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PFC Premier Financial

Filed: 10 Aug 20, 12:25pm

 

 

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 June 30, 2020

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) 782-5015

 

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, 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  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  ☒    No  

As of August 1, 2020, the registrant had 37,296,613 shares of common stock, $.01 par value per share, outstanding.

 

 

 

 

 

 


 

PREMIER FINANCIAL CORP.

 

INDEX

 

 

Page

Number

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Consolidated Condensed Financial Statements (Unaudited):

2

 

 

 

 

 

 

Consolidated Condensed Statements of Financial Condition – June 30, 2020 and December 31, 2019

2

 

 

 

 

 

 

Consolidated Condensed Statements of Income Three and six months ended June 30, 2020 and 2019

4

 

 

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income – Three and six months ended June 30, 2020 and 2019

5

 

 

 

 

 

 

Consolidated Condensed Statements of Changes in Stockholders’ Equity – Three and six months ended June 30, 2020 and 2019

6

 

 

 

 

 

 

Consolidated Condensed Statements of Cash Flows - Six months ended June 30, 2020 and 2019

8

 

 

 

 

 

 

Notes to Consolidated Condensed Financial Statements

9

 

 

 

 

Item 2.

 

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

50

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures about Market Risk

74

 

 

 

 

Item 4

 

Controls and Procedures

75

 

 

 

 

PART II - OTHER INFORMATION:

 

 

 

Item 1

 

Legal Proceedings

76

 

 

 

 

Item 1A.

 

Risk Factors

76

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

76

 

 

 

 

Item 3

 

Defaults upon Senior Securities

76

 

 

 

 

Item 4

 

Mine Safety Disclosures

76

 

 

 

 

Item 5

 

Other Information

76

 

 

 

 

Item 6

 

Exhibits

76

 

 

 

 

 

 

Signatures

78

 

 

 

1


PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Financial Condition

(UNAUDITED)

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

 

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash and amounts due from depository institutions

 

$

78,213

 

 

$

46,254

 

Interest-bearing deposits

 

 

114,468

 

 

 

85,000

 

 

 

 

192,681

 

 

 

131,254

 

Securities available-for-sale, carried at fair value

 

 

567,527

 

 

 

283,448

 

Loans held for sale, carried at fair value

 

 

160,467

 

 

 

 

Loans held for sale, at lower of cost or market

 

 

 

 

 

18,008

 

Loans receivable, net of allowance for credit losses of $88,555 at June 30, 2020 and $31,243 at December 31, 2019, respectively

 

 

5,368,683

 

 

 

2,746,321

 

Mortgage servicing rights

 

 

14,646

 

 

 

10,267

 

Accrued interest receivable

 

 

23,694

 

 

 

10,244

 

Federal Home Loan Bank stock

 

 

45,955

 

 

 

11,915

 

Bank owned life insurance

 

 

143,097

 

 

 

75,544

 

Premises and equipment

 

 

59,533

 

 

 

39,563

 

Real estate and other assets held for sale

 

 

573

 

 

 

100

 

Goodwill

 

 

317,948

 

 

 

100,069

 

Core deposit and other intangibles

 

 

33,731

 

 

 

3,772

 

Other assets

 

 

85,276

 

 

 

38,487

 

Total assets

 

$

7,013,811

 

 

$

3,468,992

 

 

(continued)

2


PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Financial Condition

(UNAUDITED)

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

 

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits

 

$

5,759,843

 

 

$

2,870,325

 

Advances from the Federal Home Loan Bank and PPPLF advances

 

 

139,327

 

 

 

85,063

 

Subordinated debentures

 

 

36,083

 

 

 

36,083

 

Securities sold under repurchase agreements

 

 

6,948

 

 

 

2,999

 

Advance payments by borrowers

 

 

31,470

 

 

 

5,491

 

Other liabilities

 

 

99,172

 

 

 

42,864

 

Total liabilities

 

 

6,072,843

 

 

 

3,042,825

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value per share: 37,000 shares authorized; 0

   shares issued

 

 

 

 

Preferred stock, $.01 par value per share: 4,963,000 shares authorized; 0

   shares issued

 

 

 

 

Common stock, $.01 par value per share: 50,000,000 shares authorized;

   43,297,259 and 25,371,086  shares issued and 37,296,069 and 19,729,886

   shares outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

306

 

 

 

127

 

Additional paid-in capital

 

 

688,574

 

 

 

161,955

 

Accumulated other comprehensive income, net of tax of $3,871 and $1,221,

   respectively

 

 

14,564

 

 

 

4,595

 

Retained earnings

 

 

316,321

 

 

 

329,175

 

Treasury stock, at cost, 6,001,191 shares at June 30, 2020 and 5,641,200 shares

   at December 31, 2019

 

 

(78,797

)

 

 

(69,685

)

Total stockholders’ equity

 

 

940,968

 

 

 

426,167

 

Total liabilities and stockholders’ equity

 

$

7,013,811

 

 

$

3,468,992

 

 

See accompanying notes.

3


PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Income

(UNAUDITED)

(Amounts in Thousands, except per share data)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

58,796

 

 

$

32,660

 

 

$

110,256

 

 

$

63,874

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

2,047

 

 

 

1,289

 

 

 

3,914

 

 

 

2,655

 

Non-taxable

 

 

876

 

 

 

849

 

 

 

1,727

 

 

 

1,688

 

Interest-bearing deposits

 

 

79

 

 

 

260

 

 

 

309

 

 

 

545

 

FHLB stock dividends

 

 

651

 

 

 

183

 

 

 

766

 

 

 

398

 

Total interest income

 

 

62,449

 

 

 

35,241

 

 

 

116,972

 

 

 

69,160

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

7,435

 

 

 

5,581

 

 

 

15,206

 

 

 

10,586

 

FHLB advances and other

 

 

516

 

 

 

304

 

 

 

1,523

 

 

 

580

 

Subordinated debentures

 

 

179

 

 

 

350

 

 

 

452

 

 

 

714

 

Notes payable

 

 

15

 

 

 

17

 

 

 

24

 

 

 

21

 

Total interest expense

 

 

8,145

 

 

 

6,252

 

 

 

17,205

 

 

 

11,901

 

Net interest income

 

 

54,304

 

 

 

28,989

 

 

 

99,767

 

 

 

57,259

 

Credit loss expense - loans and leases (1)

 

 

1,868

 

 

 

282

 

 

 

45,655

 

 

 

494

 

Credit loss expense (benefit) - unfunded commitments (1)

 

 

1,107

 

 

 

(85

)

 

 

2,565

 

 

 

1

 

Net interest income after credit loss expense

 

 

51,329

 

 

 

28,792

 

 

 

51,547

 

 

 

56,764

 

Non-interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service fees and other charges

 

 

5,614

 

 

 

3,301

 

 

 

10,797

 

 

 

6,308

 

Insurance commissions

 

 

4,005

 

 

 

3,616

 

 

 

9,160

 

 

 

7,731

 

Mortgage banking income

 

 

9,868

 

 

 

2,137

 

 

 

10,716

 

 

 

3,978

 

Gain on sale of non-mortgage loans

 

 

 

 

 

21

 

 

 

234

 

 

 

110

 

Loss on sale of securities available for sale

 

 

(2

)

 

 

 

 

 

(2

)

 

 

 

Wealth management income

 

 

1,802

 

 

 

660

 

 

 

2,893

 

 

 

1,358

 

Income from Bank Owned Life Insurance

 

 

838

 

 

 

527

 

 

 

1,619

 

 

 

919

 

Other non-interest income

 

 

890

 

 

 

224

 

 

 

1,597

 

 

 

895

 

Total non-interest income

 

 

23,015

 

 

 

10,486

 

 

 

37,014

 

 

 

21,299

 

Non-interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

19,575

 

 

 

14,398

 

 

 

37,160

 

 

 

28,483

 

Occupancy

 

 

4,128

 

 

 

2,304

 

 

 

7,859

 

 

 

4,545

 

FDIC insurance premium

 

 

411

 

 

 

258

 

 

 

903

 

 

 

531

 

Financial institutions tax

 

 

1,116

 

 

 

556

 

 

 

1,950

 

 

 

1,112

 

Data processing

 

 

3,805

 

 

 

2,267

 

 

 

6,845

 

 

 

4,564

 

Acquisition related charges

 

 

2,099

 

 

 

 

 

 

13,585

 

 

 

 

Amortization of intangibles

 

 

1,809

 

 

 

276

 

 

 

3,054

 

 

 

575

 

Other non-interest expense

 

 

5,041

 

 

 

4,261

 

 

 

8,937

 

 

 

9,290

 

Total non-interest expense

 

 

37,984

 

 

 

24,320

 

 

 

80,293

 

 

 

49,100

 

Income before income taxes

 

 

36,360

 

 

 

14,958

 

 

 

8,268

 

 

 

28,963

 

Federal income taxes

 

 

7,303

 

 

 

2,759

 

 

 

1,693

 

 

 

5,282

 

Net income

 

$

29,057

 

 

$

12,199

 

 

$

6,575

 

 

$

23,681

 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.78

 

 

$

0.62

 

 

$

0.19

 

 

$

1.19

 

Diluted

 

$

0.78

 

 

$

0.61

 

 

$

0.19

 

 

$

1.19

 

 

 

(1)

Beginning January 1, 2020, calculation is based on current expected loss methodology.  Prior to January 1, 2020, calculation was based on incurred loss methodology.

 

See accompanying notes.

 

4


 

PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Comprehensive Income

(UNAUDITED)

(Amounts in Thousands)

 

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income

 

$

29,057

 

 

$

12,199

 

 

$

6,575

 

 

$

23,681

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities available for sale

 

 

3,160

 

 

 

3,289

 

 

 

12,618

 

 

 

7,892

 

Reclassification adjustment for securities (losses) included in net income

 

 

2

 

 

 

 

 

 

2

 

 

 

 

Income tax effect

 

 

(666

)

 

 

(691

)

 

 

(2,651

)

 

 

(1,659

)

Net of tax amount

 

 

2,496

 

 

 

2,598

 

 

 

9,969

 

 

 

6,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain/(loss) on postretirement benefit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for deferred tax on defined

   benefit postretirement medical plan

 

 

 

 

 

 

 

 

 

 

 

82

 

Net of tax amount

 

 

 

 

 

 

 

 

 

 

 

82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

 

2,496

 

 

 

2,598

 

 

 

9,969

 

 

 

6,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

31,553

 

 

$

14,797

 

 

$

16,544

 

 

$

29,996

 

 

  

See accompanying notes.

 

5


 

PREMIER FINANCIAL CORP.

Consolidated Statement of Changes in Stockholders’ Equity

(UNAUDITED)

(Amounts in Thousands, except share data)

 

 

 

 

Preferred

Stock

 

 

Common

Stock

Shares

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Total

Stockholders

Equity

 

Balance at January 1, 2020

 

$

 

 

 

19,729,886

 

 

$

127

 

 

$

161,955

 

 

$

4,595

 

 

$

329,175

 

 

$

(69,685

)

 

$

426,167

 

Net (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,482

)

 

 

 

 

 

 

(22,482

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,473

 

 

 

 

 

 

 

 

 

 

 

7,473

 

Adoption of ASC 326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,566

)

 

 

 

 

 

 

(2,566

)

Deferred compensation plan

 

 

 

 

 

 

7,524

 

 

 

 

 

 

 

(94

)

 

 

 

 

 

 

 

 

 

 

94

 

 

 

 

Stock based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,230

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

1,236

 

Capital stock issuance related to acquisition

 

 

 

 

 

 

17,927,017

 

 

 

179

 

 

 

526,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

526,875

 

Vesting of incentive plans

 

 

 

 

 

 

39,548

 

 

 

 

 

 

 

(1,989

)

 

 

 

 

 

 

 

 

 

 

493

 

 

 

(1,496

)

Restricted share issuance

 

 

 

 

 

 

13,349

 

 

 

 

 

 

 

198

 

 

 

 

 

 

 

(374

)

 

 

176

 

 

 

 

Restricted share forfeitures

 

 

 

 

 

 

(750

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased

 

 

 

 

 

 

(430,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,078

)

 

 

(10,078

)

Common stock dividend payment ($0.22 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,286

)

 

 

 

 

 

 

(8,286

)

Balance at March 31, 2020

 

$

 

 

 

37,286,574

 

 

$

306

 

 

$

687,996

 

 

$

12,068

 

 

$

295,467

 

 

$

(78,994

)

 

$

916,843

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,057

 

 

 

 

 

 

 

29,057

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,496

 

 

 

 

 

 

 

 

 

 

 

2,496

 

Deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

166

 

 

 

 

 

 

 

 

 

 

 

(166

)

 

 

 

Stock based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

356

 

Adjustment for capital stock issuance

 

 

 

 

 

 

(843

)

 

 

 

 

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

Fair value of option exchange from merger

 

 

 

 

 

 

 

 

 

 

 

 

 

 

461

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

461

 

Prior period adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(258

)

 

 

 

 

 

 

 

 

 

 

258

 

 

 

 

Shares issued under stock option plan

 

 

 

 

 

 

11,408

 

 

 

 

 

 

 

(122

)

 

 

 

 

 

 

 

 

 

 

122

 

 

 

 

Shares repurchased

 

 

 

 

 

 

(1,070

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

(17

)

Common stock dividend payment ($0.22 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,203

)

 

 

 

 

 

 

(8,203

)

Balance at June 30, 2020

 

$

 

 

$

37,296,069

 

 

$

306

 

 

$

688,574

 

 

$

14,564

 

 

$

316,321

 

 

$

(78,797

)

 

$

940,968

 

6


 

 

 

 

Preferred

Stock

 

 

Common

Stock

Shares

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Total

Stockholders

Equity

 

Balance at January 1, 2019

 

$

 

 

 

20,171,392

 

 

$

127

 

 

$

161,593

 

 

$

(2,148

)

 

$

295,588

 

 

$

(55,571

)

 

$

399,589

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,482

 

 

 

 

 

 

 

11,482

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,717

 

 

 

 

 

 

 

 

 

 

 

3,717

 

Deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22

)

 

 

 

 

 

 

 

 

 

 

42

 

 

 

20

 

Stock based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

Shares issued under stock

   option plan, net of 178

   repurchased and retired

 

 

 

 

 

 

17,822

 

 

 

 

 

 

 

(22

)

 

 

 

 

 

 

(5

)

 

 

212

 

 

 

185

 

Restricted share activity under

   stock incentive plans net of

   25,195 repurchased and retired

 

 

 

 

 

 

38,890

 

 

 

 

 

 

 

(751

)

 

 

 

 

 

 

 

 

 

 

440

 

 

 

(311

)

Shares issued from direct stock sales

 

 

 

 

 

 

1,065

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

31

 

Shares repurchased

 

 

 

 

 

 

(515,977

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,147

)

 

 

(15,147

)

Common stock dividend payment ($0.19 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,788

)

 

 

 

 

 

 

(3,788

)

Balance at March 31, 2019

 

$

 

 

$

19,713,192

 

 

$

127

 

 

$

160,828

 

 

$

1,569

 

 

$

303,277

 

 

$

(70,012

)

 

$

395,789

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,199

 

 

 

 

 

 

 

12,199

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,598

 

 

 

 

 

 

 

 

 

 

 

2,598

 

Deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

29

 

 

 

17

 

Stock based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

255

 

Shares issued under stock option plan,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of 0 repurchased and retired

 

 

 

 

 

 

1,200

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

15

 

 

 

6

 

Restricted share activity under

   stock incentive plans net of

   2,533 repurchased and retired

 

 

 

 

 

 

12,304

 

 

 

 

 

 

 

129

 

 

 

 

 

 

 

(153

)

 

 

98

 

 

 

74

 

Shares issued from direct stock sales

 

 

 

 

 

 

934

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

25

 

Common stock dividend payment ($0.19 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,747

)

 

 

 

 

 

 

(3,747

)

Balance at June 30, 2019

 

$

 

 

$

19,727,630

 

 

$

127

 

 

$

161,205

 

 

$

4,167

 

 

$

311,576

 

 

$

(69,859

)

 

$

407,216

 

 

 

See accompanying notes.

 

7


 

PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Cash Flows

(UNAUDITED)

(Amounts in Thousands)

 

 

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

6,575

 

 

$

23,681

 

Items not requiring (providing) cash:

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

48,220

 

 

 

495

 

Depreciation

 

 

3,105

 

 

 

2,073

 

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

 

 

9,198

 

 

 

980

 

Amortization of core deposit and other intangible assets

 

 

3,054

 

 

 

575

 

Net accretion of premiums and discounts on loans and deposits

 

 

(4,458

)

 

 

(450

)

Amortization of premiums and discounts on securities

 

 

1,851

 

 

 

633

 

Change in deferred taxes

 

 

(10,418

)

 

 

(246

)

Proceeds from the sale of loans held for sale

 

 

331,341

 

 

 

99,438

 

Originations of loans held for sale

 

 

(406,074

)

 

 

(104,974

)

Gain from sale of loans

 

 

(16,666

)

 

 

(3,186

)

Loss on sale or write down of property plant and equipment

 

 

 

 

 

10

 

Gain/loss on sale / write-down of real estate and other assets held for sale

 

 

17

 

 

 

278

 

Loss on sale of available for sale securities

 

 

2

 

 

 

 

Stock option expense

 

 

1,592

 

 

 

266

 

Restricted stock vesting

 

 

(1,496

)

 

 

(239

)

Income from bank owned life insurance

 

 

(1,619

)

 

 

(919

)

Excess tax benefit on stock compensation plans

 

 

 

 

 

(106

)

Changes in:

 

 

 

 

 

 

 

 

Other assets

 

 

(20,255

)

 

 

(6,548

)

Other liabilities

 

 

22,123

 

 

 

1,246

 

Net cash provided by operating activities

 

 

(33,908

)

 

 

13,007

 

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

Proceeds from maturities of held-to maturity securities

 

 

 

 

 

38

 

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

 

 

50,544

 

 

 

16,432

 

Proceeds from sale of available-for-sale securities

 

 

622

 

 

 

 

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

 

 

509

 

 

 

1,073

 

Proceeds from sale of non-mortgage loans

 

 

5,241

 

 

 

14,378

 

Purchases of available-for-sale securities

 

 

(61,725

)

 

 

(11,211

)

Net change in Federal Home Loan Bank stock

 

 

(21,287

)

 

 

2,302

 

Net cash from acquisition (Reference Footnote 17 Business Combinations)

 

 

52,580

 

 

 

 

Cash paid for acquisition (Reference Footnote 17 Business Combinations)

 

 

(132

)

 

 

 

Purchases of premises and equipment, net

 

 

(2,822

)

 

 

(1,372

)

Investment in bank owned life insurance

 

 

 

 

 

(6,600

)

Proceeds from bank owned life insurance death benefit

 

 

 

 

 

93

 

Net increase in loans receivable

 

 

(386,945

)

 

 

(98,035

)

Net cash used by  investing activities

 

 

(363,415

)

 

 

(82,902

)

Financing Activities

 

 

 

 

 

 

 

 

Net increase in deposits and advance payments by borrowers

 

 

808,121

 

 

 

59,652

 

Net change in Federal Home Loan Bank advances and PPPLF

 

 

(326,736

)

 

 

19,989

 

Decrease in securities sold under repurchase agreements

 

 

3,949

 

 

 

(2,677

)

Net cash paid for repurchase of common stock

 

 

(10,095

)

 

 

(15,147

)

Proceeds from exercise of stock options

 

 

 

 

 

191

 

Proceeds from direct stock sales

 

 

 

 

 

57

 

Cash dividends paid on common stock

 

 

(16,489

)

 

 

(7,535

)

Net cash provided by financing activities

 

 

458,750

 

 

 

54,530

 

Increase in cash and cash equivalents

 

 

61,427

 

 

 

(15,365

)

Cash and cash equivalents at beginning of period

 

 

131,254

 

 

 

98,962

 

Cash and cash equivalents at end of period

 

$

192,681

 

 

$

83,597

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

17,751

 

 

$

11,811

 

Income taxes paid

 

$

 

 

$

4,200

 

Initial recognition of right-of-use asset

 

$

10,100

 

 

$

8,808

 

Initial recognition of lease liability

 

$

10,249

 

 

$

9,339

 

Initial recognition of ASC 326

 

$

2,566

 

 

$

 

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

 

$

97

 

 

$

146

 

 

See accompanying notes.

Refer to Note 18 – Business Combinations for non-cash activity.

 

8


 

PREMIER FINANCIAL CORP.

Notes to Consolidated Condensed Financial Statements (UNAUDITED)

June 30, 2020 and 2019

 

 

1.

Basis of Presentation

On June 19, 2020, First Defiance Financial Corp. (the “Company”) changed its name to Premier Financial Corp. (“Premier” or the “Company”).  In connection with the name change, Premier’s stock continued to be traded on the NASDAQ Global Select Market, but under the ticker PFC.  On this same date, First Federal Bank of the Midwest, the wholly owned subsidiary of the Company, changed its name to Premier Bank (the “Bank”).

Premier is a financial holding company that conducts business through its wholly-owned subsidiaries, the Bank, First Insurance Group of the Midwest, Inc. (“First Insurance”), First Defiance Risk Management Inc. (“First Defiance Risk Management”), HSB Capital, LLC (“HSB Capital”), and HSB Insurance, Inc. (“HSB Insurance”). All significant intercompany transactions and balances are eliminated in consolidation.

 

On January 31, 2020, Premier completed its previously announced acquisition of United Community Financial Corp., an Ohio corporation (“UCFC”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 9, 2019, by and between Premier and UCFC. At the effective time of the merger (the “Merger”), UCFC merged with and into Premier, with Premier surviving the Merger.  Simultaneously with the completion of the Merger, Premier converted from a unitary thrift holding company to a bank holding company, making an election to be a financial holding company.

Immediately following the Merger, the Bank, acquired UCFC’s wholly-owned bank subsidiary, Home Savings Bank (“Home Savings”).  Immediately prior to the merger of the banks, the Bank converted from a federal thrift into an Ohio state-chartered bank. In addition, immediately following the merger of the banks, UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC and United American Financial Services, Inc., each merged into First Insurance, with First Insurance surviving the mergers. Premier acquired 2 additional subsidiaries in the Merger, HSB Capital and HSB Insurance.

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 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.

HSB Capital was formed as an Ohio limited liability company by UCFC during 2016 for the purpose of providing mezzanine funding for customers of Home Savings. Mezzanine loans are offered by HSB 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 is an insurance agency that conducts business throughout Premier’s markets. The Maumee and Oregon, Ohio, offices were consolidated into a new office in Sylvania, Ohio, in January 2018.  First Insurance offers property and casualty insurance, life insurance and group health insurance.

9


 

First Defiance 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.  First Defiance Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

HSB Insurance was formed on June 1, 2017, as a Delaware-based captive insurance company that insures against certain risks that are unique to the operations of the Company and its subsidiaries and for which insurance may not be currently available or economically feasible by pooling resources with several other insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.  HSB Insurance is subject to regulations of the State of Delaware and undergoes periodic examinations by the Delaware Division of Insurance.

The consolidated condensed statement of financial condition at December 31, 2019, 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, 2019 (the “2019 Form 10-K”).

The accompanying consolidated condensed financial statements as of June 30, 2020, and for the three and six month periods ended June 30, 2020 and 2019 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 2019 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 month period ended June 30, 2020, are not necessarily indicative of the results that may be expected for the entire year.

 

The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world.  Business and consumer customers of the Bank are experiencing varying degrees of financial distress, which is expected to continue over the coming months and will likely adversely affect their ability to pay interest and principal on their loans and the value of the collateral securing their obligations may decline.  These uncertainties may negatively impact the Statement of Financial Condition, the Statement of Income and the Statement of Cash Flows of the Company. 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 economic impacts from the COVID-19 pandemic, the Company conducted a quantitative interim goodwill impairment assessment at June 30, 2020. 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 based upon future growth projections, which include estimates of the COVID-19 impact on the Company’s business. Results of the interim assessment indicated no goodwill impairment as of June 30, 2020. The Company will continue to monitor its goodwill for possible impairment.

 

 

10


 

2.

Significant Accounting Policies

Accounting Standards Adopted in 2020

 

ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement: In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement by removing, modifying and adding certain requirements. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt and remove or modify disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company’s consolidated financial statements.

 

ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment:  Issued in January 2017, ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. ASU 2017-04 became effective for the Company on January 1, 2020, and the amendments of this ASU will be applicable to the goodwill impairment testing for 2020.  The Company performed a goodwill impairment test as of June 30, 2020 utilizing a discounted cash flow analysis.  The results of this analysis indicate 0 impairment of the Company’s goodwill at this time.

 

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments: Issued in June 2016, ASU 2016-13 will add FASB ASC Topic 326, “Financial Instruments-Credit Losses” and finalizes amendments to FASB ASC Subtopic 825-15, “Financial Instruments-Credit Losses.” The amendments of ASU 2016-13 are intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The amendments of ASU 2016-13 eliminate the probable initial recognition threshold and, in turn, reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. The amendments of ASU 2016-13, and all subsequent ASUs issued by FASB to provide additional guidance and clarification related to this Topic, became effective for the Company on January 1, 2020.

 

11


 

As a result of adopting the amendments of ASU 2016-13, the Company recorded an increase to its allowance for credit losses of $2.4 million and an increase to its allowance for credit losses on off-balance sheet credit exposures of $0.9 million resulting in a one-time cumulative effect adjustment through retained earnings of $2.6 million net of $.7 million tax at the date of adoption. This adjustment included a qualitative adjustment to the allowance for credit losses related to loans and an allowance on off-balance sheet credit exposures. 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.

 

Accounting Standards not yet adopted:

 

ASU No. 2020-04: Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848): This guidance provides temporary options to ease the potential burden in accounting for reference rate reform. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective as of March 12, 2020 through December 31, 2022. The Company anticipates being fully prepared to implement a replacement for the reference rate and has determined that any change will not have a material impact to the consolidated financial statements.

 

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

12


 

 

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.

 

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, mortgage-backed securities, corporate bonds and municipal securities.

Loans held for sale, carried at fair value – The Company elected the fair value option for all conventional residential one-to four-family loans held for sale and all permanent construction loans held for sale that were acquired from UCFC in the Merger.  In addition, 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 year conventional mortgages and the 60 day forward contract price for either 15 or 30 year Federal Housing Authority mortgages (Level 2). The fair value of permanent construction loans held for sale is determined using the current 60 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).

Impaired loans - Fair values for impaired 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.

13


 

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 collateral-dependent impaired loans and other real estate owned 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 impaired collateral dependent loans and other real estate owned, 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).    

Purchased and written certificate of deposit option – The Company acquired purchased and written certificate of deposit options in its Merger with UCFC.  These written and purchased options are mirror derivative instruments which are carried at fair value on the statement of financial condition.  The Company uses an independent third party that performs a market valuation analysis for purchased and written certificate of deposit options.  (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 that performs a market valuation analysis for both swap positions. (Level 2)

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:

14


 

Assets and Liabilities Measured on a Recurring Basis

 

June 30, 2020

 

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

 

$

 

 

$

40,819

 

 

$

 

 

$

40,819

 

     Mortgage-backed securities

 

 

 

 

 

233,888

 

 

 

 

 

 

233,888

 

     Collateralized mortgage obligations

 

 

 

 

 

124,678

 

 

 

 

 

 

124,678

 

     Corporate bonds

 

 

 

 

 

25,229

 

 

 

 

 

 

25,229

 

     Obligations of state and political subdivisions

 

 

 

 

 

142,913

 

 

 

 

 

 

142,913

 

     Loans held for sale, at fair value

 

 

 

 

 

84,728

 

 

 

75,739

 

 

 

160,467

 

     Purchased certificate of deposit option

 

 

 

 

 

81

 

 

 

 

 

 

81

 

     Interest rate swaps

 

 

 

 

 

2,450

 

 

 

 

 

 

2,450

 

     Mortgage banking derivative

 

 

 

 

 

7,167

 

 

 

 

 

 

7,167

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Written certificate of deposit option

 

 

 

 

 

81

 

 

 

 

 

 

81

 

     Interest rate swaps

 

 

 

 

 

2,733

 

 

 

 

 

 

2,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

Level 1

Inputs

 

 

Level 2

Inputs

 

 

Level 3

Inputs

 

 

Total

Fair Value

 

 

 

(In Thousands)

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. federal government corporations and

  agencies

 

$

 

 

$

2,524

 

 

$

 

 

$

2,524

 

Mortgage-backed securities

 

 

 

 

 

89,647

 

 

 

 

 

 

89,647

 

REMICs

 

 

 

 

 

1,636

 

 

 

 

 

 

1,636

 

Collateralized mortgage obligations

 

 

 

 

 

82,101

 

 

 

 

 

 

82,101

 

Corporate bonds

 

 

 

 

 

12,101

 

 

 

 

 

 

12,101

 

Obligations of state and political subdivisions

 

 

 

 

 

92,028

 

 

 

3,411

 

 

 

95,439

 

Mortgage banking derivative - asset

 

 

 

 

 

892

 

 

 

 

 

 

892

 

 

 

 

 

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six month periods ended June 30, 2020 and 2019.

 

 

Construction loans held for sale

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Balance of recurring Level 3 assets at beginning of period

$

44,420

 

 

$

 

 

$

 

 

$

 

Total gains (losses) for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Included in change in fair value of loans held for sale

 

2,238

 

 

 

 

 

 

7,201

 

 

 

 

Originations

 

32,685

 

 

 

 

 

 

42,265

 

 

 

 

Acquired in acquisition

 

 

 

 

 

 

 

37,711

 

 

 

 

Sales

 

(3,604

)

 

 

 

 

 

(11,438

)

 

 

 

Balance of recurring Level 3 assets at end of period

$

75,739

 

 

$

 

 

$

75,739

 

 

$

 

 

15


 

 

Securities available-for-sale

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Balance of recurring Level 3 assets at beginning of period

$

5,830

 

 

$

 

 

$

3,411

 

 

$

 

Balance of Level 3 assets moved to Level 2 during the period

 

(5,830

)

 

 

 

 

 

(3,411

)

 

 

 

Balance of recurring Level 3 assets at end of period

$

 

 

$

 

 

$

 

 

$

 

 

For Level 3 assets and liabilities measured at fair value on a recurring basis as of June 30, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

 

 

 

Fair Value

 

 

Valuation Technique

 

Unobservable Inputs

 

Range of

Inputs

 

 

 

 

 

 

(Dollars in Thousands)

Construction loans held for sale

 

$

75,739

 

 

Comparable sales

 

Time discount using the 60 day forward contract

 

0.00% - 2.08%

 

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

 

June 30, 2020

 

Level 1

Inputs

 

 

Level 2

Inputs

 

 

Level 3

Inputs

 

 

Total Fair

Value

 

 

 

(In Thousands)

 

Impaired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

80

 

 

 

80

 

Total impaired loans

 

 

 

 

 

 

 

 

80

 

 

 

80

 

Mortgage servicing rights

 

 

 

 

 

14,646

 

 

 

 

 

 

14,646

 

 

December 31, 2019

 

Level 1

Inputs

 

 

Level 2

Inputs

 

 

Level 3

Inputs

 

 

Total Fair

Value

 

 

 

(In Thousands)

 

Impaired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

 

 

$

 

 

$

68

 

 

$

68

 

Commercial

 

 

 

 

 

 

 

 

38

 

 

 

38

 

Total impaired loans

 

 

 

 

 

 

 

 

106

 

 

 

106

 

Mortgage servicing rights

 

 

 

 

 

273

 

 

 

 

 

 

273

 

 

 

 

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of June 30, 2020, 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)

 

Impaired Loans- Applies to all loan

   Classes

 

$

80

 

 

Appraisals which utilize sales comparison, net income and cost approach

 

Discounts for collection issues and changes in market conditions

 

10-13%

 

 

10.86

%

16


 

 

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2019, 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)

 

Impaired Loans- Applies to all loan

   classes

 

$

106

 

 

Appraisals which utilize sales comparison, net income and cost approach

 

Discounts for collection issues and changes in market conditions

 

10-13%

 

 

10.86

%

 

 

The Company has elected the fair value option for new applications taken post 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.  NaN of these loans are 90 or more days past due 0r on nonaccrual status as of June 30, 2020.  There were 0 loans at December 31, 2019, where the fair value option had been elected.  

 

The aggregate fair value of the residential mortgage loans held for sale at June 30, 2020 was $84.7 million and they had a contractual balance of $80.4 million for this same period.  The difference between these two figures is recorded in gains and losses on the sale of loans held for sale.  For the three and six months ended June 30, 2020, $3.7 million and $4.3 million, respectively, was recorded in gains 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 June 30, 2020 was $75.7 million and they had a contractual balance of $68.5 million for this same period.  The difference between these two figures is recorded in gains and losses on the sale of loans held for sale.  For the three and six months ended June 30, 2020, $1.6 million and $7.2 million, respectively, was recorded in gains on the sale of loans held for sale for the change in fair value.

 

In accordance with FASB ASC Topic 825, the Fair Value Measurements tables are a comparative condensed consolidated statement of financial condition based on carrying amount and estimated fair values of financial instruments as of June 30, 2020, and December 31, 2019. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of Premier.

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. 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 and notes payable, 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.

17


 

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 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 discounted cash flow 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 impaired 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 impaired loans are classified as Level 3 within the valuation hierarchy.  

The fair value of accrued interest receivable is equal to the carrying amounts resulting in a Level 2 or Level 3 classification which is consistent with its underlying value.

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 2 classification.  Fair values of fixed rate certificates of deposit are estimated using a discounted cash flow 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 fair values of securities sold under repurchase agreements are equal to their carrying amounts resulting in a Level 1 classification. The carrying value of subordinated debentures was considered to be the carrying value as the debt is floating rate and can be prepaid at any time without penalty.  

FHLB advances with maturities greater than 90 days are valued based on a discounted cash flow 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 June 30, 2020.

 

 

 

 

 

 

 

Fair Value Measurements at June 30, 2020

 

 

 

 

 

 

 

(In Thousands)

 

 

 

Carrying

Value

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

192,681

 

 

$

192,681

 

 

$

192,681

 

 

$

 

 

$

 

Investment securities

 

 

567,527

 

 

 

567,527

 

 

 

 

 

 

567,527

 

 

 

 

Federal Home Loan Bank Stock

 

 

45,955

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans receivable, net

 

 

5,368,683

 

 

 

5,447,099

 

 

 

 

 

 

 

 

 

5,447,099

 

Loans held for sale, carried at fair value

 

 

160,467

 

 

 

160,467

 

 

 

 

 

 

84,728

 

 

 

75,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

5,759,843

 

 

$

5,775,526

 

 

$

4,487,978

 

 

$

1,287,548

 

 

$

 

Advances from Federal Home Loan Bank and PPPLF

 

 

139,327

 

 

 

140,532

 

 

 

 

 

 

140,532

 

 

 

 

Securities sold under repurchase agreements

 

 

6,948

 

 

 

6,933

 

 

 

 

 

 

6,933

 

 

 

 

Subordinated debentures

 

 

36,083

 

 

 

36,083

 

 

 

 

 

 

36,083

 

 

 

 

18


 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2019

 

 

 

 

 

 

 

(In Thousands)

 

 

 

Carrying

Value

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

131,254

 

 

$

131,254

 

 

$

131,254

 

 

$

 

 

$

 

Investment securities

 

 

283,448

 

 

 

283,448

 

 

 

 

 

 

280,037

 

 

 

3,411

 

FHLB Stock

 

 

11,915

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans, net, including loans held for sale

 

 

2,764,329

 

 

 

2,756,092

 

 

 

 

 

 

18,456

 

 

 

2,737,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

2,870,325

 

 

$

2,871,166

 

 

$

2,131,537

 

 

$

739,629

 

 

$

 

Advances from FHLB

 

 

85,063

 

 

 

85,003

 

 

 

 

 

 

85,003

 

 

 

 

Securities sold under repurchase agreements

 

 

2,999

 

 

 

2,999

 

 

 

2,999

 

 

 

 

 

 

 

Subordinated debentures

 

 

36,083

 

 

 

36,083

 

 

 

 

 

 

36,083

 

 

 

 

 

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 Merger, Premier assumed certain outstanding stock options granted under UCFC’s Amended and Restated 2007 Long-Term Incentive Plan and UCFC’s 2015 Long Term Incentive Plan (the “UCFC 2015 Plan”).  Premier also assumed the UCFC 2015 Plan with respect to the available shares under the UCFC 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 will become 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. All awards currently outstanding under prior plans will remain in effect in accordance with their respective terms. Any new awards will be made under the 2018 Equity Plan.  The 2018 Equity Plan allows for issuance of up to 900,000 common shares through the award of options, stock grants, restricted stock units (“RSU”), stock appreciation rights or other stock-based awards.  

As of June 30, 2020, 37,761 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. On the date of the Merger, 39,983 Premier options were exchanged for all of the outstanding stock options on the books of UCFC at the same conversion price and ratio applied to UCFC common shares at January 31, 2020.  All of these options were fully vested at the time of acquisition. All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.  Options granted in prior years vest 20% per year.

The Company has approved a Short-Term Incentive Plan (“STIP”) and a Long-Term Equity Incentive Plan (“LTIP”) for selected members of management.

Under the 2019 and 2020 STIPs, the participants could earn between 10% to 45% of their salary for potential payout based on the achievement of certain corporate performance targets during the calendar year.  The final amount of benefits under the STIPs is determined as of December 31 of the same year and paid out in cash in the first quarter of the following year. The participants are required to be employed on the day of payout in order to receive the payment.

19


 

Under each LTIP, the participants could earn between 20% to 45% of their salary for potential payout in the form of equity awards based on the achievement of certain corporate performance targets over a three-year period. The Company plans to grant these RSU’s to participants in the second quarter of 2020. The amount of benefit under each LTIP will be determined individually at the end of the 36 month performance period ending December 31. The benefits earned under each LTIP will be paid out in equity in the first quarter following the end of the performance period. The participants are required to be employed on the day of payout in order to receive the payment.  

In the six months ended June 30, 2020, the Company also granted 13,349 shares of restricted stock to directors.  These shares have a one-year vesting period.

Following is stock option activity under the plans during the six months ended June 30, 2020:

 

 

 

Options

Outstanding

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term (in years)

 

 

Aggregate

Intrinsic

Value

(in 000’s)

 

Options outstanding, January 1, 2020

 

 

17,700

 

 

$

17.60

 

 

 

 

 

 

 

 

 

Forfeited or cancelled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(19,922

)

 

 

7.10

 

 

 

 

 

 

 

 

 

Exchanged

 

 

39,983

 

 

 

16.00

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding, June 30, 2020

 

 

37,761

 

 

$

21.44

 

 

 

6.23

 

 

$

23

 

Exercisable at June 30, 2020

 

 

35,861

 

 

$

21.58

 

 

 

6.27

 

 

$

23

 

 

All of the 39,983 options exchanged are associated with the conversion of all of the outstanding stock options on the books of UCFC into stock options of Premier.  The options had a fair value of $461,000, or $11.52 per share, and were part of the consideration paid by the Company.

 

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows (in thousands):

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Proceeds of options exercised

 

$

 

 

$

6

 

 

$

 

 

$

191

 

Related tax benefit recognized

 

 

40

 

 

 

 

 

 

40

 

 

 

4

 

Intrinsic value of options exercised

 

 

189

 

 

 

30

 

 

 

189

 

 

 

390

 

 

As of June 30, 2020, there was $7,000 of total unrecognized compensation cost 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 0.52 years.

20


 

At June 30, 2020, 147,795 RSUs and 52,392 restricted stock grants were unvested. Compensation expense related to RSUs and STIP is recognized over the performance period based on the achievements of targets as established under the plan documents. Total expense of $974,000 and $2.0 million was recorded during the three and six months ended June 30, 2020, compared to expense of $437,000 and $960,000 for the three and six months ended June 30, 2019.  There was approximately $1.6 million and $1.2 million included within other liabilities at June 30, 2020 and December 31, 2019, respectively, related to the STIP.

 

 

 

Restricted Stock Units

 

 

Stock Grants

 

Unvested Shares

 

Shares

 

 

Weighted-

Average

Grant Date

Fair Value

 

 

Shares

 

 

Weighted-

Average

Grant Date

Fair Value

 

Unvested at January 1, 2020

 

 

158,470

 

 

$

25.72

 

 

 

48,545

 

 

$

27.49

 

Granted

 

 

101,666

 

 

 

29.09

 

 

 

13,349

 

 

 

25.75

 

Vested

 

 

(86,050

)

 

 

25.48

 

 

 

(9,502

)

 

 

27.84

 

Forfeited

 

 

(26,291

)

 

 

25.58

 

 

 

 

 

 

 

Unvested at June 30, 2020

 

 

147,795

 

 

$

28.20

 

 

 

52,392

 

 

$

26.99

 

 

The maximum amount of compensation expense that may be recorded for the active LTIPs at June 30, 2020, is approximately $2.7 million of which $2.2 million is unrecognized at June 30, 2020, and will be recognized over the remaining performance periods.

5.

Dividends on Common Stock

Premier declared and paid a $0.22 per common stock dividend in the second quarter of 2020 and declared and paid a $0.19 per common stock dividend in the second quarter of 2019.  

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.

21


 

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In Thousands, except per share data)

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common shareholders

 

$

29,057

 

 

$

12,199

 

 

$

6,575

 

 

$

23,681

 

Less: income allocated to participating securities

 

 

44

 

 

 

1

 

 

 

10

 

 

 

2

 

Net income allocated to common shareholders

 

 

29,013

 

 

 

12,198

 

 

 

6,565

 

 

 

23,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding including

   participating securities

 

 

37,347

 

 

 

19,791

 

 

 

34,534

 

 

 

19,908

 

Less: Participating securities

 

 

57

 

 

 

11

 

 

 

50

 

 

 

11

 

Average common shares

 

 

37,290

 

 

 

19,780

 

 

 

34,484

 

 

 

19,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.78

 

 

$

0.62

 

 

$

0.19

 

 

$

1.19

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated to common shareholders

 

$

29,013

 

 

$

12,198

 

 

$

6,565

 

 

$

23,679

 

Weighted average common shares outstanding for basic (loss) earnings

   per common share

 

 

37,290

 

 

 

19,780

 

 

 

34,484

 

 

 

19,897

 

Add: Dilutive effects of stock options

 

 

33

 

 

 

80

 

 

 

42

 

 

 

79

 

Average shares and dilutive potential common shares

 

 

37,323

 

 

 

19,860

 

 

 

34,526

 

 

 

19,976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.78

 

 

$

0.61

 

 

$

0.19

 

 

$

1.19

 

 

 

There were 17,100 and 15,411 shares for the three and six month periods ending June 30, 2020, respectively, that were excluded from the diluted earnings per common share calculation as they were anti-dilutive.  There were 6,171 shares for both the three and six month periods in 2019 that were excluded from the diluted earnings per common share calculation as they were anti-dilutive.     

 

 

 

 

 

 

 

22


 

7.

Investment Securities

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

 

  

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(In Thousands)

 

At June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

39,215

 

 

$

1,604

 

 

$

 

 

$

40,819

 

Mortgage-backed securities

 

 

226,329

 

 

 

7,586

 

 

 

(27

)

 

 

233,888

 

Collateralized mortgage obligations

 

 

121,043

 

 

 

3,635

 

 

 

 

 

 

124,678

 

Corporate bonds

 

 

25,326

 

 

 

194

 

 

 

(291

)

 

 

25,229

 

Obligations of state and political subdivisions

 

 

136,869

 

 

 

6,139

 

 

 

(95

)

 

 

142,913

 

Total Available-for-Sale

 

$

548,782

 

 

$

19,158

 

 

$

(413

)

 

$

567,527

 

 

As a result of the Merger, securities with a fair value of $262.8 million were acquired on January 31, 2020.

 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(In Thousands)

 

At December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

2,518

 

 

$

6

 

 

$

 

 

$

2,524

 

Mortgage-backed securities

 

 

88,380

 

 

 

1,380

 

 

 

(113

)

 

 

89,647

 

Collateralized mortgage obligations

 

 

83,008

 

 

 

814

 

 

 

(85

)

 

 

83,737

 

Corporate bonds

 

 

12,011

 

 

 

90

 

 

 

 

 

 

12,101

 

Obligations of state and political subdivisions

 

 

91,406

 

 

 

4,042

 

 

 

(9

)

 

 

95,439

 

Total Available-for-Sale

 

$

277,323

 

 

$

6,332

 

 

$

(207

)

 

$

283,448

 

 

The amortized cost and fair value of the investment securities portfolio at June 30, 2020, 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, mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMO”) 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

 

$

4,393

 

 

$

4,421

 

Due after one year through five years

 

 

17,894

 

 

 

17,969

 

Due after five years through ten years

 

 

69,714

 

 

 

72,411

 

Due after ten years

 

 

109,409

 

 

 

114,160

 

MBS/CMO

 

 

347,372

 

 

 

358,566

 

 

 

$

548,782

 

 

$

567,527

 

23


 

 

Investment securities with a carrying amount of $218.5 million at June 30, 2020, were pledged as collateral on public deposits and securities sold under repurchase agreements.

The following tables summarize Premier’s securities that were in an unrealized loss position at June 30, 2020, and December 31, 2019:

 

 

 

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

Losses

 

 

 

(In Thousands)

 

At June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

10,269

 

 

 

(27

)

 

 

10,269

 

 

 

(27

)

Corporate bonds

 

 

 

 

 

 

 

 

7,985

 

 

 

(291

)

 

 

7,985

 

 

 

(291

)

Obligations of state and political subdivisions

 

 

 

 

 

 

 

 

2,705

 

 

 

(95

)

 

 

2,705

 

 

 

(95

)

Total temporarily impaired securities

 

$

 

 

$

 

 

$

20,959

 

 

$

(413

)

 

$

20,959

 

 

$

(413

)

 

 

 

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

Losses

 

 

 

(In Thousands)

 

At December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities-residential

 

$

13,830

 

 

$

(42

)

 

$

9,721

 

 

$

(71

)

 

$

23,551

 

 

$

(113

)

Collateralized mortgage obligations

 

 

7,448

 

 

 

(29

)

 

 

5,549

 

 

 

(56

)

 

 

12,997

 

 

 

(85

)

Obligations of state and political subdivisions

 

 

1,413

 

 

 

(9

)

 

 

-

 

 

 

-

 

 

 

1,413

 

 

 

(9

)

Total temporarily impaired securities

 

$

22,691

 

 

$

(80

)

 

$

15,270

 

 

$

(127

)

 

$

37,961

 

 

$

(207

)

 

The Company realized losses from the sale of investment securities totaling $2,000 in the three and six month period ending June 30, 2020.  There were 0 sales of securities during the six months ended June 30, 2019.   

 

ASU 2016-13 makes targeted improvements to the accounting for credit losses on securities available for sale. The concept of other than-temporarily impaired has been replaced with the allowance for credit losses. Unlike securities held to maturity, securities available for sale are evaluated on an individual level and pooling of securities is not allowed.

 

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.

 

 

Any securities that are downgraded by a third party ratings company above would be subjected to additional analysis that may include, but is not limited to: changes in market interest rates, changes

24


 

 

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 discounted cash flow (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 June 30, 2020, management had determined that no credit loss exists.  Accrued interest on AFS debt securities totaled $2.3 million at June 30, 2020, and is excluded from the ACLS.  Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet.  

8.

Loans

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

 

 

 

June 30,

2020

 

 

December 31,

2019

 

 

 

(In Thousands)

 

Real Estate:

 

 

 

 

 

 

 

 

Residential

 

$

1,226,106

 

 

$

324,773

 

Commercial

 

 

2,266,189

 

 

 

1,506,026

 

Construction

 

 

509,548

 

 

 

305,305

 

 

 

 

4,001,843

 

 

 

2,136,104

 

Other Loans:

 

 

 

 

 

 

 

 

Commercial

 

 

1,244,549

 

 

 

578,071

 

Home equity and improvement

 

 

290,459

 

 

 

122,864

 

Consumer finance

 

 

146,138

 

 

 

37,649

 

 

 

 

1,681,146

 

 

 

738,584

 

Loans before deferred loan origination fees and costs

 

 

5,682,989

 

 

 

2,874,688

 

Deduct:

 

 

 

 

 

 

 

 

Undisbursed construction loan funds

 

 

(221,136

)

 

 

(126,108

)

Net deferred loan origination fees and costs

 

 

(4,615

)

 

 

(2,259

)

Allowance for credit losses

 

 

(88,555

)

 

 

(31,243

)

Total loans

 

$

5,368,683

 

 

$

2,715,078

 

 

 

 

 

 

 

 

 

 

 

  

The following table discloses allowance for credit loss activity for the quarters ended June 30, 2020 and 2019 by portfolio segment (In Thousands):  

 

Quarter Ended June 30, 2020

 

Residential Real Estate

 

 

Commercial

Real Estate

 

 

Construction

 

 

Commercial

 

 

Home Equity

and

Improvement

 

 

Consumer

Finance

 

 

Total

 

Beginning Allowance

 

$

23,324

 

 

$

42,515

 

 

$

884

 

 

$

11,901

 

 

$

3,954

 

 

$

3,281

 

 

$

85,859

 

Charge-Offs

 

 

(73

)

 

 

(49

)

 

 

(1

)

 

 

(37

)

 

 

(56

)

 

 

(79

)

 

 

(295

)

Recoveries

 

 

114

 

 

 

190

 

 

 

 

 

 

667

 

 

 

94

 

 

 

58

 

 

 

1,123

 

Provisions(1)

 

 

418

 

 

 

1,401

 

 

 

254

 

 

 

(692

)

 

 

224

 

 

 

263

 

 

 

1,868

 

Ending Allowance

 

$

23,783

 

 

$

44,057

 

 

$

1,137

 

 

$

11,839

 

 

$

4,216

 

 

$

3,523

 

 

$

88,555

 

 

 

(1)

Allowance/provision are not comparable to prior periods due to the adoption of CECL.

 

25


 

Quarter Ended June 30, 2019

 

Residential Real Estate

 

 

Commercial

Real Estate

 

 

Construction

 

 

Commercial

 

 

Home Equity

and

Improvement

 

 

Consumer Finance

 

 

Total

 

Beginning Allowance

 

$

5,879

 

 

$

12,001

 

 

$

731

 

 

$

7,276

 

 

$

1,928

 

 

$

349

 

 

$

28,164

 

Charge-Offs

 

 

(11

)

 

 

(15

)

 

 

 

 

 

(13

)

 

 

(64

)

 

 

(33

)

 

 

(136

)

Recoveries

 

 

180

 

 

 

269

 

 

 

 

 

 

94

 

 

 

60

 

 

 

21

 

 

 

624

 

Provisions

 

 

(153

)

 

 

(106

)

 

 

156

 

 

 

531

 

 

 

(161

)

 

 

15

 

 

 

282

 

Ending Allowance

 

$

5,895

 

 

$

12,149

 

 

$

887

 

 

$

7,888

 

 

$

1,763

 

 

$

352

 

 

$

28,934

 

 

The following table discloses allowance for credit loss activity for the six months ended June 30, 2020 and 2019 by portfolio segment (In Thousands):  

 

Year-to-date Period Ended

June 30, 2020

 

1-4 Family

Residential

Real

Estate

 

 

Commercial

Real Estate

 

 

Construction

 

 

Commercial

 

 

Home Equity

and

Improvement

 

 

Consumer

Finance

 

 

Total

 

Beginning Allowance

 

$

2,867

 

 

$

16,302

 

 

$

996

 

 

$

9,003

 

 

$

1,700

 

 

$

375

 

 

$

31,243

 

Impact of ASC 326 Adoption

 

 

1,765

 

 

 

3,682

 

 

 

(223

)

 

 

(2,263

)

 

 

(521

)

 

 

(86

)

 

 

2,354

 

Acquisition related allowance for credit loss (PCD)

 

 

1,077

 

 

 

4,053

 

 

 

 

 

 

2,272

 

 

 

248

 

 

 

48

 

 

 

7,698

 

Charge-Offs

 

 

(257

)

 

 

(65

)

 

 

(1

)

 

 

(133

)

 

 

(86

)

 

 

(187

)

 

 

(729

)

Recoveries

 

 

215

 

 

 

529

 

 

 

 

 

 

1,336

 

 

 

136

 

 

 

118

 

 

 

2,334

 

Provisions(1)(2)

 

 

18,116

 

 

 

19,556

 

 

 

365

 

 

 

1,624

 

 

 

2,739

 

 

 

3,255

 

 

 

45,655

 

Ending Allowance

 

$

23,783

 

 

$

44,057

 

 

$

1,137

 

 

$

11,839

 

 

$

4,216

 

 

$

3,523

 

 

$

88,555

 

 

 

(1)

Allowance/provision are not comparable to prior periods due to the adoption of CECL.

 

(2)

Provision for the six months ended June, 30, 2020, includes $25.9 million as a result of the Merger with UCFC  in the first quarter

 

Year-to-date Period Ended

June 30, 2019

 

1-4 Family

Residential

Real

Estate

 

 

Multi-

Family

Residential

Real

Estate

 

 

Commercial

Real Estate

 

 

Construction

 

 

Commercial

 

 

Home Equity

and

Improvement

 

 

Consumer

Finance

 

 

Total

 

Beginning Allowance

 

$

2,881

 

 

$

3,101

 

 

$

12,041

 

 

$

682

 

 

$

7,281

 

 

$

2,026

 

 

$

319

 

 

$

28,331

 

Charge-Offs

 

 

(183

)

 

 

 

 

 

(15

)

 

 

 

 

 

(200

)

 

 

(97

)

 

 

(175

)

 

 

(670

)

Recoveries

 

 

170

 

 

 

36

 

 

 

353

 

 

 

 

 

 

106

 

 

 

84

 

 

 

30

 

 

 

779

 

Provisions

 

 

(75

)

 

 

(35

)

 

 

(230

)

 

 

205

 

 

 

701

 

 

 

(250

)

 

 

178

 

 

 

494

 

Ending Allowance

 

$

2,793

 

 

$

3,102

 

 

$

12,149

 

 

$

887

 

 

$

7,888

 

 

$

1,763

 

 

$

352

 

 

$

28,934

 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 (in thousands):

 

26


 

As of December 31, 2019

 

Residential Real Estate

 

 

Commercial

Real Estate

 

 

Construction

 

 

Commercial

 

 

Home Equity

and

Improvement

 

 

Consumer

Finance

 

 

Total

 

Allowance for credit loss attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

115

 

 

$

85

 

 

$

 

 

$

174

 

 

$

48

 

 

$

 

 

$

422

 

Collectively evaluated for impairment

 

 

2,752

 

 

 

16,217

 

 

 

996

 

 

 

8,829

 

 

 

1,652

 

 

 

375

 

 

 

30,821

 

Acquired with deteriorated credit quality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Allowance

 

$

2,867

 

 

$

16,302

 

 

$

996

 

 

$

9,003

 

 

$

1,700

 

 

$

375

 

 

$

31,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

7,049

 

 

$

21,132

 

 

$

 

 

$

6,655

 

 

$

759

 

 

$

28

 

 

$

35,623

 

Collectively evaluated for impairment

 

 

318,106

 

 

 

1,490,306

 

 

 

206,721

 

 

 

573,244

 

 

 

122,963

 

 

 

37,808

 

 

 

2,749,148

 

Acquired with deteriorated credit quality

 

 

989

 

 

 

921

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

1,922

 

Total loans

 

$

326,144

 

 

$

1,512,359

 

 

$

206,721

 

 

$

579,911

 

 

$

123,722

 

 

$

37,836

 

 

$

2,786,693

 

 

The following table presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans for the three and six months ended June 31, 2019 (in thousands):

 

 

 

Three Months Ended June 30, 2019

 

 

Six Months Ended June 30, 2019

 

 

 

Average

Balance

 

 

Interest

Income

Recognized

 

 

Cash Basis

Income

Recognized

 

 

Average

Balance

 

 

Interest

Income

Recognized

 

 

Cash Basis

Income

Recognized

 

Residential Owner Occupied

 

$

5,212

 

 

$

46

 

 

$

44

 

 

$

4,882

 

 

$

110

 

 

$

104

 

Residential Non Owner Occupied

 

 

2,040

 

 

 

26

 

 

 

26

 

 

 

2,060

 

 

 

56

 

 

 

56

 

Total Residential Real Estate

 

 

7,252

 

 

 

72

 

 

 

70

 

 

 

6,942

 

 

 

166

 

 

 

160

 

CRE Owner Occupied

 

 

7,514

 

 

 

57

 

 

 

45

 

 

 

7,439

 

 

 

223

 

 

 

177

 

CRE Non Owner Occupied

 

 

1,942

 

 

 

18

 

 

 

18

 

 

 

1,966

 

 

 

51

 

 

 

44

 

Multi-Family Real Estate

 

 

305

 

 

 

7

 

 

 

7

 

 

 

819

 

 

 

27

 

 

 

27

 

Agriculture Land

 

 

13,734

 

 

 

170

 

 

 

94

 

 

 

13,319

 

 

 

376

 

 

 

291

 

Other CRE

 

 

796

 

 

 

19

 

 

 

17

 

 

 

975

 

 

 

53

 

 

 

50

 

Total Commercial Real Estate

 

 

24,291

 

 

 

271

 

 

 

181

 

 

 

24,518

 

 

 

730

 

 

 

589

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Working Capital

 

 

7,594

 

 

 

83

 

 

 

71

 

 

 

7,842

 

 

 

226

 

 

 

162

 

Agriculture Production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Other

 

 

1,549

 

 

 

21

 

 

 

21

 

 

 

1,709

 

 

 

48

 

 

 

45

 

Total Commercial

 

 

9,143

 

 

 

104

 

 

 

92

 

 

 

9,551

 

 

 

274

 

 

 

207

 

Home Equity and Improvement

 

 

889

 

 

 

6

 

 

 

5

 

 

 

905

 

 

 

20

 

 

 

18

 

Consumer Finance

 

 

25

 

 

 

 

 

 

 

 

 

30

 

 

 

1

 

 

 

1

 

Total Impaired Loans

 

$

41,600

 

 

$

453

 

 

$

348

 

 

$

41,946

 

 

$

1,191

 

 

$

975

 

 

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of June 30, 2020 (in thousands):

27


 

 

 

June 30, 2020

 

 

 

Real Estate

 

 

Equipment and Machinery

 

 

Inventory and Receivables

 

 

Vehicles

 

 

Total

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,395

 

 

$

 

 

$

 

 

$

 

 

$

1,395

 

Commercial

 

 

14,292

 

 

 

 

 

 

 

 

 

 

 

 

14,292

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

438

 

 

 

1,881

 

 

 

1,069

 

 

 

275

 

 

 

3,663

 

Home equity and improvement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

16,125

 

 

$

1,881

 

 

$

1,069

 

 

$

275

 

 

$

19,350

 

 

 

The following table presents loans individually evaluated for impairment by class of loans (in thousands):

28


 

 

 

December 31, 2019

 

 

 

Unpaid

Principal

Balance*

 

 

Recorded

Investment

 

 

Allowance

for Credit

Loss

Allocated

 

With no allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Residential Owner Occupied

 

$

86

 

 

$

86

 

 

$

 

Residential Non Owner Occupied

 

 

962

 

 

 

967

 

 

 

 

Total Residential Real Estate

 

 

1,048

 

 

 

1,053

 

 

 

 

CRE Owner Occupied

 

 

5,098

 

 

 

4,814

 

 

 

 

CRE Non Owner Occupied

 

 

1,815

 

 

 

1,006

 

 

 

 

Multi-Family Real Estate

 

 

128

 

 

 

130

 

 

 

 

Agriculture Land

 

 

12,734

 

 

 

12,792

 

 

 

 

Other CRE

 

 

 

 

 

 

 

 

 

Total Commercial Real Estate

 

 

19,775

 

 

 

18,742

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

Commercial Working Capital

 

 

5,417

 

 

 

5,435

 

 

 

 

Agriculture Production

 

 

 

 

 

 

 

 

 

Commercial Other

 

 

469

 

 

 

471

 

 

 

 

Total Commercial

 

 

5,886

 

 

 

5,906

 

 

 

 

Home Equity and Improvement

 

 

151

 

 

 

151

 

 

 

 

Consumer Finance

 

 

 

 

 

 

 

 

 

Total loans with no allowance recorded

 

$

26,860

 

 

$

25,852

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Residential Owner Occupied

 

$

5,137

 

 

$

4,977

 

 

$

104

 

Residential Non Owner Occupied

 

 

1,014

 

 

 

1,019

 

 

 

11

 

Total Residential Real Estate

 

 

6,151

 

 

 

5,996

 

 

 

115

 

CRE Owner Occupied

 

 

2,085

 

 

 

1,623

 

 

 

60

 

CRE Non Owner Occupied

 

 

317

 

 

 

319

 

 

 

13

 

Multi-Family Real Estate

 

 

 

 

 

 

 

 

 

Agriculture Land

 

 

262

 

 

 

268

 

 

 

3

 

Other CRE

 

 

401

 

 

 

180

 

 

 

9

 

Total Commercial Real Estate

 

 

3,065

 

 

 

2,390

 

 

 

85

 

Construction

 

 

 

 

 

 

 

 

 

Commercial Working Capital

 

 

682

 

 

 

450

 

 

 

150

 

Agriculture Production

 

 

 

 

 

 

 

 

 

Commercial Other

 

 

318

 

 

 

299

 

 

 

24

 

Total Commercial

 

 

1,000

 

 

 

749

 

 

 

174

 

Home Equity and Improvement

 

 

654

 

 

 

608

 

 

 

48

 

Consumer Finance

 

 

28

 

 

 

28

 

 

 

 

Total loans with an allowance recorded

 

$

10,898

 

 

$

9,771

 

 

$

422

 

 

*Presented gross of charge-offs

29


 

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  All loans greater than 90 days past due are placed on non-accrual status.  Effective January 1, 2020 with the adoption of ASC Topic 326, the Company began including non-accrual purchase credit deteriorated (PCD) loans in its non-performing loans.  As such, the non-performing loans as of June 30, 2020 include PCD loans accounted for pursuant to ASC Topic 326 as these loans are individually evaluated.  The non-performing loans do not include PCD (formerly purchase credit impaired (PCI)) loans as of December 31, 2019, as the PCD loans prior to adopting ASC Topic 326 were evaluated on a pool basis.  The following table presents the current balance of the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned as of the dates indicated:

 

 

 

June 30,

2020

 

 

December 31,

2019

 

 

 

(In Thousands)

 

Non-accrual loans

 

$

39,470

 

 

$

13,437

 

Loans over 90 days past due and still accruing

 

 

 

 

 

 

Total non-performing loans

 

 

39,470

 

 

 

13,437

 

Real estate and other assets held for sale

 

 

573

 

 

 

100

 

Total non-performing assets

 

$

40,043

 

 

$

13,537

 

Troubled debt restructuring, still accruing

 

$

7,916

 

 

$

8,486

 

 

 

The following table presents the aging of the amortized cost in past due and non- accrual loans as of June 30, 2020, by class of loans (In Thousands):

 

 

 

Current

 

 

30 - 59 days

 

 

60 - 89 days

 

 

90 + days

 

 

Total

Past Due

 

 

Total

Non-

Accrual

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

1,204,467

 

 

 

1,542

 

 

 

2,481

 

 

 

 

 

 

4,023

 

 

 

4,000

 

Commercial

 

 

2,226,094

 

 

 

 

 

 

1,040

 

 

 

 

 

 

1,040

 

 

 

4,468

 

Construction

 

 

287,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,222,377

 

 

 

533

 

 

 

146

 

 

 

 

 

 

679

 

 

 

524

 

Home equity and improvement

 

 

282,287

 

 

 

1,273

 

 

 

420

 

 

 

 

 

 

1,693

 

 

 

943

 

Consumer finance

 

 

135,538

 

 

 

808

 

 

 

53

 

 

 

 

 

 

861

 

 

 

366

 

PCD

 

 

48,765

 

 

 

1,952

 

 

 

753

 

 

 

 

 

 

2,705

 

 

 

29,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

5,406,767

 

 

$

6,108

 

 

$

4,893

 

 

$

 

 

$

11,001

 

 

$

39,470

 

 

 

 

 

30


 

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 2019, by class of loans (In Thousands):

 

 

 

Current

 

 

30 - 59 days

 

 

60 - 89 days

 

 

90 + days

 

 

Total

Past Due

 

 

Total

Non

Accrual

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

323,600

 

 

 

1,328

 

 

 

570

 

 

 

646

 

 

 

2,544

 

 

 

2,411

 

Commercial

 

 

1,509,132

 

 

 

339

 

 

 

172

 

 

 

2,716

 

 

 

3,227

 

 

 

7,609

 

Construction

 

 

206,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

576,988

 

 

 

273

 

 

 

206

 

 

 

2,444

 

 

 

2,923

 

 

 

2,961

 

Home equity and improvement

 

 

122,487

 

 

 

956

 

 

 

240

 

 

 

39

 

 

 

1,235

 

 

 

449

 

Consumer finance

 

 

37,622

 

 

 

143

 

 

 

64

 

 

 

7

 

 

 

214

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

2,776,550

 

 

$

3,039

 

 

$

1,252

 

 

$

5,852

 

 

$

10,143

 

 

$

13,437

 

 

 

Troubled Debt Restructurings

As of June 30, 2020, and December 31, 2019, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $18.8 million and $15.1 million, respectively.  The Company allocated $355,000 and $388,000 of specific reserves to those loans at June 30, 2020, and December 31, 2019, respectively, and had committed to lend additional amounts totaling up to $235,000 and $226,000 at June 30, 2020, and December 31, 2019, respectively.

The Company has responded to the pandemic in numerous ways, including by actively participating in the Paycheck Protection Program (“PPP”) and distributing $434 million to small businesses in our markets.  Additionally, the Company is working with borrowers impacted by the COVID-19 pandemic and providing modifications to include either interest only deferral or principal and interest deferral.  These modifications range from two to six months.  Through June 30, 2020, the Company had approximately 1,354 deferrals totaling $813 million.  A majority of these modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. In accordance with this guidance, such modified loans will be considered current and will continue to accrue interest during the deferral period.

A breakout of deferrals by loan category is as follows (in thousands):

 

Balance deferred

 

Residential real estate

 

65,754

 

Commercial real estate

 

561,699

 

Construction

 

46,010

 

Commercial

 

131,923

 

Home equity and improvement

 

2,456

 

Consumer finance

 

5,056

 

Total

 

812,898

 

The following table is a breakout of commercial deferrals which represent $740 million of the total $813 million deferred (in thousands):.  

 

31


 

Commercial deferral expirations

Balance

 

July

$

100,769

 

August

 

187,225

 

September

 

130,295

 

October

 

241,539

 

November

 

70,477

 

December

 

9,327

 

Total

 

739,632

 

 

The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted.  Each TDR is uniquely designed to meet the specific needs of the borrower.  Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions and converting revolving credit lines to term loans.  Additional collateral or an additional guarantor is often requested when granting a concession.  Commercial mortgage loans modified in a TDR often involve temporary interest-only payments, re-amortization of remaining debt in order to lower payments and sometimes reducing the interest rate lower than the current market rate.  Residential mortgage loans modified in a TDR are comprised of loans where monthly payments are lowered, either through interest rate reductions or principal only payments for a period of time, to accommodate the borrowers’ financial needs, interest is capitalized into principal, or the term and amortization are extended.  Home equity modifications are made infrequently and usually involve providing an interest rate that is lower than the borrower would be able to obtain due to credit issues.  All retail loans where the borrower is in bankruptcy are classified as TDRs regardless of whether or not a concession is made.

 

32


 

Of the loans modified in a TDR as of June 30, 2020, $7.9 million were on non-accrual status and partial charge-offs have in some cases been taken against the outstanding balance.  Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan.  If the loan is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine if there is a need for a specific allowance or charge-off.  If the loan is determined to be cash flow dependent, the allowance is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective interest rate.

The following tables present loans by class modified as TDRs that occurred during the three and six month periods ending June 30, 2020, and June 30, 2019:

 

 

 

Loans Modified as a TDR for the Three

Months Ended June 30, 2020

($ in thousands)

 

 

Loans Modified as a TDR for the Six

Months Ended June 30, 2020

($ in thousands)

 

Troubled Debt Restructurings

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

3

 

 

$

231

 

 

 

5

 

 

$

609

 

Commercial

 

 

3

 

 

 

6,783

 

 

 

4

 

 

 

6,876

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

5

 

 

 

156

 

Home equity and improvement

 

 

 

 

 

 

 

 

1

 

 

 

26

 

Consumer finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

6

 

 

$

7,014

 

 

 

15

 

 

$

7,667

 

 

The loans described above increased the allowance for credit losses (“ACL”) by $3,000 and $32,000 in the three and six month periods ending June 30, 2020.      

 

 

 

Loans Modified as a TDR for the Three

Months Ended June 30, 2019

($ in thousands)

 

 

Loans Modified as a TDR for the Six

Months Ended June 30, 2019

($ in thousands)

 

Troubled Debt Restructurings

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

4

 

 

$

434

 

 

 

7

 

 

$

907

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

1

 

 

 

46

 

 

 

1

 

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

1

 

 

 

13

 

Home equity and improvement

 

 

1

 

 

 

26

 

 

 

2

 

 

 

26

 

Consumer finance

 

 

1

 

 

 

1

 

 

 

2

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

7

 

 

$

507

 

 

 

13

 

 

$

993

 

 

The loans described above increased the ACL by $27,000 and $21,000 in the three and six month periods ending June 30, 2019.     

33


 

The following tables present loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the three and six month periods ended June 30, 2020, and June 30, 2019:

 

 

 

Three Months Ended June 30, 2020

 

 

Six Months Ended June 30, 2020

 

 

 

($ in thousands)

 

 

($ in thousands)

 

Troubled Debt Restructurings That Subsequently Defaulted

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

3

 

 

$

168

 

 

 

6

 

 

$

436

 

Commercial

 

 

1

 

 

 

22

 

 

 

2

 

 

 

194

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1

 

 

 

118

 

 

 

2

 

 

 

250

 

Home equity and improvement

 

 

2

 

 

 

180

 

 

 

3

 

 

 

326

 

Consumer finance

 

 

1

 

 

 

21

 

 

 

1

 

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

8

 

 

$

509

 

 

 

14

 

 

$

1,227

 

 

The TDRs that subsequently defaulted described above increased the ACL by $30,000 and $45,000 for the three month and six month period ended June 30, 2020.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed on the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.

 

 

 

Three Months Ended June 30, 2019

 

 

Six Months Ended June 30, 2019

 

 

 

($ in thousands)

 

 

($ in thousands)

 

Troubled Debt Restructurings That Subsequently Defaulted

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

2

 

 

$

113

 

 

 

3

 

 

$

189

 

Commercial

 

 

 

 

 

 

 

 

3

 

 

 

2,311

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and improvement

 

 

 

 

 

 

 

 

1

 

 

 

61

 

Consumer finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

2

 

 

$

113

 

 

 

7

 

 

$

2,561

 

 

The TDRs that subsequently defaulted described above increased the ACL by $5,000 and $4,000 for the three and six month periods ended June 30, 2019.

34


 

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed on the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.

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 as to credit risk.  This analysis includes all non-homogeneous loans, such as commercial and commercial real estate loans and certain homogenous 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.

Not Graded.  Loans classified as not graded are generally smaller balance residential real estate, home equity and consumer installment loans which are originated primarily by using an automated underwriting system.  These loans are monitored based on their delinquency status and are evaluated individually only if they are seriously delinquent.

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 June 30, 2020, 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

 

 

1,206,062

 

 

 

304

 

 

 

6,124

 

 

 

 

 

 

6,124

 

 

 

1,212,490

 

Commercial

 

 

2,191,433

 

 

 

21,436

 

 

 

18,733

 

 

 

 

 

 

18,733

 

 

 

2,231,602

 

Construction

 

 

287,174

 

 

 

65

 

 

 

 

 

 

 

 

 

 

 

 

287,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,193,020

 

 

 

23,979

 

 

 

6,581

 

 

 

 

 

 

6,581

 

 

 

1,223,580

 

Home equity and improvement

 

 

284,188

 

 

 

 

 

 

735

 

 

 

 

 

 

735

 

 

 

284,923

 

Consumer finance

 

 

136,449

 

 

 

 

 

 

316

 

 

 

 

 

 

316

 

 

 

136,765

 

PCD

 

 

21,817

 

 

 

13,985

 

 

 

44,837

 

 

 

 

 

 

44,837

 

 

 

80,639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

5,320,143

 

 

$

59,769

 

 

$

77,326

 

 

$

 

 

$

77,326

 

 

$

5,457,238

 

 

 

 

35


 

As of December 31, 2019, 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

 

 

322,250

 

 

 

415

 

 

 

3,479

 

 

 

 

 

 

3,479

 

 

 

326,144

 

Commercial

 

 

1,462,065

 

 

 

27,197

 

 

 

23,097

 

 

 

 

 

 

23,097

 

 

 

1,512,359

 

Construction

 

 

205,076

 

 

 

1,645

 

 

 

 

 

 

 

 

 

 

 

 

206,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

548,012

 

 

 

24,162

 

 

 

7,737

 

 

 

 

 

 

7,737

 

 

 

579,911

 

Home equity and improvement

 

 

123,407

 

 

 

 

 

 

315

 

 

 

 

 

 

315

 

 

 

123,722

 

Consumer finance

 

 

37,816

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

 

 

37,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

2,698,626

 

 

$

53,419

 

 

$

34,648

 

 

$

 

 

$

34,648

 

 

$

2,786,693

 

 

 

 

 

The table below presents the amortized cost basis of loans by credit quality indicator and class of loans based on the most recent analysis performed ($ in thousands):

36


 

 

Term of loans by origination

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

83,735

 

 

$

184,881

 

 

$

180,901

 

 

$

171,796

 

 

$

173,300

 

 

$

408,215

 

 

$

3,234

 

 

$

1,206,062

 

Special Mention

 

 

 

 

40

 

 

 

56

 

 

 

 

 

 

121

 

 

 

87

 

 

 

 

 

 

304

 

Substandard

 

 

 

 

195

 

 

 

622

 

 

 

311

 

 

 

224

 

 

 

4,763

 

 

 

9

 

 

 

6,124

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

83,735

 

 

$

185,116

 

 

$

181,579

 

 

$

172,107

 

 

$

173,645

 

 

$

413,065

 

 

$

3,243

 

 

$

1,212,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

266,383

 

 

$

442,274

 

 

$

360,246

 

 

$

375,059

 

 

$

229,020

 

 

$

505,233

 

 

$

13,218

 

 

$

2,191,433

 

Special Mention

 

 

 

 

5,330

 

 

 

997

 

 

 

2,325

 

 

 

30

 

 

 

12,032

 

 

 

722

 

 

 

21,436

 

Substandard

 

 

 

 

284

 

 

 

1,605

 

 

 

1,231

 

 

 

1,283

 

 

 

11,655

 

 

 

2,675

 

 

 

18,733

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

266,383

 

 

$

447,888

 

 

$

362,848

 

 

$

378,615

 

 

$

230,333

 

 

$

528,920

 

 

$

16,615

 

 

$

2,231,602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

15,730

 

 

$

134,260

 

 

$

87,891

 

 

$

39,552

 

 

$

9,736

 

 

$

5

 

 

$

-

 

 

$

287,174

 

Special Mention

 

65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

15,795

 

 

$

134,260

 

 

$

87,891

 

 

$

39,552

 

 

$

9,736

 

 

$

5

 

 

$

-

 

 

$

287,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

518,471

 

 

$

181,028

 

 

$

95,494

 

 

$

56,402

 

 

$

29,621

 

 

$

37,348

 

 

$

274,656

 

 

$

1,193,020

 

Special Mention

 

25

 

 

 

713

 

 

 

2,413

 

 

 

2,355

 

 

 

48

 

 

 

4,182

 

 

 

14,243

 

 

 

23,979

 

Substandard

 

226

 

 

 

81

 

 

 

610

 

 

 

204

 

 

 

280

 

 

 

197

 

 

 

4,983

 

 

 

6,581

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

518,722

 

 

$

181,822

 

 

$

98,517

 

 

$

58,961

 

 

$

29,949

 

 

$

41,727

 

 

$

293,882

 

 

$

1,223,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and Improvement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

3,573

 

 

$

9,532

 

 

$

5,512

 

 

$

9,502

 

 

$

9,052

 

 

$

34,250

 

 

$

212,767

 

 

$

284,188

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

291

 

 

 

432

 

 

 

735

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

3,573

 

 

$

9,532

 

 

$

5,524

 

 

$

9,502

 

 

$

9,052

 

 

$

34,541

 

 

$

213,199

 

 

$

284,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

28,102

 

 

$

48,520

 

 

$

26,920

 

 

$

14,943

 

 

$

7,131

 

 

$

4,578

 

 

$

6,255

 

 

$

136,449

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

224

 

 

 

55

 

 

 

12

 

 

 

25

 

 

 

 

 

 

 

 

 

316

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

28,102

 

 

$

48,744

 

 

$

26,975

 

 

$

14,955

 

 

$

7,156

 

 

$

4,578

 

 

$

6,255

 

 

$

136,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

-

 

 

$

259

 

 

$

984

 

 

$

2,482

 

 

$

1,077

 

 

$

16,207

 

 

$

808

 

 

$

21,817

 

Special Mention

 

 

 

 

 

 

 

2,162

 

 

 

4,225

 

 

 

1,389

 

 

 

4,123

 

 

 

2,086

 

 

 

13,985

 

Substandard

 

 

 

 

65

 

 

 

66

 

 

 

18,114

 

 

 

1,704

 

 

 

10,716

 

 

 

14,172

 

 

 

44,837

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

-

 

 

$

324

 

 

$

3,212

 

 

$

24,821

 

 

$

4,170

 

 

$

31,046

 

 

$

17,066

 

 

$

80,639

 

 

 

37


 

Allowance for Credit Losses (ACL)

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.  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, discounted cash flows (“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 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.  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.  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 remaining life method was selected for the consumer 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.  

 

 

38


 

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

 

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 finance

 

Remaining life

 

Call report loss history

 

According to the accounting standard an entity may make an accounting policy election not to measure an allowance for credit losses 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 allowance for credit losses 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 to the ASC Topic 326 requires the Company to establish a liability for anticipated credit losses for unfunded commitments. To accomplish this, the company must first establishes 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 considered by the company’s management as likely to fund over the life of the instrument.  At June 30, 2020, the Company had $1.4 billion in unfunded commitments and set aside $6.8 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 judgements 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.  

 

Purchased Loans

 

39


 

As a result of the Merger, the Company acquired $2.3 billion in loans.  Par value of purchased loans follows (in thousands):

 

 

 

2020

 

 

Par value of acquired loans at acquisition

 

$

2,314,588

 

 

Credit discount

 

 

34,610

 

 

Non-credit discount/(premium) at acquisition

 

 

(8,497

)

 

Purchase price of loans at acquisition

 

$

2,340,701

 

 

 

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 on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. On January 31, 2020, the Company acquired PCD loans with a fair value of $79.1 million, credit discount $7.7 million and a noncredit discount of $4.1 million. The outstanding balance at June 30, 2020 and related allowance on these loans is as follows (in thousands):

 

 

 

Loan Balance

 

 

ACL Balance

 

 

 

(In Thousands)

 

Real Estate:

 

 

 

 

 

 

 

 

Residential

 

$

16,679

 

 

$

1,247

 

Commercial

 

 

34,175

 

 

 

3,955

 

Construction

 

 

953

 

 

 

8

 

 

 

 

51,807

 

 

 

5,210

 

Other Loans:

 

 

 

 

 

 

 

 

Commercial

 

 

22,234

 

 

 

1,781

 

Home equity and improvement

 

 

5,587

 

 

 

250

 

Consumer finance

 

 

1,011

 

 

 

56

 

 

 

 

28,832

 

 

 

2,087

 

Total

 

$

80,639

 

 

$

7,297

 

 

At June 30, 2020 the Company had $2.0 million in loans that had previously been accounted for as purchase credit impaired.    

 

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $6.7 million as of June 30, 2020, and $981,000 as of December 31, 2019. The increase is primarily a result of the Merger.  

40


 

9.

Mortgage Banking

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Gain from sale of mortgage loans

 

$

11,530

 

 

$

1,775

 

 

$

16,432

 

 

$

3,076

 

Mortgage loans servicing revenue (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans servicing revenue

 

 

1,888

 

 

 

943

 

 

 

3,482

 

 

 

1,882

 

Amortization of mortgage servicing rights

 

 

(2,181

)

 

 

(391

)

 

 

(3,344

)

 

 

(677

)

Mortgage servicing rights valuation adjustments

 

 

(1,369

)

 

 

(190

)

 

 

(5,854

)

 

 

(303

)

 

 

 

(1,662

)

 

 

362

 

 

 

(5,716

)

 

 

902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue from sale and servicing of mortgage loans

 

$

9,868

 

 

$

2,137

 

 

$

10,716

 

 

$

3,978

 

 

The unpaid principal balance of residential mortgage loans serviced for third parties was $3.0 billion at June 30, 2020, and $1.46 billion at December 31, 2019.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and six months ended June 30, 2020 and 2019:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Mortgage servicing assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

20,761

 

 

$

10,411

 

 

$

10,801

 

 

$

10,419

 

Loans sold, servicing retained

 

 

2,454

 

 

 

438

 

 

 

3,830

 

 

 

716

 

Mortgage servicing rights acquired

 

 

 

 

 

 

 

 

9,747

 

 

 

 

Amortization

 

 

(2,181

)

 

 

(391

)

 

 

(3,344

)

 

 

(677

)

Carrying value before valuation allowance at end of period

 

 

21,034

 

 

 

10,458

 

 

 

21,034

 

 

 

10,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(5,019

)

 

 

(413

)

 

 

(534

)

 

 

(300

)

Impairment recovery (charges)

 

 

(1,369

)

 

 

(190

)

 

 

(5,854

)

 

 

(303

)

Balance at end of period

 

 

(6,388

)

 

 

(603

)

 

 

(6,388

)

 

 

(603

)

Net carrying value of MSRs at end of period

 

$

14,646

 

 

$

9,855

 

 

$

14,646

 

 

$

9,855

 

Fair value of MSRs at end of period

 

$

14,646

 

 

$

9,925

 

 

$

14,646

 

 

$

9,925

 

 

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 has established an accrual for secondary market buy-back activity.  A liability of $43,000 was accrued at both June 30, 2020, and December 31, 2019, respectively.  There was 0 expense or credit recognized related to the accrual in the three and six months ended June 30, 2020 or 2019.  

41


 

10.

Leases

Due to the Merger with UCFC, on January 31, 2020, the Company performed a valuation on UCFC’s leases to determine an initial right of use asset (ROU asset) and lease liability.  The Company recorded an initial ROU asset of $5.0 million and a lease liability of $5.1 million for these leases.  

The Company’s lease agreements have maturity dates ranging from December 2020 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 15.11 years as of June 30, 2020 and 17.07 years as of December 31, 2019.  The weighted average discount rate for leases was 2.57% as of June 30, 2020 and 3.17% as of December 31, 2019.

The total operating lease costs were $592,000 and $1.1 million for the three and six months ended June 30, 2020, and $233,000 and $475,000 for the three and six months ended June 30, 2019, respectively. The right-of-use asset, included in other assets, was $18.2 million and $8.9 million at June 30, 2020 and December 31, 2019, respectively.  The lease liabilities, included in other liabilities, were $18.8 million and $9.5 million as of June 30, 2020 and December 31, 2019, respectively.

 

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

 

(in thousands)

 

June 30, 2020

 

2020

 

$

1,274

 

2021

 

 

2,298

 

2022

 

 

1,944

 

2023

 

 

1,539

 

2024

 

 

1,311

 

Thereafter

 

 

14,911

 

     Total undiscounted minimum lease payments

 

$

23,277

 

Present value adjustment

 

 

(4,471

)

     Total lease liabilities

 

$

18,806

 

 

 

11.

Deposits

A summary of deposit balances is as follows:

 

 

 

June 30,

2020

 

 

December 31,

2019

 

 

 

(In Thousands)

 

Non-interest-bearing checking accounts

 

$

1,454,842

 

 

$

630,359

 

Interest-bearing checking and money market accounts

 

 

2,361,486

 

 

 

1,198,012

 

Savings deposits

 

 

671,650

 

 

 

303,166

 

Retail certificates of deposit less than $250,000

 

 

1,078,758

 

 

 

631,253

 

Retail certificates of deposit greater than $250,000

 

 

193,107

 

 

 

107,535

 

 

 

$

5,759,843

 

 

$

2,870,325

 

 

42


 

12.

Borrowings

Premier’s FHLB advances, Paycheck Protection Program Lending Facility (PPPLF) advances and junior subordinated debentures owed to unconsolidated subsidiary trusts are comprised of the following:

 

 

 

June 30,

2020

 

 

December 31,

2019

 

 

 

(In Thousands)

 

FHLB Advances:

 

 

 

 

 

 

 

 

Single maturity fixed rate advances

 

$

35,000

 

 

$

83,999

 

Amortizable mortgage advances

 

 

 

 

 

1,085

 

Overnight advances

 

 

100,000

 

 

 

 

Fair value adjustment on acquired balances

 

 

 

 

 

(21

)

Total

 

$

135,000

 

 

$

85,063

 

PPPLF advances

 

$

4,327

 

 

$

 

Junior subordinated debentures owed to unconsolidated subsidiary trusts

 

$

36,083

 

 

$

36,083

 

 

 

 

 

 

 

 

 

 

The FHLB advances outstanding at June 30, 2020, have maturities of $100.0 million in 2020, $5.0 million in 2021 and $10.0 million maturing in each of 2022, 2023 and 2024.

 

The PPPLF advances are term funding provided by the Federal Reserve for depository institutions that can be accessed by depository institutions that originate loans to small businesses under the Paycheck Protection Program which the Company is a participant in.  The $4.3 million advance balance at June 30, 2020 matures in 2022 and carries an interest rate of 0.35%.

 

In March 2007, the Company sponsored an affiliated trust, Premier Statutory Trust II (“Trust Affiliate II”) that issued $15 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%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate II was 1.81% as of June 30, 2020, and 3.39% as of December 31, 2019.

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 June 15, 2037, but can be redeemed at the Company’s option at any time now.

43


 

The Company also sponsored an affiliated trust, Premier Statutory Trust I (“Trust Affiliate I”), that issued $20 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%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate I was 1.69% and 3.27% on June 30, 2020 and December 31, 2019, 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 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.

Repurchase Agreements.  We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs.  Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction.  We monitor levels on a continuous basis.  We may be required to provide additional collateral based on the fair value of the underlying securities.  Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agent.

The balance of repurchase agreements was $6.9 million and $3.0 million at June 30, 2020 and December 31, 2019, respectively.  All of the repurchase agreements were overnight and continuous as of June 30, 2020 and December 31, 2019.  The repurchase agreements were collateralized by investment securities having a market value of $34.0 million and $5.8 million at June 30, 2020 and December 31, 2019, respectively.

 

13.

Commitments, Guarantees and Contingent Liabilities

Loan commitments are made to accommodate the financial needs of Premier’s customers commitments that 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 management’s credit assessment of the customer.

44


 

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):

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Commitments to make loans

 

$

391,586

 

 

$

178,811

 

Unused lines of credit

 

 

1,155,367

 

 

 

433,109

 

Standby letters of credit

 

 

16,873

 

 

 

14,215

 

Total

 

$

1,563,826

 

 

$

626,135

 

 

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

14.

Income Taxes

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of Indiana. The Company is no longer subject to examination by taxing authorities for years before 2015. The Company currently operates primarily in the states of Ohio, Michigan, Pennsylvania and West Virginia which tax financial institutions based on their equity rather than their income.

For further information on taxes refer to the discussion on CECL in Note 8. Loans and the Merger information in Note 18. Business Combinations.  

15.

Derivative Financial Instruments

At June 30, 2020, the Company had approximately $210.2 million of interest rate lock commitments and $299.0 million of forward sales of mortgage backed securities.  These commitments are considered derivatives.  The Company had $17.0 million of interest rate lock commitments and $34.4 million of forward commitments at December 31, 2019.   

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

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

Assets

 

 

(Liabilities)

 

 

 

 

 

 

Assets

 

 

(Liabilities)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative

 

 

 

 

 

 

 

 

 

 

Derivative

 

 

 

Carrying

 

 

Carrying

 

 

Net Carrying

 

 

Carrying

 

 

Carrying

 

 

Net Carrying

 

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

 

 

(In Thousands)

 

Derivatives not designated as

   hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Banking Derivatives

 

$

7,167

 

 

$

 

 

$

7,167

 

 

$

883

 

 

$

(9

)

 

$

892

 

 

 

Interest Rate Swaps

 

The Company maintains an interest rate protection program for commercial loan customers that was acquired in the Merger.  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

45


 

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 $88.7 million and fair value of $2.4 million in other assets and $2.7 million in other liabilities at June 30, 2020.  The difference in fair value of $283,000 between the asset and liability represents a credit valuation adjustment that flows through noninterest income.  For the three and six months ended June 30, 2020, $32,000 and $197,000 of this figure flowed through noninterest income.  The remainder was part of the Merger consideration.  The Company had 0 interest rate swaps outstanding at December 31, 2019.

 

 

Equity Linked Time Deposit

  

The Company also acquired time deposits in its acquisition of UCFC that have written and purchased option derivatives to facilitate an equity linked time deposit product.  The time deposit provides the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while the Bank receives a known stream of funds based on the equity return (a purchase option).  The written and purchased options are mirror derivative instruments which are carried at fair value on the consolidated statement of financial condition.  At June 30, 2020, the balance of the equity linked time deposits was $8.6 million and the written and purchased options each had a fair value of $81,000.

16.

Other Comprehensive 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 or call of securities in the accompanying consolidated condensed statements of income.

 

 

 

Before Tax

Amount

 

 

Tax (Expense)

Benefit

 

 

Net of Tax

Amount

 

 

 

(In Thousands)

 

Three months ended June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss during the period

 

$

3,160

 

 

$

(665

)

 

$

2,495

 

Reclassification adjustment for net losses included in net income

 

 

2

 

 

 

(1

)

 

 

1

 

Defined benefit postretirement medical plan:

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for deferred tax on defined benefit

   postretirement medical plan

 

 

 

 

 

 

 

 

 

Total other comprehensive gain

 

$

3,162

 

 

$

(666

)

 

$

2,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss during the period

 

$

12,618

 

 

$

(2,650

)

 

$

9,968

 

Reclassification adjustment for net losses included in net income

 

 

2

 

 

 

(1

)

 

 

1

 

Defined benefit postretirement medical plan:

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for deferred tax on defined benefit

   postretirement medical plan

 

 

 

 

 

 

 

 

 

Total other comprehensive gain

 

$

12,620

 

 

$

(2,651

)

 

$

9,969

 

46


 

 

 

 

Before Tax

Amount

 

 

Tax Expense

(Benefit)

 

 

Net of Tax

Amount

 

 

 

(In Thousands)

 

Three months ended June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss during the period

 

$

3,289

 

 

$

(691

)

 

$

2,598

 

Reclassification adjustment for net gains included in net income

 

 

 

 

 

 

 

 

 

Defined benefit postretirement medical plan:

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for deferred tax on defined benefit

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement medical plan

 

 

 

 

 

 

 

 

 

Total other comprehensive loss

 

$

3,289

 

 

$

(691

)

 

$

2,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss during the period

 

$

7,892

 

 

$

(1,659

)

 

$

6,233

 

Reclassification adjustment for net gains included in net income

 

 

 

 

 

 

 

 

 

Defined benefit postretirement medical plan:

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for deferred tax on defined benefit

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement medical plan

 

 

 

 

 

82

 

 

 

82

 

Total other comprehensive loss

 

$

7,892

 

 

$

(1,577

)

 

$

6,315

 

 

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

 

 

 

Securities

Available

For Sale

 

 

Post-

retirement

Benefit

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

 

(In Thousands)

 

Balance January 1, 2020

 

$

4,839

 

 

$

(244

)

 

$

4,595

 

Other comprehensive income  before reclassifications

 

 

9,968

 

 

 

 

 

 

9,968

 

Amounts reclassified from accumulated other comprehensive income

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net other comprehensive income during period

 

 

9,969

 

 

 

 

 

 

9,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2020

 

$

14,808

 

 

$

(244

)

 

$

14,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 1, 2019

 

$

(2,057

)

 

$

(91

)

 

$

(2,148

)

Other comprehensive income (loss) before reclassifications

 

 

6,233

 

 

 

 

 

 

6,233

 

Amounts reclassified from accumulated other comprehensive income

 

 

 

 

 

82

 

 

 

82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net other comprehensive income during period

 

 

6,233

 

 

 

82

 

 

 

6,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2019

 

$

4,176

 

 

$

(9

)

 

$

4,167

 

 

 

 

17.

Business Combinations

Effective January 31, 2020, the Company merged with UCFC and its subsidiaries, pursuant to the Merger Agreement.   Pursuant to the Merger Agreement, UCFC was merged with and into Premier.  Immediately following the Merger, Home Savings was merged with and into the Bank, with the Bank surviving the Merger.  In addition, UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC and United American Financial

47


 

Services, Inc., each merged with the Company’s wholly-owned insurance subsidiary, First Insurance Group of the Midwest, Inc., with First Insurance Group of the Midwest, Inc. surviving the Merger.  UCFC’s consolidated assets and equity (unaudited) as of January 31, 2020 totaled $2.8 billion and $324.5 million, respectively.  The Company accounted for the transaction under the acquisition method of accounting, which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition.  The fair value estimates included in these financial statements are based on preliminary valuations.  

 

On June 19, 2020, the Company changed its name from First Defiance Financial Corp. to Premier Financial Corp. and the Bank changed its name from First Federal Bank of the Midwest to Premier Bank.  

 

In accordance with ASC 805, the Company expensed approximately $2.1 million and $13.6 million of direct acquisition costs during the three and six months ended June 30, 2020, respectively. The Company recorded $217.9 million of goodwill and $33.0 million of intangible assets in 2020 as a result of the combination. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the 2 entities.  The Merger was consistent with the Company’s strategy to enhance and expand its presence in northern Ohio.  The Merger offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded market area. The intangible assets are related to core deposits, which are being amortized over 10 years on an accelerated basis, and customer relationships, which are being amortized over 10 years on a straight-line basis.  For tax purposes, goodwill is non-deductible but will be evaluated annually for impairment.  The following table summarizes the fair value of the total consideration transferred as part of the Merger as well as the fair value of identifiable assets and liabilities assumed as of the effective date of the transaction.

 

 

 

January 31, 2020

 

 

 

(In Thousands)

 

 

 

 

 

 

Cash Consideration

 

$

132

 

Fair Value of Options Exchanged

 

$

461

 

Equity - Dollar Value of Issued Shares

 

 

526,850

 

Fair Value of Total Consideration Transferred

 

 

527,443

 

 

 

 

 

 

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:

 

 

 

 

Cash and Cash Equivalents

 

 

52,580

 

Securities available for sale

 

 

262,753

 

Net loans, including loans held for sale and allowance

 

 

2,340,701

 

FHLB Stock

 

 

12,753

 

Office Properties and Equipment

 

 

20,253

 

Intangible Assets

 

 

33,014

 

Bank Owned Life Insurance

 

 

65,934

 

Mortgage Servicing Rights

 

 

9,747

 

Accrued Interest Receivable and Other Assets

 

 

35,423

 

Deposits - Non-Interest Bearing

 

 

(430,921

)

Deposits - Interest Bearing

 

 

(1,651,669

)

Advances from FHLB

 

 

(381,000

)

Accrued Interest Payable and Other Liabilities

 

 

(60,004

)

Total Identifiable Net Assets

 

 

309,564

 

 

 

 

 

 

Goodwill

 

$

217,879

 

 

 

 

 

 

48


 

As a result of the Merger and in accordance with the Merger Agreement, each share of UCFC common stock issued and outstanding immediately prior to the effective time was converted into 0.3715 share of Premier common stock.  No fractional shares of Premier common stock were issued in the Merger, and UCFC’s shareholders became entitled to receive cash in lieu of fractional shares. The Company issued 17,926,174 Premier common shares and paid approximately $132,000 to UCFC shareholders as a result of the Merger.  The fair value of Premier common shares issued as part of the consideration paid for the UCFC common shares was determined based on the closing price of the Company’s common shares on the effective date of the Merger.

 

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2019, after giving effect to certain adjustments.  The unaudited pro forma information for the six months ended June 30, 2020 and June 30, 2019 includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects.  The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

 

 

 

 

 

  

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Net interest income

 

$

107,684

 

 

$

107,525

 

Provision for credit losses

 

 

22,265

 

 

 

504

 

Non-interest income

 

 

40,296

 

 

 

33,863

 

Non-interest expense

 

 

75,568

 

 

 

85,518

 

Income before income taxes

 

 

50,147

 

 

 

55,366

 

Income tax expense

 

 

10,478

 

 

 

10,102

 

Net income

 

$

39,669

 

 

$

45,264

 

Diluted earnings per share

 

$

1.06

 

 

$

1.