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PFC Premier Financial

Filed: 6 May 21, 2:54pm

 

 

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 March 31, 2021

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of April 30, 2021, the registrant had 37,303,971 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 – March 31, 2021 and December 31, 2020

2

 

 

 

 

 

 

Consolidated Condensed Statements of Income Three months ended March 31, 2021 and 2020

4

 

 

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income – Three months ended March 31, 2021 and 2020

5

 

 

 

 

 

 

Consolidated Condensed Statements of Changes in Stockholders’ Equity – Three months ended March 31, 2021 and 2020

6

 

 

 

 

 

 

Consolidated Condensed Statements of Cash Flows - Three months ended March 31, 2021 and 2020

7

 

 

 

 

 

 

Notes to Consolidated Condensed Financial Statements

8

 

 

 

 

Item 2.

 

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

46

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures about Market Risk

61

 

 

 

 

Item 4

 

Controls and Procedures

62

 

 

 

 

PART II - OTHER INFORMATION:

 

 

 

Item 1

 

Legal Proceedings

63

 

 

 

 

Item 1A.

 

Risk Factors

63

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

63

 

 

 

 

Item 3

 

Defaults upon Senior Securities

63

 

 

 

 

Item 4

 

Mine Safety Disclosures

63

 

 

 

 

Item 5

 

Other Information

64

 

 

 

 

Item 6

 

Exhibits

64

 

 

 

 

 

 

Signatures

65

 

 

 

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)

 

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash and amounts due from depository institutions

 

$

68,689

 

 

$

79,593

 

Interest-bearing deposits

 

 

235,058

 

 

 

79,673

 

 

 

 

303,747

 

 

 

159,266

 

Securities available-for-sale, carried at fair value

 

 

918,590

 

 

 

736,654

 

Equity securities

 

 

13,753

 

 

 

1,090

 

Loans held for sale, carried at fair value

 

 

215,945

 

 

 

221,616

 

Loans receivable, net of allowance for credit losses of $74,754 at March 31, 2021 and $82,079 at December 31, 2020, respectively

 

 

5,384,929

 

 

 

5,409,161

 

Mortgage servicing rights

 

 

18,503

 

 

 

13,153

 

Accrued interest receivable

 

 

24,762

 

 

 

25,434

 

Federal Home Loan Bank stock

 

 

9,328

 

 

 

16,026

 

Bank owned life insurance

 

 

145,060

 

 

 

144,784

 

Premises and equipment

 

 

57,358

 

 

 

58,665

 

Real estate and other assets held for sale

 

 

54

 

 

 

343

 

Goodwill

 

 

317,948

 

 

 

317,948

 

Core deposit and other intangibles

 

 

28,714

 

 

 

30,337

 

Other assets

 

 

91,771

 

 

 

77,257

 

Total assets

 

$

7,530,462

 

 

$

7,211,734

 

 

 

 

 

 

 

 

 

 

 

(continued)

2


PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Financial Condition

(UNAUDITED)

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

 

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits

 

$

6,351,919

 

 

$

6,047,841

 

Advances from the Federal Home Loan Bank

 

 

 

 

 

 

Subordinated debentures

 

 

84,881

 

 

 

84,860

 

Advance payments by borrowers

 

 

20,773

 

 

 

21,748

 

Reserve for credit losses - unfunded commitments

 

 

5,901

 

 

 

5,350

 

Other liabilities

 

 

68,802

 

 

 

69,659

 

Total liabilities

 

 

6,532,276

 

 

 

6,229,458

 

 

 

 

 

 

 

 

 

 

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;

   43,297,260 and 43,297,260  shares issued and 37,274,844 and 37,291,480

   shares outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

306

 

 

 

306

 

Additional paid-in capital

 

 

689,747

 

 

 

689,390

 

Accumulated other comprehensive (loss) income, net of tax of $133 and $3,988,

   respectively

 

 

(502

)

 

 

15,004

 

Retained earnings

 

 

388,467

 

 

 

356,414

 

Treasury stock, at cost, 6,022,416 shares at March 31, 2021 and 6,005,780 shares

   at December 31, 2020

 

 

(79,832

)

 

 

(78,838

)

Total stockholders’ equity

 

 

998,186

 

 

 

982,276

 

Total liabilities and stockholders’ equity

 

$

7,530,462

 

 

$

7,211,734

 

 

See accompanying notes.

3


PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Income

(UNAUDITED)

(Amounts in Thousands, except per share data)

 

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Interest Income

 

 

 

 

 

 

 

 

Loans

 

$

57,565

 

 

$

51,460

 

Investment securities:

 

 

 

 

 

 

 

 

Taxable

 

 

2,782

 

 

 

1,834

 

Non-taxable

 

 

900

 

 

 

883

 

Interest-bearing deposits

 

 

66

 

 

 

230

 

FHLB stock dividends

 

 

59

 

 

 

115

 

Total interest income

 

 

61,372

 

 

 

54,522

 

Interest Expense

 

 

 

 

 

 

 

 

Deposits

 

 

4,164

 

 

 

7,771

 

FHLB advances and other

 

 

 

 

 

1,006

 

Subordinated debentures

 

 

695

 

 

 

273

 

Notes payable

 

 

 

 

 

9

 

Total interest expense

 

 

4,859

 

 

 

9,059

 

Net interest income

 

 

56,513

 

 

 

45,463

 

Credit (benefit) loss expense - loans and leases

 

 

(7,514

)

 

 

43,786

 

Credit loss expense - unfunded commitments

 

 

551

 

 

 

1,458

 

Net interest income after credit loss expense

 

 

63,476

 

 

 

219

 

Non-interest Income

 

 

 

 

 

 

 

 

Service fees and other charges

 

 

5,469

 

 

 

5,318

 

Insurance commissions

 

 

4,882

 

 

 

5,155

 

Mortgage banking income

 

 

10,533

 

 

 

848

 

Gain on sale of non-mortgage loans

 

 

 

 

 

234

 

Gain on sale of securities available for sale

 

 

516

 

 

 

 

Gain on equity securities

 

 

1,610

 

 

 

 

Wealth management income

 

 

1,757

 

 

 

1,091

 

Income from Bank Owned Life Insurance

 

 

1,168

 

 

 

781

 

Other non-interest income

 

 

340

 

 

 

572

 

Total non-interest income

 

 

26,275

 

 

 

13,999

 

Non-interest Expense

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

21,997

 

 

 

17,585

 

Occupancy

 

 

4,112

 

 

 

3,731

 

FDIC insurance premium

 

 

898

 

 

 

492

 

Financial institutions tax

 

 

1,190

 

 

 

834

 

Data processing

 

 

3,382

 

 

 

3,040

 

Acquisition related charges

 

 

 

 

 

11,486

 

Amortization of intangibles

 

 

1,623

 

 

 

1,245

 

Other non-interest expense

 

 

5,601

 

 

 

3,897

 

Total non-interest expense

 

 

38,803

 

 

 

42,310

 

Income (loss) before income taxes

 

 

50,948

 

 

 

(28,092

)

Income tax expense (benefit)

 

 

9,952

 

 

 

(5,610

)

Net income (loss)

 

$

40,996

 

 

$

(22,482

)

Earnings (loss) per common share

 

 

 

 

 

 

 

 

Basic

 

$

1.10

 

 

$

(0.71

)

Diluted

 

$

1.10

 

 

$

(0.71

)

 

 

 

See accompanying notes.

 

4


 

 

PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(UNAUDITED)

(Amounts in Thousands)

 

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Net income (loss)

 

$

40,996

 

 

$

(22,482

)

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Unrealized (losses) gains on securities available for sale

 

 

(19,112

)

 

 

9,458

 

Reclassification adjustment for securities gains included in net income

 

 

(516

)

 

 

 

Income tax effect

 

 

4,122

 

 

 

(1,985

)

Net of tax amount

 

 

(15,506

)

 

 

7,473

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Reclassification adjustment for deferred tax on defined

   benefit postretirement medical plan

 

 

 

 

 

 

Net of tax amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

(15,506

)

 

 

7,473

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

25,490

 

 

$

(15,009

)

 

  

See accompanying notes.

 

5


 

 

PREMIER FINANCIAL CORP.

Consolidated Statement of Changes in Stockholders’ Equity

(UNAUDITED)

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

 

 

 

 

Preferred

Stock

 

 

Common

Stock

Shares

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Total

Stockholders

Equity

 

Balance at January 1, 2021

 

$

 

 

 

37,291,480

 

 

$

306

 

 

$

689,390

 

 

$

15,004

 

 

$

356,414

 

 

$

(78,838

)

 

$

982,276

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,996

 

 

 

 

 

 

 

40,996

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,506

)

 

 

 

 

 

 

 

 

 

 

(15,506

)

Deferred compensation plan

 

 

 

 

 

 

7,911

 

 

 

 

 

 

 

51

 

 

 

 

 

 

 

 

 

 

 

(51

)

 

 

 

Stock based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

551

 

Vesting of incentive plans

 

 

 

 

 

 

6,124

 

 

 

 

 

 

 

(82

)

 

 

 

 

 

 

 

 

 

 

82

 

 

 

 

Shares issued under stock option plan

 

 

 

 

 

 

600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

8

 

Restricted share issuance

 

 

 

 

 

 

13,708

 

 

 

 

 

 

 

(183

)

 

 

 

 

 

 

 

 

 

 

183

 

 

 

 

Restricted share forfeitures

 

 

 

 

 

 

(5,779

)

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

(138

)

 

 

(118

)

Shares repurchased

 

 

 

 

 

 

(39,200

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,078

)

 

 

(1,078

)

Common stock dividend payment ($0.24 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,943

)

 

 

 

 

 

 

(8,943

)

Balance at March 31, 2021

 

$

 

 

 

37,274,844

 

 

$

306

 

 

$

689,747

 

 

$

(502

)

 

$

388,467

 

 

$

(79,832

)

 

$

998,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 income (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

 

 

 

See accompanying notes.

 

6


 

 

PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Cash Flows

(UNAUDITED)

(Amounts in Thousands)

 

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

40,996

 

 

$

(22,482

)

Items not requiring (providing) cash:

 

 

 

 

 

 

 

 

Provision (benefit) for credit losses

 

 

(6,963

)

 

 

43,786

 

Depreciation

 

 

1,647

 

 

 

1,631

 

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

 

 

143

 

 

 

(1,112

)

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

 

 

(2,976

)

 

 

5,648

 

Amortization of intangibles

 

 

1,623

 

 

 

1,245

 

Change in deferred taxes

 

 

 

 

 

77

 

Proceeds from the sale of loans held for sale

 

 

258,544

 

 

 

101,090

 

Originations of loans held for sale

 

 

(249,607

)

 

 

(110,026

)

Gain from sale of loans

 

 

(5,640

)

 

 

(5,136

)

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

 

 

6

 

 

 

10

 

Gain on sale of available for sale securities

 

 

(516

)

 

 

 

Unrealized gain on equity securities

 

 

(1,610

)

 

 

 

Stock option expense

 

 

551

 

 

 

1,236

 

Restricted stock forfeitures for taxes and option exercises

 

 

(110

)

 

 

(1,496

)

Income from bank owned life insurance

 

 

(1,168

)

 

 

(781

)

Changes in:

 

 

 

 

 

 

 

 

Accrued interest receivable and other assets

 

 

(9,833

)

 

 

(2,854

)

Other liabilities

 

 

(744

)

 

 

2,525

 

Net cash provided by operating activities

 

 

24,343

 

 

 

13,361

 

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

Proceeds from maturities of held-to maturity securities

 

 

 

 

 

 

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

 

 

41,123

 

 

 

19,389

 

Proceeds from sale of available-for-sale securities

 

 

22,380

 

 

 

 

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

 

 

117

 

 

 

481

 

Proceeds from sale of non-mortgage loans

 

 

 

 

 

3,241

 

Purchases of available-for-sale securities

 

 

(267,079

)

 

 

 

Purchases of equity securities

 

 

(11,053

)

 

 

 

Net change in Federal Home Loan Bank stock

 

 

6,698

 

 

 

(64,584

)

Net cash received (paid) from acquisition (Reference Footnote 17 Business Combinations)

 

 

 

 

 

52,448

 

Purchases of premises and equipment, net

 

 

(120

)

 

 

(722

)

Proceeds from bank owned life insurance

 

 

892

 

 

 

 

Net increase in loans receivable

 

 

33,669

 

 

 

(44,623

)

Net cash used by  investing activities

 

 

(173,373

)

 

 

(34,370

)

Financing Activities

 

 

 

 

 

 

 

 

Net increase in deposits and advance payments by borrowers

 

 

303,532

 

 

 

34,437

 

Net change in Federal Home Loan Bank advances

 

 

 

 

 

19,937

 

Decrease in securities sold under repurchase agreements

 

 

 

 

 

(1,038

)

Net cash paid for repurchase of common stock

 

 

(1,078

)

 

 

(10,078

)

Cash dividends paid on common stock

 

 

(8,943

)

 

 

(8,286

)

Net cash provided by financing activities

 

 

293,511

 

 

 

34,972

 

Increase in cash and cash equivalents

 

 

144,481

 

 

 

13,963

 

Cash and cash equivalents at beginning of period

 

 

159,266

 

 

 

131,254

 

Cash and cash equivalents at end of period

 

$

303,747

 

 

$

145,217

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

5,425

 

 

$

9,028

 

Income taxes paid

 

$

 

 

$

 

Initial recognition of right-of-use asset

 

$

500

 

 

$

8,994

 

Initial recognition of lease liability

 

$

500

 

 

$

9,143

 

Initial recognition of ASC 326

 

$

 

 

$

2,566

 

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

 

$

54

 

 

$

37

 

 

See accompanying notes.

Refer to Note 17 – Business Combinations for non-cash activity.

 

7


 

 

PREMIER FINANCIAL CORP.

Notes to Consolidated Condensed Financial Statements (UNAUDITED)

March 31, 2021 and 2020

 

 

1.

Basis of Presentation

On June 19, 2020, First Defiance Financial Corp. 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 new ticker PFC.  On this same date, First Federal Bank of the Midwest, a 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”) and HSB Capital, LLC (“HSB Capital”). 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, Inc.  HSB Insurance, Inc. was dissolved in September 2020.

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 in 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. First Insurance offers property and casualty insurance, life insurance and group health insurance.

8


 

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.

 

The COVID-19 pandemic has continued to create 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.  Further, 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 consolidated condensed statement of financial condition at December 31, 2020, 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, 2020 (the “2020 Form 10-K”).

The accompanying consolidated condensed financial statements as of March 31, 2021, and for the three months ended March 31, 2021 and 2020 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 2020 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 March 31, 2021, are not necessarily indicative of the results that may be expected for the entire year.

 

 

 

2.

Significant Accounting Policies

Accounting Standards Update

 

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.

 

9


 

 

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 $0.7 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, 2021, 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

10


 

 

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

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

Loans held for sale, carried at fair value – The Company 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 30 year conventional 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).

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

11


 

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

Appraisals for both individually analyzed collateral-dependent loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal.  Appraisal values are discounted from 0% to 30% to account for other factors that may impact the value of collateral. In determining the value of individually analyzed collateral dependent loans and 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 that are carried at fair value on the statement of financial condition.  The Company uses an independent third party to perform a market valuation analysis for 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 to perform 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:

12


 

Assets and Liabilities Measured on a Recurring Basis

 

March 31, 2021

 

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

 

$

 

 

$

38,793

 

 

$

 

 

$

38,793

 

     Mortgage-backed securities

 

 

 

 

 

243,022

 

 

 

 

 

 

243,022

 

     Collateralized mortgage obligations

 

 

 

 

 

110,227

 

 

 

 

 

 

110,227

 

     Asset-backed securities

 

 

 

 

 

191,913

 

 

 

 

 

 

191,913

 

     Corporate bonds

 

 

 

 

 

55,258

 

 

 

 

 

 

55,258

 

     Obligations of state and political subdivisions

 

 

 

 

 

279,377

 

 

 

 

 

 

279,377

 

     Equity securities

 

 

13,753

 

 

 

 

 

 

 

 

 

13,753

 

     Loans held for sale, at fair value

 

 

 

 

 

81,307

 

 

 

134,638

 

 

 

215,945

 

     Purchased certificate of deposit option

 

 

 

 

 

59

 

 

 

 

 

 

59

 

     Interest rate swaps

 

 

 

 

 

406

 

 

 

 

 

 

406

 

     Mortgage banking derivative

 

 

 

 

 

7,957

 

 

 

 

 

 

7,957

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Written certificate of deposit option

 

 

 

 

 

59

 

 

 

 

 

 

59

 

     Interest rate swaps

 

 

 

 

 

375

 

 

 

 

 

 

375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 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

 

$

 

 

$

40,940

 

 

$

 

 

$

40,940

 

Mortgage-backed securities

 

 

 

 

 

277,182

 

 

 

 

 

 

277,182

 

Collateralized mortgage obligations

 

 

 

 

 

106,299

 

 

 

 

 

 

106,299

 

Asset-backed securities

 

 

 

 

 

30,546

 

 

 

 

 

 

30,546

 

Corporate bonds

 

 

 

 

 

44,169

 

 

 

 

 

 

44,169

 

Obligations of state and political subdivisions

 

 

 

 

 

237,518

 

 

 

 

 

 

237,518

 

Equity securities

 

 

1,090

 

 

 

 

 

 

 

 

 

1,090

 

Loans held for sale, at fair value

 

 

 

 

 

98,587

 

 

 

123,029

 

 

 

221,616

 

Purchased certificate of deposit option

 

 

 

 

 

56

 

 

 

 

 

 

56

 

Interest rate swaps

 

 

 

 

 

1,870

 

 

 

 

 

 

1,870

 

Mortgage banking derivative - asset

 

 

 

 

 

3,833

 

 

 

 

 

 

3,833

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Written certificate of deposit option

 

 

 

 

 

56

 

 

 

 

 

 

56

 

Interest rate swaps

 

 

 

 

 

2,036

 

 

 

 

 

 

2,036

 

 

 

 

 

The tables below present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three month periods ended March 31, 2021 and 2020.

 

13


 

 

 

Construction loans held for sale

 

 

Three Months Ended

March 31,

 

 

2021

 

 

2020

 

Balance of recurring Level 3 assets at beginning of period

$

123,029

 

 

$

 

Total gains (losses) for the period

 

 

 

 

 

 

 

      Included in change in fair value of loans held for sale

 

(5,568

)

 

 

4,962

 

Originations

 

34,003

 

 

 

9,581

 

Acquired in acquisition

 

 

 

 

37,711

 

Sales

 

(16,826

)

 

 

(7,834

)

Balance of recurring Level 3 assets at end of period

$

134,638

 

 

$

44,420

 

 

 

Securities available-for-sale

 

 

Three Months Ended

March 31,

 

 

2021

 

 

2020

 

Balance of recurring Level 3 assets at beginning of period

$

 

 

$

3,411

 

Balance of assets classified as Level 3 assets during the period

 

 

 

 

2,419

 

Balance of recurring Level 3 assets at end of period

$

 

 

$

5,830

 

 

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

 

March 31, 2021

 

Fair Value

 

 

Valuation Technique

 

Unobservable Inputs

 

Range of

Inputs

 

 

 

 

 

 

(Dollars in Thousands)

Construction loans held for sale

 

$

134,638

 

 

Comparable sales

 

Time discount using the 60 day forward contract

 

0.00% - 2.18%

 

 

December 31, 2020

 

Fair Value

 

 

Valuation Technique

 

Unobservable Inputs

 

Range of

Inputs

 

 

 

 

 

 

(Dollars in Thousands)

Construction loans held for sale

 

$

123,029

 

 

Comparable sales

 

Time discount using the 60 day forward contract

 

0.00% - 0.24%

 

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

 

March 31, 2021

 

Level 1

Inputs

 

 

Level 2

Inputs

 

 

Level 3

Inputs

 

 

Total Fair

Value

 

 

 

(In Thousands)

 

Individually analyzed loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

-

 

 

$

-

 

 

$

7,617

 

 

$

7,617

 

Commercial

 

 

 

 

 

 

 

 

4,781

 

 

 

4,781

 

Total individually analyzed loans

 

 

 

 

 

 

 

 

12,398

 

 

 

12,398

 

Mortgage servicing rights

 

 

 

 

 

13,868

 

 

 

 

 

 

13,868

 

14


 

 

 

December 31, 2020

 

Level 1

Inputs

 

 

Level 2

Inputs

 

 

Level 3

Inputs

 

 

Total Fair

Value

 

 

 

(In Thousands)

 

Individually analyzed loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

 

 

$

 

 

$

4,601

 

 

$

4,601

 

Commercial

 

 

 

 

 

 

 

 

7,151

 

 

 

7,151

 

Total individually analyzed loans

 

 

 

 

 

 

 

 

11,752

 

 

 

11,752

 

Mortgage servicing rights

 

 

 

 

 

13,153

 

 

 

 

 

 

13,153

 

 

 

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:

 

 

 

Fair

Value

 

 

Valuation

Technique

 

Unobservable

Inputs

 

Range of

Inputs

 

Weighted

Average

 

 

 

 

 

 

 

(Dollars in Thousands)

 

Individually analyzed Loans- Applies to all loan

   classes

 

$

12,398

 

 

Appraisals which utilize sales comparison, net income and cost approach

 

Discounts for collection issues and changes in market conditions

 

10-35%

 

 

16.23

%

 

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

 

Individually analyzed Loans- Applies to all loan

   classes

 

$

11,752

 

 

Appraisals which utilize sales comparison, net income and cost approach

 

Discounts for collection issues and changes in market conditions

 

5-37%

 

 

24.17

%

 

 

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

 

The aggregate fair value of the residential mortgage loans held for sale at March 31, 2021 and December 31, 2020 was $81.3 million and $98.6 million, respectively, and they had a contractual balance of $80.2 million and $93.2 million, respectively, for these same periods.  The difference between the fair value and the contractual balance is recorded in gains and losses on the sale of loans held for sale.  For the three months ended March 31, 2021 and 2020, ($4.3) million and $31,000, 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 March 31, 2021 and December 31, 2020, was $134.6 million and $123.0 million, respectively, and they had a contractual balance of $126.7 million and $109.5 million, respectively, for these same periods.  The difference between the fair value and the contractual balance is recorded in gains and losses on the sale of loans held for sale.  For the three

15


 

months ended March 31, 2021 and 2020, ($5.6) million and $5.0 million, respectively, were 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 March 31, 2021, and December 31, 2020. Accordingly, the aggregate fair value amounts presented do not represent the underlying value to 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.

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

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

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

16


 

FHLB advances with maturities greater than 90 days are valued based on a DCF analysis, using interest rates currently being quoted for similar characteristics and maturities resulting in a Level 2 classification. The cost or value of any call or put options is based on the estimated cost to settle the option at March 31, 2021.

 

 

 

 

 

 

 

Fair Value Measurements at March 31, 2021

 

 

 

 

 

 

 

(In Thousands)

 

 

 

Carrying

Value

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

303,747

 

 

$

303,747

 

 

$

303,747

 

 

$

 

 

$

 

Securities available for sale

 

 

918,590

 

 

 

918,590

 

 

 

 

 

 

918,590

 

 

 

 

Equity securities

 

 

13,753

 

 

 

13,753

 

 

 

13,753

 

 

 

 

 

 

 

Federal Home Loan Bank Stock

 

 

9,328

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans receivable, net

 

 

5,384,929

 

 

 

5,428,651

 

 

 

 

 

 

 

 

 

5,428,651

 

Loans held for sale, carried at fair value

 

 

215,945

 

 

 

215,945

 

 

 

 

 

 

81,307

 

 

 

134,638

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

6,351,919

 

 

$

6,358,858

 

 

$

5,297,065

 

 

$

1,061,793

 

 

$

 

Subordinated debentures

 

 

84,881

 

 

 

83,707

 

 

 

 

 

 

83,707

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2020

 

 

 

 

 

 

 

(In Thousands)

 

 

 

Carrying

Value

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

159,266

 

 

$

159,266

 

 

$

159,266

 

 

$

 

 

$

 

Securities available for sale

 

 

736,654

 

 

 

736,654

 

 

 

 

 

 

736,654

 

 

 

 

Equity securities

 

 

1,090

 

 

 

1,090

 

 

 

1,090

 

 

 

 

 

 

 

Federal Home Loan Bank Stock

 

 

16,026

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans receivable, net

 

 

5,409,161

 

 

 

5,412,814

 

 

 

 

 

 

 

 

 

5,412,814

 

Loans held for sale, carried at fair value

 

 

221,616

 

 

 

221,616

 

 

 

 

 

 

98,587

 

 

 

123,029

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

6,047,841

 

 

$

6,056,426

 

 

$

4,925,411

 

 

$

1,131,015

 

 

$

 

Subordinated debentures

 

 

84,860

 

 

 

83,237

 

 

 

 

 

 

 

 

 

83,237

 

 

17


 

 

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 or the UCFC 2015 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.  The UCFC 2015 Plan had 126,758 Premier common shares available for issuance immediately after the effective time of the Merger.    

As of March 31, 2021, 35,661 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.

The Company has approved a Short-Term Incentive Plan (“STIP”) and a Long-Term Equity Incentive Plan (“LTIP”) for selected members of management.  There are two types of LTIP awards: an Executive LTIP and a Key LTIP.

Under the STIPs, the participants can earn a cash payout.  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.

Under each Executive LTIP, the participants may earn between 20% to 50% 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 granted 86,058 performance stock units to the participants for the 2021 Executive LTIP during the first quarter of 2021.   The amount of benefit under the 2020 and 2021 Executive LTIPs will be determined individually at the end of the 36 month performance period ending December 31. The benefits earned under these LTIPs 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.  

Under each Key LTIP, the participants are granted shares based upon the achievement of certain targets in the prior year.  The participants can earn from 5% to 10% of their salary in restricted stock units that vest three years from the date of grant.  The Company granted 17,542 RSU’s in the first quarter of 2021 under the 2021 Key LTIP.

In the three months ending March 31, 2021, the Company also granted 3,122 discretionary RSUs that vest three years from the date of grant and 13,708 restricted stock grants.  Of the 13,708 restricted stock grants, all were issued to directors and have a one-year vesting period.  The fair value of all granted restricted shares was determined by the stock price at the date of the grant.

18


 

Following is stock option activity under the plans during the three months ended March 31, 2021:

 

 

 

Options

Outstanding

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term (in years)

 

 

Aggregate

Intrinsic

Value

(in 000’s)

 

Options outstanding, January 1, 2021

 

 

36,261

 

 

$

21.59

 

 

 

 

 

 

 

 

 

Forfeited or cancelled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(600

)

 

 

13.80

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding, March 31, 2021

 

 

35,661

 

 

$

21.72

 

 

 

5.57

 

 

$

411

 

Exercisable at March 31, 2021

 

 

35,661

 

 

$

21.72

 

 

 

5.57

 

 

$

411

 

 

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

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Proceeds of options exercised

 

$

8

 

 

$

 

Related tax benefit recognized

 

 

 

 

 

 

Intrinsic value of options exercised

 

 

11

 

 

 

 

 

At March 31, 2021, 176,949 PSUs, 46,324 RSUs and 34,416 restricted stock grants were unvested. Compensation expense related to PSUs, RSUs, restricted stock grants and the STIP is recognized over the performance period based on the achievements of targets as established under the plan documents or according to a vesting schedule. Total expense of $1.0 million was recorded during each of the three months ended March 31, 2021 and 2020.  There was approximately $2.3 million and $3.2 million included within other liabilities at March 31, 2021, and December 31, 2020, respectively, related to the STIP.

 

 

 

Performance Stock Units

 

 

Restricted Stock Units

 

 

Restricted Stock Grants

 

Unvested Shares

 

Shares

 

 

Weighted-

Average

Grant Date

Fair Value

 

 

Shares

 

 

Weighted-

Average

Grant Date

Fair Value

 

 

Shares

 

 

Weighted-

Average

Grant Date

Fair Value

 

Unvested at January 1, 2021

 

 

90,891

 

 

$

26.48

 

 

 

55,759

 

 

$

25.18

 

 

 

41,057

 

 

$

26.93

 

Granted

 

 

86,058

 

 

 

30.32

 

 

 

20,664

 

 

 

29.11

 

 

 

13,708

 

 

 

29.37

 

Vested

 

 

 

 

 

 

 

 

(30,099

)

 

 

26.15

 

 

 

(20,349

)

 

 

26.75

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested at March 31, 2021

 

 

176,949

 

 

$

28.35

 

 

 

46,324

 

 

$

26.29

 

 

 

34,416

 

 

$

28.01

 

 

The maximum amount of compensation expense that may be earned for the PSUs at March 31, 2021, is approximately $4.9 million in the aggregate.  However, the estimated expense that is expected to be earned as

19


 

of March 31, 2021, is $3.3 million of which $2.4 million is unrecognized at March 31, 2021, and will be recognized over the remaining performance periods.

5.

Dividends on Common Stock

Premier declared and paid a $0.24 per common stock dividend in the first quarter of 2021 and declared and paid a $0.22 per common stock dividend in the first quarter of 2020.  

6.

Earnings (Loss) Per Common Share

Basic earnings (loss) per share are calculated using the two-class method. The two-class method is an earnings allocation formula under which earnings (loss) 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 (losses) 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.

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

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In Thousands, except per share data)

 

Basic Earnings (Loss) Per Share:

 

 

 

 

 

 

 

 

Net income (loss) available to common shareholders

 

$

40,996

 

 

$

(22,482

)

Less: income (loss) allocated to participating securities

 

 

43

 

 

 

(39

)

Net income (loss) allocated to common shareholders

 

 

40,953

 

 

 

(22,443

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding including

   participating securities

 

 

37,332

 

 

 

31,721

 

Less: Participating securities

 

 

39

 

 

 

55

 

Average common shares

 

 

37,293

 

 

 

31,666

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

$

1.10

 

 

$

(0.71

)

Diluted Earnings (Loss) Per Share:

 

 

 

 

 

 

 

 

Net income (loss) allocated to common shareholders

 

$

40,953

 

 

$

(22,443

)

Weighted average common shares outstanding for basic earnings (loss)

   per common share

 

 

37,293

 

 

 

31,666

 

Add: Dilutive effects of stock options and restricted stock units

 

 

64

 

 

 

 

Average shares and dilutive potential common shares

 

 

37,357

 

 

 

31,666

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

$

1.10

 

 

$

(0.71

)

 

 

There were 0 shares for the three month period ending March 31, 2021 that were excluded from the diluted earnings per common share calculation as no shares were anti-dilutive during this period.  Since net income allocated to common shareholders was negative for the quarter ended March 31, 2020, there was 0 dilutive effect from stock options or restricted stock units included in the diluted (loss) per common share calculation.     

 

20


 

 

 

 

 

 

 

 

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 March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

38,868

 

 

$

771

 

 

$

(846

)

 

$

38,793

 

Mortgage-backed securities

 

 

243,126

 

 

 

3,284

 

 

 

(3,388

)

 

 

243,022

 

Collateralized mortgage obligations

 

 

109,552

 

 

 

1,225

 

 

 

(550

)

 

 

110,227

 

Asset-backed securities

 

 

191,788

 

 

 

484

 

 

 

(359

)

 

 

191,913

 

Corporate bonds

 

 

55,049

 

 

 

524

 

 

 

(315

)

 

 

55,258

 

Obligations of state and political subdivisions

 

 

280,743

 

 

 

6,051

 

 

 

(7,417

)

 

 

279,377

 

Total Available-for-Sale

 

$

919,126

 

 

$

12,339

 

 

$

(12,875

)

 

$

918,590

 

 

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, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

39,233

 

 

$

1,707

 

 

$

 

 

$

40,940

 

Mortgage-backed securities

 

 

270,683

 

 

 

6,746

 

 

 

(247

)

 

 

277,182

 

Collateralized mortgage obligations

 

 

103,532

 

 

 

2,927

 

 

 

(160

)

 

 

106,299

 

Asset-backed securities

 

 

30,643

 

 

 

1

 

 

 

(98

)

 

 

30,546

 

Corporate bonds

 

 

43,826

 

 

 

489

 

 

 

(146

)

 

 

44,169

 

Obligations of state and political subdivisions

 

 

229,645

 

 

 

8,069

 

 

 

(196

)

 

 

237,518

 

Total Available-for-Sale

 

$

717,562

 

 

$

19,939

 

 

$

(847

)

 

$

736,654

 

 

The amortized cost and fair value of the investment securities portfolio at March 31, 2021, 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”), CMOs and asset-backed securities (“ABS”), which are not due at a single maturity date, have not been allocated over the maturity groupings. These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

 

21


 

 

  

 

Available-for-Sale

 

 

 

Amortized

Cost

 

 

Fair Value

 

 

 

(In Thousands)

 

Due in one year or less

 

$

5,853

 

 

$

5,869

 

Due after one year through five years

 

 

29,787

 

 

 

30,284

 

Due after five years through ten years

 

 

93,585

 

 

 

95,386

 

Due after ten years

 

 

245,435

 

 

 

241,889

 

MBS/CMO/ABS

 

 

544,466

 

 

 

545,162

 

 

 

$

919,126

 

 

$

918,590

 

 

Investment securities with a carrying amount of $388.9 million at March 31, 2021, were pledged as collateral on public deposits.

The following tables summarize Premier’s securities that were in an unrealized loss position at March 31, 2021, and December 31, 2020:

 

 

 

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 March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

9,520

 

 

$

(846

)

 

$

-

 

 

$

-

 

 

$

9,520

 

 

$

(846

)

Mortgage-backed securities

 

 

152,648

 

 

 

(3,388

)

 

 

 

 

 

 

 

 

152,648

 

 

 

(3,388

)

Collateralized mortgage obligations

 

 

26,477

 

 

 

(550

)

 

 

 

 

 

 

 

 

26,477

 

 

 

(550

)

Asset-backed securities

 

 

76,023

 

 

 

(359

)

 

 

 

 

 

 

 

 

76,023

 

 

 

(359

)

Corporate bonds

 

 

24,995

 

 

 

(256

)

 

 

2,528

 

 

 

(59

)

 

 

27,523

 

 

 

(315

)

Obligations of state and political subdivisions

 

 

132,120

 

 

 

(7,417

)

 

 

 

 

 

 

 

 

132,120

 

 

 

(7,417

)

Total available-for-sale

 

$

421,783

 

 

$

(12,816

)

 

$

2,528

 

 

$

(59

)

 

$

424,311

 

 

$

(12,875

)

 

 

 

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, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities-residential

 

$

26,361

 

 

$

(247

)

 

$

 

 

$

 

 

$

26,361

 

 

$

(247

)

Collateralized mortgage obligations

 

 

5,161

 

 

 

(160

)

 

 

 

 

 

 

 

 

5,161

 

 

 

(160

)

Asset-backed securities

 

 

18,439

 

 

 

(98

)

 

 

 

 

 

 

 

 

18,439

 

 

 

(98

)

Corporate bonds

 

 

12,177

 

 

 

(146

)

 

 

 

 

 

 

 

 

12,177

 

 

 

(146

)

Obligations of state and political subdivisions

 

 

41,088

 

 

 

(196

)

 

 

 

 

 

 

 

 

41,088

 

 

 

(196

)

Total available-for-sale

 

$

103,226

 

 

$

(847

)

 

$

 

 

$

 

 

$

103,226

 

 

$

(847

)

 

The Company realized gains from the sale of available-for-sale securities totaling $516,000 in the three month period ending March 31, 2021.  For the three months ended March 31, 2020, the Company had 0 gains or losses from the sale of available-for-sale securities.   

 

22


 

 

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 in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.

 

If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using a DCF analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss the Company records will be limited to the amount by which the amortized cost exceeds the fair value.  As of March 31, 2021, management had determined that no credit loss exists.  

 

At March 31, 2021 and December 31, 2020, the Company held preferred and common stock of various bank holding companies totaling $13.8 million and $1.1 million, respectively.  During the three months ended March 31, 2021, $1.6 million of unrealized gains were recorded within Gain on equity securities on the Consolidated Condensed Statements of Income. During the three months ended March 31, 2020, there were 0 unrealized gains or losses recognized.  

 

 

23


 

 

8.

Loans

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

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(In Thousands)

 

Real Estate:

 

 

 

 

 

 

 

 

Residential

 

$

1,168,559

 

 

$

1,201,051

 

Commercial

 

 

2,402,067

 

 

 

2,383,001

 

Construction

 

 

749,190

 

 

 

667,649

 

 

 

 

4,319,816

 

 

 

4,251,701

 

Other Loans:

 

 

 

 

 

 

 

 

Commercial

 

 

1,172,910

 

 

 

1,202,353

 

Home equity and improvement

 

 

257,764

 

 

 

272,701

 

Consumer finance

 

 

117,539

 

 

 

120,729

 

 

 

 

1,548,213

 

 

 

1,595,783

 

Loans before deferred loan origination fees and costs

 

 

5,868,029

 

 

 

5,847,484

 

Deduct:

 

 

 

 

 

 

 

 

Undisbursed construction loan funds

 

 

(405,983

)

 

 

(355,065

)

Net deferred loan origination fees and costs

 

 

(2,363

)

 

 

(1,179

)

Allowance for credit losses

 

 

(74,754

)

 

 

(82,079

)

Total loans

 

$

5,384,929

 

 

$

5,409,161

 

 

 

 

 

 

 

 

 

 

The Company has responded to the pandemic in numerous ways, including by actively participating in the Paycheck Protection Program (“PPP”) and distributing over $600 million to small businesses in our markets.  As of March 31, 2021, the company had $443.8 million in PPP loans, which remained unpaid and were included in other commercial loans in the above loan table. 

The following table discloses allowance for credit loss (“ACL”) activity for the three months ended March 31, 2021 and 2020 by portfolio segment (in thousands):  

 

Three Months Ended

March 31, 2021

 

1-4 Family

Residential

Real

Estate

 

 

Commercial

Real Estate

 

 

Construction

 

 

Commercial

 

 

Home Equity

and

Improvement

 

 

Consumer

Finance

 

 

Total

 

Beginning Allowance

 

$

17,534

 

 

$

43,417

 

 

$

2,741

 

 

$

11,665

 

 

$

4,739

 

 

$

1,983

 

 

$

82,079

 

Charge-Offs

 

 

 

 

 

 

 

 

 

 

 

(70

)

 

 

(3

)

 

 

(36

)

 

 

(109

)

Recoveries

 

 

8

 

 

 

36

 

 

 

 

 

 

198

 

 

 

29

 

 

 

27

 

 

 

298

 

Provisions

 

 

(34

)

 

 

(8,181

)

 

 

35

 

 

 

398

 

 

 

416

 

 

 

(148

)

 

 

(7,514

)

Ending Allowance

 

$

17,508

 

 

$

35,272

 

 

$

2,776

 

 

$

12,191

 

 

$

5,181

 

 

$

1,826

 

 

$

74,754

 

 

 

 

 

24


 

 

Three Months Ended

March 31, 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

 

 

(184

)

 

 

(16

)

 

 

 

 

 

(96

)

 

 

(30

)

 

 

(108

)

 

 

(434

)

Recoveries

 

 

101

 

 

 

340

 

 

 

 

 

 

669

 

 

 

42

 

 

 

60

 

 

 

1,212

 

Provisions(1)

 

 

17,698

 

 

 

18,154

 

 

 

111

 

 

 

2,316

 

 

 

2,515

 

 

 

2,992

 

 

 

43,786

 

Ending Allowance

 

$

23,324

 

 

$

42,515

 

 

$

884

 

 

$

11,901

 

 

$

3,954

 

 

$

3,281

 

 

$

85,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                    (1)   Provision for the three months ended March 31, 2020, includes $25.9 million as a result of the Merger with UCFC.

 

 

 

 

 

 

 

 

 

 

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of March 31, 2021 and December 31, 2020 (in thousands):

 

 

 

March 31, 2021

 

 

 

Real Estate

 

 

Equipment and Machinery

 

 

Inventory and Receivables

 

 

Vehicles

 

 

Total

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,008

 

 

$

 

 

$

 

 

$

 

 

$

1,008

 

Commercial

 

 

30,419

 

 

 

 

 

 

 

 

 

 

 

 

30,419

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

2,530

 

 

 

672

 

 

 

6,613

 

 

 

33

 

 

 

9,848

 

Home equity and improvement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

33,957

 

 

$

672

 

 

$

6,613

 

 

$

33

 

 

$

41,275

 

 

 

 

December 31, 2020

 

 

 

Real Estate

 

 

Equipment and Machinery

 

 

Inventory and Receivables

 

 

Vehicles

 

 

Total

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,024

 

 

$

 

 

$

 

 

$

 

 

$

1,024

 

Commercial

 

 

33,999

 

 

 

 

 

 

 

 

 

 

 

 

33,999

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,426

 

 

 

5,317

 

 

 

4,943

 

 

 

125

 

 

 

11,811

 

Home equity and improvement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

36,449

 

 

$

5,317

 

 

$

4,943

 

 

$

125

 

 

$

46,834

 

 

 

 

25


 

 

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually analyzed loans.  All loans greater than 90 days past due are placed on non-accrual status.  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:

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(In Thousands)

 

Non-accrual loans with reserve

 

$

35,835

 

 

$

35,234

 

Non-accrual loans without reserve

 

$

13,463

 

 

$

16,448

 

Loans over 90 days past due and still accruing

 

 

 

 

 

 

Total non-performing loans

 

 

49,298

 

 

 

51,682

 

Real estate and other assets held for sale

 

 

54

 

 

 

343

 

Total non-performing assets

 

$

49,352

 

 

$

52,025

 

Troubled debt restructuring, still accruing

 

$

6,068

 

 

$

7,173

 

 

 

The following table presents the aging of the amortized cost in past due and non-accrual loans as of March 31, 2021, by class of loans (in thousands):

 

 

 

Current

 

 

30 - 59 days

 

 

60 - 89 days

 

 

90 + days

 

 

Total

Past Due

 

 

Total

Non-

Accrual

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

1,145,380

 

 

 

757

 

 

 

4,624

 

 

 

8,182

 

 

 

13,563

 

 

 

9,197

 

Commercial

 

 

2,381,959

 

 

 

216

 

 

 

574

 

 

 

957

 

 

 

1,747

 

 

 

11,799

 

Construction

 

 

342,379

 

 

 

21

 

 

 

564

 

 

 

243

 

 

 

828

 

 

 

243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,145,483

 

 

 

235

 

 

 

63

 

 

 

389

 

 

 

687

 

 

 

1,686

 

Home equity and improvement

 

 

250,442

 

 

 

727

 

 

 

233

 

 

 

1,647

 

 

 

2,607

 

 

 

2,173

 

Consumer finance

 

 

114,402

 

 

 

878

 

 

 

461

 

 

 

1,577

 

 

 

2,916

 

 

 

1,676

 

PCD

 

 

41,778

 

 

 

728

 

 

 

344

 

 

 

14,440

 

 

 

15,512

 

 

 

22,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

5,421,823

 

 

$

3,562

 

 

$

6,863

 

 

$

27,435

 

 

$

37,860

 

 

$

49,298

 

 

 

 

 

26


 

 

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 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

 

$

1,173,979

 

 

$

433

 

 

$

7,669

 

 

$

9,000

 

 

$

17,102

 

 

$

10,178

 

Commercial

 

 

2,357,909

 

 

 

1,033

 

 

 

369

 

 

 

844

 

 

 

2,246

 

 

 

11,980

 

Construction

 

 

310,152

 

 

 

 

 

 

1,626

 

 

 

806

 

 

 

2,432

 

 

 

806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,172,636

 

 

 

9

 

 

 

4

 

 

 

394

 

 

 

407

 

 

 

1,365

 

Home equity and improvement

 

 

262,373

 

 

 

3,440

 

 

 

839

 

 

 

1,137

 

 

 

5,416

 

 

 

1,537

 

Consumer finance

 

 

117,088

 

 

 

1,687

 

 

 

491

 

 

 

1,521

 

 

 

3,699

 

 

 

1,624

 

PCD

 

 

50,218

 

 

 

402

 

 

 

1,882

 

 

 

13,299

 

 

 

15,583

 

 

 

24,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

5,444,355

 

 

$

7,004

 

 

$

12,880

 

 

$

27,001

 

 

$

46,885

 

 

$

51,682

 

 

 

Troubled Debt Restructurings

As of March 31, 2021, and December 31, 2020, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $12.5 million and $16.6 million, respectively.  The Company allocated $697,000 and $883,000 of specific reserves to those loans at March 31, 2021, and December 31, 2020, respectively, and had committed to lend additional amounts totaling up to $277,000 and $303,000 at March 31, 2021, and December 31, 2020, respectively.

The Company is working with borrowers impacted by the COVID-19 pandemic by providing modifications to include either interest only deferral or principal and interest deferral.  These modifications range from one to nine months.  As of March 31, 2021, the Company had approximately $35.8 million in active deferrals compared to December 31, 2020 at $53.4 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. A modified loan will be considered current and will continue to accrue interest during the deferral period unless repayment of the loan under contractual terms is not expected and thereby loans will be placed in non-accrual.  

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

 

March 31, 2021 Balance deferred

 

December 31, 2020 Balance deferred

 

Residential real estate

$

3,399

 

$

7,016

 

Commercial real estate

 

31,232

 

 

34,831

 

Construction

 

13

 

 

9,579

 

Commercial

 

1,125

 

 

1,628

 

Home equity and improvement

 

-

 

 

114

 

Consumer finance

 

15

 

 

282

 

Total

$

35,784

 

$

53,450

 

The following table is a breakout of commercial deferrals by expiration (in thousands):  

 

27


 

 

Commercial deferral expirations

Balance

 

April

$

25,320

 

May

 

7,050

 

June

 

-

 

July

 

-

 

August

 

-

 

September

 

-

 

Total

$

32,370

 

 

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.

Of the loans modified in a TDR as of March 31, 2021, $6.5 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 months ended March 31, 2021, and March 31, 2020:

 

 

 

Loans Modified as a TDR for the Three

Months Ended March 31, 2021

($ in thousands)

 

Troubled Debt Restructurings

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

Real Estate:

 

 

 

 

 

 

 

 

Residential

 

 

2

 

 

$

150

 

Commercial

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

Commercial

 

 

3

 

 

 

709

 

Home equity and improvement

 

 

 

 

 

 

 

 

Consumer finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

5

 

 

$

859

 

 

28


 

 

The loans described above increased the ACL by $6,000 in the three months ended March 31, 2021.      

 

 

 

Loans Modified as a TDR for the Three

Months Ended March 31, 2020

($ in thousands)

 

Troubled Debt Restructurings

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

Real Estate:

 

 

 

 

 

 

 

 

Residential

 

 

2

 

 

$

378

 

Commercial

 

 

1

 

 

 

93

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

Commercial

 

 

5

 

 

 

156

 

Home equity and improvement

 

 

1

 

 

 

26

 

Consumer finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

9

 

 

$

653

 

 

The loans described above increased the ACL by $29,000 in the three months ended March 31, 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.

There were 0 TDRs that subsequently defaulted as of March 31, 2021.  The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the three months ended March 31, 2020:

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

($ in thousands)

 

Troubled Debt Restructurings That Subsequently Defaulted

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

Real Estate:

 

 

 

 

 

 

 

 

Residential

 

 

3

 

 

$

268

 

Commercial

 

 

1

 

 

 

172

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

Commercial

 

 

1

 

 

 

132

 

Home equity and improvement

 

 

1

 

 

 

146

 

Consumer finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

6

 

 

$

718

 

 

The TDRs that subsequently defaulted described above increased the ACL by $15,000 for the three months ended March 31, 2020.

29


 

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 by 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.

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 March 31, 2021, 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

 

 

1,150,158

 

 

 

1,173

 

 

 

7,612

 

 

 

 

 

 

7,612

 

 

 

1,158,943

 

Commercial

 

 

2,219,717

 

 

 

115,758

 

 

 

48,231

 

 

 

 

 

 

48,231

 

 

 

2,383,706

 

Construction

 

 

321,838

 

 

 

21,126

 

 

 

243

 

 

 

 

 

 

243

 

 

 

343,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,097,603

 

 

 

25,400

 

 

 

23,167

 

 

 

 

 

 

23,167

 

 

 

1,146,170

 

Home equity and improvement

 

 

250,944

 

 

 

 

 

 

2,105

 

 

 

 

 

 

2,105

 

 

 

253,049

 

Consumer finance

 

 

115,639

 

 

 

 

 

 

1,679

 

 

 

 

 

 

1,679

 

 

 

117,318

 

PCD

 

 

23,956

 

 

 

1,748

 

 

 

31,586

 

 

 

 

 

 

31,586

 

 

 

57,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

5,179,855

 

 

$

165,205

 

 

$

114,623

 

 

$

 

 

$

114,623

 

 

$

5,459,683

 

 

 

 

30


 

 

As of December 31, 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

 

 

1,187,923

 

 

 

795

 

 

 

2,363

 

 

 

 

 

 

2,363

 

 

 

1,191,081

 

Commercial

 

 

2,203,652

 

 

 

111,039

 

 

 

45,464

 

 

 

 

 

 

45,464

 

 

 

2,360,155

 

Construction

 

 

299,866

 

 

 

12,718

 

 

 

 

 

 

 

 

 

 

 

 

312,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,142,289

 

 

 

23,907

 

 

 

6,847

 

 

 

 

 

 

6,847

 

 

 

1,173,043

 

Home equity and improvement

 

 

267,350

 

 

 

 

 

 

439

 

 

 

 

 

 

439

 

 

 

267,789

 

Consumer finance

 

 

120,682

 

 

 

 

 

 

105

 

 

 

 

 

 

105

 

 

 

120,787

 

PCD

 

 

26,829

 

 

 

3,813

 

 

 

35,159

 

 

 

 

 

 

35,159

 

 

 

65,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

5,248,591

 

 

$

152,272

 

 

$

90,377

 

 

$

 

 

$

90,377

 

 

$

5,491,240

 

 

 

The tables below presents the amortized cost basis of loans by credit quality indicator and class of loans as of March 31, 2021 and December 31, 2020 (in thousands):

31


 

 

Term of loans by origination

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

24,792

 

 

$

315,724

 

 

$

163,589

 

 

$

114,232

 

 

$

110,887

 

 

$

419,110

 

 

$

1,824

 

 

$

1,150,158

 

Special Mention

 

 

 

 

197

 

 

 

 

 

 

 

 

 

61

 

 

 

222

 

 

 

693

 

 

 

1,173

 

Substandard

 

 

 

 

 

 

 

812

 

 

 

957

 

 

 

816

 

 

 

5,027

 

 

 

 

 

 

7,612

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

24,792

 

 

$

315,921

 

 

$

164,401

 

 

$

115,189

 

 

$

111,764

 

 

$

424,359

 

 

$

2,517

 

 

$

1,158,943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

94,527

 

 

$

524,710

 

 

$

451,219

 

 

$

284,383

 

 

$

279,152

 

 

$

570,348

 

 

$

15,378

 

 

$

2,219,717

 

Special Mention

 

 

 

 

5,992

 

 

 

6,768

 

 

 

13,063

 

 

 

59,870

 

 

 

29,170

 

 

 

895

 

 

 

115,758

 

Substandard

 

 

 

 

439

 

 

 

6,967

 

 

 

16,886

 

 

 

1,106

 

 

 

20,703

 

 

 

2,130

 

 

 

48,231

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

94,527

 

 

$

531,141

 

 

$

464,954

 

 

$

314,332

 

 

$

340,128

 

 

$

620,221

 

 

$

18,403

 

 

$

2,383,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

25,201

 

 

$

121,539

 

 

$

89,755

 

 

$

71,267

 

 

$

10,548

 

 

$

3,528

 

 

$

-

 

 

$

321,838

 

Special Mention

 

 

 

 

6,767

 

 

 

 

 

 

13,302

 

 

 

1,057

 

 

 

 

 

 

 

 

 

21,126

 

Substandard

 

 

 

 

 

 

 

243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

243

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

25,201

 

 

$

128,306

 

 

$

89,998

 

 

$

84,569

 

 

$

11,605

 

 

$

3,528

 

 

$

-

 

 

$

343,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

191,460

 

 

$

431,081

 

 

$

118,396

 

 

$

73,640

 

 

$

35,277

 

 

$

34,149

 

 

$

213,600

 

 

$

1,097,603

 

Special Mention

 

 

 

 

999

 

 

 

5,546

 

 

 

2,363

 

 

 

1,849

 

 

 

5,095

 

 

 

9,548

 

 

 

25,400

 

Substandard

 

100

 

 

 

16,676

 

 

 

1,290

 

 

 

429

 

 

 

812

 

 

 

467

 

 

 

3,393

 

 

 

23,167

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

191,560

 

 

$

448,756

 

 

$

125,232

 

 

$

76,432

 

 

$

37,938

 

 

$

39,711

 

 

$

226,541

 

 

$

1,146,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and Improvement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

4,768

 

 

$

8,419

 

 

$

6,740

 

 

$

4,014

 

 

$

7,113

 

 

$

35,013

 

 

$

184,877

 

 

$

250,944

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

28

 

 

 

52

 

 

 

19

 

 

 

552

 

 

 

1,454

 

 

 

2,105

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

4,768

 

 

$

8,419

 

 

$

6,768

 

 

$

4,066

 

 

$

7,132

 

 

$

35,565

 

 

$

186,331

 

 

$

253,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

8,784

 

 

$

33,962

 

 

$

33,007

 

 

$

16,542

 

 

$

8,571

 

 

$

5,926

 

 

$

8,847

 

 

$

115,639

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

639

 

 

 

696

 

 

 

111

 

 

 

42

 

 

 

164

 

 

 

27

 

 

 

1,679

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

8,784

 

 

$

34,601

 

 

$

33,703

 

 

$

16,653

 

 

$

8,613

 

 

$

6,090

 

 

$

8,874

 

 

$

117,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

-

 

 

$

-

 

 

$

219

 

 

$

2,236

 

 

$

1,907

 

 

$

16,895

 

 

$

2,699

 

 

$

23,956

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,748

 

 

 

 

 

 

1,748

 

Substandard

 

 

 

 

 

 

 

35

 

 

 

90

 

 

 

14,766

 

 

 

10,551

 

 

 

6,144

 

 

 

31,586

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

-

 

 

$

-

 

 

$

254

 

 

$

2,326

 

 

$

16,673

 

 

$

29,194

 

 

$

8,843

 

 

$

57,290

 

 

32


 

 

 

Term of loans by origination

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

250,979

 

 

$

196,158

 

 

$

136,247

 

 

$

130,759

 

 

$

137,581

 

 

$

333,572

 

 

$

2,627

 

 

$

1,187,923

 

Special Mention

 

199

 

 

 

 

 

 

 

 

 

62

 

 

 

116

 

 

 

211

 

 

 

207

 

 

 

795

 

Substandard

 

 

 

 

74

 

 

 

289

 

 

 

252

 

 

 

136

 

 

 

1,612

 

 

 

 

 

 

 

2,363

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

251,178

 

 

$

196,232

 

 

$

136,536

 

 

$

131,073

 

 

$

137,833

 

 

$

335,395

 

 

$

2,834

 

 

$

1,191,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

517,691

 

 

$

457,905

 

 

$

299,072

 

 

$

300,573

 

 

$

198,247

 

 

$

414,082

 

 

$

16,082

 

 

$

2,203,652

 

Special Mention

 

6,014

 

 

 

7,239

 

 

 

10,452

 

 

 

60,712

 

 

 

7,977

 

 

 

17,723

 

 

 

922

 

 

 

111,039

 

Substandard

 

 

 

 

279

 

 

 

18,851

 

 

 

1,937

 

 

 

3,143

 

 

 

19,107

 

 

 

2,147

 

 

 

45,464

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

523,705

 

 

$

465,423

 

 

$

328,375

 

 

$

363,222

 

 

$

209,367

 

 

$

450,912

 

 

$

19,151

 

 

$

2,360,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

101,616

 

 

$

100,553

 

 

$

82,972

 

 

$

11,666

 

 

$

2,911

 

 

$

148

 

 

$

-

 

 

$

299,866

 

Special Mention

 

5,587

 

 

 

 

 

 

7,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,718

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

107,203

 

 

$

100,553

 

 

$

90,103

 

 

$

11,666

 

 

$

2,911

 

 

$

148

 

 

$

-

 

 

$

312,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

568,678

 

 

$

144,977

 

 

$

82,492

 

 

$

42,421

 

 

$

21,262

 

 

$

21,969

 

 

$

260,490

 

 

$

1,142,289

 

Special Mention

 

1,180

 

 

 

2,026

 

 

 

2,514

 

 

 

2,109

 

 

 

37

 

 

 

5,121

 

 

 

10,920

 

 

 

23,907

 

Substandard

 

148

 

 

 

201

 

 

 

497

 

 

 

543

 

 

 

257

 

 

 

269

 

 

 

4,932

 

 

 

6,847

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

570,006

 

 

$

147,204

 

 

$

85,503

 

 

$

45,073

 

 

$

21,556

 

 

$

27,359

 

 

$

276,342

 

 

$

1,173,043

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and Improvement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

8,736

 

 

$

7,483

 

 

$

4,508

 

 

$

7,963

 

 

$

7,748

 

 

$

31,382

 

 

$

199,530

 

 

$

267,350

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

86

 

 

 

353

 

 

 

439

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

8,736

 

 

$

7,483

 

 

$

4,508

 

 

$

7,963

 

 

$

7,748

 

 

$

31,468

 

 

$

199,883

 

 

$

267,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

38,665

 

 

$

37,601

 

 

$

19,401

 

 

$

10,607

 

 

$

4,393

 

 

$

3,272

 

 

$

6,743

 

 

$

120,682

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

98

 

 

 

3

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

105

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

38,665

 

 

$

37,699

 

 

$

19,404

 

 

$

10,607

 

 

$

4,397

 

 

$

3,272

 

 

$

6,743

 

 

$

120,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

-

 

 

$

45

 

 

$

2,378

 

 

$

2,547

 

 

$

1,524

 

 

$

18,998

 

 

$

1,337

 

 

$

26,829

 

Special Mention

 

 

 

 

 

 

 

 

 

 

1,160

 

 

 

509

 

 

 

1,758

 

 

 

386

 

 

 

3,813

 

Substandard

 

 

 

 

 

 

 

 

 

 

14,371

 

 

 

2,502

 

 

 

7,207

 

 

 

11,079

 

 

 

35,159

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

-

 

 

$

45

 

 

$

2,378

 

 

$

18,078

 

 

$

4,535

 

 

$

27,963

 

 

$

12,802

 

 

$

65,801

 

33


 

 

 

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, 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, TDR status or if the loan has had a charge-off.  The PD/LGD utilizes charge off data from the Federal Financial Institutions Examination Council to construct a default rate.  This default rate is further segmented based on the risk of the credit assigning a higher default rate to riskier credits.  

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

The remaining life method was selected for the consumer 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.  

 

 

34


 

 

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 March 31, 2021, the Company had $1.4 billion in unfunded commitments and set aside $6.0 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

35


 

As a result of the Merger, the Company acquired $2.2 billion in loans.  Par value of purchased loans follows (in thousands):

 

 

 

2020

 

 

Par value of acquired loans at acquisition

 

$

2,247,317

 

 

Credit discount

 

 

(34,610

)

 

Non-credit (discount)/premium at acquisition

 

 

8,497

 

 

Purchase price of loans at acquisition

 

$

2,221,204

 

 

 

Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit, they are accounted for as PCD. PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. 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 and related allowance on these loans as of March 31, 2021 and December 31, 2020 is as follows (in thousands):

 

 

As of March 31, 2021

 

 

As of December 31, 2020

 

 

Loan Balance

 

 

ACL Balance

 

 

Loan Balance

 

 

ACL Balance

 

 

(In Thousands)

 

 

(In Thousands)

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

$

14,418

 

 

$

278

 

 

$

14,895

 

 

$

201

 

Commercial

 

21,380

 

 

 

2,098

 

 

 

24,334

 

 

 

2,286

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

35,798

 

 

 

2,376

 

 

 

39,229

 

 

 

2,487

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

15,962

 

 

 

2,149

 

 

 

20,990

 

 

 

1,896

 

Home equity and improvement

 

4,715

 

 

 

235

 

 

 

4,912

 

 

 

214

 

Consumer finance

 

815

 

 

 

15

 

 

 

670

 

 

 

20

 

 

 

21,492

 

 

 

2,399

 

 

 

26,572

 

 

 

2,130

 

Total

$

57,290

 

 

$

4,775

 

 

$

65,801

 

 

$

4,617

 

 

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $835,000 as of March 31, 2021, and $784,000 as of December 31, 2020.  

36


 

9.

Mortgage Banking

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

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In Thousands)

 

Gain from sale of mortgage loans

 

$

5,640

 

 

$

4,902

 

Mortgage loans servicing revenue (expense):

 

 

 

 

 

 

 

 

Mortgage loans servicing revenue

 

 

1,917

 

 

 

1,594

 

Amortization of mortgage servicing rights

 

 

(2,344

)

 

 

(1,163

)

Mortgage servicing rights valuation adjustments

 

 

5,320

 

 

 

(4,485

)

 

 

 

4,893

 

 

 

(4,054

)

 

 

 

 

 

 

 

 

 

Net revenue from sale and servicing of mortgage loans

 

$

10,533

 

 

$

848

 

 

The unpaid principal balance of residential mortgage loans serviced for third parties was $2.9 billion at March 31, 2021, and $3.0 billion at December 31, 2020.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three months ended March 31, 2021 and 2020:

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In Thousands)

 

Mortgage servicing assets:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

21,666

 

 

$

10,801

 

Loans sold, servicing retained

 

 

2,374

 

 

 

1,376

 

Mortgage servicing rights acquired

 

 

 

 

 

9,747

 

Amortization

 

 

(2,344

)

 

 

(1,163

)

Carrying value before valuation allowance at end of period

 

 

21,696

 

 

 

20,761

 

 

 

 

 

 

 

 

 

 

Valuation allowance:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(8,513

)

 

 

(534

)

Impairment recovery (charges)

 

 

5,320

 

 

 

(4,485

)

Balance at end of period

 

 

(3,193

)

 

 

(5,019

)

Net carrying value of MSRs at end of period

 

$

18,503

 

 

$

15,742

 

Fair value of MSRs at end of period

 

$

18,695

 

 

$

16,105

 

 

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 no accrual for secondary market buy-back activity at March 31, 2021 based on management’s estimate of potential losses from this activity.  A liability of $43,000 was accrued at December 31, 2020.  The Company recognized a credit of $43,000 related to the reduction of the accrual in the three months ended March 31, 2021.  There was 0 expense or credit recognized in the three months ended March 31, 2020.  

37


 

10.

Leases

The Company’s lease agreements have maturity dates ranging from April 2021 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 14.84 years as of March 31, 2021 and 15.09 years as of December 31, 2020.  The weighted average discount rate for leases was 2.59% as of March 31, 2021 and 2.61% as of December 31, 2020.

The total operating lease costs were $664,000 for the three months ended March 31, 2021, and $517,000 for the three months ended March 31, 2020. The right-of-use asset, included in other assets, was $16.9 million and $16.9 million at March 31, 2021 and December 31, 2020, respectively.  The lease liabilities, included in other liabilities, were $17.7 million and $17.8 million as of March 31, 2021 and December 31, 2020, respectively.

 

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

 

(in thousands)

 

March 31, 2021

 

2021

 

$

1,764

 

2022

 

 

2,020

 

2023

 

 

1,638

 

2024

 

 

1,412

 

2025

 

 

1,259

 

Thereafter

 

 

13,761

 

     Total undiscounted minimum lease payments

 

$

21,854

 

Present value adjustment

 

 

(4,132

)

     Total lease liabilities

 

$

17,722

 

 

 

11.

Deposits

A summary of deposit balances is as follows:

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(In Thousands)

 

Non-interest-bearing checking accounts

 

$

1,728,895

 

 

$

1,597,262

 

Interest-bearing checking and money market accounts

 

 

2,806,271

 

 

 

2,627,669

 

Savings deposits

 

 

761,899

 

 

 

700,480

 

Retail certificates of deposit less than $250,000

 

 

842,624

 

 

 

912,006

 

Retail certificates of deposit greater than $250,000

 

 

212,230

 

 

 

210,424

 

 

 

$

6,351,919

 

 

$

6,047,841

 

 

38


 

 

12.

Borrowings

Premier had 0 FHLB advances outstanding at either March 31, 2021 or December 31, 2020.  Premier’s junior subordinated debentures owed to unconsolidated subsidiary trusts and subordinated debentures are comprised of the following:

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(In Thousands)

 

Junior subordinated debentures owed to unconsolidated subsidiary trusts

 

$

36,083

 

 

$

36,083

 

Subordinated debentures

 

 

48,798

 

 

 

48,777

 

 

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

 

In March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (“Trust Affiliate II”) that issued $15.0 million of Guaranteed Capital Trust Securities (“Trust Preferred Securities”). In connection with this transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures (Subordinated Debentures) to Trust Affiliate II. The Company formed Trust Affiliate II for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Subordinated Debentures held by Trust Affiliate II are the sole assets of that trust. The Company is not considered the primary beneficiary of Trust Affiliate II (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.  Distributions on the Trust Preferred Securities issued by Trust Affiliate II are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.5%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate II was 1.68% as of March 31, 2021, and 1.72% as of December 31, 2020.

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.

39


 

The Trust Preferred Securities and Subordinated Debentures mature on September 15, 2037, but can be redeemed at the Company’s option at any time now.

The Company also sponsored an affiliated trust, First Defiance Statutory Trust I (“Trust Affiliate I”) that issued $20.0 million of Trust Preferred Securities in 2005. In connection with this transaction, the Company issued $20.6 million of Subordinated Debentures to Trust Affiliate I. Trust Affiliate I was formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Junior Debentures held by Trust Affiliate I are the sole assets of the trust. The Company is not considered the primary beneficiary of Trust Affiliate I (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.  Distributions on the Trust Preferred Securities issued by Trust Affiliate I are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.38%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate I was 1.56% and 1.60% on March 31, 2021 and December 31, 2020, respectively.

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

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

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

 

 

13.

Commitments, Guarantees and Contingent Liabilities

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

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

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Commitments to make loans

 

$

773,625

 

 

$

702,103

 

Unused lines of credit

 

 

927,333

 

 

 

918,470

 

Standby letters of credit

 

 

23,268

 

 

 

22,250

 

Total

 

$

1,724,226

 

 

$

1,642,823

 

 

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

40


 

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 and West Virginia. The Company is no longer subject to examination by taxing authorities for years before 2017. The Company currently operates primarily in the states of Ohio, Michigan and Pennsylvania which tax financial institutions based on their equity rather than their income.

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

 

For the Three Months Ended March 31,

 

 

2021

 

 

2020

 

 

(In Thousands)

 

Current:

 

 

 

 

 

 

 

Federal

$

6,362

 

 

$

(5,140

)

State and local

 

163

 

 

 

75

 

Deferred

 

3,427

 

 

 

(545

)

 

$

9,952

 

 

$

(5,610

)

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

 

 

For the Three Months Ended March 31,

 

 

2021

 

 

2020

 

 

(In Thousands)

 

Tax expense (benefit) at statutory rate (21%)

$

10,699

 

 

$

(5,899

)

Increases (decreases) in taxes from:

 

 

 

 

 

 

 

State income tax - net of federal tax benefit

 

128

 

 

 

59

 

Tax exempt interest income, net of TEFRA

 

(200

)

 

 

(198

)

Bank owned life insurance

 

(245

)

 

 

(164

)

Captive insurance

 

(90

)

 

 

(92

)

Other

 

(340

)

 

 

684

 

Totals

$

9,952

 

 

$

(5,610

)

 

  

41


 

 

15.

Derivative Financial Instruments

At March 31, 2021, the Company had approximately $133.8 million of interest rate lock commitments and $322.0 million of forward sales of mortgage backed securities.  These commitments are considered derivatives.  The Company had $135.7 million of interest rate lock commitments and $265.0 million of forward commitments at December 31, 2020.   

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

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Assets

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Carrying

 

 

 

Value

 

 

Value

 

 

 

(In Thousands)

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

Mortgage Banking Derivatives

 

$

7,957

 

 

$

3,833

 

 

The table below provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments.  The difference in derivative carrying value at March 31, 2021 and 2020 represents a fair value adjustment that runs through mortgage banking income.

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In Thousands)

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

Mortgage Banking Derivatives – Gain (Loss)

 

$

4,124

 

 

$

471

 

 

Interest Rate Swaps

 

The Company maintains an interest rate protection program for commercial loan customers that were 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 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 $87.2 million and fair value of $406,000 in other assets and $375,000 in other liabilities at March 31, 2021.  As of December 31, 2020, the Company had interest rate swaps associated with commercial loans with a notional value of $87.8 million and fair value of $1.9 million in other assets and $2.0 million in other liabilities.  The difference in fair value of $31,000 between the asset and liability at March 31, 2021 represents a credit valuation adjustment that flows through noninterest income.  For the three months ended March 31, 2021 and 2020, $198,000 and $(108,000) flowed through noninterest income.

 

Equity Linked Time Deposit

  

42


 

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 March 31, 2021 and December 31, 2020, the balance of the equity linked time deposits was $3.2 million and $5.7 million, respectively, and the written and purchased options each had a fair value of $59,000 and $56,000, respectively.

16.

Other Comprehensive (Loss) Income  

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

 

 

 

Before Tax

Amount

 

 

Tax (Expense)

Benefit

 

 

Net of Tax

Amount

 

 

 

(In Thousands)

 

Three months ended March 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss during the period

 

$

(19,112

)

 

$

4,014

 

 

$

(15,098

)

Reclassification adjustment for net gains included in net income

 

 

(516

)

 

 

108

 

 

 

(408

)

Total other comprehensive loss

 

$

(19,628

)

 

$

4,122

 

 

$

(15,506

)

 

 

 

Before Tax

Amount

 

 

Tax (Expense)

Benefit

 

 

Net of Tax

Amount

 

 

 

(In Thousands)

 

Three months ended March 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/loss during the period

 

$

9,458

 

 

$

(1,985

)

 

$

7,473

 

Reclassification adjustment for net gains included in net income

 

 

 

 

 

 

 

 

 

Total other comprehensive loss

 

$

9,458

 

 

$

(1,985

)

 

$

7,473

 

 

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, 2021

 

$

15,083

 

 

$

(79

)

 

$

15,004

 

Other comprehensive income/(loss)  before reclassifications

 

 

(15,098

)

 

 

 

 

 

(15,098

)

Amounts reclassified from accumulated other comprehensive income

 

 

(408

)

 

 

 

 

 

(408

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net other comprehensive income/(loss) during period

 

 

(15,506

)

 

 

 

 

 

(15,506

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2021

 

$

(423

)

 

$

(79

)

 

$

(502

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 1, 2020

 

$

4,839

 

 

$

(244

)

 

$

4,595

 

Other comprehensive income (loss) before reclassifications

 

 

7,473

 

 

 

 

 

 

7,473

 

Amounts reclassified from accumulated other comprehensive income

 

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net other comprehensive income during period

 

 

7,473

 

 

 

 

 

 

7,473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2020

 

$

12,312

 

 

$

(244

)

 

$

12,068

 

43


 

 

 

 

 

17.

Business Combinations

 

The Merger became effective January 31, 2020.  Immediately following the Merger, Home Savings was merged with and into the Bank, with the Bank surviving.  In addition, UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC, and United American Financial Services, Inc., each merged with and into First Insurance. 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.  

 

In accordance with ASC 805, the Company expensed approximately $11.5 million of direct acquisition costs during the three months ended March 31, 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.

 

44


 

 

 

 

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

 

 

35,943

 

Deposits - Non-Interest Bearing

 

 

(430,921

)

Deposits - Interest Bearing

 

 

(1,651,669

)

Advances from FHLB

 

 

(381,000

)

Accrued Interest Payable and Other Liabilities

 

 

(60,524

)

Total Identifiable Net Assets

 

 

309,564

 

 

 

 

 

 

Goodwill

 

$

217,879

 

 

 

 

 

 

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 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.

 

 

45


 

 

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

Forward-Looking Information

 

This quarterly report, as well as other publicly available documents, including those incorporated herein by reference, may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 B of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Those statements may include, but are not limited to, all statements regarding intent, beliefs, expectations, projections, forecasts and plans of Premier Financial Corp. (“Premier” or the “Company”) and its management, and specifically include statements regarding: changes in economic conditions; the nature, extent and timing of governmental actions and reforms; future movements of interest rates; the ability to benefit from a changing interest rate environment; the production levels of mortgage loan generation; the ability to continue to grow loans and deposits; the ability to sustain credit quality ratios at current or improved levels; continued strength in Premier’s market area; the ability to sell real estate owned properties; and the ability to grow in existing and adjacent markets. These forward-looking statements involve numerous risks and uncertainties, including, but not limited to: impacts from the novel coronavirus (“COVID-19”) pandemic on our business, operations, customers and capital position; higher default rates on loans made to our customers related to COVID-19 and its impact on our customers’ operations and financial condition; the impact of COVID-19 on local, national and global economic conditions; unexpected changes in interest rates or disruptions in the mortgage market related to COVID-19 or responses to the health crisis; the effects of various governmental responses to the COVID-19 pandemic; risks and uncertainties inherent in general and local banking, insurance and mortgage conditions; political uncertainty caused by, among other things, political parties and tensions surrounding the current socioeconomic landscape; competitive factors specific to markets in which Premier and its subsidiaries operate; future interest rate levels; legislative and regulatory decisions or capital market conditions; and other risks and uncertainties detailed from time to time in our Securities and Exchange Commission (“SEC”) filings, including our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). One or more of these factors have affected or could in the future affect Premier’s business and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore, there can be no assurances that the forward-looking statements included in this quarterly report, as well as other publicly available documents, including those incorporated herein by reference, will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by Premier or any other persons that our objectives and plans will be achieved. All forward-looking statements made in this quarterly report are based on information presently available to the management of Premier and speak only as of the date on which they are made. We assume no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.

Non-GAAP Financial Measures

In addition to results presented in accordance with accounting principles generally accepted in the United States (“GAAP”), this report includes non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying performance and trends of the Company. The Company monitors the non-GAAP financial measures and the Company’s management believes they are helpful to investors because they provide an additional tool to use in evaluating the Company’s financial and business trends and operating results. In addition, the Company’s management uses these non-GAAP measures to compare the Company’s performance to that of prior periods for trend analysis and for budgeting and planning purposes. Fully taxable-equivalent (“FTE”) is an adjustment to net interest income to reflect tax-exempt income on an equivalent before-tax basis.  

46


 

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

The following tables present a reconciliation of non-GAAP measures to their respective GAAP measures for the three and three month periods ended March 31, 2021 and 2020.

Non-GAAP Financial Measures – Net Interest Income on an FTE basis, Net Interest Margin and Efficiency Ratio

 

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In Thousands)

 

Net interest income (GAAP)

 

$

56,513

 

 

$

45,463

 

Add: FTE adjustment

 

 

237

 

 

 

251

 

Net interest income on a FTE basis (1)

 

$

56,750

 

 

$

45,714

 

 

 

 

 

 

 

 

 

 

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

 

$

24,149

 

 

$

13,999

 

Non-interest expense (3)

 

 

38,803

 

 

 

42,310

 

Average interest-earning assets

 

 

6,611,343

 

 

 

4,862,532

 

 

 

 

 

 

 

 

 

 

Ratios:

 

 

 

 

 

 

 

 

Net interest margin (1) / (4)

 

 

3.43

%

 

 

3.78

%

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

 

 

47.96

%

 

 

70.86

%

 

Critical Accounting Policies

The Company has established various accounting policies which govern the application of GAAP in the preparation of its financial statements. The significant accounting policies of the Company are described in the footnotes to the consolidated financial statements included in the 2020 Form 10-K and in Footnote 2 of this report. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. Those policies which are identified and discussed in detail in the 2020 Form 10-K and in Footnote 2 of this report include the Allowance for Credit Losses, Goodwill, and the Valuation of Mortgage Servicing Rights.

 

General

Premier is a financial holding company that conducts business through its wholly-owned subsidiaries, Premier Bank (the “Bank”), First Insurance Group of the Midwest, Inc. (“First Insurance”), First Defiance Risk Management Inc. (“First Defiance Risk Management”) and HSB Capital, LLC (HSB Capital”).  Another subsidiary, HSB Insurance, Inc. (“HSB Insurance”), was dissolved during the quarter ended September 30, 2020.  

47


 

On January 31, 2020, Premier completed its previously announced acquisition of United Community Financial Corp., an Ohio corporation (“UCFC”), pursuant to that certain 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.  The Company acquired two additional subsidiaries in the Merger, HSB Capital and HSB Insurance.

The Bank is an Ohio state-chartered bank headquartered in Youngstown, Ohio. It conducts operations through 75 banking center offices, 12 loan offices and serves clients through a team of wealth professionals.  These operations are located in Ohio, Michigan, Indiana, Pennsylvania and West Virginia.  

The Bank provides a broad range of financial services including checking accounts, savings accounts, certificates of deposit, real estate mortgage loans, commercial loans, consumer loans, home equity loans and trust and wealth management services through its extensive branch network.

HSB Capital was formed as an Ohio limited liability company by UCFC in 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 a wholly-owned subsidiary of the Company. First Insurance is an insurance agency that conducts business throughout the Company’s markets.  First Insurance offers property and casualty insurance, life insurance and group health insurance.

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.

Regulation – The Company is subject to regulation, examination and oversight by the Federal Reserve Board (“Federal Reserve”) and the SEC.  The Bank is subject to regulation, examination and oversight by the Federal Deposit Insurance Corporation (FDIC) and the Division of Financial Institutions of the Ohio Department of Commerce (ODFI).  In addition, the Bank is subject to regulations of the Consumer Financial Protection Bureau (“CFPB”) which was established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and has broad powers to adopt and enforce consumer protection regulations.  The Company and the Bank must file periodic reports with the Federal Reserve, and examinations are conducted periodically by the Federal Reserve, the FDIC and the ODFI to determine whether the Company and the Bank are in compliance with various regulatory requirements and are operating in a safe and sound manner.

The Company is also subject to various Ohio laws which restrict takeover bids, tender offers and control-share acquisitions involving public companies which have significant ties to Ohio.

48


 

Changes in Financial Condition

At March 31, 2021, the Company's total assets amounted to $7.5 billion compared to $7.2 billion at December 31, 2020.  The increase is primarily attributable to growth in cash and cash equivalents of $144.5 million and growth in securities available for sale of $194.6 million.  Cash and cash equivalents increased to $303.7 million at March 31, 2021 compared to $159.3 million at December 31, 2020.  Deposit growth was the primary reason for the increase in the Company’s cash balances.

Gross loans receivable, excluding loans held for sale, were $5.5 billion at March 31, 2021, compared to $5.5 billion at December 31, 2020.  The $31.6 million decline was primarily due to a decline in one-to-four family residential mortgage loans.  There was $443.8 million of PPP loan balances included in gross loans receivable at March 31, 2021 compared to $386.9 million at December 31, 2020.  The increase in PPP loan balances for this period was offset by a decline in other categories of commercial loans.  Loans held for sale decreased from $221.6 million at December 31, 2020, to $215.9 million at March 31, 2021.  This decrease was primarily due to sales activity.  

Available-for-sale securities increased from $736.7 million at December 31, 2020, to $918.6 million at March 31, 2021, an increase of $181.9 million.  This increase was primarily due to deposit growth being invested in securities that offer a higher yield than what the Company could earn in an interest-bearing deposit.  

The Company held equity securities in the amount of $13.8 million at March 31, 2021, compared to $1.1 million at December 31, 2020.  This portfolio consisted of the common and preferred stocks of various publicly traded bank holding companies, the majority of which are in the Company’s peer group.  

Deposits increased $304.1 million from $6.0 billion at December 31, 2020, to $6.4 billion as of March 31, 2021.  The increase was mainly due to deposits accumulating due to stimulus funds being distributed to customers from the federal government and customer PPP loan proceeds being deposited with the Company.  Non-interest bearing deposits grew $131.6 million for the quarter while interest-bearing deposits grew $172.5 million for the quarter.  

 

Stockholders’ equity increased $15.9 million from $982.3 million at December 31, 2020, to $998.2 million at March 31, 2021. The increase in stockholders’ equity was primarily the result of net income earned for the quarter offset by dividends paid on the Company’s common stock and a decline in accumulated other comprehensive income.  The Company also repurchased 39,200 shares of its common stock during the quarter which totaled $1.1 million.

49


 

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

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

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

Average

 

 

 

 

 

 

Yield/

 

 

Average

 

 

 

 

 

 

Yield/

 

 

 

Balance

 

 

Interest(1)

 

 

Rate(2)

 

 

Balance

 

 

Interest(1)

 

 

Rate(2)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

5,629,715

 

 

$

57,579

 

 

 

4.09

%

 

$

4,317,857

 

 

$

51,485

 

 

 

4.80

%

Securities

 

 

823,986

 

 

 

3,905

 

 

 

1.90

%

 

 

449,744

 

 

 

2,943

 

 

 

2.69

 

Interest bearing deposits

 

 

145,658

 

 

 

66

 

 

 

0.18

%

 

 

68,980

 

 

 

230

 

 

 

1.34

 

FHLB stock

 

 

11,984

 

 

 

59

 

 

 

1.97

%

 

 

25,951

 

 

 

115

 

 

 

1.78

 

Total interest-earning assets

 

 

6,611,343

 

 

 

61,609

 

 

 

3.73

%

 

 

4,862,532

 

 

 

54,773

 

 

 

4.54

 

Non-interest-earning assets

 

 

727,543

 

 

 

 

 

 

 

 

 

 

 

495,066

 

 

 

 

 

 

 

 

 

Total assets

 

$

7,338,886

 

 

 

 

 

 

 

 

 

 

$

5,357,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

4,546,272

 

 

$

4,164

 

 

 

0.37

%

 

$

3,343,833

 

 

$

7,771

 

 

 

0.93

%

FHLB advances and other

 

 

 

 

 

 

 

 

 

 

 

209,508

 

 

 

1,006

 

 

 

1.93

 

Subordinated debentures

 

 

84,868

 

 

 

695

 

 

 

3.28

%

 

 

36,083

 

 

 

273

 

 

 

3.04

 

Securities sold under repurchase agreements

 

 

 

 

 

 

 

 

 

 

 

2,359

 

 

 

9

 

 

 

1.53

 

Total interest-bearing liabilities

 

 

4,631,140

 

 

 

4,859

 

 

 

0.42

%

 

 

3,591,783

 

 

 

9,059

 

 

 

1.01

 

Non-interest bearing deposits

 

 

1,644,020

 

 

 

 

 

 

 

 

 

896,220

 

 

 

 

 

 

 

 

Total including non-interest bearing demand deposits

 

 

6,275,160

 

 

 

4,859

 

 

 

0.31

%

 

 

4,488,003

 

 

 

9,059

 

 

 

0.81

 

Other non-interest-bearing liabilities

 

 

91,073

 

 

 

 

 

 

 

 

 

 

 

82,758

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

6,366,233

 

 

 

 

 

 

 

 

 

 

 

4,570,761

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

972,653

 

 

 

 

 

 

 

 

 

 

 

786,837

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

7,338,886

 

 

 

 

 

 

 

 

 

 

$

5,357,598

 

 

 

 

 

 

 

 

 

Net interest income; interest rate spread

 

 

 

 

 

$

56,750

 

 

 

3.31

%

 

 

 

 

 

$

45,714

 

 

 

3.53

%

Net interest margin (3)

 

 

 

 

 

 

 

 

 

 

3.43

%

 

 

 

 

 

 

 

 

 

 

3.78

%

Average interest-earning assets to average

   interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

143

%

 

 

 

 

 

 

 

 

 

 

135

%

 

(1)

Interest on certain tax-exempt loans and securities is not taxable for federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 21%.

(2)

Annualized

(3)

Net interest margin is net interest income divided by average interest-earning assets.  See Non-GAAP Financial Measure discussion for further details.

Results of Operations

Three months ended March 31, 2021 and 2020

For the three months ended March 31, 2021, the Company reported net income of $41.0 million compared to a loss of $22.5 million for the quarter ended March 31, 2020. On a per share basis, basic and diluted earnings per common share were $1.10 for the three months ended March 31, 2021 and basic and diluted loss per common share were $0.71 for the three months ended March 31, 2020.  The first quarter of

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2020 was impacted by the Merger including $25.9 million and $11.5 million of acquisition-related provision and costs, respectively.  

Net Interest Income

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

Net interest income was $56.5 million for the quarter ended March 31, 2021, up from $45.5 million for the same period in 2020. Average earning assets for the quarter ended March 31, 2021 were $6.6 billion compared to $4.9 billion for the quarter ended March 31, 2020.  The increase in average earning assets was due to the acquisition of UCFC taking place on January 31, 2020 along with organic growth in the last year.  The tax-equivalent net interest margin was 3.43% for the quarter ended March 31, 2021, a decrease from 3.78% for the same period in 2020. The decrease in margin between the 2021 and 2020 quarters was primarily due to a decrease in the yield on earning assets brought about by a decline in interest rates in the latter half of 2020 and through the first quarter of 2021.  The yield on interest-earning assets was 3.73% for the quarter ended March 31, 2021, down 81 basis points from 4.54% for the same period in 2020.  The cost of interest-bearing liabilities between the two periods declined 59 basis points to 0.42% in the first quarter of 2021 from 1.01% in the first quarter of 2020.  

Interest income increased $6.9 million to $61.4 million for the quarter ended March 31, 2021, from $54.5 million for the quarter ended March 31, 2020.  This increase is due to continued solid loan growth, primarily related to growth in PPP loan balances and a full quarter of impact of average interest earning assets from the Merger compared to only two months impact from the Merger in 2020. Income from loans increased to $57.6 million for the quarter ended March 31, 2021, compared to $51.5 million for the same period in 2020 due to an increase in average loan balances of $1.3 billion.  The decrease in the loan portfolio yield to 4.09% for the three months ended March 31, 2021, from 4.80% for the same period in 2020, was due mainly to declining rates.  Interest income from investments increased $965,000 in the first quarter of 2021 to $3.7 million compared to $2.7 million in the same period in 2020 primarily due to an increase in average security balances of $374.2 million. The yield decreased 79 basis points to 1.90% for the three months ended March 31, 2021, compared to 2.69% for the same period in 2020.  Income from interest bearing deposits decreased to $66,000 in the first quarter of 2021 compared to $230,000 for the same period in 2020, even as average balances increased $76.7 million.  This decline was primarily a result of the yield earned on interest bearing deposits declining 1.16% to 18 basis points in the first quarter of 2021. Income from FHLB stock decreased to $59,000 in the first quarter of 2021 from $115,000 for the same period in 2020.

Interest expense decreased $4.2 million to $4.9 million in the first quarter of 2021 compared to $9.1 million for the same period in 2020.  This decrease was due to a decline in the yield on interest-bearing liabilities of 59 basis points.  Interest expense related to interest-bearing deposits was $4.2 million in the first quarter of 2021 compared to $7.8 million for the same period in 2020. Interest expense recognized by the Company related to FHLB advances was zero in the first quarter of 2021 compared to $1.0 million for the same period in 2020. Expenses on subordinated debentures and notes payable were $695,000 in the first quarter of 2021 compared to $273,000 respectively for the same period in 2020.  This increase was due to the issuance of $50.0 million of subordinated debt costing 4.0% during the third quarter of 2020.

Allowance for Credit Losses (“ACL”)

The Company adopted ASU 2016-13, the Current Expected Credit Loss (“CECL”) model on January 1, 2020.  Under CECL, a valuation reserve was established in the ACL and maintained through expense in the provision for credit losses.  Upon adoption of CECL, the Company made a one-time adjustment, net of taxes, to retained earnings for $1.9 million.  The ACL represents management’s assessment of the estimated credit losses

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

The ACL is made up of two basic components. The first component of the allowance for credit loss is the specific reserve in which the Company sets aside reserves based on the analysis of individual analyzed credits.  In establishing specific reserves, the Company analyzes all substandard, doubtful and loss graded loans quarterly and makes judgments about the risk of loss based on the cash flow of the borrower, the value of any collateral and the financial strength of any guarantors.  If the loan is individually analyzed and cash flow dependent, then a specific reserve is established for the discount on the net present value of expected future cash flows.  If the loan is individually analyzed and collateral dependent, then any shortfall is either charged off or a specific reserve is established.  The Company also considers the impacts of any Small Business Administration or Farm Service Agency guarantees. The specific reserve portion of the ACL was $5,604,000 at March 31, 2021, and $4,274,000 at December 31, 2020.

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

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

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

 

Becomes 90 days or more past due;

 

Is placed on nonaccrual;

 

Is marked as a troubled debt restructuring (“TDR”); or

 

Is partially or wholly charged-off.

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The default rate is measured on the current life of the loan segment using a weighted average of the maximum possible quarters that fall within the defined unemployment rate range.  PD/LGD is determined on a dollar-ratio basis, measuring the ratio of net charged off principal to defaulted principal.  

The consumer portfolio contains loans with many different payment structures, payment streams and collateral.  The remaining life method was deemed most appropriate for these loans.  The weighted average remaining life uses an annual charge-off rate over several vintages to estimate credit losses.  The average annual charge-off rate is applied to the contractual term adjusted for prepayments.  

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

The quantitative general allowance decreased to $17.8 million at March 31, 2021, down from $29.2 million at December 31, 2020.  As a part of the CECL model in certain calculations, especially discounted cash flows, projected loan losses are correlated to the levels of the unemployment rate over the life of the loans.  A decline in current and forecasted unemployment rates resulted in a reduction in projected loan losses.  

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

ECONOMIC

 

1)

Changes in international, national and local economic business conditions and   developments, including the condition of various market segments.

 

2)

Changes in the value of underlying collateral for collateral dependent loans.