservable market data such as estimated fall out rates and estimated time from origination to completion of construction (Level 3).

Collateral dependent loans - Fair values for individually analyzed collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances consideration of offers obtained to purchase properties prior to foreclosure. Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach. The cost method bases value on the cost to replace the current property. Value of market comparison approach evaluates the sales price of similar properties in the same market area. The income approach considers net operating income generated by the property and an investor’s required return. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell. Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value.

11

Table of Contents

 

Real estate held for sale - Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are then reviewed monthly by members of the asset review committee for valuation changes and are accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which may utilize a single valuation approach or a combination of approaches including cost, comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both individually analyzed collateral-dependent loans and other real estate owned ("OREO") are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal. Appraisal values are discounted from 0% to 30% to account for other factors that may impact the value of collateral. In determining the value of individually analyzed collateral dependent loans and OREO, significant unobservable inputs may be used, which include but are not limited to: physical condition of comparable properties sold, net operating income generated by the property and investor rates of return.

Mortgage servicing rights - On a quarterly basis, mortgage servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level based on a model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and are validated against available market data (Level 2).

Mortgage banking derivative - The fair value of mortgage banking derivatives are evaluated monthly based on derivative valuation models using quoted prices for similar assets adjusted for specific attributes of the commitments and other observable market data at the valuation date (Level 2).

Interest rate swaps – The Company periodically enters into interest rate swap agreements with its commercial customers who desire a fixed rate loan term that is longer than the Company is willing to extend. The Company then enters into a reciprocal swap agreement with a third party that offsets the interest rate risk from the interest rate swap extended to the customer. The interest rate swaps are derivative instruments which are carried at fair value on the statement of financial condition. The Company uses an independent third party to perform a market valuation analysis for both swap positions (Level 2).

The Company also enters into cash flow and fair value hedge derivative instruments to hedge the risk of variability in cash flows on the Company’s floating rate loan pool, fixed rate mortgage loan pool and FHLB advances. The Company uses an independent third party to perform a market valuation analysis for these derivatives (Level 2).

12

Table of Contents

 

The following table summarizes the financial assets measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

Assets and Liabilities Measured on a Recurring Basis

 

September 30, 2023

 

Level 1
Inputs

 

 

Level 2
Inputs

 

 

Level 3
Inputs

 

 

Total
Fair Value

 

 

 

(In Thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. federal government corporations and
        agencies

 

$

—

 

 

$

92,251

 

 

$

—

 

 

$

92,251

 

Mortgage-backed securities

 

 

—

 

 

 

150,294

 

 

 

—

 

 

 

150,294

 

Collateralized mortgage obligations

 

 

—

 

 

 

226,010

 

 

 

—

 

 

 

226,010

 

Asset-backed securities

 

 

—

 

 

 

144,016

 

 

 

—

 

 

 

144,016

 

Corporate bonds

 

 

—

 

 

 

60,833

 

 

 

—

 

 

 

60,833

 

Obligations of state and political subdivisions

 

 

—

 

 

 

190,753

 

 

 

—

 

 

 

190,753

 

US Treasuries

 

 

47,027

 

 

 

—

 

 

 

—

 

 

 

47,027

 

Equity securities

 

 

5,860

 

 

 

—

 

 

 

—

 

 

 

5,860

 

Loans held for sale, at fair value

 

 

—

 

 

 

14,198

 

 

 

121,020

 

 

 

135,218

 

Interest rate swaps

 

 

—

 

 

 

3,471

 

 

 

—

 

 

 

3,471

 

Cash flow/ Fair value hedge derivative

 

 

—

 

 

 

7,121

 

 

 

—

 

 

 

7,121

 

Mortgage banking derivatives

 

 

—

 

 

 

6,252

 

 

 

—

 

 

 

6,252

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

     Interest rate swaps

 

 

—

 

 

 

3,471

 

 

 

—

 

 

 

3,471

 

Cash flow hedge derivatives

 

 

—

 

 

 

47,226

 

 

 

—

 

 

 

47,226

 

 

December 31, 2022

 

Level 1
Inputs

 

 

Level 2
Inputs

 

 

Level 3
Inputs

 

 

Total
Fair Value

 

 

 

(In Thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. federal government corporations and
  agencies

 

$

—

 

 

$

95,909

 

 

$

—

 

 

$

95,909

 

Mortgage-backed securities

 

 

—

 

 

 

167,589

 

 

 

—

 

 

 

167,589

 

Collateralized mortgage obligations

 

 

—

 

 

 

249,805

 

 

 

—

 

 

 

249,805

 

Asset-backed securities

 

 

—

 

 

 

192,504

 

 

 

—

 

 

 

192,504

 

Corporate bonds

 

 

—

 

 

 

64,482

 

 

 

—

 

 

 

64,482

 

Obligations of state and political subdivisions

 

 

—

 

 

 

221,594

 

 

 

—

 

 

 

221,594

 

US Treasuries

 

 

48,198

 

 

 

—

 

 

 

—

 

 

 

48,198

 

Equity securities

 

 

7,832

 

 

 

—

 

 

 

—

 

 

 

7,832

 

Loans held for sale, at fair value

 

 

—

 

 

 

23,589

 

 

 

91,662

 

 

 

115,251

 

Interest rate swaps

 

 

—

 

 

 

4,494

 

 

 

—

 

 

 

4,494

 

Mortgage banking derivatives

 

 

—

 

 

 

1,349

 

 

 

—

 

 

 

1,349

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

—

 

 

 

4,494

 

 

 

—

 

 

 

4,494

 

Cash flow hedge derivatives

 

 

—

 

 

 

40,032

 

 

 

—

 

 

 

40,032

 

 

The following table presents a reconciliation of assets that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2023 and

13

Table of Contents

 

2022. There were no securities that were measured at Level 3 for the three and nine months ended September 30, 2023 and 2022.

 

 

Construction loans held for sale

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Balance of recurring Level 3 assets at beginning of period

$

111,462

 

 

$

117,015

 

 

$

91,662

 

 

$

134,167

 

Total gains (losses) for the period

 

 

 

 

 

 

 

 

 

 

 

      Included in change in fair value of loans held for sale

 

(5,856

)

 

 

(7,627

)

 

 

(874

)

 

 

(27,417

)

Originations

 

73,403

 

 

 

31,245

 

 

 

224,405

 

 

 

95,311

 

Sales

 

(57,989

)

 

 

(35,180

)

 

 

(194,173

)

 

 

(96,608

)

Balance of recurring Level 3 assets at end of period

$

121,020

 

 

$

105,453

 

 

$

121,020

 

 

$

105,453

 

 

For Level 3 assets and liabilities measured at fair value on a recurring basis, the significant unobservable inputs used in the fair value measurements were as follows:

 

September 30, 2023

 

Fair Value

 

 

Valuation Technique

 

Unobservable Inputs

 

Range of
Inputs

 

 

 

 

 

(Dollars in Thousands)

Construction loans held for sale

 

$

121,020

 

 

Adjusted secondary market pricing

 

Adjustments

 

0.00% - 0.48%

 

 

December 31, 2022

 

Fair Value

 

 

Valuation Technique

 

Unobservable Inputs

 

Range of
Inputs

 

 

 

 

 

(Dollars in Thousands)

Construction loans held for sale

 

$

91,662

 

 

Adjusted secondary market pricing

 

Adjustments

 

0.00% - 1.04%

 

The following table summarizes the financial assets measured at fair value on a non-recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

Assets and Liabilities Measured on a Non-Recurring Basis

 

September 30, 2023

 

Level 1
Inputs

 

 

Level 2
Inputs

 

 

Level 3
Inputs

 

 

Total Fair
Value

 

 

 

(In Thousands)

 

Individually analyzed loans

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

—

 

 

$

—

 

 

$

5,635

 

 

$

5,635

 

Commercial

 

 

—

 

 

 

—

 

 

 

5,939

 

 

 

5,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

—

 

 

$

749

 

 

$

—

 

 

$

749

 

 

December 31, 2022

 

Level 1
Inputs

 

 

Level 2
Inputs

 

 

Level 3
Inputs

 

 

Total Fair
Value

 

 

 

(In Thousands)

 

Individually analyzed loans

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

—

 

 

$

—

 

 

$

3,512

 

 

$

3,512

 

Commercial

 

 

—

 

 

 

—

 

 

 

5,492

 

 

 

5,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

—

 

 

$

5,126

 

 

$

—

 

 

$

5,126

 

 

14

Table of Contents

 

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

 

 

 

Fair
Value

 

 

Valuation
Technique

 

Unobservable
Inputs

 

Range of
Inputs

 

Weighted
Average

 

 

 

 

 

 

(Dollars in Thousands)

 

Individually analyzed Loans-
   Applies to loan classes with an
   appraisal valuation

 

$

11,574

 

 

Appraisals which utilize sales comparison, net income and cost approach

 

Discounts for collection issues and changes in market conditions

 

10-50%

 

 

23.50

%

 

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows:

 

 

 

Fair
Value

 

 

Valuation
Technique

 

Unobservable
Inputs

 

Range of
Inputs

 

Weighted
Average

 

 

 

 

 

 

(Dollars in Thousands)

 

Individually analyzed Loans-
   Applies to loan classes with an
   appraisal valuation

 

$

5,146

 

 

Appraisals which utilize sales comparison, net income and cost approach

 

Discounts for collection issues and changes in market conditions

 

10-50%

 

 

28.29

%

 

 

The Company has elected the fair value option for new applications accepted after January 31, 2020, and subsequently originated for residential mortgage and permanent construction loans held for sale. These loans are intended for sale and the Company believes that fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policies.

 

The aggregate fair value of the residential mortgage loans held for sale at September 30, 2023 and December 31, 2022 was $14.2 million and $23.6 million, respectively, and they had a contractual balance of $15.0 million and $25.3 million, respectively, for these same periods. The difference between the fair value and the contractual balance is recorded in gains and losses on the sale of loans held for sale. For the three and nine months ended September 30, 2023, $83,000 and $473,000, respectively, was recorded in gains on the sale of loans held for sale for the change in fair value. For the three and nine months ended September 30, 2022, $1.7 million and $3.0 million, respectively, was recorded in losses on the sale of loans held for sale for the change in fair value.

 

The aggregate fair value of the permanent construction loans held for sale at September 30, 2023 and December 31, 2022, was $121.0 million and $91.7 million, respectively, and they had a contractual balance of $133.3 million and $103.1 million, respectively, for these same periods. The difference between the fair value and the contractual balance is recorded in gains and losses on the sale of loans held for sale. For the three and nine months ended September 30, 2023, $5.9 million and $874,000, respectively, was recorded in losses on the sale of loans held for sale for the change in fair value. For the three and nine months ended September 30, 2022, $7.6 million and $27.4 million, respectively, was recorded in losses on the sale of loans held for sale for the change in fair value.

Much of the information used to arrive at “fair value” is highly subjective and judgmental in nature and therefore the results may not be precise. Subjective factors include, among other things, estimated cash flows, risk characteristics and interest rates, all of which are subject to change. With the exception of investment securities, the Company’s financial instruments are not readily marketable and market prices do not exist.

15

Table of Contents

 

Since negotiated prices for the instruments, which are not readily marketable, depend greatly on the motivation of the buyer and seller, the amounts that will actually be realized or paid per settlement or maturity of these instruments could be significantly different.

The carrying amount of cash and cash equivalents, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.

It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

The Company’s loans were valued on an individual basis, with consideration given to the loans’ underlying characteristics, including account types, remaining terms (in months), annual interest rates or coupons, interest types, past delinquencies, timing of principal and interest payments, current market rates, loss exposures, and remaining balances. The model utilizes a discounted cash flow (“DCF”) approach to estimate the fair value of the loans using assumptions for the coupon rates, remaining maturities, prepayment speeds, projected default probabilities, losses given defaults, and estimates of prevailing discount rates. The DCF approach models the credit losses directly in the projected cash flows. The model applies various assumptions regarding credit, interest, and prepayment risks for the loans based on loan types, payment types and fixed or variable classifications. The estimated fair value of individually analyzed loans is based on the fair value of the collateral, less estimated cost to sell, or the present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate). All individually analyzed loans are classified as Level 3 within the valuation hierarchy.

The fair value of non-interest bearing deposits are considered equal to the amount payable on demand at the reporting date (i.e. carrying value) and are classified as Level 1. The fair value of savings, checking and certain money market accounts are equal to their carrying amounts and are a Level 1 classification. Fair values of fixed rate certificates of deposit are estimated using a DCF calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

The carrying value of notes payable, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.

The fair values of securities sold under repurchase agreements are equal to their carrying amounts resulting in a Level 1 classification. The carrying value of floating rate subordinated debentures was considered to be the carrying value as the debt is floating rate and can be prepaid at any time without penalty. The carrying value of fixed rate subordinated debt is estimated using a DCF calculation that applies interest rates currently being offered in the market to the expected maturity of the debt resulting in a Level 2 classification.

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Table of Contents

 

FHLB advances with maturities greater than 90 days are valued based on a DCF analysis, using interest rates currently being quoted for similar characteristics and maturities resulting in a Level 2 classification. The cost or value of any call or put options is based on the estimated cost to settle the option at September 30, 2023.

Subordinated Debt is valued utilizing the coupon rate, discount rate, weighted average life and duration. This debt is classified as Level 3.

The carrying value and estimated fair values of financial instruments at September 30, 2023 and December 31, 2022, were as follows:

 

 

 

 

 

 

Fair Value Measurements at September 30, 2023

 

 

 

 

 

 

(In Thousands)

 

 

 

Carrying
Value

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

117,497

 

 

$

117,497

 

 

$

117,497

 

 

$

—

 

 

$

—

 

Federal Home Loan Bank Stock

 

 

25,049

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans receivable, net

 

 

6,620,356

 

 

 

6,262,215

 

 

 

—

 

 

 

—

 

 

 

6,262,215

 

Accrued interest receivable

 

 

34,648

 

 

 

34,648

 

 

 

34,648

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

7,065,639

 

 

$

7,070,824

 

 

$

5,394,455

 

 

$

1,676,369

 

 

$

—

 

Advances from Federal Home Loan Bank

 

 

339,000

 

 

 

338,984

 

 

 

—

 

 

 

338,984

 

 

 

—

 

Subordinated debentures

 

 

85,197

 

 

 

72,851

 

 

 

—

 

 

 

—

 

 

 

72,851

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2022

 

 

 

 

 

 

(In Thousands)

 

 

 

Carrying
Value

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

128,160

 

 

$

128,160

 

 

$

128,160

 

 

$

—

 

 

$

—

 

Federal Home Loan Bank Stock

 

 

29,185

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans receivable, net

 

 

6,387,804

 

 

 

6,129,814

 

 

 

—

 

 

 

—

 

 

 

6,129,814

 

Accrued interest receivable

 

 

28,709

 

 

 

28,709

 

 

 

28,709

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

6,906,719

 

 

$

6,881,110

 

 

$

5,852,952

 

 

$

1,028,158

 

 

$

—

 

Advances from Federal Home Loan Bank

 

 

428,000

 

 

 

427,999

 

 

 

—

 

 

 

427,999

 

 

$

—

 

Subordinated debentures

 

 

85,103

 

 

 

76,989

 

 

 

—

 

 

 

—

 

 

 

76,989

 

 

17

Table of Contents

 

4. Stock Compensation Plans

Premier has established equity based compensation plans for its directors and employees. On February 27, 2018, the Board adopted, and the shareholders approved at the 2018 Annual Shareholders Meeting, the Premier Financial Corp. 2018 Equity Incentive Plan (the “2018 Equity Plan”). The 2018 Equity Plan replaced all existing plans, although the Company’s former equity plans remain in existence to the extent there were outstanding grants thereunder at the time the 2018 Equity Plan was approved. In addition, as a result of the Company's merger (the "Merger") with United Community Federal Corp. ("UCFC"), Premier assumed certain outstanding stock options granted under UCFC’s Amended and Restated 2007 Long-Term Incentive Plan (the “UCFC 2007 Plan”) and UCFC’s 2015 Long Term Incentive Plan, which has since been renamed as the “Premier Financial Corp. 2015 Long Term Incentive Plan” (the “2015 Plan”). Premier also assumed the shares available for future issuance under the 2015 Plan as of the effective date of the Merger, with appropriate adjustments to the number of shares available to reflect the Merger. The stock options assumed from UCFC in the Merger remain subject to the terms of the 2015 Plan, but became exercisable solely to purchase shares of Premier, with appropriate adjustments to the number of shares subject to the assumed stock options and the exercise price of such stock options. Besides certain options previously issued under the First Defiance Financial Corp. 2010 Equity Incentive Plan, all awards currently outstanding are issued under the 2018 Equity Plan or the 2015 Plan. The 2018 Equity Plan and the 2015 Plan were each amended and restated in February 2022 to align certain administrative components of the plans in addition to enhancing certain governance components. New awards will be made under either the 2018 Equity Plan or the 2015 Plan as the Company determines. The 2018 Equity Plan allows for issuance of up to 900,000 common shares through the award of options, restricted stock, stock, stock appreciation rights, or other stock-based awards. The 2015 Plan allows for the issuance of up to 1.2 million common shares, as adjusted for the Merger, through the award of options, stock, restricted stock, stock units, stock appreciation rights, or performance stock awards.

Beginning in 2023, directors were able to elect to receive stock in lieu of cash for their director fees. In the first nine months of 2023, the Company recognized $60,000 in expense for 2,930 shares that were issued to directors in lieu of cash fees.

The Company maintains Long-Term Equity Incentive Plans (each, an "LTIP") for select members of management (the "Executive LTIP") and a Key Employee and Commercial Lender Plan (the "Key Plan"). Under the Executive LTIP, participants may earn between 20% to 50% of their salary for potential payout in the form of (1) equity awards based on the achievement of certain corporate performance targets over a three-year period and (2) beginning in 2023, restricted stock awards (“RSAs”). The Company granted 63,373 performance stock units ("PSUs") to the participants under the Executive LTIP during the first nine months of 2023, which represents the maximum target award. The value of PSU awards issued in 2021, 2022 and 2023 under the Executive LTIP will be determined individually at the end of each respective 36 month performance period ending December 31. The benefits earned under these PSUs will be paid out in equity in the first quarter following the end of the performance period. The participants will receive all or a portion of the award if their employment is terminated by the Company without cause, by the participant in certain situations, or by death, disability or retirement of the participant. The RSAs issued under the Executive LTIP vest incrementally over three years, being fully vested upon the third anniversary of the grant date. The Company granted 21,169 RSAs under the Executive LTIP in the first quarter of 2023.

The maximum amount of compensation expense that may be earned for the PSUs at September 30, 2023 is approximately $5.8 million in the aggregate. However, the estimated expense that is expected to be earned as of September 30, 2023 is $3.9 million, of which $1.4 million was unrecognized at September 30, 2023, and will be recognized over the remaining performance periods. Expense of $33,000 and $(506,000) was recorded during the three and nine months ended September 30, 2023, respectively, compared to expense of $432,000 and $842,000 for the three and nine months ended September 30, 2022, respectively.

18

Table of Contents

 

Beginning in 2022, under the Key Plan, the participants were granted restricted stock awards ("RSAs") based upon the achievement of certain targets in the prior year. Prior to 2022, restricted stock units ("RSUs") were issued to participants under the same plan. The participants can earn from 5% to 10% of their salary in RSAs or RSUs that vest three years from the date of grant. The Company granted 25,044 in RSAs and 19,612 RSAs in the first quarter of 2023 and 2022, respectively, as a payout under the Key Plan.

In the nine months ended September 30, 2023, the Company also granted 21,891 discretionary RSAs that vest over a three year time period. Compensation expense is recognized over the performance or vesting period. Total expense of $495,000 and $1.4 million was recorded during the three and nine months ended September 30, 2023, respectively, compared to expense of $280,000 and $786,000 for the three and nine months ended September 30, 2022, respectively. Approximately $1.7 million and $2.1 million is included within other liabilities at September 30, 2023 and December 31, 2022, respectively, related to the cash portion of the Company's Short-Term Incentive Plans.

The following table sets forth Premier's performance and restricted stock activity during the nine months ended September 30, 2023:

 

 

 

Performance Stock Units

 

 

Restricted Stock Units

 

 

Restricted Stock Awards

 

Unvested Shares

 

Shares

 

 

Weighted-
Average
Grant Date
Fair Value

 

 

Shares

 

 

Weighted-
Average
Grant Date
Fair Value

 

 

Shares

 

 

Weighted-
Average
Grant Date
Fair Value

 

Unvested at January 1, 2023

 

 

229,813

 

 

$

29.12

 

 

 

31,796

 

 

$

28.44

 

 

 

99,412

 

 

$

29.14

 

Granted

 

 

66,482

 

 

 

24.78

 

 

 

—

 

 

 

—

 

 

 

91,130

 

 

 

22.77

 

Vested

 

 

(55,435

)

 

 

26.48

 

 

 

(11,345

)

 

 

26.08

 

 

 

(24,717

)

 

 

29.33

 

Forfeited

 

 

(23,298

)

 

 

26.48

 

 

 

(1,447

)

 

 

32.67

 

 

 

(4,417

)

 

 

24.53

 

Unvested at September 30, 2023

 

 

217,562

 

 

$

28.75

 

 

 

19,004

 

 

$

36.52

 

 

 

161,408

 

 

$

26.94

 

As of September 30, 2023, 28,175 options to acquire Premier shares were outstanding at option prices based on the market value of the underlying shares on the date the options were granted. All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or one year after the retirement date.

The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities are based on historical volatilities of the Company’s common shares. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

There were no options granted during the nine months ended September 30, 2023 and 2022.

19

Table of Contents

 

Following is stock option activity under the plans during the nine months ended September 30, 2023:

 

 

 

Options
Outstanding

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Remaining
Contractual
Term (in years)

 

 

Aggregate
Intrinsic
Value
(in 000’s)

 

Options outstanding, January 1, 2023

 

 

29,661

 

 

$

22.54

 

 

 

 

 

 

 

Forfeited or cancelled

 

 

—

 

 

 

—

 

 

 

 

 

 

 

Exercised

 

 

1,486

 

 

 

10.31

 

 

 

 

 

 

 

Granted

 

 

—

 

 

 

—

 

 

 

 

 

 

 

Options outstanding, September 30, 2023

 

 

28,175

 

 

$

23.18

 

 

 

3.51

 

 

$

2,714

 

Exercisable at September 30, 2023

 

 

28,175

 

 

$

23.18

 

 

 

3.51

 

 

$

2,714

 

 

Information related to the stock options plans is as follows:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In thousands, except per share data)

 

Proceeds of options exercised

 

$

15

 

 

$

53

 

 

$

15

 

 

$

53

 

Related tax benefit recognized

 

 

3

 

 

 

6

 

 

 

3

 

 

 

6

 

Intrinsic value of options exercised

 

 

12

 

 

 

29

 

 

 

12

 

 

 

29

 

 

As of September 30, 2023, there was a de minimus amount of total unrecognized compensation costs related to unvested stock options granted under the Company’s equity plans. The cost is expected to be recognized over a weighted-average period of one month.

5. Dividends on Common Stock

Premier declared and paid a $0.93 per common stock dividend in the first nine months of 2023 and declared and paid a $0.90 per common stock dividend in the first nine months of 2022. Premier declared and paid a $0.31 per common stock dividend in the third quarter of 2023 and declared and paid a $0.30 per common stock dividend in the third quarter of 2022.

6. Earnings Per Common Share

Basic earnings per share are calculated using the two-class method. The two-class method is an earnings allocation formula under which earnings per share is calculated from common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings distributed and undistributed, are allocated to participating securities and common shares based on their respective rights to receive dividends. Unvested share-based payment awards that contain non-forfeitable rights to dividends are considered participating securities (i.e., unvested restricted stock), not subject to performance based measures.

20

Table of Contents

 

The following table sets forth the computation of basic and diluted earnings per common share:

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In Thousands, except per share data)

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common shareholders

 

$

24,687

 

 

$

28,195

 

 

$

91,227

 

 

$

76,912

 

Less: income allocated to participating securities

 

 

40

 

 

 

22

 

 

 

133

 

 

 

80

 

Net income allocated to common shareholders

 

 

24,647

 

 

 

28,173

 

 

 

91,094

 

 

 

76,832

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding including
   participating securities

 

 

35,731

 

 

 

35,610

 

 

 

35,701

 

 

 

35,746

 

Less: Participating securities

 

 

18

 

 

 

28

 

 

 

11

 

 

 

37

 

Average common shares

 

 

35,713

 

 

 

35,582

 

 

 

35,690

 

 

 

35,709

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.69

 

 

$

0.79

 

 

$

2.55

 

 

$

2.15

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated to common shareholders

 

$

24,647

 

 

$

28,173

 

 

$

91,094

 

 

$

76,832

 

Weighted average common shares outstanding for basic earnings
   per common share

 

 

35,713

 

 

 

35,582

 

 

 

35,690

 

 

 

35,709

 

Add: Dilutive effects of stock options and restricted stock units

 

 

80

 

 

 

122

 

 

 

79

 

 

 

109

 

Average shares and dilutive potential common shares

 

 

35,793

 

 

 

35,704

 

 

 

35,769

 

 

 

35,818

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.69

 

 

$

0.79

 

 

$

2.55

 

 

$

2.15

 

 

There were 4,705 and 9,287 shares for the three and nine months ended September 30, 2023, respectively, that were excluded from the diluted earnings per common share calculation. There were 17,644 and 18,437 shares for the three and nine months ended September 30, 2022, respectively, that were excluded from the dilutive earnings per common share calculation.

7. Investment Securities

The following is a summary of available-for-sale securities:

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Loss

 

 

Fair Value

 

 

 

(In Thousands)

 

At September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

116,594

 

 

$

—

 

 

$

(24,343

)

 

$

92,251

 

Mortgage-backed securities

 

 

189,192

 

 

 

—

 

 

 

(38,898

)

 

 

150,294

 

Collateralized mortgage obligations

 

 

286,470

 

 

 

—

 

 

 

(60,460

)

 

 

226,010

 

Asset-backed securities

 

 

149,586

 

 

 

287

 

 

 

(5,857

)

 

 

144,016

 

Corporate bonds

 

 

71,194

 

 

 

—

 

 

 

(10,361

)

 

 

60,833

 

Obligations of state and political subdivisions

 

 

250,869

 

 

 

5

 

 

 

(60,121

)

 

 

190,753

 

US Treasuries

 

 

55,796

 

 

 

—

 

 

 

(8,769

)

 

 

47,027

 

Total Available-for-Sale

 

$

1,119,701

 

 

$

292

 

 

$

(208,809

)

 

$

911,184

 

 

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Table of Contents

 

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Loss

 

 

Fair Value

 

 

 

(In Thousands)

 

At December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

117,150

 

 

$

—

 

 

$

(21,241

)

 

$

95,909

 

Mortgage-backed securities

 

 

200,548

 

 

 

—

 

 

 

(32,959

)

 

 

167,589

 

Collateralized mortgage obligations

 

 

299,731

 

 

 

—

 

 

 

(49,926

)

 

 

249,805

 

Asset-backed securities

 

 

200,312

 

 

 

517

 

 

 

(8,325

)

 

 

192,504

 

Corporate bonds

 

 

71,543

 

 

 

—

 

 

 

(7,061

)

 

 

64,482

 

Obligations of state and political subdivisions

 

 

274,856

 

 

 

92

 

 

 

(53,354

)

 

 

221,594

 

US Treasuries

 

 

55,987

 

 

 

—

 

 

 

(7,789

)

 

 

48,198

 

Total Available-for-Sale

 

$

1,220,127

 

 

$

609

 

 

$

(180,655

)

 

$

1,040,081

 

The amortized cost and fair value of the investment securities portfolio at September 30, 2023, are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, MBS, CMOs and ABS, which are not due at a single maturity date, have not been allocated over the maturity groupings. These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

 

 

 

Available-for-Sale

 

 

 

Amortized
Cost

 

 

Fair Value

 

 

 

(In Thousands)

 

Due in one year or less

 

$

310

 

 

$

308

 

Due after one year through five years

 

 

75,091

 

 

 

66,804

 

Due after five years through ten years

 

 

196,907

 

 

 

162,316

 

Due after ten years

 

 

222,145

 

 

 

161,436

 

MBS/CMO/ABS

 

 

625,248

 

 

 

520,320

 

 

 

$

1,119,701

 

 

$

911,184

 

 

Investment securities with a carrying amount of $636.2 million and $759.8 million at September 30, 2023 and December 31, 2022, respectively, were pledged as collateral.

22

Table of Contents

 

The following tables summarize Premier’s securities that were in an unrealized loss position at September 30, 2023 and December 31, 2022:

 

 

 

Duration of Unrealized Loss Position

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

Fair Value

 

 

Gross
Unrealized
Loss

 

 

Fair Value

 

 

Gross
Unrealized
Loss

 

 

Fair Value

 

 

Unrealized
Loss

 

 

 

(In Thousands)

 

At September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

—

 

 

$

—

 

 

$

92,251

 

 

$

(24,343

)

 

$

92,251

 

 

$

(24,343

)

Mortgage-backed securities

 

 

—

 

 

 

—

 

 

 

150,294

 

 

 

(38,899

)

 

 

150,294

 

 

 

(38,899

)

Collateralized mortgage obligations

 

 

2,255

 

 

 

(94

)

 

 

223,755

 

 

 

(60,365

)

 

 

226,010

 

 

 

(60,459

)

Asset-backed securities

 

 

—

 

 

 

—

 

 

 

118,860

 

 

 

(5,857

)

 

 

118,860

 

 

 

(5,857

)

Corporate bonds

 

 

—

 

 

 

—

 

 

 

60,833

 

 

 

(10,361

)

 

 

60,833

 

 

 

(10,361

)

Obligations of state and political subdivisions

 

 

15,418

 

 

 

(1,387

)

 

 

174,045

 

 

 

(58,734

)

 

 

189,463

 

 

 

(60,121

)

US Treasuries

 

 

—

 

 

 

 

 

 

47,027

 

 

 

(8,769

)

 

 

47,027

 

 

 

(8,769

)

Total available-for-sale

 

$

17,673

 

 

$

(1,481

)

 

$

867,065

 

 

$

(207,328

)

 

$

884,738

 

 

$

(208,809

)

 

 

 

 

Duration of Unrealized Loss Position

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

Fair Value

 

 

Gross
Unrealized
Loss

 

 

Fair Value

 

 

Gross
Unrealized
Loss

 

 

Fair Value

 

 

Unrealized
Loss

 

 

 

(In Thousands)

 

At December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

64,394

 

 

$

(11,158

)

 

$

31,513

 

 

$

(10,083

)

 

$

95,907

 

 

$

(21,241

)

Mortgage-backed securities-residential

 

 

40,908

 

 

 

(4,184

)

 

 

126,681

 

 

 

(28,775

)

 

 

167,589

 

 

 

(32,959

)

Collateralized mortgage obligations

 

 

60,676

 

 

 

(11,985

)

 

 

159,129

 

 

 

(37,941

)

 

 

219,805

 

 

 

(49,926

)

Asset-backed securities

 

 

45,534

 

 

 

(1,499

)

 

 

113,580

 

 

 

(6,826

)

 

 

159,114

 

 

 

(8,325

)

Corporate bonds

 

 

49,114

 

 

 

(4,960

)

 

 

15,368

 

 

 

(2,101

)

 

 

64,482

 

 

 

(7,061

)

Obligations of state and political subdivisions

 

 

106,610

 

 

 

(13,378

)

 

 

98,063

 

 

 

(39,976

)

 

 

204,673

 

 

 

(53,354

)

US Treasuries

 

 

19,891

 

 

 

(3,448

)

 

 

28,309

 

 

 

(4,341

)

 

 

48,200

 

 

 

(7,789

)

Total available-for-sale

 

$

387,127

 

 

$

(50,612

)

 

$

572,643

 

 

$

(130,043

)

 

$

959,770

 

 

$

(180,655

)

 

The Company had no realized gains or losses and $27,000 in realized gains from the sale of available-for-sale securities in the three and nine months ended September 30, 2023, respectively. For the three and nine months ended September 30, 2022, the Company realized no gains or losses from the sale of investment securities. It is expected that the securities would not be settled at less than the amortized cost of the Company's investment because the decline in fair value is attributable to changes in interest rates and relative spreads and not credit quality. Management does not intend to sell these investments and it is not expected that the Company will be required to sell the investments before recovery of its amortized cost basis.

 

Quarterly, the Company evaluates if any security has a fair value less than its amortized cost. Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, the Company performs further analysis as outlined below:

 

•
Review the extent to which the fair value is less than the amortized cost and observe the security’s lowest credit rating as reported by third-party credit ratings companies.

23

Table of Contents

 

 

•
Any security that has a loss rate greater than 3%, credit rating below investment grade or not rated by a third-party credit ratings company would be subjected to additional analysis that may include, but is not limited to: changes in market interest rates, changes in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.
•
If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using a DCF analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss the Company records will be limited to the amount by which the amortized cost exceeds the fair value. As of September 30, 2023, management determined that no credit loss exists and that the unrealized losses are due to the increased interest rate environment.

 

At September 30, 2023 and December 31, 2022, the Company held preferred and common stock of various bank holding companies totaling $5.9 million and $7.8 million, respectively. During the three and nine months ended September 30, 2023, a realized gain of $256,000 and a realized loss of $1.1 million, respectively, were recorded within gain (loss) on equity securities on the Consolidated Condensed Statements of Income. During the three and nine months ended September 30, 2022, an unrealized gain of $43,000 and a $1.8 million realized loss, respectively, were recorded within gain (loss) on equity securities on the Consolidated Condensed Statements of Income.

8. Loans

Loan segments have been identified by evaluating the portfolio based on collateral and credit risk characteristics. Loans receivable consist of the following:

 

 

 

September 30,
2023

 

 

December 31,
2022

 

 

 

(In Thousands)

 

Real Estate:

 

 

 

 

 

 

Residential

 

$

1,797,676

 

 

$

1,535,574

 

Commercial

 

 

2,820,410

 

 

 

2,762,311

 

Construction

 

 

921,438

 

 

 

1,278,255

 

 

 

5,539,524

 

 

 

5,576,140

 

Other Loans:

 

 

 

 

 

 

Commercial

 

 

1,039,465

 

 

 

1,055,180

 

Home equity and improvement

 

 

269,053

 

 

 

277,613

 

Consumer finance

 

 

203,800

 

 

 

213,405

 

 

 

1,512,318

 

 

 

1,546,198

 

Loans before deferred loan origination fees and costs

 

 

7,051,842

 

 

 

7,122,338

 

Deduct:

 

 

 

 

 

 

Undisbursed construction loan funds

 

 

(367,299

)

 

 

(672,775

)

Net deferred loan origination fees and costs

 

 

12,326

 

 

 

11,057

 

Allowance for credit losses

 

 

(76,513

)

 

 

(72,816

)

Total loans

 

$

6,620,356

 

 

$

6,387,804

 

 

 

 

 

 

 

 

 

24

Table of Contents

 

The Company responded to the COVID-19 pandemic in numerous ways, including by actively participating in the Paycheck Protection Program (“PPP”) and distributing $636.9 million to small businesses in our markets. As of September 30, 2023, the Company had $526,000 in PPP loans that remained unpaid and were included in commercial other loans in the above loan table. As of December 31, 2022, the Company had $1.1 million in PPP loans.

 

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of September 30, 2023 and December 31, 2022 (in thousands):

 

 

 

September 30, 2023

 

 

 

Real Estate

 

 

Equipment and Machinery

 

 

Inventory and Receivables

 

 

Vehicles

 

 

Total

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Commercial

 

 

10,587

 

 

 

—

 

 

 

1,159

 

 

 

—

 

 

 

11,746

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

2,022

 

 

 

8,437

 

 

 

4,726

 

 

 

744

 

 

 

15,929

 

Home equity and improvement

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer finance

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

12,609

 

 

$

8,437

 

 

$

5,885

 

 

$

744

 

 

$

27,675

 

 

 

 

December 31, 2022

 

 

 

Real Estate

 

 

Equipment and Machinery

 

 

Inventory and Receivables

 

 

Vehicles

 

 

Total

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

51

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

51

 

Commercial

 

 

10,708

 

 

 

—

 

 

 

2,716

 

 

 

—

 

 

 

13,424

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

2,161

 

 

 

523

 

 

 

3,858

 

 

 

—

 

 

 

6,542

 

Home equity and improvement

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer finance

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

12,920

 

 

$

523

 

 

$

6,574

 

 

$

—

 

 

$

20,017

 

 

25

Table of Contents

 

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually analyzed loans. All loans 90 days and greater past due are placed on non-accrual status. The following table presents the current balance of the non-performing loans as of the dates indicated:

As of September 30, 2023

 

Non-accrual with no allocated allowance for credit losses

 

 

Non-accrual with allocated allowance for credit losses

 

 

Loans past due over 90 days still accruing

 

Residential real estate

 

$

333

 

 

$

9,463

 

 

$

—

 

Commercial real estate

 

 

3,752

 

 

 

7,186

 

 

 

—

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

Commercial

 

 

4,470

 

 

 

7,323

 

 

 

—

 

Home equity and improvement

 

 

—

 

 

 

1,133

 

 

 

—

 

Consumer finance

 

 

—

 

 

 

2,821

 

 

 

—

 

PCD

 

 

—

 

 

 

2,982

 

 

 

 

Total

 

$

8,555

 

 

$

30,908

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2022

 

Non-accrual with no allocated allowance for credit losses

 

 

Non-accrual with allocated allowance for credit losses

 

 

Loans past due over 90 days still accruing

 

Residential real estate

 

$

419

 

 

$

7,305

 

 

$

—

 

Commercial real estate

 

 

7,844

 

 

 

5,552

 

 

 

—

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

Commercial

 

 

4,551

 

 

 

311

 

 

 

—

 

Home equity and improvement

 

 

—

 

 

 

1,637

 

 

 

—

 

Consumer finance

 

 

—

 

 

 

2,401

 

 

 

—

 

PCD

 

 

654

 

 

 

3,148

 

 

 

 

Total

 

$

13,468

 

 

$

20,354

 

 

$

—

 

 

The following table presents the aging of the amortized cost in past due and non-accrual loans as of September 30, 2023, by class of loans (in thousands):

 

Class

 

Current

 

 

30 - 59 days

 

 

60 - 89 days

 

 

90 + days

 

 

Total
Past Due

 

 

Total
Non-
Accrual

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,776,757

 

 

$

147

 

 

$

7,420

 

 

$

8,232

 

 

$

15,799

 

 

$

9,795

 

Commercial

 

 

2,816,860

 

 

 

24

 

 

 

22

 

 

 

6,287

 

 

 

6,333

 

 

 

10,938

 

Construction

 

 

554,139

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,028,295

 

 

 

1,453

 

 

 

217

 

 

 

4,942

 

 

 

6,612

 

 

 

11,793

 

Home equity and improvement

 

 

263,155

 

 

 

2,390

 

 

 

903

 

 

 

657

 

 

 

3,950

 

 

 

1,134

 

Consumer finance

 

 

199,343

 

 

 

3,244

 

 

 

992

 

 

 

2,399

 

 

 

6,635

 

 

 

2,820

 

PCD

 

 

15,845

 

 

 

229

 

 

 

380

 

 

 

2,537

 

 

 

3,146

 

 

 

2,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

6,654,394

 

 

$

7,487

 

 

$

9,934

 

 

$

25,054

 

 

$

42,475

 

 

$

39,463

 

 

26

Table of Contents

 

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 2022, by class of loans (in thousands):

 

Class

 

Current

 

 

30 - 59 days

 

 

60 - 89 days

 

 

90 + days

 

 

Total
Past Due

 

 

Total
Non-
Accrual

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,516,135

 

 

$

279

 

 

$

6,350

 

 

$

6,203

 

 

$

12,832

 

 

$

7,724

 

Commercial

 

 

2,751,933

 

 

 

327

 

 

 

878

 

 

 

11,477

 

 

 

12,682

 

 

 

13,396

 

Construction

 

 

605,043

 

 

 

298

 

 

 

139

 

 

 

—

 

 

 

437

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,044,898

 

 

 

413

 

 

 

128

 

 

 

4,635

 

 

 

5,176

 

 

 

4,862

 

Home equity and improvement

 

 

269,183

 

 

 

4,342

 

 

 

489

 

 

 

1,190

 

 

 

6,021

 

 

 

1,637

 

Consumer finance

 

 

209,062

 

 

 

2,763

 

 

 

1,397

 

 

 

2,227

 

 

 

6,387

 

 

 

2,401

 

PCD

 

 

17,082

 

 

 

603

 

 

 

495

 

 

 

2,651

 

 

 

3,749

 

 

 

3,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

6,413,336

 

 

$

9,025

 

 

$

9,876

 

 

$

28,383

 

 

$

47,284

 

 

$

33,822

 

 

Loan Modifications

As of January 1, 2023, the Company adopted the modified retrospective method under ASU 2022-02, "Trouble Debt Restructurings and Vintage Disclosures" which eliminated trouble debt restructuring accounting for entities that have adopted ASU 2016-13, the current expected credit losses model.

Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the loan is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of amortized cost basis and a corresponding adjustments to the allowance for credit losses. In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness or reduction of rate, may be granted.

Of the loans modified as of September 30, 2023, $4.4 million were on non-accrual status and partial charge-offs have in some cases been taken against the outstanding balance. The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each loan upon loan origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of loans to borrowers experiencing financial difficulty. The company uses probability of default/loss given default, discounted cash flows or remaining life method to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

27

Table of Contents

 

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by loan category and type of modification granted during the three and nine months ended September 30, 2023. The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of loan category is also presented below:

 

 

 

Loans Modifications Made to Borrowers Experiencing Financial Difficulty
Three Months Ended September 30, 2023
(Dollars in Thousands)

 

 

Loans Modifications Made to Borrowers Experiencing Financial Difficulty
Nine Months Ended September 30, 2023
(Dollars in Thousands)

 

 

 

Term Extension

 

 

Term Extension

 

Loan Type

 

Amortized Cost Basis

 

 

Percent of total loans by
category

 

 

Amortized Cost Basis

 

 

Percent of total loans by
category

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

—

 

 

 

—

 

 

 

109

 

 

 

0.01

%

Commercial

 

 

4,178

 

 

 

0.15

%

 

 

8,900

 

 

 

0.32

%

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

—

 

 

 

—

 

 

 

37

 

 

 

0.00

%

Home equity and improvement

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer finance

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

4,178

 

 

 

 

 

$

9,046

 

 

 

 

 

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

 

 

Term Extension

Loan Type

Financial Effect

Real Estate:

 

Residential

 -Term extended from 7 year balloon to 30 years

Commercial

 -Added 12 months to the life of the loan, which reduced monthly payment amounts for the borrower. -Term extension 10 yr term/ 20 yr am to 12 month interest only

 

 

 

Other Loans:

 

Commercial

 -Added 84 months to the life of the loan to term out 2 year balloon, which reduced monthly payment amounts for the borrower.

 

 

 

 

 

Rate Reduction

Loan Type

Financial Effect

Real Estate:

 

Commercial

 -Interest rate reduction 11.08% to 5.00% -Interest rate reduction 10.65% to 5.00% -Interest rate reduction 7.14% to 4.50%

 

28

Table of Contents

 

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

There were no modification loans that had a payment default during the quarter ended September 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

The Company closely monitors the performance of the loans that were modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Four of the modified loans are current and three loans pertaining to one commercial relationship are on nonaccrual as of September 30, 2023.

Credit Quality Indicators

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are analyzed individually by classifying the loans by credit risk. This analysis includes all non-homogeneous loans, such as commercial and commercial real estate loans and certain homogeneous mortgage, home equity and consumer loans. This analysis is performed on a quarterly basis. Premier uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of September 30, 2023, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

 

Class

 

Unclassified

 

 

Special
Mention

 

 

Substandard

 

 

Doubtful

 

 

Total classified

 

 

Total

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,781,427

 

 

$

422

 

 

$

10,707

 

 

$

—

 

 

$

10,707

 

 

$

1,792,556

 

Commercial

 

 

2,742,469

 

 

 

54,523

 

 

 

26,201

 

 

 

—

 

 

 

26,201

 

 

 

2,823,193

 

Construction

 

 

546,306

 

 

 

7,833

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

554,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

982,891

 

 

 

31,930

 

 

 

20,086

 

 

 

—

 

 

 

20,086

 

 

 

1,034,907

 

Home equity and improvement

 

 

265,974

 

 

 

—

 

 

 

1,131

 

 

 

—

 

 

 

1,131

 

 

 

267,105

 

Consumer finance

 

 

203,359

 

 

 

—

 

 

 

2,619

 

 

 

—

 

 

 

2,619

 

 

 

205,978

 

PCD

 

 

13,376

 

 

 

2,813

 

 

 

2,802

 

 

 

—

 

 

 

2,802

 

 

 

18,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans (1)

 

$

6,535,802

 

 

$

97,521

 

 

$

63,546

 

 

$

—

 

 

$

63,546

 

 

$

6,696,869

 

(1) Total loans are net of undisbursed funds and deferred fees and costs.

29

Table of Contents

 

As of December 31, 2022, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

 

Class

 

Unclassified

 

 

Special
Mention

 

 

Substandard

 

 

Doubtful

 

 

Total classified

 

 

Total

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,519,657

 

 

$

935

 

 

$

8,375

 

 

$

—

 

 

$

8,375

 

 

$

1,528,967

 

Commercial

 

 

2,698,292

 

 

 

46,029

 

 

 

20,294

 

 

 

—

 

 

 

20,294

 

 

 

2,764,615

 

Construction

 

 

605,480

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

605,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,016,925

 

 

 

26,319

 

 

 

6,830

 

 

 

—

 

 

 

6,830

 

 

 

1,050,074

 

Home equity and improvement

 

 

273,613

 

 

 

—

 

 

 

1,591

 

 

 

—

 

 

 

1,591

 

 

 

275,204

 

Consumer finance

 

 

213,078

 

 

 

—

 

 

 

2,371

 

 

 

—

 

 

 

2,371

 

 

 

215,449

 

PCD

 

 

13,904

 

 

 

2,590

 

 

 

4,337

 

 

 

—

 

 

 

4,337

 

 

 

20,831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans (1)

 

$

6,340,949

 

 

$

75,873

 

 

$

43,798

 

 

$

—

 

 

$

43,798

 

 

$

6,460,620

 

(1) Total loans are net undisbursed loan funds and deferred fees and costs

The following tables present the amortized cost basis of loans by credit quality indicator and class of loans as of September 30, 2023 and December 31, 2022 (in thousands).

30

Table of Contents

 

 

Term of loans by origination

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

6

 

 

$

6

 

 

$

—

 

 

$

12

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unclassified

$

102,785

 

 

$

520,672

 

 

$

440,588

 

 

$

315,658

 

 

$

88,025

 

 

$

311,365

 

 

$

2,334

 

 

$

1,781,427

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

172

 

 

 

—

 

 

 

250

 

 

 

—

 

 

 

422

 

Substandard

 

336

 

 

 

933

 

 

 

1,351

 

 

 

1,626

 

 

 

889

 

 

 

5,572

 

 

 

—

 

 

 

10,707

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

103,121

 

 

$

521,605

 

 

$

441,939

 

 

$

317,456

 

 

$

88,914

 

 

$

317,187

 

 

$

2,334

 

 

$

1,792,556

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

56

 

 

$

13

 

 

$

69

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unclassified

$

148,305

 

 

$

597,201

 

 

$

504,791

 

 

$

505,108

 

 

$

306,096

 

 

$

668,523

 

 

$

12,445

 

 

$

2,742,469

 

Special Mention

 

—

 

 

 

3,037

 

 

 

26,795

 

 

 

1,991

 

 

 

10,694

 

 

 

11,576

 

 

 

430

 

 

 

54,523

 

Substandard

 

—

 

 

 

267

 

 

 

196

 

 

 

527

 

 

 

4,822

 

 

 

20,359

 

 

 

30

 

 

 

26,201

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

148,305

 

 

$

600,505

 

 

$

531,782

 

 

$

507,626

 

 

$

321,612

 

 

$

700,458

 

 

$

12,905

 

 

$

2,823,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unclassified

$

86,588

 

 

$

278,044

 

 

$

139,564

 

 

$

41,506

 

 

$

604

 

 

$

—

 

 

$

—

 

 

$

546,306

 

Special Mention

 

—

 

 

 

7,833

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7,833

 

Substandard

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

86,588

 

 

$

285,877

 

 

$

139,564

 

 

$

41,506

 

 

$

604

 

 

$

—

 

 

$

—

 

 

$

554,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

37

 

 

$

219

 

 

$

256

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unclassified

$

104,633

 

 

$

257,750

 

 

$

159,669

 

 

$

68,155

 

 

$

35,185

 

 

$

31,462

 

 

$

326,037

 

 

$

982,891

 

Special Mention

 

2,000

 

 

 

1,289

 

 

 

11,466

 

 

 

284

 

 

 

613

 

 

 

3,938

 

 

 

12,340

 

 

 

31,930

 

Substandard

 

—

 

 

 

678

 

 

 

10,703

 

 

 

4,673

 

 

 

390

 

 

 

1,267

 

 

 

2,375

 

 

 

20,086

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

106,633

 

 

$

259,717

 

 

$

181,838

 

 

$

73,112

 

 

$

36,188

 

 

$

36,667

 

 

$

340,752

 

 

$

1,034,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and Improvement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

$

21

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

7

 

 

$

-

 

 

$

10

 

 

$

38

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unclassified

$

15,467

 

 

$

26,286

 

 

$

19,085

 

 

$

4,650

 

 

$

3,074

 

 

$

27,944

 

 

$

169,468

 

 

$

265,974

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

—

 

 

 

49

 

 

 

14

 

 

 

—

 

 

 

—

 

 

 

188

 

 

 

880

 

 

 

1,131

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

15,467

 

 

$

26,335

 

 

$

19,099

 

 

$

4,650

 

 

$

3,074

 

 

$

28,132

 

 

$

170,348

 

 

$

267,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

$

7

 

 

$

33

 

 

$

21

 

 

$

26

 

 

$

13

 

 

$

180

 

 

$

-

 

 

$

280

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unclassified

$

39,531

 

 

$

105,885

 

 

$

24,918

 

 

$

12,575

 

 

$

8,679

 

 

$

2,400

 

 

$

9,371

 

 

$

203,359

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

109

 

 

 

1,334

 

 

 

521

 

 

 

346

 

 

 

211

 

 

 

95

 

 

 

3

 

 

 

2,619

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

39,640

 

 

$

107,219

 

 

$

25,439

 

 

$

12,921

 

 

$

8,890

 

 

$

2,495

 

 

$

9,374

 

 

$

205,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

6

 

 

$

-

 

 

$

6

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unclassified

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

117

 

 

$

12,720

 

 

$

539

 

 

$

13,376

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

724

 

 

 

2,089

 

 

 

2,813

 

Substandard

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,462

 

 

 

340

 

 

 

2,802

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

117

 

 

$

15,906

 

 

$

2,968

 

 

$

18,991

 

 

31

Table of Contents

 

 

 

Term of loans by origination

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

264,884

 

 

$

474,992

 

 

$

335,982

 

 

$

93,548

 

 

$

51,710

 

 

$

296,089

 

 

$

2,452

 

 

$

1,519,657

 

Special Mention

 

—

 

 

 

—

 

 

 

180

 

 

 

30

 

 

 

80

 

 

 

78

 

 

 

567

 

 

 

935

 

Substandard

 

280

 

 

 

1,648

 

 

 

1,614

 

 

 

922

 

 

 

517

 

 

 

3,394

 

 

 

—

 

 

 

8,375

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

265,164

 

 

$

476,640

 

 

$

337,776

 

 

$

94,500

 

 

$

52,307

 

 

$

299,561

 

 

$

3,019

 

 

$

1,528,967

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

582,384

 

 

$

506,386

 

 

$

517,790

 

 

$

324,210

 

 

$

194,240

 

 

$

557,728

 

 

$

15,554

 

 

$

2,698,292

 

Special Mention

 

161

 

 

 

3,614

 

 

 

—

 

 

 

593

 

 

 

25,395

 

 

 

15,561

 

 

 

705

 

 

 

46,029

 

Substandard

 

115

 

 

 

2,104

 

 

 

527

 

 

 

4,612

 

 

 

4,455

 

 

 

8,348

 

 

 

133

 

 

 

20,294

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

582,660

 

 

$

512,104

 

 

$

518,317

 

 

$

329,415

 

 

$

224,090

 

 

$

581,637

 

 

$

16,392

 

 

$

2,764,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

348,570

 

 

$

182,755

 

 

$

53,161

 

 

$

20,994

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

605,480

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

348,570

 

 

$

182,755

 

 

$

53,161

 

 

$

20,994

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

605,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

266,501

 

 

$

208,663

 

 

$

90,014

 

 

$

49,887

 

 

$

23,719

 

 

$

22,515

 

 

$

355,626

 

 

$

1,016,925

 

Special Mention

 

1,891

 

 

 

4,094

 

 

 

3,913

 

 

 

1,533

 

 

 

1,160

 

 

 

5,365

 

 

 

8,363

 

 

 

26,319

 

Substandard

 

16

 

 

 

119

 

 

 

3,897

 

 

 

4

 

 

 

190

 

 

 

204

 

 

 

2,400

 

 

 

6,830

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

268,408

 

 

$

212,876

 

 

$

97,824

 

 

$

51,424

 

 

$

25,069

 

 

$

28,084

 

 

$

366,389

 

 

$

1,050,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and Improvement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

30,009

 

 

$

21,116

 

 

$

5,387

 

 

$

3,592

 

 

$

1,849

 

 

$

30,509

 

 

$

181,151

 

 

$

273,613

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

44

 

 

 

14

 

 

 

—

 

 

 

28

 

 

 

32

 

 

 

502

 

 

 

971

 

 

 

1,591

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

30,053

 

 

$

21,130

 

 

$

5,387

 

 

$

3,620

 

 

$

1,881

 

 

$

31,011

 

 

$

182,122

 

 

$

275,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

133,194

 

 

$

33,109

 

 

$

17,219

 

 

$

13,681

 

 

$

4,022

 

 

$

2,529

 

 

$

9,324

 

 

$

213,078

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

676

 

 

 

483

 

 

 

668

 

 

 

316

 

 

 

62

 

 

 

34

 

 

 

132

 

 

 

2,371

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

133,870

 

 

$

33,592

 

 

$

17,887

 

 

$

13,997

 

 

$

4,084

 

 

$

2,563

 

 

$

9,456

 

 

$

215,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

—

 

 

$

—

 

 

$

—

 

 

$

131

 

 

$

369

 

 

$

13,117

 

 

$

287

 

 

$

13,904

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

292

 

 

 

2,298

 

 

 

2,590

 

Substandard

 

—

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

22

 

 

 

3,697

 

 

 

616

 

 

 

4,337

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

—

 

 

$

—

 

 

$

—

 

 

$

133

 

 

$

391

 

 

$

17,106

 

 

$

3,201

 

 

$

20,831

 

Allowance for Credit Losses

The Company has adopted ASU 2016-13 (Topic 326 – Credit Losses) to calculate the ACL, which requires a projection of credit loss over the contract lifetime of the credit adjusted for prepayment tendencies. This valuation account is deducted from the loans amortized cost basis to present the net amount expected to be collected on the loan.

32

Table of Contents

 

The ACL is adjusted through the provision for credit losses and reduced by net charge offs of loans.

The credit loss estimation process involves procedures that consider the unique characteristics of the Company’s portfolio segments. These segments are further disaggregated into the loan pools for monitoring. When computing allowance levels, a model of risk characteristics, such as loss history and delinquency status, along with current conditions and a supportable forecast is used to determine credit loss assumptions.

The Company is generally utilizing two methodologies to analyze loan pools, DCF and probability of default/loss given default (“PD/LGD”).

A default can be triggered by one of several different asset quality factors including past due status, non-accrual status, modification status or if the loan has had a charge-off. The PD/LGD utilizes charge off data from the Federal Financial Institutions Examination Council to construct a default rate. This default rate is further segmented based on the risk of the credit assigning a higher default rate to riskier credits.

The DCF methodology was selected as the most appropriate for loan segments with longer average lives and regular payment structures. The DCF model has two key components, the loss driver analysis combined with a cash flow analysis. The contractual cash flow is adjusted for PD/LGD and prepayment speed to establish a reserve level. The prepayment studies are updated quarterly by a third-party for each applicable pool. The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.

The remaining life method was selected for the consumer direct loan segment since the pool contains loans with many different structures and payment streams and collateral. The weighted average remaining life uses an average annual charge-off rate applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate for the remaining balance of assets.

 

Portfolio Segments

 

Loan Pool

 

Methodology

 

Loss Drivers

Residential real estate

 

1-4 Family nonowner occupied

 

DCF

 

National unemployment

 

 

1-4 Family owner occupied

 

DCF

 

National unemployment

Commercial real estate

 

Commercial real estate nonowner occupied

 

DCF

 

National unemployment

 

 

Commercial real estate owner occupied

 

DCF

 

National unemployment

 

 

Multi Family

 

DCF

 

National unemployment

 

 

Agriculture Land

 

DCF

 

National unemployment

 

 

Other commercial real estate

 

DCF

 

National unemployment

Construction secured by real estate

 

Construction Other

 

PD/LGD

 

Call report loss history

 

 

Construction Residential

 

PD/LGD

 

Call report loss history

Commercial

 

Commercial working capital

 

PD/LGD

 

Call report loss history

 

 

Agriculture production

 

PD/LGD

 

Call report loss history

 

 

Other commercial

 

PD/LGD

 

Call report loss history

Home equity and improvement

 

Home equity and improvement

 

PD/LGD

 

Call report loss history

Consumer finance

 

Consumer direct

 

Remaining life

 

Call report loss history

 

 

Consumer indirect

 

DCF

 

National unemployment

 

33

Table of Contents

 

According to the accounting standard, an entity may make an accounting policy election not to measure an ACL for accrued interest receivable if the entity writes off the applicable accrued interest receivable balance in a timely manner. The Company has made the accounting policy election not to measure an ACL for accrued interest receivables for all loan segments. Current policy dictates that a loan will be placed on nonaccrual status, with the current accrued interest receivable balance being written off, upon the loan being 90 days delinquent or when the loan is deemed to be collateral dependent and the collateral analysis shows less than 1.2 times discounted collateral coverage based on a current assessment of the value of the collateral.

In addition, ASC Topic 326 requires the Company to establish a liability for anticipated credit losses for unfunded commitments. To accomplish this, the company must first establish a loss expectation for extended (funded) commitments. This loss expectation, expressed as a ratio to the amortized cost basis, is then applied to the portion of unfunded commitments not considered unilaterally cancelable and is considered by the company’s management as likely to fund over the life of the instrument. At September 30, 2023, the Company had $1.4 billion in unfunded commitments and set aside $4.7 million in anticipated credit losses. This reserve is recorded in other liabilities as opposed to the ACL.

The determination of ACL is complex and the Company makes decisions on the effects of matters that are inherently uncertain. Evaluations of the loan portfolio and individual credits require certain estimates, assumptions and judgments as to the facts and circumstances related to particular situations or credits. There may be significant changes in the ACL in future periods determined by prevailing factors at that point in time along with future forecasts.

The following table discloses allowance for credit loss (“ACL”) activity for the three and nine months ended September 30, 2023 and 2022 by portfolio segment (in thousands):

Three Months Ended September 30, 2023

 

Residential Real Estate

 

 

Commercial
Real Estate

 

 

Construction

 

 

Commercial

 

 

Home Equity
and
Improvement

 

 

Consumer
Finance

 

 

Total

 

Beginning Allowance

 

$

18,918

 

 

$

34,751

 

 

$

3,831

 

 

$

13,101

 

 

$

3,399

 

 

$

1,921

 

 

$

75,921

 

Charge-Offs

 

 

(12

)

 

 

(69

)

 

 

—

 

 

 

(259

)

 

 

(41

)

 

 

(280

)

 

 

(661

)

Recoveries

 

 

32

 

 

 

797

 

 

 

—

 

 

 

114

 

 

 

20

 

 

 

45

 

 

 

1,008

 

Provisions

 

 

85

 

 

 

535

 

 

 

(1,129

)

 

 

1,179

 

 

 

(608

)

 

 

183

 

 

 

245

 

Ending Allowance

 

$

19,023

 

 

$

36,014

 

 

$

2,702

 

 

$

14,135

 

 

$

2,770

 

 

$

1,869

 

 

$

76,513

 

 

Nine Months Ended September 30, 2023

 

Residential Real Estate

 

 

Commercial
Real Estate

 

 

Construction

 

 

Commercial

 

 

Home Equity
and
Improvement

 

 

Consumer
Finance

 

 

Total

 

Beginning Allowance

 

$

16,711

 

 

$

34,218

 

 

$

4,025

 

 

$

11,769

 

 

$

4,044

 

 

$

2,049

 

 

$

72,816

 

Charge-Offs

 

 

(321

)

 

 

(1,758

)

 

 

—

 

 

 

(778

)

 

 

(241

)

 

 

(1,020

)

 

 

(4,118

)

Recoveries

 

 

77

 

 

 

868

 

 

 

—

 

 

 

1,017

 

 

 

77

 

 

 

177

 

 

 

2,216

 

Provisions

 

 

2,556

 

 

 

2,686

 

 

 

(1,323

)

 

 

2,127

 

 

 

(1,110

)

 

 

663

 

 

 

5,599

 

Ending Allowance

 

$

19,023

 

 

$

36,014

 

 

$

2,702

 

 

$

14,135

 

 

$

2,770

 

 

$

1,869

 

 

$

76,513

 

 

Three Months Ended September 30, 2022

 

Residential Real Estate

 

 

Commercial
Real Estate

 

 

Construction

 

 

Commercial

 

 

Home Equity
and
Improvement

 

 

Consumer Finance

 

 

Total

 

Beginning Allowance

 

$

14,113

 

 

$

34,952

 

 

$

2,999

 

 

$

9,762

 

 

$

4,003

 

 

$

1,245

 

 

$

67,074

 

Charge-Offs

 

 

(15

)

 

 

(206

)

 

 

—

 

 

 

(29

)

 

 

(47

)

 

 

(185

)

 

 

(482

)

Recoveries

 

 

77

 

 

 

48

 

 

 

—

 

 

 

84

 

 

 

95

 

 

 

24

 

 

 

328

 

Provisions

 

 

2,136

 

 

 

(2,082

)

 

 

287

 

 

 

2,465

 

 

 

159

 

 

 

741

 

 

 

3,706

 

Ending Allowance

 

$

16,311

 

 

$

32,712

 

 

$

3,286

 

 

$

12,282

 

 

$

4,210

 

 

$

1,825

 

 

$

70,626

 

 

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Nine Months Ended September 30, 2022

 

Residential Real Estate

 

 

Commercial
Real Estate

 

 

Construction

 

 

Commercial

 

 

Home Equity
and
Improvement

 

 

Consumer
Finance

 

 

Total

 

Beginning Allowance

 

$

12,029

 

 

$

32,399

 

 

$

3,004

 

 

$

13,410

 

 

$

4,221

 

 

$

1,405

 

 

$

66,468

 

Charge-Offs

 

 

(1,016

)

 

 

(350

)

 

 

(16

)

 

 

(5,342

)

 

 

(324

)

 

 

(426

)

 

 

(7,474

)

Recoveries

 

 

831

 

 

 

562

 

 

 

3

 

 

 

370

 

 

 

208

 

 

 

175

 

 

 

2,149

 

Provisions

 

 

4,467

 

 

 

101

 

 

 

295

 

 

 

3,844

 

 

 

105

 

 

 

671

 

 

 

9,483

 

Ending Allowance

 

$

16,311

 

 

$

32,712

 

 

$

3,286

 

 

$

12,282

 

 

$

4,210

 

 

$

1,825

 

 

$

70,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Credit Deteriorated Loans

Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit, they are accounted for as PCD. PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. The outstanding balance and related allowance on these loans as of September 30, 2023 and December 31, 2022 is as follows (in thousands):

 

 

As of September 30, 2023

 

 

As of December 31, 2022

 

 

Loan Balance

 

 

ACL Balance

 

 

Loan Balance

 

 

ACL Balance

 

 

(In Thousands)

 

 

(In Thousands)

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

Residential

$

11,016

 

 

$

144

 

 

$

11,546

 

 

$

139

 

Commercial

 

1,289

 

 

 

50

 

 

 

1,544

 

 

 

34

 

Construction

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

12,305

 

 

 

194

 

 

 

13,090

 

 

 

173

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

4,522

 

 

 

497

 

 

 

5,058

 

 

 

594

 

Home equity and improvement

 

1,948

 

 

 

65

 

 

 

2,409

 

 

 

80

 

Consumer finance

 

216

 

 

 

5

 

 

 

274

 

 

 

5

 

 

6,686

 

 

 

567

 

 

 

7,741

 

 

 

679

 

Total

$

18,991

 

 

$

761

 

 

$

20,831

 

 

$

852

 

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $6.7 million as of September 30, 2023, and $4.3 million as of December 31, 2022.

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9. Mortgage Banking

Net revenues from the sales and servicing of mortgage loans consisted of the following:

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In Thousands)

 

Mortgage banking gain, net

 

$

2,584

 

 

$

3,363

 

 

$

3,989

 

 

$

7,072

 

Mortgage loans servicing revenue (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans servicing revenue

 

 

1,850

 

 

 

1,861

 

 

 

5,583

 

 

 

5,602

 

Amortization of mortgage servicing rights

 

 

(1,291

)

 

 

(1,350

)

 

 

(3,787

)

 

 

(4,128

)

Mortgage servicing rights valuation adjustments

 

 

131

 

 

 

96

 

 

 

155

 

 

 

1,624

 

 

 

690

 

 

 

607

 

 

 

1,951

 

 

 

3,098

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue from sale and servicing of mortgage loans

 

$

3,274

 

 

$

3,970

 

 

$

5,940

 

 

$

10,170

 

The unpaid principal balance of residential mortgage loans serviced for third parties was $2.91 billion and $2.96 billion at September 30, 2023 and December 31, 2022.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In Thousands)

 

Mortgage servicing assets:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

20,823

 

 

$

21,873

 

 

$

21,858

 

 

$

22,244

 

Loans sold, servicing retained

 

 

642

 

 

 

1,392

 

 

 

2,103

 

 

 

3,799

 

Amortization

 

 

(1,291

)

 

 

(1,350

)

 

 

(3,787

)

 

 

(4,128

)

Carrying value before valuation allowance at end of period

 

 

20,174

 

 

 

21,915

 

 

 

20,174

 

 

 

21,915

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(663

)

 

 

(1,180

)

 

 

(687

)

 

 

(2,707

)

Impairment recovery

 

 

131

 

 

 

97

 

 

 

155

 

 

 

1,624

 

Balance at end of period

 

 

(532

)

 

 

(1,083

)

 

 

(532

)

 

 

(1,083

)

Net carrying value of MSRs at end of period

 

$

19,642

 

 

$

20,832

 

 

$

19,642

 

 

$

20,832

 

Fair value of MSRs at end of period

 

$

29,267

 

 

$

27,633

 

 

$

29,267

 

 

$

27,633

 

Amortization of mortgage servicing rights is computed based on payments and payoffs of the related mortgage loans serviced. Estimates of future amortization expense are not easily estimable.

The Company had no accrual for secondary market buy-back activity at September 30, 2023 or December 31, 2022 based on management’s estimate of potential losses from this activity. There was no expense or credit recognized in the three and nine months ended September 30, 2023 and 2022.

10. Leases

The Company’s lease agreements have maturity dates ranging from April 2023 to September 2044, some of which include options for multiple five and ten year extensions. The weighted average remaining life of the lease term for these leases was 13.34 years as of September 30, 2023 and 13.29 years as of December 31, 2022.

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The weighted average discount rate for leases was 2.56% as of September 30, 2023 and 2.52% as of December 31, 2022.

The total operating lease costs were $351,000 and $1.6 million for the three and nine months ended September 30, 2023 and $540,000 and $1.6 million for the three and nine months ended September 30, 2022. The right-of-use asset, included in other assets, were $13.6 million and $14.9 million at September 30, 2023 and December 31, 2022, respectively. The lease liabilities, included in other liabilities, were $14.0 million and $15.6 million as of September 30, 2023 and December 31, 2022, respectively.

Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:

 

(In Thousands)

 

September 30, 2023

 

Remainder of 2023

 

$

2,633

 

2024

 

 

1,665

 

2025

 

 

1,371

 

2026

 

 

1,196

 

2027

 

 

1,118

 

Thereafter

 

 

10,564

 

     Total undiscounted minimum lease payments

 

 

18,547

 

Present value adjustment

 

 

(4,537

)

     Total lease liabilities

 

$

14,010

 

 

11. Deposits

A summary of deposit balances is as follows:

 

 

September 30,
2023

 

 

December 31,
2022

 

 

 

(In Thousands)

 

Non-interest-bearing checking accounts

 

$

1,545,595

 

 

$

1,869,509

 

Interest-bearing checking and money market accounts

 

 

3,138,609

 

 

 

3,185,440

 

Savings deposits

 

 

710,251

 

 

 

798,003

 

Retail certificates of deposit less than $250,000

 

 

752,160

 

 

 

645,318

 

Retail certificates of deposit greater than $250,000

 

 

526,843

 

 

 

264,741

 

Brokered deposits

 

 

392,181

 

 

 

143,708

 

 

$

7,065,639

 

 

$

6,906,719

 

 

12. Borrowings

The Company's FHLB advances and junior subordinated debentures owed to unconsolidated subsidiary trusts and subordinated debentures are comprised of the following:

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

(In Thousands)

 

FHLB Advances:

 

 

 

 

 

 

Single maturity fixed rate advances

 

$

125,000

 

 

$

195,000

 

Overnight advances

 

 

214,000

 

 

 

233,000

 

Total

 

$

339,000

 

 

$

428,000

 

First Defiance Statutory Trust I due December 2035

 

$

20,619

 

 

$

20,619

 

First Defiance Statutory Trust II due June 2037

 

 

15,464

 

 

 

15,464

 

Junior subordinated debentures owed to unconsolidated subsidiary trusts

 

$

36,083

 

 

$

36,083

 

Subordinated debentures

 

$

49,114

 

 

$

49,020

 

 

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At September 30, 2023, the Company had $339.0 million of outstanding FHLB advances with maturity dates in 2023. There was $428.0 million in outstanding FHLB advances at December 31, 2022 with maturity dates in 2023. The Company's available borrowing capacity at the FHLB was $1.3 billion as of September 30, 2023 and $1.5 billion as of December 31, 2022, respectively. The Company has an available credit line at the Federal Reserve Bank Discount Window of $345.7 million and $43.9 million as of September 30, 2023 and December 31, 2022, respectively, which has not been drawn upon. The Company also has a $50 million credit line at US Bank as of September 30, 2023 and December 31, 2022, respectively, which also was not drawn upon.

In September 2020, the Company completed the issuance of $50.0 million aggregate principal amount, fixed-to-floating rate subordinated notes due September 30, 2030 in a private offering exempt from the registration requirements under the Securities Act of 1933, as amended. The notes carry a fixed rate of 4.0% for five years at which time they will convert to a floating rate based on the secured overnight borrowing rate, plus a spread of 388.5 basis points. The Company may, at its option, beginning September 30, 2025, redeem the notes, in whole or in part, from time to time, subject to certain conditions. The net proceeds from the sale were approximately $48.7 million, after deducting the estimated offering expenses. The Company has used, and intends to continue using, the net proceeds for general corporate purposes, which may include, without limitation, providing capital to support its growth organically or through strategic acquisitions, repaying indebtedness, in financing investments, capital expenditures, repurchasing its common shares and for investments in the Bank as regulatory capital. The subordinated debentures are included in "Total Capital", as such term is defined under current regulatory guidelines and interpretations.

In March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (“Trust Affiliate II”) that issued $15.0 million of Guaranteed Capital Trust Securities (“Trust Preferred Securities”). In connection with this transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures ("Subordinated Debentures") to Trust Affiliate II. The Company formed Trust Affiliate II for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Subordinated Debentures held by Trust Affiliate II are the sole assets of that trust. The Company is not considered the primary beneficiary of Trust Affiliate II (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the Subordinated Debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate II are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.5%. As a result of the discontinuation of LIBOR, beginning with the distribution on December 15, 2023, distributions will be calculated at a variable rate equal to the three-month SOFR rate plus 1.5%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate II was 7.05% as of September 30, 2023, and 6.27% as of December 31, 2022.

The Trust Preferred Securities issued by Trust Affiliate II are subject to mandatory redemption, in whole or part, upon repayment of the Subordinated Debentures. The Company has entered into an agreement that fully and unconditionally guarantees the Trust Preferred Securities subject to the terms of the guarantee. The Trust Preferred Securities and Subordinated Debentures mature on September 15, 2037, but can be redeemed at the Company’s option at any time.

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Table of Contents

 

The Company also sponsored an affiliated trust, First Defiance Statutory Trust I (“Trust Affiliate I”) that issued $20.0 million of Trust Preferred Securities in 2005. In connection with this transaction, the Company issued $20.6 million of Subordinated Debentures to Trust Affiliate I. Trust Affiliate I was formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Junior Debentures held by Trust Affiliate I are the sole assets of the trust. The Company is not considered the primary beneficiary of Trust Affiliate I (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate I are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.38%. As a result of the discontinuation of LIBOR, beginning with the distribution on December 15, 2023, distributions will be calculated at a variable rate equal to the three-month SOFR rate plus 1.38%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate I was 7.05% and 6.15% on September 30, 2023 and December 31, 2022, respectively.

The Trust Preferred Securities issued by Trust Affiliate I are subject to mandatory redemption, in whole or in part, upon repayment of the Subordinated Debentures. The Company has entered into an agreement that fully and unconditionally guarantees the Trust Preferred Securities subject to the terms of the guarantee. The Trust Preferred Securities and Subordinated Debentures mature on December 15, 2035, but can be redeemed at the Company’s option at any time now.

The Subordinated Debentures related to the Trust Preferred Securities may be included in Tier 1 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

Interest on both issues of Trust Preferred Securities may be deferred for a period of up to five years at the option of the issuer.

 

13. Commitments, Guarantees and Contingent Liabilities

Loan commitments are made to accommodate the financial needs of Premier’s customers in the form of unfunded loans or unused lines of credit and result in market risk. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. They primarily are issued to facilitate customers’ trade transactions.

Both arrangements have credit risk, essentially the same as that involved in extending loans to customers, and are subject to the Company’s normal credit policies. Collateral (e.g., securities, receivables, inventory and equipment) is obtained based on a credit assessment of the customer.

The Company’s maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding as of the periods stated below were as follows (in thousands):

 

 

 

 

 

 

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Commitments to make loans

 

$

594,042

 

 

$

957,533

 

Unused lines of credit

 

 

1,053,287

 

 

 

1,044,875

 

Standby letters of credit

 

 

17,761

 

 

 

18,632

 

Total

 

$

1,665,090

 

 

$

2,021,040

 

 

Commitments to make loans are generally made for periods of 60 days or less.

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Table of Contents

 

14. Income Taxes

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the states of Indiana and West Virginia. The Company is no longer subject to examination by income taxing authorities for years before 2019. The Company also currently operates in the states of Ohio, Michigan and Pennsylvania which tax financial institutions based on their equity rather than their income.

The components of income tax expense (benefit) are as follows:

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In Thousands)

 

 

(In Thousands)

 

Current:

 

 

 

 

 

 

 

 

 

 

 

Federal

$

6,105

 

 

$

6,716

 

 

$

25,492

 

 

$

18,581

 

State and local

 

137

 

 

 

162

 

 

 

410

 

 

 

517

 

Deferred

 

(691

)

 

 

(168

)

 

 

(2,336

)

 

 

(774

)

 

$

5,551

 

 

$

6,710

 

 

$

23,566

 

 

$

18,324

 

The effective tax rates differ from federal statutory rate applied to income due to the following:

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In Thousands)

 

 

(In Thousands)

 

Tax expense at statutory rate (21%)

$

6,348

 

 

$

7,330

 

 

$

24,105

 

 

$

20,000

 

Increases (decreases) in taxes from:

 

 

 

 

 

 

 

 

 

 

 

State income tax - net of federal tax benefit

 

108

 

 

 

129

 

 

 

324

 

 

 

409

 

Tax exempt interest income, net of TEFRA

 

(113

)

 

 

(180

)

 

 

(376

)

 

 

(554

)

Bank owned life insurance

 

(221

)

 

 

(207

)

 

 

(732

)

 

 

(622

)

Captive insurance

 

(92

)

 

 

(125

)

 

 

(338

)

 

 

(326

)

Other

 

(479

)

 

 

(237

)

 

 

583

 

 

 

(583

)

Total

$

5,551

 

 

$

6,710

 

 

$

23,566

 

 

$

18,324

 

15. Derivative Financial Instruments

At September 30, 2023, the Company had approximately $39.7 million of interest rate lock commitments and $385.0 million of forward sales of mortgage backed securities. These commitments are considered derivatives. The Company had $35.9 million of interest rate lock commitments and $254.0 million of forward commitments at December 31, 2022.

The fair value of these mortgage banking derivatives are reflected by a derivative asset recorded in other assets in the Consolidated Statements of Financial Condition. The table below provides data about the carrying values of these derivative instrument assets:

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

(In Thousands)

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

Mortgage Banking Derivatives

 

$

6,252

 

 

$

1,349

 

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Table of Contents

 

The table below provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments. The difference in derivative carrying value at September 30, 2023 and 2022 represents a fair value adjustment that runs through mortgage banking income.

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In Thousands)

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Banking Derivatives – (Loss) Gain

 

$

2,826

 

 

$

13,386

 

 

$

4,903

 

 

$

12,901

 

 

Interest Rate Swaps

The Company maintains an interest rate protection program for commercial loan customers. Under this program, the Company provides a customer with a fixed rate loan while creating a variable rate asset for the Company by the customer entering into an interest rate swap with terms that match the loan. The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution. The Company had interest rate swaps associated with commercial loans with a notional value of $80.4 million and fair value of $3.5 million in other assets and $3.5 million in other liabilities at September 30, 2023. As of December 31, 2022, the Company had interest rate swaps associated with commercial loans with a notional value of $67.3 million and fair value of $4.5 million in other assets and $4.5 million in other liabilities. For the three and nine months ended September 30, 2023, $47,000 and $319,000, respectively, flowed through noninterest income. For the three and nine months ended September 30, 2022, $(54,000) and $(53,000) flowed through noninterest income.

Interest Rate Swaps Designated as Cash Flow Hedge and Fair Value Hedge

In May 2021, the Company entered into derivative instruments designated as a cash flow hedge. In June 2023, the Company entered into derivative instruments designated as a fair value hedge and another designated as a cash flow hedge. For a derivative instrument that is designated and qualifies as a cash flow hedge, the change in fair value of the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For a derivative instrument that is designated and qualified as a fair value hedge, the change in fair value is recorded to the hedged item and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

An interest rate swap with notional amount totaling $250.0 million as of September 30, 2023 was designated as a cash flow hedge to hedge the risk of variability in cash flows (future interest receipts) attributable to changes in the contractually specified benchmark interest rate on the Company’s floating rate loan pool. The specified benchmark interest rate switched from LIBOR to SOFR after June 30, 2023. The gross aggregate fair value of the swap of $47.2 million is recorded in other liabilities in the unaudited Consolidated Balance Sheets at September 30, 2023, with changes in fair value recorded net of tax in other comprehensive income (loss). As of December 31, 2022, the gross aggregate fair value of the swap of $40.0 million was recorded in other liabilities in the Consolidated Balance Sheets. A summary of the interest rate swap designated as a cash flow hedge is presented below (dollars in thousands):

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Table of Contents

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

 

 

Notional amount

 

$

250,000

 

 

$

250,000

 

Weighted average fixed receive rates

 

 

1.437

%

 

 

1.437

%

Weighted average variable 1-month SOFR pay rates

 

 

5.455

%

 

 

4.392

%

Weighted average remaining maturity (in years)

 

 

7.2

 

 

 

8.1

 

Fair value

 

$

(47,226

)

 

$

(40,032

)

 

Three $125.0 million interest rate swaps with a notional amount totaling $375.0 million as of September 30, 2023 were designated as fair value hedges to mitigate the risk of further interest rate increases and the subsequent impact on the valuation of the $1.3 billion associated pool of fixed rate mortgages. The gross fair value of the swaps of $5.4 million are recorded in other assets in the unaudited Consolidated Balance Sheets at September 30, 2023, with changes in fair value offsetting to the fixed rate mortgage loan pool. The Company expects the hedges to remain effective during the remaining terms of the swaps. A summary of the interest rate swaps designated as fair value hedges are presented below (dollars in thousands):

 

 

 

September 30, 2023

 

 

 

 

 

Notional amount Fair Value Hedge

 

$

375,000

 

Weighted average fixed pay rates

 

 

4.113

%

Weighted average variable SOFR receive rates

 

 

5.330

%

Weighted average remaining maturity (in years)

 

 

2.5

 

Fair value

 

$

5,408

 

 

 

An interest rate swap with a notional amount totaling $125.0 million as of September 30, 2023 was designated as a cash flow hedge to hedge the risk of variability in cash flows attributable to changes in the contractually specified benchmark interest rate on the Company’s short-term fixed rate FHLB advances. The gross aggregate fair value of the swap of $1.7 million is recorded in other assets in the unaudited Consolidated Balance Sheets at September 30, 2023, with changes recorded net of tax in other comprehensive income (loss). The Company expects the hedge to remain effective during the remaining term of the swap. A summary of the interest rate swap designated as a cash flow hedge is presented below (dollars in thousands):

 

 

 

 

September 30, 2023

 

 

 

 

 

Notional amount Cash Flow Hedge

 

$

125,000

 

Weighted average fixed pay rates

 

 

4.160

%

Weighted average variable SOFR receive rates

 

 

5.330

%

Weighted average remaining maturity (in years)

 

 

1.7

 

Fair value

 

$

1,713

 

 

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16. Other Comprehensive (Loss) Income

The before and after tax amounts allocated to each component of other comprehensive income (loss) are presented in the table below. Reclassification adjustments related to securities available for sale are included in gains on sale of securities in the accompanying consolidated condensed statements of income. Reclassification adjustments related to cash flow hedges are included in interest income or interest expense in the accompanying consolidated condensed statements of income.

 

 

 

Before Tax
Amount

 

 

Tax (Expense)
Benefit

 

 

Net of Tax
Amount

 

 

 

(In Thousands)

 

Three Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

Change in net unrealized gains during the period

 

$

(31,552

)

 

$

6,626

 

 

$

(24,926

)

Reclassification adjustment for net gains included in net income

 

 

—

 

 

 

—

 

 

 

—

 

Cash flow hedge derivatives

 

 

 

 

 

 

 

 

 

Change in net unrealized gains during the period

 

 

(11,572

)

 

 

2,196

 

 

 

(9,376

)

Reclassification adjustment for net loss included in net income

 

 

3,525

 

 

 

(784

)

 

 

2,741

 

Total other comprehensive income

 

$

(39,599

)

 

$

8,038

 

 

$

(31,561

)

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss during the period

 

$

(28,443

)

 

$

5,973

 

 

$

(22,470

)

Reclassification adjustment for net gains included in net income

 

 

(27

)

 

 

6

 

 

 

(21

)

Cash flow hedge derivatives

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss during the period

 

 

(13,468

)

 

 

2,828

 

 

 

(10,640

)

Reclassification adjustment for net loss included in net income

 

 

7,985

 

 

 

(1,676

)

 

 

6,309

 

Total other comprehensive loss

 

$

(33,953

)

 

$

7,131

 

 

$

(26,822

)

 

 

 

Before Tax
Amount

 

 

Tax (Expense)
Benefit

 

 

Net of Tax
Amount

 

 

 

(In Thousands)

 

Three Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

Change in net unrealized losses during the period

 

$

(55,350

)

 

$

11,624

 

 

$

(43,726

)

Reclassification adjustment for net gains included in net income

 

 

—

 

 

 

—

 

 

 

—

 

Cash flow hedge derivatives

 

 

 

 

 

 

 

 

 

Change in net unrealized losses during the period

 

 

(13,343

)

 

 

2,802

 

 

 

(10,541

)

Reclassification adjustment for net gains included in net income

 

 

(266

)

 

 

56

 

 

 

(210

)

Total other comprehensive loss

 

$

(68,959

)

 

$

14,482

 

 

$

(54,477

)

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss during the period

 

$

(182,755

)

 

$

38,378

 

 

$

(144,377

)

Reclassification adjustment for net gains included in net income

 

 

—

 

 

 

—

 

 

 

—

 

Cash flow hedge derivatives

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss during the period

 

 

(43,294

)

 

 

9,092

 

 

 

(34,202

)

Reclassification adjustment for net gains included in net income

 

 

982

 

 

 

(206

)

 

 

776

 

Total other comprehensive loss

 

$

(225,067

)

 

$

47,264

 

 

$

(177,803

)

 

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Table of Contents

 

Activity in accumulated other comprehensive income (loss), net of tax, was as follows:

 

 

 

Securities
Available
For Sale

 

 

Post-
retirement
Benefit

 

 

Cash Flow Hedge Derivatives

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

 

(In Thousands)

 

Balance January 1, 2023

 

$

(142,236

)

 

$

402

 

 

$

(31,626

)

 

$

(173,460

)

Other comprehensive income before reclassifications

 

 

(22,470

)

 

 

—

 

 

 

(10,640

)

 

 

(33,110

)

Amounts reclassified from accumulated other comprehensive income

 

 

(21

)

 

 

—

 

 

 

6,309

 

 

 

6,288

 

 

 

 

 

 

 

 

 

 

 

 

 

Net other comprehensive income during period

 

 

(22,491

)

 

 

—

 

 

 

(4,331

)

 

 

(26,822

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance September 30, 2023

 

$

(164,727

)

 

$

402

 

 

$

(35,957

)

 

$

(200,282

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 1, 2022

 

$

(4,023

)

 

$

(79

)

 

$

674

 

 

$

(3,428

)

Other comprehensive loss before reclassifications

 

 

(144,377

)

 

 

—

 

 

 

(34,202

)

 

 

(178,579

)

Amounts reclassified from accumulated other comprehensive loss

 

 

—

 

 

 

—

 

 

 

776

 

 

 

776

 

 

 

 

 

 

 

 

 

 

 

 

 

Net other comprehensive loss during period

 

 

(144,377

)

 

 

—

 

 

 

(33,426

)

 

 

(177,803

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance September 30, 2022

 

$

(148,400

)

 

$

(79

)

 

$

(32,752

)

 

$

(181,231

)

 

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Table of Contents

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

 

This quarterly report, as well as other publicly available documents, including those incorporated herein by reference, may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 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 quarterly report 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, (the “2022 Form 10-K”) and any amendments thereto. Any one or more of these factors have affected or could in the future affect Premier’s business and financial results in future periods and could cause actual results to differ materially from plans and projections.

All forward-looking statements made in this quarterly report 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.

Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this report includes non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying performance and trends of the Company. The Company monitors the non-GAAP financial measures and the Company’s management believes they are helpful to investors because they provide an additional tool to use in evaluating the Company’s financial and business trends and operating results.

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Table of Contents

 

In addition, the Company’s management uses these non-GAAP measures to compare the Company’s performance to that of prior periods for trend analysis and for budgeting and planning purposes. Fully taxable-equivalent (“FTE”) is an adjustment to net interest income to reflect tax-exempt income on an equivalent before-tax basis.

Non-GAAP financial measures have inherent limitations, which are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To mitigate these limitations, the Company has practices in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and to ensure that our performance is properly reflected to facilitate consistent period-to-period comparisons. The Company’s method of calculating these non-GAAP measures may differ from methods used by other companies. Although the Company believes the non-GAAP financial measures disclosed in this report enhance investors' understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for those financial measures prepared in accordance with GAAP.

The following tables present a reconciliation of non-GAAP measures to their respective GAAP measures for the three and nine months ended September 30, 2023 and 2022.

Reconciliations of Net Interest Income on an FTE basis, Net Interest Margin and Efficiency Ratio

 

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In Thousands)

 

Net interest income (GAAP)

 

$

54,264

 

 

$

63,312

 

 

$

164,543

 

 

$

180,300

 

Add: FTE adjustment

 

 

54

 

 

 

198

 

 

 

225

 

 

 

652

 

Net interest income on a FTE basis (1)

 

$

54,318

 

 

$

63,510

 

 

$

164,768

 

 

$

180,952

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income-less securities gains/losses (2)

 

$

12,997

 

 

$

16,661

 

 

 

80,152

 

 

$

49,692

 

Non-interest expense (3)

 

 

38,052

 

 

 

41,099

 

 

 

125,338

 

 

 

121,483

 

Average interest-earning assets net of average

 

 

 

 

 

 

 

 

 

 

 

 

unrealized gains/losses on securities (4)

 

 

7,969,363

 

 

 

7,477,795

 

 

 

7,904,565

 

 

 

7,097,421

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (1) / (4)

 

 

2.73

%

 

 

3.40

%

 

 

2.78

%

 

 

3.40

%

Efficiency ratio (3) / (1) + (2)

 

 

56.53

%

 

 

51.26

%

 

 

51.18

%

 

 

52.67

%

 

Critical Accounting Policies

Premier has established various accounting policies that govern the application of GAAP in the preparation of its consolidated financial statements. The significant accounting policies of Premier are described in the notes to the consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities and management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying value of assets and liabilities and the results of operations of Premier.

The Company tests goodwill at least annually and, more frequently, if events or changes in circumstances indicate that it may be more likely than not that there is a possible impairment. Due to the ongoing impacts from the closure of large, well-known regional banks in early 2023 that led to a significant decline in bank stock prices, the Company conducted a quantitative interim goodwill impairment assessment at September 30, 2023.

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Table of Contents

 

The impairment assessment compares the fair value of identified reporting units with their carrying amount (including goodwill). If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. The Company's interim assessment estimated fair value on an income approach that incorporated a discounted cash flow model that involves management assumptions and consideration of future economic forecasts available. Significant assumptions in the assessment were employed and included, but were not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry. Results of the interim assessment indicated no goodwill impairment as of September 30, 2023. Changes in the economic environment, operations of the reporting unit or other adverse events could result in goodwill impairment as a result of a future evaluation.

 

General

Premier is a financial holding company that conducts business through its wholly-owned subsidiaries, the Bank, First Insurance, PFC Risk Management, and PFC Capital.

The Bank is an Ohio state-chartered bank headquartered in Youngstown, Ohio. It conducts operations through 75 banking center offices, 9 loan offices and serves clients through a team of wealth professionals. These operations are located in Ohio, Michigan, Indiana, Pennsylvania and West Virginia. The Bank provides a broad range of financial services including checking accounts, savings accounts, certificates of deposit, real estate mortgage loans, commercial loans, consumer loans, home equity loans and trust and wealth management services through its extensive branch network.

PFC Risk Management is a wholly-owned insurance company subsidiary of the Company that insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible, in today’s insurance marketplace. PFC Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer. On April 10, 2023, the IRS issued IR-2023-74 proposing regulations that classify 831(b) captives with less than a 65% claims loss ratio as a “listed transaction”. We are currently reviewing the proposed regulations and consulting with tax advisors to understand the impact on PFC Risk Management if the final regulations are substantially similar to the proposed regulations. The ultimate impact of the proposal and the impact on the Company is uncertain.

PFC Capital was formed as an Ohio limited liability company in 2016 for the purpose of providing mezzanine funding for customers. Mezzanine loans are offered by PFC Capital to customers in the Company’s market area and are expected to be repaid from the cash flow from operations of the business.

First Insurance was an insurance agency that conducted business throughout the Company’s markets prior to July 1, 2023. First Insurance offered property and casualty insurance, life insurance and group health insurance. Substantially all the assets of First Insurance were sold to Risk Strategies Corporation on June 30, 2023.

Regulation – The Company is subject to regulation, examination and oversight by the Federal Reserve Board (“Federal Reserve”) and the SEC. The Bank is subject to regulation, examination and oversight by the FDIC and the Division of Financial Institutions of the Ohio Department of Commerce ("ODFI"). In addition, the Bank is subject to regulations of the Consumer Financial Protection Bureau (“CFPB”), which was established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and has broad powers to adopt and enforce consumer protection regulations.

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Table of Contents

 

The Company and the Bank must file periodic reports with the Federal Reserve, and examinations are conducted periodically by the Federal Reserve, the FDIC and the ODFI to determine whether the Company and the Bank are in compliance with various regulatory requirements and are operating in a safe and sound manner. The Company is also subject to various Ohio laws which restrict takeover bids, tender offers and control-share acquisitions involving public companies which have significant ties to Ohio.

Changes in Financial Condition

At September 30, 2023, the Company's total assets amounted to $8.6 billion compared to $8.5 billion at December 31, 2022. The increase is primarily attributable to growth in net loans of $232.6 million from $6.4 billion at December 31, 2022 to $6.6 billion at September 30, 2023. The increase was mainly due to an increase in residential loans as the Company sold fewer loans due to higher yields on holding loans than selling loans. Loans held for sale increased from $115.3 million at December 31, 2022 to $135.2 million at September 30, 2023. The increase in net loans was funded by a decrease in securities and an increase in deposits partially offset by a decline in advances from the FHLB.

Securities decreased $128.9 million to $911,000 at September 30, 2023 compared to December 31, 2022. As lower yielding securities mature, cash flows are being utilized for funding loans. Equity securities decreased $2.0 million to $5.9 million in the first nine months of 2023.

Goodwill and intangibles both decreased during the year as a result of the sale of First Insurance. Goodwill decreased from $318.0 million at December 31, 2022 to $295.6 million at September 30, 2023 and intangibles were $13.2 million at September 30, 2023 compared to $19.1 million at December 31, 2022.

Deposits increased $158.9 million from $6.9 billion at December 31, 2022 to $7.1 billion as of September 30, 2023. Non-interest bearing deposits decreased $323.9 million since December 31, 2022 to $1.5 billion during the nine months ended September 30, 2023, while non-brokered interest-bearing deposits grew $234.4 million to $5.1 billion during the same period. Brokered deposits increased $248.5 million in the nine months ended September 30, 2023 to $392.2 million compared to $143.7 million at December 31, 2022.

Stockholders’ equity increased $31.8 million from $887.7 million at December 31, 2022 to $919.6 million at September 30, 2023. The increase in stockholders’ equity was primarily due to earnings after dividends including the impact of the sale of First Insurance. This was partially offset by a decrease in accumulated other comprehensive income (“AOCI”) primarily related to an after-tax $22.5 million valuation adjustment on the available-for-sale securities portfolio. At September 30, 2023, 1,199,634 common shares remained available for repurchase under the Company’s existing repurchase program.

48

Table of Contents

 

Average Balances, Net Interest Income and Yields Earned and Rates Paid

The following table presents for the periods indicated the total dollar amount of interest from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in thousands of dollars and rates, and the net interest margin. The table reports interest income from tax-exempt loans and investment on a fully tax-equivalent basis. All average balances are based upon daily balances (dollars in thousands).

 

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

Average

 

 

 

 

 

Yield/

 

 

Average

 

 

 

 

 

Yield/

 

 

 

Balance

 

 

Interest (1)

 

 

Rate (2)

 

 

Balance

 

 

Interest (1)

 

 

Rate (2)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

6,763,232

 

 

$

86,618

 

 

 

5.12

%

 

$

6,120,324

 

 

$

65,564

 

 

 

4.29

%

Securities

 

 

1,137,730

 

 

 

6,991

 

 

 

2.46

 

 

 

1,261,527

 

 

 

7,006

 

 

 

2.22

 

Interest bearing deposits

 

 

38,210

 

 

 

652

 

 

 

6.83

 

 

 

68,530

 

 

 

221

 

 

 

1.29

 

FHLB stock

 

 

30,191

 

 

 

690

 

 

 

9.14

 

 

 

27,414

 

 

 

510

 

 

 

7.44

 

Total interest-earning assets

 

 

7,969,363

 

 

 

94,951

 

 

 

4.77

 

 

 

7,477,795

 

 

 

73,301

 

 

 

3.92

 

Non-interest-earning assets

 

 

612,856

 

 

 

 

 

 

 

 

 

683,594

 

 

 

 

 

 

 

Total assets

 

$

8,582,219

 

 

 

 

 

 

 

 

$

8,161,389

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

5,490,945

 

 

$

34,874

 

 

 

2.54

%

 

$

4,846,419

 

 

$

6,855

 

 

 

0.57

%

FHLB advances and other

 

 

355,576

 

 

 

4,597

 

 

 

5.17

 

 

 

377,533

 

 

 

2,069

 

 

 

2.19

 

Subordinated debentures

 

 

85,179

 

 

 

1,162

 

 

 

5.46

 

 

 

85,049

 

 

 

868

 

 

 

4.08

 

Notes payable

 

 

13

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total interest-bearing liabilities

 

 

5,931,713

 

 

 

40,633

 

 

 

2.74

 

 

 

5,309,001

 

 

 

9,792

 

 

 

0.74

 

Non-interest bearing deposits

 

 

1,554,882

 

 

 

—

 

 

 

—

 

 

 

1,807,909

 

 

 

—

 

 

 

—

 

Total including non-interest bearing demand deposits

 

 

7,486,595

 

 

 

40,633

 

 

 

2.17

 

 

 

7,116,910

 

 

 

9,792

 

 

 

0.55

 

Other non-interest-bearing liabilities

 

 

156,168

 

 

 

 

 

 

 

 

 

132,255

 

 

 

 

 

 

 

Total liabilities

 

 

7,642,763

 

 

 

 

 

 

 

 

 

7,249,165

 

 

 

 

 

 

 

Stockholders’ equity

 

 

939,456

 

 

 

 

 

 

 

 

 

912,224

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

8,582,219

 

 

 

 

 

 

 

 

$

8,161,389

 

 

 

 

 

 

 

Net interest income; interest rate spread

 

 

 

 

$

54,318

 

 

 

2.03

%

 

 

 

 

$

63,509

 

 

 

3.18

%

Net interest margin (3)

 

 

 

 

 

 

 

 

2.73

%

 

 

 

 

 

 

 

 

3.40

%

Average interest-earning assets to average
   interest-bearing liabilities

 

 

 

 

 

 

 

 

134

%

 

 

 

 

 

 

 

 

141

%

 

(1)
Interest on certain tax-exempt loans and securities is not taxable for federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 21%.
(2)
Annualized
(3)
Net interest margin is net interest income divided by average interest-earning assets. See Non-GAAP Financial Measure discussion for further details.

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Table of Contents

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

Average

 

 

 

 

 

Yield/

 

 

Average

 

 

 

 

 

Yield/

 

 

 

Balance

 

 

Interest (1)

 

 

Rate (2)

 

 

Balance

 

 

Interest (1)

 

 

Rate (2)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

6,671,687

 

 

$

244,303

 

 

 

4.88

%

 

$

5,726,369

 

 

$

177,385

 

 

 

4.13

%

Securities

 

 

1,160,987

 

 

 

21,408

 

 

 

2.46

 

 

 

1,266,681

 

 

 

19,122

 

 

 

2.01

 

Interest bearing deposits

 

 

36,677

 

 

 

1,737

 

 

 

6.31

 

 

 

84,745

 

 

 

387

 

 

 

0.61

 

FHLB stock

 

 

35,214

 

 

 

1,989

 

 

 

7.53

 

 

 

19,626

 

 

 

743

 

 

 

5.05

 

Total interest-earning assets

 

 

7,904,565

 

 

 

269,437

 

 

 

4.54

 

 

 

7,097,421

 

 

 

197,637

 

 

 

3.71

 

Non-interest-earning assets

 

 

633,683

 

 

 

 

 

 

 

 

 

709,592

 

 

 

 

 

 

 

Total assets

 

$

8,538,248

 

 

 

 

 

 

 

 

$

7,807,013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

5,256,571

 

 

$

83,157

 

 

 

2.11

%

 

$

4,688,047

 

 

$

11,749

 

 

 

0.33

%

FHLB advances and other

 

 

491,861

 

 

 

18,150

 

 

 

4.92

 

 

 

210,908

 

 

 

2,609

 

 

 

1.65

 

Subordinated debentures

 

 

85,147

 

 

 

3,362

 

 

 

5.26

 

 

 

85,019

 

 

 

2,326

 

 

 

3.65

 

Notes payable

 

 

4

 

 

 

—

 

 

 

—

 

 

 

143

 

 

 

1

 

 

 

0.93

 

Total interest-bearing liabilities

 

 

5,833,583

 

 

 

104,669

 

 

 

2.39

 

 

 

4,984,117

 

 

 

16,685

 

 

 

0.45

 

Non-interest bearing deposits

 

 

1,637,191

 

 

 

—

 

 

 

—

 

 

 

1,764,666

 

 

 

—

 

 

 

—

 

Total including non-interest bearing demand deposits

 

 

7,470,774

 

 

 

104,669

 

 

 

1.87

 

 

 

6,748,783

 

 

 

16,685

 

 

 

0.33

 

Other non-interest-bearing liabilities

 

 

146,507

 

 

 

 

 

 

 

 

 

113,089

 

 

 

 

 

 

 

Total liabilities

 

 

7,617,281

 

 

 

 

 

 

 

 

 

6,861,872

 

 

 

 

 

 

 

Stockholders' equity

 

 

920,967

 

 

 

 

 

 

 

 

 

945,141

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

8,538,248

 

 

 

 

 

 

 

 

$

7,807,013

 

 

 

 

 

 

 

Net interest income; interest rate spread

 

 

 

 

$

164,768

 

 

 

2.15

%

 

 

 

 

$

180,952

 

 

 

3.26

%

Net interest margin (3)

 

 

 

 

 

 

 

 

2.78

%

 

 

 

 

 

 

 

 

3.40

%

Average interest-earning assets to average
   interest-bearing liabilities

 

 

 

 

 

 

 

 

136

%

 

 

 

 

 

 

 

 

142

%

 

(1)
Interest on certain tax-exempt loans and securities is not taxable for federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 21%.
(2)
Annualized
(3)
Net interest margin is net interest income divided by average interest-earning assets. See Non-GAAP Financial Measure discussion for further details.

Results of Operations

Three months ended September 30, 2023 and 2022

For the three months ended September 30, 2023, the Company reported net income of $24.7 million compared to net income of $28.2 million for the three months ended September 30, 2022. On a per share basis, basic and diluted earnings per common share were $0.69 for the three months ended September 30, 2023 and basic and diluted earnings per common share were $0.79 for the three months ended September 30, 2022. The changes from 2022 to 2023 are primarily due to the sale of First Insurance on June 30, 2023 and fluctuations in interest on loans and deposits, provision for credit losses, and mortgage banking income, which are described in further detail below.

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Table of Contents

 

Net Interest Income

The Company’s net interest income is determined by its interest rate spread (i.e. the difference between the yields on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities.

Net interest income was $54.3 million for the quarter ended September 30, 2023, down from $63.3 million for the same period in 2022. Average earning assets for the quarter ended September 30, 2023 were $8.0 billion compared to $7.5 billion for the quarter ended September 30, 2022. The tax-equivalent net interest margin was 2.73% for the quarter ended September 30, 2023, a decrease of 67 basis points from 3.40% for the same period in 2022. The decrease in margin between the 2023 and 2022 quarters was primarily due to funding cost increasing at a faster pace than the Company earned on assets. The yield on interest-earning assets increased 85 basis points to 4.77% for the quarter ended September 30, 2023 compared to 3.92% for the same period in 2022. The cost of interest-bearing liabilities between the two periods increased 200 basis points to 2.74% in the third quarter of 2023 from 0.74% in the third quarter of 2022.

Interest income increased $21.8 million to $94.9 million for the quarter ended September 30, 2023, from $73.1 million for the quarter ended September 30, 2022. This increase is primarily due to an increase in interest on loans. Income from loans increased to $86.6 million for the quarter ended September 30, 2023, compared to $65.6 million for the same period in 2022 due to an increase in average loan balances to $6.8 billion for the three months ended September 30, 2023 from $6.1 billion for the third quarter of 2022. The yield on loans increased 83 basis points in 2023 to 5.12% compared to 4.29% in the third quarter of 2022. Interest income from investments was flat in third quarter of 2023 compared the same period in 2022 primarily due to a decrease in average balance of $123.8 million offset by an increase in yield on securities of 24 basis points to 2.46% for the three months ended September 30, 2023, compared to 2.22% for the same period in 2022. Income from interest-earning deposits increased to $652,000 in the third quarter of 2023 compared to $221,000 for the same period in 2022. Average balances on interest-earning deposits decreased $30.3 million to $38.2 million in the third quarter of 2023 from $68.5 million for the same period in 2022. The yield earned on interest-earning deposits increased 554 basis points in the third quarter of 2023 compared to the same period in 2022.

Interest expense increased $30.8 million to $40.6 million in the third quarter of 2023 compared to $9.8 million for the same period in 2022. An increase in the cost of interest-bearing liabilities of 200 basis points is the primary reason for this change. Interest expense related to interest-bearing deposits was $34.9 million in the third quarter of 2023 compared to $6.9 million for the same period in 2022. Interest expense recognized by the Company related to FHLB advances was $4.6 million in the third quarter of 2023 compared to $2.1 million for the same period in 2022. Expenses on subordinated debentures and notes payable increased to $1.2 million in the third quarter of 2023 compared to $868,000 for the same period in 2022 due to increased rates on the variable-rate junior subordinated debentures.

Allowance for Credit Losses

The ACL represents management’s assessment of the estimated credit losses the Company will receive over the life of the loan. ACL requires a projection of credit losses over the contract lifetime of the credit adjusted for prepayment tendencies. Management analyzes the adequacy of the ACL regularly through reviews of the loan portfolio. Consideration is given to economic conditions, changes in interest rates and the effect of such changes on collateral values and borrower’s ability to pay, changes in the composition of the loan portfolio and trends in past due and non-performing loan balances. The ACL is a material estimate that is susceptible to significant fluctuation and is established through a provision for credit losses based on management’s evaluation of the inherent risk in the loan portfolio. In addition to extensive in-house loan monitoring procedures, the Company utilizes an outside party to conduct an independent loan review of commercial loan and commercial real estate loan relationships. The Company’s goal is to have 45-50% of the portfolio reviewed annually using a risk based approach. Management utilizes the results of this outside loan review to assess the effectiveness of its internal loan grading system as well as to assist in the assessment of the overall adequacy of the ACL associated with these types of loans.

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Table of Contents

 

The ACL is made up of two basic components. The first component of the allowance for credit loss is the specific reserve in which the Company sets aside reserves based on the analysis of individual analyzed credits. In establishing specific reserves, the Company analyzes all substandard, doubtful and loss graded loans quarterly and makes judgments about the risk of loss based on the cash flow of the borrower, the value of any collateral and the financial strength of any guarantors. If the loan is individually analyzed and cash flow dependent, then a specific reserve is established for the discount on the net present value of expected future cash flows. If the loan is individually analyzed and collateral dependent, then any shortfall is either charged off or a specific reserve is established. The Company also considers the impacts of any Small Business Administration or Farm Service Agency guarantees. The specific reserve portion of the ACL was $4.6 million as of September 30, 2023, and $2.4 million as of December 31, 2022.

The second component is a general reserve, which is used to record loan loss reserves for groups of homogeneous loans in which the Company estimates the potential losses over the contractual lifetime of the loan adjusted for prepayment tendencies. In addition, the future economic environment is incorporated in projection with loss expectations to revert to the long-run historical mean after such time as management can no longer make or obtain a reasonable and supportable forecast. For purposes of the general reserve analysis, the six loan portfolio segments are further segregated into fifteen different loan pools to allocate the ACL. Residential real estate is further segregated into owner occupied and nonowner occupied for ACL. Commercial real estate is split into owner occupied, nonowner occupied, multifamily, agriculture land and other commercial real estate. Commercial credits are comprised of commercial working capital, agriculture production and other commercial credits. Construction is broken out into construction other and residential construction and consumer is broken out into consumer direct, consumer indirect and home equity. The Company utilizes three different methodologies to analyze loan pools.

The DCF methodology was selected as the appropriate method for loan segments with longer average lives and regular payment structures. This method is applied to a majority of the Company’s real estate loans. DCF generates cash flow projections at the instrument level where payment expectations are adjusted for prepayment and curtailment to produce an expected cash flow stream that is net of estimated credit losses. This expected cash flow stream is compared to the contractual cash flows to establish a valuation account for these loans.

The PD/LGD methodology was selected as most appropriate for loan segments with average lives of three years or less and/or irregular payment structures. This methodology was used for home equity and commercial portfolios. A loan is considered to default if one of the following is detected:

•
Becomes 90 days or more past due;
•
Is placed on nonaccrual;
•
Is marked as a modification; or
•
Is partially or wholly charged-off.

The default rate is measured on the current life of the loan segment using a weighted average of the maximum possible quarters. The PD is then combined with a LGD derived from historical charge-off data to construct a default rate. This loss rate is then supplemented with adjustments for reasonable and supportable forecasts of relevant economic indicators, particularly the unemployment rate forecast from the Federal Open Market Committee's Summary of Economic Projections. LGD is determined on a dollar-ratio basis, measuring the ratio of net charged off principal to defaulted principal.

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Table of Contents

 

The consumer portfolio contains loans with many different payment structures, payment streams and collateral. The remaining life method was deemed most appropriate for consumer direct loans and DCF for consumer indirect. The weighted average remaining life uses an annual charge-off rate over several vintages to estimate credit losses. The average annual charge-off rate is applied to the contractual term adjusted for prepayments. The DCF method was selected for consumer indirect due to the loan segments' longer average remaining life in addition to regular payment structure.

Additionally, CECL requires a reasonable and supportable forecast when establishing the ACL. The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.

The quantitative general allowance increased to $24.9 million at September 30, 2023, up from $15.0 million at December 31, 2022. As a part of the CECL model in certain calculations, especially DCF, projected loan losses are correlated to the levels of the unemployment rate over the life of the loans in addition to the fluctuation of loan balances. The increase in the quantitative general allowance during 2023 is attributed to changes in prepayment speeds, unemployment forecasts, risk migration and loss rates.

In addition to the quantitative analysis, a qualitative analysis is performed each quarter to provide additional general reserves on loan portfolios that are not individually analyzed for various factors. The overall qualitative factors are based on nine sub-factors. The nine sub-factors have been aggregated into three qualitative factors: economic, environment and risk.

ECONOMIC

1)
Changes in international, national and local economic business conditions and developments, including the condition of various market segments.
2)
Changes in the value of underlying collateral for collateral dependent loans.

ENVIRONMENT

3)
Changes in the nature and volume in the loan portfolio.
4)
The existence and effect of any concentrations of credit and changes in the level of such concentrations.
5)
Changes in lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices.
6)
Changes in the quality and breadth of the loan review process.
7)
Changes in the experience, ability and depth of lending management and staff.

RISK

8)
Changes in the trends of the volume and severity of delinquent and classified loans, and changes in the volume of non-accrual loans and other loan modifications.
9)
Changes in other external factors, such as regulatory, legal and technological environments.

The qualitative analysis indicated a general reserve of $47.0 million at September 30, 2023, compared to $55.4 million at December 31, 2022. Overall, the factors decreased in the third quarter as a result of the twelve month trend showing improvement in the economic factors listed above.

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Table of Contents

 

The Company’s general reserve percentages for main loan segments, not otherwise classified, ranged from 0.4865% for construction other loans to 1.4183% for CRE owner occupied loans at September 30, 2023.

Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit, they are accounted for as purchase credit deteriorated (“PCD”). PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss through retained earnings on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. The outstanding balance and related allowance on these loans as of September 30, 2023 is $19.0 million and $761,000, respectively.

As a result of the quantitative and qualitative analyses, along with the change in specific reserves and the change in net charge-offs in the quarter, the Company’s provision for credit losses for the three and nine months ended September 30, 2023 was an expense of $245,000 and $5.6 million, respectively. This is compared to an expense of $3.7 million and $9.5 million for the three and nine months ended September 30, 2022, respectively. The ACL was $76.5 million at September 30, 2023 and $67.2 million at December 31, 2022. The ACL represented 1.14% of loans, net of undisbursed loan funds and deferred fees and costs at September 30, 2023, compared to 1.13% at December 31, 2022. In management’s opinion, the overall ACL of $76.5 million as of September 30, 2023 is adequate to cover current estimated credit losses.

Management also assesses the value of OREO as of the end of each accounting period and recognizes write-downs to the value of that real estate in the income statement if conditions dictate. In the nine months ended September 30, 2023, total write-downs of real estate held for sale and other repossessed assets were $4,000. Management believes that the values recorded at September 30, 2023 for OREO and repossessed assets represent the realizable value of such assets.

Total classified loans increased to $63.5 million at September 30, 2023, compared to $43.8 million at December 31, 2022, an increase of $19.7 million. Management monitors collateral values of all loans included on the watch list that are collateral dependent and believes that allowances for such loans at September 30, 2023 were appropriate. Of the $39.5 million in non-accrual loans at September 30, 2023, $14.4 million, or 36.5%, are less than 90 days past due. Non-performing assets include loans that are on non-accrual, OREO and other assets held for sale. Non-performing assets at September 30, 2023 and December 31, 2022 by category, were as follows:

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Table of Contents

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(In Thousands)

 

Non-performing loans:

 

 

 

 

 

 

Residential real estate

 

$

9,795

 

 

$

7,724

 

Commercial real estate

 

 

10,938

 

 

 

13,396

 

Construction

 

 

—

 

 

 

—

 

Commercial

 

 

11,793

 

 

 

4,862

 

Home equity and improvement

 

 

1,134

 

 

 

1,637

 

Consumer finance

 

 

2,820

 

 

 

2,401

 

PCD

 

 

2,983

 

 

 

3,802

 

Total non-performing loans

 

 

39,463

 

 

 

33,822

 

 

 

 

 

 

 

Real estate owned

 

 

387

 

 

 

619

 

Total repossessed assets

 

 

387

 

 

 

619

 

 

 

 

 

 

 

Total nonperforming assets

 

$

39,850

 

 

$

34,441

 

 

 

 

 

 

 

Total nonperforming assets as a percentage of total assets

 

 

0.47

%

 

 

0.41

%

Total nonperforming assets as a percentage of total loans plus OREO*

 

 

0.60

%

 

 

0.53

%

ACL as a percent of total nonperforming assets

 

 

192.00

%

 

 

211.42

%

 

* Total loans are net of undisbursed loan funds and deferred fees and costs.

PCD loans account for 7.6% of non-performing loans at September 30, 2023. Excluding non-performing PCD loans, non-performing loans in the commercial loan category represented 1.13% of the total loans in that category at September 30, 2023, compared to 0.46% for the same category at December 31, 2022. Non-performing loans in the non-residential and multi-family residential real estate loan category were 0.39% of the total loans in this category at September 30, 2023, compared to 0.48% at December 31, 2022. Non-performing loans in the residential loan category represented 0.54% of the total loans in that category at September 30, 2023, compared to 0.51% for the same category at December 31, 2022.

The Bank’s Special Assets Committee meets monthly to review the status of work-out strategies for all criticized relationships, which include all non-accrual loans. Based on such factors as anticipated collateral values in liquidation scenarios, cash flow projections, assessment of net worth of guarantors and all other factors which may mitigate risk of loss, the Special Assets Committee makes recommendations regarding proposed charge-offs which are then approved by the Committee.

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Table of Contents

 

The following tables detail net charge-offs/recoveries and non-accrual loans by loan type.

 

 

 

For the Nine Months Ended September 30, 2023

 

 

As of September 30, 2023

 

 

 

Net
Charge-offs
(Recovery)

 

 

% of
Total Net
Charge-offs

 

 

Nonaccrual
Loans

 

 

% of
Total Non-
Accrual Loans

 

 

 

(In Thousands)

 

 

 

 

 

(In Thousands)

 

 

 

 

Residential

 

$

224

 

 

 

11.78

%

 

$

9,795

 

 

 

24.82

%

Commercial real estate

 

 

890

 

 

 

46.79

%

 

 

10,938

 

 

 

27.72

%

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial

 

 

(216

)

 

 

(11.36

)%

 

 

11,793

 

 

 

29.88

%

Home equity and improvement

 

 

239

 

 

 

12.57

%

 

 

1,134

 

 

 

2.87

%

Consumer finance

 

 

841

 

 

 

44.22

%

 

 

2,820

 

 

 

7.15

%

PCD

 

 

(76

)

 

 

(4.00

)%

 

 

2,983

 

 

 

7.56

%

Total

 

$

1,902

 

 

 

100.00

%

 

$

39,463

 

 

 

100.00

%

 

 

 

For the Nine Months Ended September 30, 2022

 

 

As of December 31, 2022

 

 

 

Net
Charge-offs
(Recovery)

 

 

% of
Total Net
Charge-offs

 

 

Nonaccrual
Loans

 

 

% of
Total Non-
Accrual Loans

 

 

 

(In Thousands)

 

 

 

 

 

(In Thousands)

 

 

 

 

Residential

 

$

194

 

 

 

3.64

%

 

$

7,724

 

 

 

22.84

%

Commercial real estate

 

 

(211

)

 

 

(3.96

)%

 

 

13,396

 

 

 

39.61

%

Construction

 

 

13

 

 

 

0.24

%

 

 

—

 

 

 

—

 

Commercial

 

 

4,977

 

 

 

93.46

%

 

 

4,862

 

 

 

14.37

%

Home equity and improvement

 

 

76

 

 

 

1.43

%

 

 

1,637

 

 

 

4.84

%

Consumer finance

 

 

282

 

 

 

5.30

%

 

 

2,401

 

 

 

7.10

%

PCD

 

 

(6

)

 

 

(0.11

)%

 

 

3,802

 

 

 

11.24

%

Total

 

$

5,325

 

 

 

100.00

%

 

$

33,822

 

 

 

100.00

%

 

 

 

3rd Qtr 2023

 

 

2nd Qtr 2023

 

 

1st Qtr 2023

 

 

4th Qtr 2022

 

 

3rd Qtr 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance at beginning of period

 

$

75,921

 

 

$

74,273

 

 

$

72,816

 

 

$

70,626

 

 

$

67,074

 

Provision for credit losses

 

 

245

 

 

 

1,410

 

 

 

3,944

 

 

 

3,020

 

 

 

3,706

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

12

 

 

 

283

 

 

 

5

 

 

 

38

 

 

 

15

 

Commercial real estate

 

 

69

 

 

 

20

 

 

 

1,669

 

 

 

93

 

 

 

206

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial

 

 

256

 

 

 

2

 

 

 

498

 

 

 

—

 

 

 

29

 

Home equity and improvement

 

 

38

 

 

 

121

 

 

 

24

 

 

 

19

 

 

 

47

 

Consumer finance

 

 

280

 

 

 

271

 

 

 

449

 

 

 

540

 

 

 

185

 

 PCD

 

 

6

 

 

 

47

 

 

 

68

 

 

 

367

 

 

 

—

 

Total charge-offs

 

 

661

 

 

 

744

 

 

 

2,713

 

 

 

1,057

 

 

 

482

 

Recoveries

 

 

1,008

 

 

 

982

 

 

 

226

 

 

 

227

 

 

 

328

 

Net charge-offs (recoveries)

 

 

(347

)

 

 

(238

)

 

 

2,487

 

 

 

830

 

 

 

154

 

Ending allowance

 

$

76,513

 

 

$

75,921

 

 

$

74,273

 

 

$

72,816

 

 

$

70,626

 

 

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Table of Contents

 

The following table sets forth information concerning the allocation of the Company’s ACL by loan categories at the dates indicated.

 

 

 

September 30, 2023

 

 

June 30, 2023

 

 

March 31, 2023

 

 

December 31, 2022

 

 

September 30, 2022

 

 

 

Amount

 

 

Percent of
total
loans by
category

 

 

Amount

 

 

Percent of
total
loans by
category

 

 

Amount

 

 

Percent of
total
loans by
category

 

 

Amount

 

 

Percent of
total
loans by
category

 

 

Amount

 

 

Percent of
total
loans by
category

 

 

 

(Dollars In Thousands)

 

Residential

 

$

19,023

 

 

 

25.5

%

 

$

18,918

 

 

 

23.9

%

 

$

18,229

 

 

 

22.7

%

 

$

16,711

 

 

 

21.6

%

 

$

16,311

 

 

 

21.4

%

Commercial real estate

 

 

36,014

 

 

 

40.0

%

 

 

34,751

 

 

 

39.8

%

 

 

33,831

 

 

 

39.3

%

 

 

34,218

 

 

 

38.8

%

 

 

32,712

 

 

 

38.6

%

Construction

 

 

2,702

 

 

 

13.1

%

 

 

3,831

 

 

 

14.5

%

 

 

3,882

 

 

 

16.5

%

 

 

4,025

 

 

 

17.9

%

 

 

3,286

 

 

 

17.9

%

Commercial

 

 

14,135

 

 

 

14.7

%

 

 

13,101

 

 

 

15.0

%

 

 

12,525

 

 

 

14.8

%

 

 

11,769

 

 

 

14.8

%

 

 

12,282

 

 

 

15.1

%

Home equity and improvement

 

 

2,770

 

 

 

3.8

%

 

 

3,399

 

 

 

3.8

%

 

 

3,654

 

 

 

3.8

%

 

 

4,044

 

 

 

3.9

%

 

 

4,210

 

 

 

3.9

%

Consumer finance

 

 

1,869

 

 

 

2.9

%

 

 

1,921

 

 

 

3.0

%

 

 

2,152

 

 

 

3.0

%

 

 

2,049

 

 

 

3.0

%

 

 

1,825

 

 

 

3.1

%

 

$

76,513

 

 

 

100.0

%

 

$

75,921

 

 

 

100.0

%

 

$

74,273

 

 

 

100.0

%

 

$

72,816

 

 

 

100.0

%

 

$

70,626

 

 

 

100.0

%

 

Key Asset Quality Ratio Trends

 

 

 

3rd Qtr
2023

 

 

2nd Qtr
2023

 

 

1st Qtr
2023

 

 

4th Qtr
2022

 

 

3rd Qtr
2022

 

Allowance for credit losses / loans*

 

 

1.14

%

 

 

1.13

%

 

 

1.13

%

 

 

1.13

%

 

 

1.14

%

Allowance for credit losses / non-performing assets

 

 

192.00

%

 

 

202.18

%

 

 

213.61

%

 

 

211.42

%

 

 

210.49

%

Allowance for credit losses / non-performing loans

 

 

193.89

%

 

 

205.24

%

 

 

216.05

%

 

 

215.29

%

 

 

213.13

%

Non-performing assets / loans plus OREO*

 

 

0.60

%

 

 

0.56

%

 

 

0.53

%

 

 

0.53

%

 

 

0.54

%

Non-performing assets / total assets

 

 

0.47

%

 

 

0.44

%

 

 

0.41

%

 

 

0.41

%

 

 

0.41

%

Net charge-offs / average loans (annualized)

 

 

(0.02

)%

 

 

(0.01

)%

 

 

0.15

%

 

 

0.05

%

 

 

0.01

%

 

* Total loans are net of undisbursed funds and deferred fees and costs.

Non-Interest Income

Total non-interest income decreased $3.5 million in the third quarter of 2023 to $13.3 million from $16.7 million for the same period in 2022 primarily as a result of the sale of First Insurance on June 30, 2023.

Service Fees. Service fees and other charges increased by $402,000 from $6.5 million for the three months ended September 30, 2022 to $6.9 million for the same period in 2023.

Mortgage Banking Activity. In the third quarter of 2023, income of $3.3 million was recorded for mortgage banking compared to income of $4.0 million in the third quarter of 2022. Mortgage banking gains decreased $779,000 to a gain of $2.6 million in the third quarter of 2023 from a gain of $3.4 million in the third quarter of 2022 primarily as a result of fluctuations in gain margins. Mortgage loan servicing revenue remained steady at $1.9 million in the third quarter of 2023 and 2022. Amortization of mortgage servicing rights decreased to $1.3 million in the third quarter of 2023 from $1.4 million in the third quarter of 2022. The valuation adjustment in mortgage servicing assets was $131,000 in the third quarter of 2023 compared with an adjustment of $96,000 in the third quarter of 2022. These fluctuations have primarily resulted from changes in the level of interest rates and prepayment speeds.

Gain (loss) on Equity Securities. The Company recognized a gain on equity securities of $256,000 for the third quarter of 2023, compared to a gain of $43,000 for the third quarter of 2022. The gain recognized in the third quarter of 2023 was largely a realized gain from the sale of a position while the amount for the second quarter of 2022 is attributable to changes in valuations in the equity securities portfolio as a result of market conditions.

Insurance Commissions. Insurance commissions were $3.5 million for the third quarter of 2022. As a result of the sale of First Insurance, the Company did not generate insurance commission income after June 30, 2023.

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Table of Contents

 

Wealth Management Income. Income from wealth management was $1.5 million and $1.4 million for the third quarter of 2023 and 2022, respectively.

Bank-Owned Life Insurance ("BOLI"). Income from BOLI increased to $1.10 million in the third quarter of 2023 from $983,000 for the same period in 2022.

Other Non-Interest Income. Other non-interest income decreased to $217,000 in the third quarter of 2023 from $320,000 in the same period in 2022.

Non-Interest Expense

Non-interest expense decreased $3.0 million to $38.1 million for the third quarter of 2023 compared to $41.1 million for the same period in 2022, primarily as a result of the sale of First Insurance on June 30, 2023.

Compensation and Benefits. Compensation and benefits decreased to $21.8 million in the third quarter of 2023, compared to $24.5 million in the third quarter of 2022 due to the sale of First Insurance and cost savings initiatives.

Occupancy. Occupancy expense decreased to $3.1 million in the third quarter of 2023 compared to $3.5 million in the third quarter of 2022. This decrease was due to the closure of one loan production office in 2023 and the sale of First Insurance.

FDIC Insurance Premium. The premiums on FDIC insurance increased to $1.3 million for the three months ended September 30, 2023 compared to $976,000 for the three months ended September 30, 2022. The primary reason for the increase was the FDIC increased the initial base deposit insurance rate uniformly by 2 basis points in 2023.

Financial Institutions Tax. The Company’s financial institutions tax decreased to $989,000 in the third quarter of 2023 compared to $1.1 million in the third quarter of 2022 as a result of lower equity at the end of 2022.

Data Processing. Data processing costs increased to $4.0 million in the third quarter of 2023, from $3.1 million in the third quarter of 2022.

Amortization of Intangibles. Expense from the amortization of intangibles decreased to $1.1 million in the third quarter of 2023 from $1.3 million in the third quarter of 2022. The decrease is primarily related to the amortization of core deposit intangibles over the past year.

Other Non-Interest Expenses. Other non-interest expenses decreased $958,000 to $5.7 million for the three months ended September 30, 2023, compared to $6.6 million for the same quarter in 2022.

 

Nine Months Ended September 30, 2023 and 2022

On a consolidated basis, the Company’s net income for the nine months ended September 30, 2023 was $91.2 million compared to income of $76.9 million for the same period in 2022. On a per share basis, basic and diluted earnings per common share for the nine months ended September 30, 2023 were both $2.55, compared to basic and diluted earnings per common share of $2.15 for the same period in 2022. The changes from 2022 to 2023 are primarily due to the sale of First Insurance on June 30, 2023 and fluctuations in interest on loans and deposits, provision for credit losses, and mortgage banking income, which are described in further detail below.

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Table of Contents

 

Net Interest Income

Net interest income was $164.5 million for the first nine months of 2023 compared to $180.3 million in the first nine months of 2022. Average interest-earning assets increased to $8.0 billion in the first nine months of 2023 compared to $7.1 billion in the first nine months of 2022. This increase was primarily due to organic loan growth offset by a decline in average securities.

For the nine months ended September 30, 2023, total interest income was $269.2 million compared to $197.0 million for the same period in 2022. Interest expense increased by $88.0 million to $104.7 million for the nine months ended September 30, 2023, compared to $16.7 million for the same period in 2022.

Net interest margin for the first nine months of 2023 was 2.78%, down 62 basis points from the 3.40% margin reported for the nine months ended September 30, 2022. The decrease in net interest margin was primarily due the increase in rate on interest bearing liabilities outpacing the increases in repricing of interest bearing assets.

Provision for Credit Losses

The provision for credit losses on loans and unfunded commitments was $3.5 million for the nine months ended September 30, 2023, compared to $11.5 million for the nine months ended September 30, 2022. Charge-offs for the first nine months of 2023 were $4.1 million and recoveries of previously charged off loans totaled $2.2 million for net charge-offs of $1.9 million. By comparison, $7.5 million of charge-offs were recorded in the same period of 2022 and $2.1 million of recoveries were realized for net charge-offs of $5.3 million. The current year provision expense is primarily due to loan growth, whereas the prior year provision expense was primarily due to charge-offs on one commercial relationship.

Non-Interest Income

Total non-interest income increased $31.1 million to $79.1 million for the nine months ended September 30, 2023 from $47.9 million recognized for the same period in 2022, primarily as a result of the sale of First Insurance on June 30, 2023.

Service Fees. Service fees and other charges were $20.6 million for the first nine months of 2023, an increase of $1.3 million from the same period in 2022.

Mortgage Banking Activity. Total revenue from the sale and servicing of mortgage loans decreased $4.2 million to $5.9 million for the nine months ended September 30, 2023, down from $10.2 million for the same period in 2022, which was primarily attributable to compressed margins and lower saleable mix. Mortgage banking gains decreased $3.1 million to $4.0 million for the first nine months of 2023 from $7.1 million for the same period in 2022. Mortgage loan servicing revenue was steady at $5.6 million in the first nine months of 2023 and 2022. The amortization of mortgage servicing rights decreased from an expense of $4.1 million for the first nine months of 2022 to an expense of $3.8 million for the first nine months of 2023. The Company recorded a positive valuation adjustment of $155,000 in the first nine months of 2023 compared to a positive adjustment of $1.6 million in the first nine months of 2022.

Gain on Sale of Insurance Agency. The Company sold First Insurance to Risk Strategies Corporation in the second quarter of 2023 and recognized a gain on the sale of $36.3 million.

Gain (loss) on Equity Securities. The Company recognized a loss on equity securities of $1.1 million for the nine months ended September 30, 2023, compared to a loss of $1.8 million for the nine months ended September 30, 2022. These amounts are attributable to changes in valuations in the equity securities portfolio as a result of market conditions.

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Table of Contents

 

Insurance Commission Income. Income from the sale of insurance was $8.9 million in the first nine months of 2023 compared to $12.0 for the same period in 2022. This decrease is due to the sale of First Insurance in the second quarter of 2023. The Company does not expect to generate insurance commission in the future.

Wealth Management Income. Income in this category was $4.5 million in the first nine months of 2023, compared to $4.2 million in the first nine months of 2022.

Income from Bank Owned Life Insurance. Income from BOLI was $3.5 million in the first nine months of 2023, compared to $3.0 million in the first nine months of 2022. The Company received $423,000 in claim gains in the first nine months of 2023. No claim gains were received in 2022.

Other Non-Interest Income. Other non-interest income for the first nine months of 2023 was $412,000 compared to $1.1 million in the first nine months of 2022.

Non-Interest Expense

Non-interest expense was $125.3 million for the first nine months of 2023, up from $121.5 million for the same period in 2022, primarily as a result of the sale of First Insurance on June 30, 2023.

Compensation and Benefits. Compensation and benefits decreased to $71.6 million for the nine months ended September 30, 2023, compared to $72.4 million for the same period in 2022 primarily due to the sale of First Insurance.

Occupancy. Occupancy expense decreased by $618,000 to $10.0 million for the nine months ended September 30, 2023, compared to $10.7 million in the same period in 2022. This can be primarily attributed to the closure of one loan production office in 2023 and the sale of First Insurance.

Data Processing. Data processing costs were $11.5 million in the first nine months of 2023, an increase of $1.6 million from $9.9 million in same period for 2022.

Amortization of Intangibles. Intangible amortization decreased by $585,000 to $3.6 million in the nine months ended September 30, 2023, compared to $4.2 million for the same period in 2022.

Transaction Costs. Transaction costs were $3.7 million in the nine months ended September 30, 2023 as a result of the sale of First Insurance. There were no transaction costs in 2022.

Other Non-Interest Expenses. Other non-interest expenses decreased $994,000 to $17.7 million for the first nine months of 2023 from $18.7 million for the same period in 2022.

Liquidity

As a regulated financial institution, the Company is required to maintain appropriate levels of “liquid” assets to meet short-term funding requirements. The Company’s liquidity, primarily represented by cash and cash equivalents, is a result of its operating, investing and financing activities.

The principal source of funds for the Company are deposits, loan repayments, maturities of securities, borrowings from financial institutions and other funds provided by operations. The Bank also has the ability to borrow from the FHLB. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan repayments are more influenced by interest rates, general economic conditions and competition. Investments in liquid assets maintained by the Company and the Bank are based upon management’s assessment of (i) the need for funds, (ii) expected deposit flows, (iii) yields available on short-term liquid assets, and (iv) objectives of the asset and liability management program.

The Bank’s Asset/Liability Committee (“ALCO”) is responsible for establishing and monitoring liquidity guidelines, policies and procedures. ALCO uses a variety of methods to monitor the liquidity position of the Bank including liquidity analyses that measure potential sources and uses of funds over future periods out to one year.

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Table of Contents

 

ALCO also performs contingency funding analyses to determine the Bank’s ability to meet potential liquidity needs under stress scenarios that cover varying time horizons ranging from immediate to longer term.

At September 30, 2023, the Company had approximately $2.6 billion of on-hand liquidity, defined as cash and cash equivalents, unencumbered securities, additional FHLB borrowing capacity and the Federal Reserve Discount Window and Borrower-In-Custody Collateral Programs.

Liquidity risk arises from the possibility that the Company may not be able to meet its financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, the Company’s Board of Directors has established a Liquidity Policy that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity requirements. This policy designates ALCO as the body responsible for meeting these objectives. ALCO reviews liquidity on a quarterly basis and approves significant changes in strategies that affect balance sheet or cash flow positions. Management reviews liquidity on a monthly basis.

Capital Resources

Capital is managed at the Bank and on a consolidated basis. Capital levels are maintained based on regulatory capital requirements and the economic capital required to support credit, market, liquidity and operational risks inherent in the business, as well as flexibility needed for future growth and new business opportunities.

In July 2013, the Federal Reserve and FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (commonly known as Basel III). The Company is in compliance with the Basel III guidelines.

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Table of Contents

 

The Company met each of the well-capitalized ratio guidelines at September 30, 2023. The following table indicates the capital ratios for the Company (consolidated) and the Bank at September 30, 2023 and December 31, 2022 (in thousands):

 

 

 

September 30, 2023

 

 

 

Actual

 

 

Minimum Required for
Adequately Capitalized

 

 

Minimum Required to be
Well Capitalized for
Prompt Corrective Action

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio(1)

 

 

Amount

 

 

Ratio

 

CET1 Capital (to Risk-Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

816,108

 

 

 

11.13

%

 

$

329,826

 

 

 

4.5

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

854,506

 

 

 

11.71

%

 

$

328,361

 

 

 

4.5

%

 

$

474,299

 

 

 

6.5

%

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

851,108

 

 

 

10.03

%

 

$

339,480

 

 

 

4.0

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

854,506

 

 

 

10.10

%

 

$

338,441

 

 

 

4.0

%

 

$

423,051

 

 

 

5.0

%

Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

851,108

 

 

 

11.61

%

 

$

439,768

 

 

 

6.0

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

854,506

 

 

 

11.71

%

 

$

437,814

 

 

 

6.0

%

 

$

583,752

 

 

 

8.0

%

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

981,550

 

 

 

13.39

%

 

$

586,358

 

 

 

8.0

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

934,948

 

 

 

12.81

%

 

$

583,752

 

 

 

8.0

%

 

$

729,690

 

 

 

10.0

%
(1)
Excludes capital conservation buffer of 2.50%

 

 

 

December 31, 2022

 

 

 

Actual

 

 

Minimum Required
for Adequately
Capitalized

 

 

Minimum Required
to be Well
Capitalized for
Prompt Corrective
Action

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio(1)

 

 

Amount

 

 

Ratio

 

CET1 Capital (to Risk-Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

728,883

 

 

 

9.91

%

 

$

331,019

 

 

 

4.5

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

775,907

 

 

 

10.58

%

 

$

330,008

 

 

 

4.5

%

 

$

476,678

 

 

 

6.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

763,883

 

 

 

9.37

%

 

$

326,094

 

 

 

4.0

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

775,907

 

 

 

9.55

%

 

$

324,949

 

 

 

4.0

%

 

$

406,187

 

 

 

5.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

763,883

 

 

 

10.38

%

 

$

441,359

 

 

 

6.0

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

775,907

 

 

 

10.58

%

 

$

440,011

 

 

 

6.0

%

 

$

586,681

 

 

 

8.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

892,663

 

 

 

12.14

%

 

$

588,478

 

 

 

8.0

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

854,687

 

 

 

11.65

%

 

$

586,681

 

 

 

8.0

%

 

$

733,352

 

 

 

10.0

%
(1)
Excludes capital conservation buffer of 2.50%.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As discussed in detail in the Company’s 2022 Form 10-K, the Company's ability to maximize net income is dependent on management’s ability to plan and control net interest income through management of the pricing and mix of assets and liabilities. Because a large portion of assets and liabilities of the Company are monetary in nature, changes in interest rates and monetary or fiscal policy affect its financial condition and can have significant impact on the net income of the Company.

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Table of Contents

 

The Company monitors its exposure to interest rate risk on a quarterly basis through simulation analysis that measures the impact changes in interest rates can have on net interest income. The simulation technique analyzes the effect of a presumed 100 basis point shift in interest rates (which is consistent with management’s estimate of the range of potential interest rate fluctuations) and takes into account prepayment speeds on amortizing financial instruments, loan and deposit volumes and rates, borrowings, derivative positions and non-maturity deposit assumptions (such as beta and decay rates) and capital requirements.

The table below presents, for the twelve months subsequent to September 30, 2023 and December 31, 2022, an estimate of the change in net interest income that would result from an immediate (shock) change in interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. Based on our net interest income simulation as of September 30, 2023, net interest income sensitivity to changes in interest rates for the twelve months subsequent to September 30, 2023, decreased in the rising rate environment and increased in the falling rate environment for the shock compared to the sensitivity profile for the twelve months subsequent to December 31, 2022. The change in modeling results from the prior period shown is largely due to increased re-pricing expectations on deposits which increased liability sensitivity for the period.

 

 

Impact on Future Annual Net Interest Income

Immediate Change in Interest Rates

September 30,
2023

 

December 31,
2022

 

 

 

 

 

+ 400

 

(10.43)%

 

(0.22)%

+ 300

 

(7.79)%

 

0.07%

+ 200

 

(5.14)%

 

0.12%

+ 100

 

(2.55)%

 

0.10%

- 100

 

2.63%

 

1.44%

- 200

 

5.17%

 

2.12%

- 300

 

7.24%

 

0.66%

- 400

 

8.65%

 

(1.63)%

To analyze the impact of changes in interest rates in a more realistic manner, non-parallel interest rate scenarios are also simulated. These non-parallel interest rate scenarios indicate that net interest income may increase from the base case scenario should the yield curve change by different increments on different points on the curve. For example, in a steep down 200 basis points shock scenario where short-term rates (e.g., 1 year or less) decline while long-term rates (e.g., 7 years or more) remain unchanged, annual net interest income would increase by an estimated 8.36% for the twelve months subsequent to September 30, 2023.

In addition to the simulation analysis, Premier also uses an economic value of equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life of all balance sheet positions. The EVE analysis generally calculates the net present value of Premier’s assets and liabilities in rate shock environments that range from -400 basis points to +400 basis points. The results of this analysis are reflected in the following tables for the quarter ended September 30, 2023, and the year ended December 31, 2022.

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September 30, 2023

 

December 31, 2022

Change in Rates

 

Economic Value of Equity % Change

 

Economic Value of Equity % Change

 

 

 

 

 

+400 bp

 

(21.90)%

 

(5.39)%

+ 300 bp

 

(16.90)%

 

(3.39)%

+ 200 bp

 

(11.50)%

 

(2.32)%

+ 100 bp

 

(5.80)%

 

(1.25)%

0 bp

 

—

 

—

- 100 bp

 

5.60%

 

0.39%

- 200 bp

 

10.60%

 

0.49%

- 300 bp

 

14.40%

 

(1.46)%

- 400 bp

 

16.10%

 

(5.98)%

 

Item 4. Controls and Procedures

An evaluation of the Company's disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2023. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. No changes occurred in the Company’s internal controls over financial reporting during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II-OTHER INFORMATION

Premier and its subsidiaries are involved in various legal proceedings that arise in the ordinary course of its business. While the ultimate liability with respect to litigation matters and claims cannot be determined at this time, management believes any resulting liability and other amounts relating to pending matters are not likely to be material to the Company’s consolidated financial position or results of operations.

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Table of Contents

 

Item 1A. Risk Factors

There are no material changes from the risk factors set forth under Part I, Item 1A, “Risk Factors” in the 2022 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding Premier’s purchases of its common stock during the three-month period ended September 30, 2023:

 

Period

 

Total Number
of Shares
Purchased(1)

 

 

Average
Price Paid
Per Share

 

 

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

 

 

Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans
or Programs(2)

 

Beginning Balance, June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

1,199,634

 

July 1 - July 31, 2023

 

 

575

 

 

$

16.37

 

 

 

—

 

 

 

1,199,634

 

August 1 - August 31, 2023

 

 

1,043

 

 

 

20.68

 

 

 

—

 

 

 

1,199,634

 

September 1 - September 30, 2023

 

 

846

 

 

 

17.99

 

 

 

—

 

 

 

1,199,634

 

Total

 

 

2,464

 

 

$

18.75

 

 

 

—

 

 

 

1,199,634

 
(1)
Of this amount, 2,464 shares were obtained in fulfillment of tax obligations from vesting of restricted stock compensation and were not part of the publicly announced repurchase program.
(2)
On January 26, 2021, the Company announced that its Board of Directors authorized a program for the repurchase of up to 2,000,000 shares of outstanding common stock. On January 25, 2022, the Company announced that its Board of Directors approved an increase in the Company’s repurchasing authorization to up to 2,000,000 shares of outstanding common stock. There is no expiration date for the repurchase program.

 



Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a) None.

(b) None.

(c) On May 4, 2023, Mr. Dennis E. Rose Jr., the Chief Strategy Officer of the Company, adopted a trading arrangement for the sale of shares of stock (a “Rule 10b5-1 Trading Plan”) that is intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c). Mr. Rose Jr.’s Rule 10b5-1 Trading Plan, which shall terminate on December 20, 2024, provides for the sale of up to 13,309 shares of common stock pursuant to the terms of the Rule 10b5-1 Trading Plan.

 

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Item 6. Exhibits

 

Exhibit 3.1

 

Second Amended and Restated Articles of Incorporation of Premier Financial Corp. (incorporated herein by reference to Exhibit 3.2 in Registrant’s Form 8-K filed June 22, 2020 (File No. 000-26850))

Exhibit 3.2

 

Second Amended and Restated Code of Regulations of Premier Financial Corp. (reflecting all amendments) (incorporated herein by reference to Exhibit 3.3 in Registrant’s Form 8-K filed June 22, 2020 (File No. 000-26850))

Exhibit 31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

Exhibit 31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

Exhibit 32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

Exhibit 32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

Exhibit 101

 

The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 is formatted in Inline XBRL: (i) Unaudited Consolidated Condensed Statements of Financial Condition at September 30, 2023 and December 31, 2022; (ii) Unaudited Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2023 and 2022; (iii) Unaudited Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022; (iv) Unaudited Consolidated Condensed Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022; (v) Unaudited Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2023 and 2022; and (vi) Notes to Unaudited Consolidated Condensed Financial Statements.

 

 

 

Exhibit 104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

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Table of Contents

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Premier Financial Corp.

 

(Registrant)

 

Date: November 9, 2023

 

By:

/s/ Gary M. Small

 

 

 

Gary M. Small

 

 

 

President and Chief Executive Officer (Principal Executive Officer)

 

 

 

 

 

Date: November 9, 2023

 

By:

/s/ Paul D. Nungester, Jr.

 

 

 

Paul D. Nungester, Jr.

 

 

 

Executive Vice President and

 

 

 

Chief Financial Officer (Principal Financial and Accounting Officer)

 

67

EX-31.1 2 pfc-ex31_1.htm EX-31.1 EX-31.1

 

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Gary M. Small, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Premier Financial Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date:

 

November 9, 2023

 

/s/ Gary M. Small

 

 

 

 

Gary M. Small

 

 

 

 

President and

 

 

 

 

Chief Executive Officer

 

 

EX-31.2 3 pfc-ex31_2.htm EX-31.2 EX-31.2

 

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Paul D. Nungester, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Premier Financial Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date:

 

November 9, 2023

 

/s/ Paul D. Nungester, Jr.

 

 

 

 

Paul D. Nungester, Jr.

 

 

 

 

Executive Vice President and

 

 

 

 

Chief Financial Officer

 

 

EX-32.1 4 pfc-ex32_1.htm EX-32.1 EX-32.1

 

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Premier Financial Corp. (the "Company") on Form 10-Q for the period ending September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary M. Small, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on Form 10-Q, that:

1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Report fairly presents, in all material respects, the Company's financial condition and results of operations.

 

Date:

 

November 9, 2023

 

/s/ Gary M. Small

 

 

 

 

Gary M. Small

 

 

 

 

Chief Executive Officer

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

EX-32.2 5 pfc-ex32_2.htm EX-32.2 EX-32.2

 

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Premier Financial Corp. (the "Company") on Form 10-Q for the period ending September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul D. Nungester, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on Form 10-Q, that:

1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Report fairly presents, in all material respects, the Company's financial condition and results of operations.

 

Date:

 

November 9, 2023

 

/s/ Paul D. Nungester, Jr.

 

 

 

 

Paul D. Nungester, Jr.

 

 

 

 

Chief Financial Officer

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.