UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of October 29, 2024, the registrant had
PREMIER FINANCIAL CORP.
INDEX
PART I-FINANCIAL INFORMATION
PREMIER FINANCIAL CORP.
Consolidated Condensed Statements of Financial Condition
(UNAUDITED)
(Amounts in Thousands, except share and per share data)
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September 30, |
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December 31, |
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Assets |
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Cash and cash equivalents: |
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Cash and amounts due from depository institutions |
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$ |
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$ |
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Interest-bearing deposits |
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Securities available-for-sale, carried at fair value |
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Equity securities, carried at fair value |
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Loans held for sale, carried at fair value |
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Loans receivable, net of allowance for credit losses of $ |
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Mortgage servicing rights |
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Accrued interest receivable |
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Federal Home Loan Bank stock |
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Bank owned life insurance |
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Premises and equipment |
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Real estate and other assets held for sale |
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Goodwill |
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Core deposit and other intangibles |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Liabilities: |
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Deposits |
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$ |
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$ |
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Advances from the Federal Home Loan Bank |
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Subordinated debentures |
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Advance payments by borrowers |
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Reserve for credit losses - unfunded commitments |
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Other liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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— |
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— |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss, net of tax of $( |
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( |
) |
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( |
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Retained earnings |
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Treasury stock, at cost, |
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( |
) |
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( |
) |
Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes.
2
PREMIER FINANCIAL CORP.
Consolidated Condensed Statements of Income
(UNAUDITED)
(Amounts in Thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Interest Income |
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Loans |
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$ |
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$ |
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$ |
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$ |
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Investment securities: |
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Taxable |
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Non-taxable |
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Interest-bearing deposits |
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FHLB stock dividends |
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Total interest income |
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Interest Expense |
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Deposits |
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FHLB advances and other |
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Subordinated debentures |
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Total interest expense |
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Net interest income |
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Credit loss (benefit) expense - loans and leases |
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( |
) |
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Credit loss (benefit) expense - unfunded commitments |
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( |
) |
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( |
) |
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( |
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Net interest income after credit loss expense (benefit) |
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Non-interest Income |
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Service fees and other charges |
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Insurance commissions |
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Mortgage banking income |
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Gain on sale of non-mortgage loans |
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Gain on sale insurance agency |
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Gain on sale of securities available for sale |
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Gain (loss) on equity securities |
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( |
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Wealth management income |
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Income from Bank Owned Life Insurance |
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Other non-interest income |
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Total non-interest income |
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Non-interest Expense |
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Compensation and benefits |
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Occupancy |
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FDIC insurance premium |
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Financial institutions tax |
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Data processing |
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Amortization of intangibles |
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Transaction costs |
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Other non-interest expense |
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Total non-interest expense |
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Income before income taxes |
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Income tax expense |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Earnings per common share |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes.
3
PREMIER FINANCIAL CORP.
Consolidated Condensed Statements of Comprehensive Income (Loss)
(UNAUDITED)
(Amounts in Thousands)
|
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Three Months Ended |
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Nine Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss): |
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Unrealized gains (losses) on securities available for sale |
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( |
) |
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( |
) |
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Reclassification adjustment for securities (gains) losses included in net income |
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( |
) |
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Income tax effect |
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( |
) |
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( |
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Net of tax amount |
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( |
) |
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( |
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Unrealized gain (loss) on balance sheet swap |
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( |
) |
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( |
) |
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( |
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Reclassification adjustment for cash flow hedge derivatives (gains) losses included in net income |
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Income tax effect |
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( |
) |
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( |
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Net of tax amount |
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( |
) |
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( |
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Total other comprehensive income (loss) |
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( |
) |
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( |
) |
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Comprehensive income |
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$ |
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$ |
( |
) |
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$ |
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$ |
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See accompanying notes.
4
PREMIER FINANCIAL CORP.
Consolidated Statement of Changes in Stockholders’ Equity
(UNAUDITED)
(Amounts in Thousands, except share and per share data)
|
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Preferred |
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Common |
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Common |
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Additional |
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Accumulated |
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Retained |
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Treasury |
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Total |
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Balance at January 1, 2024 |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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Other comprehensive income (loss) |
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( |
) |
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( |
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Deferred compensation plan |
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( |
) |
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— |
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Stock based compensation expenses |
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Vesting of incentive plans |
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( |
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( |
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Restricted share issuance |
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( |
) |
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— |
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Restricted share forfeitures |
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( |
) |
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( |
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( |
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Common stock dividend payment ($ |
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( |
) |
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( |
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Balance at March 31, 2024 |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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Other comprehensive income (loss) |
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( |
) |
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( |
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Deferred compensation plan |
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( |
) |
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— |
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Stock based compensation expenses |
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||||||||
Vesting of incentive plans |
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( |
) |
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Restricted share issuance |
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( |
) |
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|||||||
Restricted share forfeitures |
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( |
) |
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( |
) |
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( |
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|||||
Common stock dividend payment ($ |
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( |
) |
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( |
) |
||||||
Balance at June 30, 2024 |
|
$ |
— |
|
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|
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$ |
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$ |
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$ |
( |
) |
|
$ |
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$ |
( |
) |
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$ |
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|||||
Net income |
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||||||||
Other comprehensive income (loss) |
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||||||||
Deferred compensation plan |
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( |
) |
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|||||||
Stock based compensation expenses |
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||||||||
Vesting of incentive plans |
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( |
) |
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|||||||
Restricted share issuance |
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( |
) |
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|||||||
Restricted share forfeitures |
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( |
) |
|
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( |
) |
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( |
) |
|||||
Common stock dividend payment ($ |
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( |
) |
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( |
) |
||||||
Balance at September 30, 2024 |
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
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|
$ |
( |
) |
|
$ |
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|||||
5
|
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Preferred |
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Common |
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Common |
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Additional |
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Accumulated |
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Retained |
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Treasury |
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Total |
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||||||||
Balance at January 1, 2023 |
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
||||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
||||||||
Deferred compensation plan |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
||||||
Stock based compensation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Vesting of incentive plans |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Restricted share issuance |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Restricted share forfeitures |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Shares repurchased |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Common stock dividend payment ($ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
Balance at March 31, 2023 |
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||||||
Deferred compensation plan |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Stock based compensation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Vesting of incentive plans |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Restricted share issuance |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Restricted share forfeitures |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||||
Common stock dividend payment ($ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
Balance at June 30, 2023 |
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||||||
Deferred compensation plan |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Stock based compensation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Vesting of incentive plans |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Restricted share issuance |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Restricted share forfeitures |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Shares issued under stock option plan |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||||
Common stock dividend payment ($ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
Balance at September 30, 2023 |
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
See accompanying notes.
6
PREMIER FINANCIAL CORP.
Consolidated Condensed Statements of Cash Flows
(UNAUDITED)
(Amounts in Thousands)
|
|
Nine Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Operating Activities |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Provision for credit losses |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Amortization of premium and discounts on loans, securities, deposits and debt obligations |
|
|
|
|
|
|
||
Amortization of mortgage servicing rights, net of impairment charges/recoveries |
|
|
|
|
|
|
||
Amortization of intangibles |
|
|
|
|
|
|
||
Change in deferred taxes |
|
|
|
|
|
( |
) |
|
Proceeds from the sale of loans held for sale |
|
|
|
|
|
|
||
Originations of loans held for sale |
|
|
( |
) |
|
|
( |
) |
Mortgage banking gain, net |
|
|
( |
) |
|
|
( |
) |
Gain on sale of insurance agency, net |
|
|
|
|
|
( |
) |
|
Loss on sale / write-down of real estate and other assets held for sale |
|
|
|
|
|
|
||
Gain on sale of available for sale securities |
|
|
|
|
|
( |
) |
|
(Gain) Loss on equity securities |
|
|
( |
) |
|
|
|
|
Stock based compensation expense |
|
|
|
|
|
|
||
Restricted stock forfeitures for taxes and option exercises |
|
|
( |
) |
|
|
( |
) |
Income from bank owned life insurance |
|
|
( |
) |
|
|
( |
) |
Securities not yet settled |
|
|
( |
) |
|
|
|
|
Changes in: |
|
|
|
|
|
|
||
Accrued interest receivable and other assets |
|
|
( |
) |
|
|
( |
) |
Other liabilities |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
||
Investing Activities |
|
|
|
|
|
|
||
Proceeds from maturities, calls and pay-downs of available-for-sale securities |
|
|
|
|
|
|
||
Proceeds from sale of available-for-sale securities |
|
|
|
|
|
|
||
Proceeds from sale of equity securities |
|
|
|
|
|
|
||
Proceeds from sale of premises and equipment, real estate and other assets held for sale |
|
|
|
|
|
|
||
Purchases of available-for-sale securities |
|
|
( |
) |
|
|
( |
) |
Net change in Federal Home Loan Bank stock |
|
|
( |
) |
|
|
|
|
Cash received in disposition |
|
|
|
|
|
|
||
Purchases of premises and equipment, net |
|
|
( |
) |
|
|
( |
) |
Investment in bank owned life insurance |
|
|
|
|
|
|
||
Net decrease (increase) in loans receivable |
|
|
|
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Financing Activities |
|
|
|
|
|
|
||
Net increase (decrease) in deposits and advance payments by borrowers |
|
|
( |
) |
|
|
|
|
Net change in Federal Home Loan Bank advances |
|
|
|
|
|
( |
) |
|
Net cash paid for repurchase of common stock |
|
|
|
|
|
( |
) |
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Cash dividends paid on common stock |
|
|
( |
) |
|
|
( |
) |
Net cash provided by financing activities |
|
|
|
|
|
|
||
Increase (decrease) in cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
|
|
|
|
|
||
Initial recognition of right-of-use asset |
|
|
|
|
|
|
||
Initial recognition of lease liability |
|
|
|
|
|
|
||
See accompanying notes.
7
PREMIER FINANCIAL CORP.
Notes to Consolidated Condensed Financial Statements (UNAUDITED)
September 30, 2024 and 2023
1. Basis of Presentation
Premier Financial Corp. (“Premier” or the “Company”) is a financial holding company that conducts business through its wholly-owned subsidiaries, Premier Bank (the "Bank"), and PFC Capital, LLC (“PFC Capital”). All significant intercompany transactions and balances are eliminated in consolidation. Premier’s stock is traded on the NASDAQ Global Select Market under the ticker PFC. On
The Bank is primarily engaged in community banking. It attracts deposits from the general public through its offices and website, and uses those and other available sources of funds to originate residential real estate loans, commercial real estate loans, commercial loans, home improvement and home equity loans and consumer loans. In addition, the Bank invests in U.S. Treasury and federal government agency obligations, obligations of states and political subdivisions, mortgage-backed securities ("MBS") that are issued by federal agencies, collateralized mortgage obligations (“CMOs”), and corporate bonds. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a member of the Federal Home Loan Bank (“FHLB”) System.
PFC Capital was formed as an Ohio limited liability company in 2016 for the purpose of providing mezzanine funding for customers. Mezzanine loans are offered by PFC Capital to customers in the Company’s market area and are expected to be repaid from the cash flow from operations of the business.
First Insurance Group of the Midwest, Inc. ("First Insurance") is a wholly-owned subsidiary of Premier that conducted business as an insurance agency throughout Premier’s markets. First Insurance offered property and casualty insurance, life insurance and group health insurance. On June 30, 2023, the Company completed the sale of substantially all of the assets (including $
The Company tests goodwill at least annually and, more frequently, if events or changes in circumstances indicate that it may be more likely than not that there is a possible impairment. Due to the Company’s signing of the definitive agreement for the merger transaction with Wesbanco, the Company conducted a quantitative interim goodwill impairment assessment at September 30, 2024. The impairment assessment compares the fair value of identified reporting unit with their carrying amount (including goodwill). If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. The Company's interim assessment estimated fair value on income and market approaches. The income approach incorporated a discounted cash flow model that involves management assumptions and consideration of future economic forecasts available. The market approach incorporates a combination of price to book value and price to earnings, adjusted based on companies similar to the reporting unit and adjusted for selected multiples, along with a control premium based on a review of transactions in the banking industry. Results of the interim assessment indicated
8
no goodwill impairment as of September 30, 2024. The Company will continue to monitor its goodwill for possible impairment.
The consolidated condensed statement of financial condition at December 31, 2023, was derived from the audited financial statements at that date, which were included in Premier’s 2023 Form 10-K.
The accompanying consolidated condensed financial statements as of September 30, 2024, and for the three and nine months ended September 30, 2024 and 2023 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 2023 Form 10-K. However, in the opinion of management, all adjustments, consisting of only normal recurring items, necessary for the fair presentation of the financial statements have been made. The results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the entire year.
2. Significant Accounting Policies
Accounting Standards Update ("ASU")
ASU No. 2023-06, Disclosure Improvements – Codification Amendments in Response to the Securities and Exchange Commission’s ("SEC") Disclosure Update and Simplification Initiative: On October 9, 2023, the Financial Accounting Standards Board (the "FASB") issued ASU 2023-06 “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative,” which incorporates 14 of the 27 disclosures referred by the SEC in Release No. 33-10532, “Disclosure Update and Simplification,” that was issued August 17, 2018. The changes modify the disclosure or presentation requirements of a variety of topics including statement of cash flows, accounting changes and error corrections, earnings per share, interim reporting, commitments, debt, equity, derivatives and hedging, and secured borrowing and collateral. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment is the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. If the SEC has not removed the related disclosure from its regulations by June 30, 2027, the amendments will be removed from the codification and not become effective for any entity. This ASU is not expected to have a material effect on the Company’s consolidated condensed financial statements.
ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures: On November 27, 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 820): Improvements to Reportable Segment Disclosure,” which requires public entities to disclose significant expense categories and amounts for each reportable segment, an amount for and description of the composition of “other segment items,” the title and position of the entity’s Chief Operating Decision Maker (the "CODM") and explanation of how the CODM uses the reported measures of profit or loss to assess segment performance, and – on an interim basis – certain segment-related disclosures that previously were required only on an annual basis. This ASU clarifies that entities with a single reportable segment are subject to both new and existing segment reporting requirements and that an entity is permitted to disclose multiple measures of segment profit or loss, provided that certain criteria are met. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption
9
permitted. Entities must adopt the changes to the segment reporting guidance on a retrospective basis. This ASU is not expected to have a material effect on the Company’s consolidated condensed financial statements.
ASU No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures: On December 14, 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” to address requests for improved income tax disclosures from investors, lenders, creditors and other allocators of capital that use the financial statements to make capital allocation decisions. This ASU is intended to improve the transparency of tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction, in addition to certain other amendments intended to improve the effectiveness of income tax disclosures. For public business entities, this ASU is effective for annual periods beginning after December 15, 2024. For other entities, this ASU is effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU is not expected to have a material effect on the Company’s consolidated condensed financial statements.
SEC Final Rules Not Yet Adopted
The Enhancement and Standardization of Climate-Related Disclosures for Investors: On March 6, 2024, the SEC approved the final rule for these disclosures, requiring registrants to provide information about climate-related risks that materially impact or are reasonably likely to materially impact a registrant's strategy, results of operations, or financial condition. The rule applies to all SEC reporting companies and may significantly increase reporting costs and complexities, including increased data collection and development of significant internal processes and controls. The final rule includes a phased-in compliance period, effective for the Company for the fiscal year ending December 31, 2025. On March 15, 2024, the U.S. Court of Appeals granted an administrative stay of the climate-related disclosure rules recently adopted by the SEC.
3. Fair Value
FASB ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). 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.
10
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:
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Available-for-sale securities – Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs where the Company obtains fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows and the bonds’ terms and conditions, among other things. Securities in Level 2 include U.S. federal government agencies, MBS, asset-backed securities ("ABS"), corporate bonds and municipal securities. Securities in Level 1 include U.S. treasuries.
Equity securities – These securities are reported at fair value utilizing Level 1 inputs where the Company obtains fair value measurements from a broker.
Loans held for sale, carried at fair value – The Company has elected the fair value option for all loans held for sale originated after January 31, 2020.
11
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.
Real estate held for sale – Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are then reviewed monthly by members of the asset review committee for valuation changes and are accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which may utilize a single valuation approach or a combination of approaches including cost, comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.
Appraisals for both individually analyzed collateral-dependent loans and other real estate owned ("OREO") are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal. Appraisal values are discounted from
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 is evaluated monthly based on derivative valuation models using quoted prices for similar assets adjusted for specific attributes of the commitments and other observable market data at the valuation date (Level 2).
Interest rate swaps – The Company periodically enters into interest rate swap agreements with its commercial customers who desire a fixed rate loan term that is longer than the Company is willing to extend. The Company then enters into a reciprocal swap agreement with a third party that offsets the interest rate risk from the interest rate swap extended to the customer. The interest rate swaps are derivative instruments which are carried at fair value on the statement of financial condition. The Company uses an independent third party to perform a market valuation analysis for both swap positions (Level 2).
12
Cash flow and fair value hedge derivatives – The Company periodically enters into cash flow and fair value hedge derivative instruments to hedge the risk of variability in cash flows on the Company's floating rate loan pool, fixed rate mortgage loan pool and FHLB advances. The Company uses an independent third party to perform a market valuation analysis for these derivatives (Level 2).
The following table summarizes the financial assets measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Assets and Liabilities Measured on a Recurring Basis
September 30, 2024 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations of U.S. federal government corporations and |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Mortgage-backed securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Collateralized mortgage obligations |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Asset-backed securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Corporate bonds |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Obligations of state and political subdivisions |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
US Treasuries |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Equity securities |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Loans held for sale, at fair value |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Interest rate swaps |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Cash flow/fair value hedge derivatives |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Mortgage banking derivatives - liability |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
December 31, 2023 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Fair |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations of U.S. government corporations and agencies |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Mortgage-backed securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Collateralized mortgage obligations |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Asset-backed securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Corporate bonds |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Obligations of states and political subdivisions |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
US Treasuries |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Equity securities |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Loans held for sale, at fair value |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Interest rate swaps |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Cash flow / Fair value hedge derivatives |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Cash flow / Fair value hedge derivatives |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Mortgage banking derivatives - liability |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
The following table presents a reconciliation of assets that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2024 and
13
2023. There were
|
Construction loans held for sale |
|
|||||||||||||
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Balance of recurring Level 3 assets at beginning of period |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total gains (losses) for the period |
|
|
|
|
|
|
|
|
|
|
|
||||
Included in change in fair value of loans held for sale |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Originations |
|
|
|
|
|
|
|
|
|
|
|
||||
Sales |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance of recurring Level 3 assets at end of period |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
For Level 3 assets and liabilities measured at fair value on a recurring basis, the significant unobservable inputs used in the fair value measurements were as follows:
September 30, 2024 |
|
Fair Value |
|
|
Valuation Technique |
|
Unobservable Inputs |
|
Range of |
|
|
|
(Dollars in Thousands) |
||||||||
Construction loans held for sale |
|
$ |
|
|
|
|
||||
December 31, 2023 |
|
Fair Value |
|
|
Valuation Technique |
|
Unobservable Inputs |
|
Range of |
|
|
|
(Dollars in Thousands) |
||||||||
Construction loans held for sale |
|
$ |
|
|
|
|
||||
The Company has elected the fair value option for new applications accepted after January 31, 2020, and subsequently originated for residential mortgage and permanent construction loans held for sale. These loans are intended for sale and the Company believes that fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policies.
The aggregate fair value of the residential mortgage loans held for sale at September 30, 2024 and December 31, 2023 was $
The aggregate fair value of the permanent construction loans held for sale at September 30, 2024 and December 31, 2023, was $
14
2023, $
The following table summarizes the financial assets measured at fair value on a non-recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Assets and Liabilities Measured on a Non-Recurring Basis
September 30, 2024 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Fair |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
Individually analyzed loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial real estate |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Commercial |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage servicing rights |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
December 31, 2023 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Fair |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
Individually analyzed loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial real estate |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Commercial |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage servicing rights |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2024, the significant unobservable inputs used in the fair value measurements were as follows:
|
|
Fair |
|
|
Valuation |
|
Unobservable |
|
Range of |
|
Weighted |
|
||
|
|
|
|
|
(Dollars in Thousands) |
|
||||||||
Individually analyzed Loans- |
|
$ |
|
|
|
|
|
|
% |
|||||
For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:
|
|
Fair |
|
|
Valuation |
|
Unobservable |
|
Range of |
|
Weighted |
|
||
|
|
|
|
|
(Dollars in Thousands) |
|
||||||||
Individually analyzed Loans- |
|
$ |
|
|
|
|
|
|
% |
|||||
15
Fair value of financial instruments
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, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.
It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.
The Company’s loans were valued on an individual basis, with consideration given to the loans’ underlying characteristics, including account types, remaining terms (in months), annual interest rates or coupons, interest types, past delinquencies, timing of principal and interest payments, current market rates, loss exposures, and remaining balances. The model utilizes a discounted cash flow (“DCF”) approach to estimate the fair value of the loans using assumptions for the coupon rates, remaining maturities, prepayment speeds, projected default probabilities, losses given defaults, and estimates of prevailing discount rates. The DCF approach models the credit losses directly in the projected cash flows. The model applies various assumptions regarding credit, interest, and prepayment risks for the loans based on loan types, payment types and fixed or variable classifications. The estimated fair value of individually analyzed loans is based on the fair value of the collateral, less estimated cost to sell, or the present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate). All individually analyzed loans are classified as Level 3 within the valuation hierarchy.
The fair value of non-interest bearing deposits are considered equal to the amount payable on demand at the reporting date (i.e. carrying value) and are classified as Level 1. The fair value of savings, checking and certain money market accounts are equal to their carrying amounts and are a Level 1 classification. Fair values of fixed rate certificates of deposit are estimated using a DCF calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.
The carrying value of notes payable, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.
The carrying value of floating rate subordinated debentures was considered to be the carrying value as the debt is floating rate and can be prepaid at any time without penalty. The carrying value of fixed rate subordinated debt is estimated using a DCF calculation that applies interest rates currently being offered in the market to the expected maturity of the debt resulting in a Level 2 classification.
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 September 30, 2024.
Subordinated debt is valued utilizing the coupon rate, discount rate, weighted average life and duration. This debt is classified as Level 3.
The carrying amount of advance payments by borrowers, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.
The carrying value and estimated fair values of financial instruments at September 30, 2024 and December 31, 2023, were as follows:
|
|
|
|
|
Fair Value Measurements at September 30, 2024 |
|
||||||||||||||
|
|
|
|
|
(In Thousands) |
|
||||||||||||||
|
|
Carrying |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Federal Home Loan Bank Stock |
|
|
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|||||
Loans receivable, net |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
||||
Advances from Federal Home Loan Bank |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Subordinated debentures |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Advance payments by borrowers |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
Fair Value Measurements at December 31, 2023 |
|
||||||||||||||
|
|
|
|
|
(In Thousands) |
|
||||||||||||||
|
|
Carrying |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Federal Home Loan Bank Stock |
|
|
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|||||
Loans receivable, net |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
||||
Advances from Federal Home Loan Bank |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Subordinated debentures |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
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 Company's merger (the "UCFC Merger") with United Community Federal Corp. ("UCFC"), Premier assumed certain outstanding stock options granted under UCFC’s Amended and Restated 2007 Long-Term Incentive Plan (the “UCFC 2007 Plan”) and UCFC’s 2015 Long Term Incentive Plan, which has since been renamed as the “Premier Financial Corp. 2015 Long Term Incentive Plan” (the “2015 Plan”). Premier also assumed the shares available for future issuance under the 2015 Plan as of the effective date of the UCFC Merger, with appropriate adjustments to the number of shares available to reflect the UCFC Merger. The stock options assumed from UCFC in the UCFC Merger remain subject to the terms of the 2015 Plan, but became exercisable solely to purchase shares of Premier, with appropriate adjustments to the number of shares subject to the assumed stock options and the exercise price of such stock options. Besides certain options previously issued under the First Defiance Financial Corp. 2010 Equity Incentive Plan, all awards currently outstanding are issued under the 2018 Equity Plan or the 2015 Plan. The 2018 Equity Plan and the 2015 Plan were each amended and restated in February 2022 to align certain administrative components of the plans in addition to enhancing certain governance components. New awards will be made under either the 2018 Equity Plan or the 2015 Plan as the Company determines. The 2018 Equity Plan allows for issuance of up to
Beginning in 2023, directors were able to elect to receive stock in lieu of cash for their director fees. In the first nine months of 2024, the Company did
The Company maintains Long-Term Equity Incentive Plans (each, an "LTIP") for select members of management (the "Executive LTIP") and a Key Employee and Commercial Lender Plan (the "Key Plan"). Under the Executive LTIP, participants may earn between
The maximum amount of compensation expense that may be earned for the PSUs at September 30, 2024 is approximately $
18
$
Beginning in 2022, under the Key Plan, the participants were granted RSAs based upon the achievement of certain targets in the prior year. Prior to 2022, restricted stock units ("RSUs") were issued to participants under the same plan. The participants can earn from
In the nine months ended September 30, 2024, the Company also granted
The following table sets forth Premier's performance and restricted stock activity during the nine months ended September 30, 2024:
|
|
PSUs |
|
|
RSUs |
|
|
RSAs |
|
|||||||||||||||
Unvested Shares |
|
Shares |
|
|
Weighted- |
|
|
Shares |
|
|
Weighted- |
|
|
Shares |
|
|
Weighted- |
|
||||||
Unvested at January 1, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Granted |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Unvested at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
As of September 30, 2024,
The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities are based on historical volatilities of the Company’s common shares. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
There were
19
Following is stock option activity under the plans during the nine months ended September 30, 2024:
|
|
Options |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Options outstanding, January 1, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Forfeited or cancelled |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options outstanding, September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
As of September 30, 2024, there was a de minimus amount of total unrecognized compensation costs related to unvested stock options granted under the Company’s equity plans. The cost is expected to be recognized over a weighted-average period of
5. Dividends on Common Stock
6. Earnings Per Common Share
Basic earnings per share are calculated using the two-class method. The two-class method is an earnings allocation formula under which earnings per share is calculated from common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings distributed and undistributed, are allocated to participating securities and common shares based on their respective rights to receive dividends. Unvested share-based payment awards that contain non-forfeitable rights to dividends are considered participating securities (i.e., unvested restricted stock), not subject to performance based measures.
20
The following table sets forth the computation of basic and diluted earnings per common share:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(In Thousands, except per share data) |
|
|||||||||||||
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income available to common shareholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Less: income allocated to participating securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income allocated to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding including |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: Participating securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per common share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income allocated to common shareholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Weighted average common shares outstanding for basic earnings |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Add: Dilutive effects of stock options and restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Average shares and dilutive potential common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per common share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
There were
7. Investment Securities
The following is a summary of available-for-sale securities:
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair Value |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
At September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available-for-Sale Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Asset-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Corporate bonds |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Obligations of state and political subdivisions |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
US Treasuries |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total Available-for-Sale |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
21
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair Value |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
At December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Asset-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Corporate bonds |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Obligations of state and political subdivisions |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
US Treasuries |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total Available-for-Sale |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The amortized cost and fair value of the investment securities portfolio at September 30, 2024, are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, MBS, CMOs and ABS, which are not due at a single maturity date, have not been allocated over the maturity groupings. These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.
|
|
Available-for-Sale |
|
|||||
|
|
Amortized |
|
|
Fair Value |
|
||
|
|
(In Thousands) |
|
|||||
Due in one year or less |
|
$ |
|
|
$ |
|
||
Due after one year through five years |
|
|
|
|
|
|
||
Due after five years through ten years |
|
|
|
|
|
|
||
Due after ten years |
|
|
|
|
|
|
||
MBS/CMO/ABS |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Investment securities with a market value of $
22
The following tables summarize Premier’s securities that were in an unrealized loss position at September 30, 2024 and December 31, 2023:
|
|
Duration of Unrealized Loss Position |
|
|
|
|
|
|
|
|||||||||||||||
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Unrealized |
|
||||||
|
|
(In Thousands) |
|
|||||||||||||||||||||
At September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
Mortgage-backed securities |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Collateralized mortgage obligations |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Asset-backed securities |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Obligations of state and political subdivisions |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
US Treasuries |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Total available-for-sale |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
|
|
Duration of Unrealized Loss Position |
|
|
|
|
|
|
|
|||||||||||||||
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Unrealized |
|
||||||
|
|
(In Thousands) |
|
|||||||||||||||||||||
At December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
Mortgage-backed securities-residential |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Obligations of state and political subdivisions |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
US Treasuries |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Total available-for-sale |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
The Company had
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:
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:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
(In Thousands) |
|
|||||
Real Estate: |
|
|
|
|
|
|
||
Residential |
|
$ |
|
|
$ |
|
||
Commercial |
|
|
|
|
|
|
||
Construction |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Other Loans: |
|
|
|
|
|
|
||
Commercial |
|
|
|
|
|
|
||
Home equity and improvement |
|
|
|
|
|
|
||
Consumer finance |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Loans before deferred loan origination fees and costs |
|
|
|
|
|
|
||
Deduct: |
|
|
|
|
|
|
||
Undisbursed construction loan funds |
|
|
( |
) |
|
|
( |
) |
Net deferred loan origination fees and costs |
|
|
|
|
|
|
||
Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Total loans |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
24
The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of September 30, 2024 and December 31, 2023 (in thousands):
|
|
September 30, 2024 |
|
|||||||||||||||||
|
|
Real Estate |
|
|
Equipment and Machinery |
|
|
Inventory and Receivables |
|
|
Vehicles |
|
|
Total |
|
|||||
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Commercial |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Home equity and improvement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer finance |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
December 31, 2023 |
|
|||||||||||||||||
|
|
Real Estate |
|
|
Equipment and Machinery |
|
|
Inventory and Receivables |
|
|
Vehicles |
|
|
Total |
|
|||||
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Commercial |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Home equity and improvement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer finance |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
25
Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually analyzed loans. All loans 90 days and greater past due are placed on non-accrual status.
As of September 30, 2024 |
|
Non-accrual with no allocated allowance for credit losses |
|
|
Non-accrual with allocated allowance for credit losses |
|
|
Loans past due over 90 days still accruing |
|
|||
Residential real estate |
|
$ |
|
|
$ |
|
|
$ |
— |
|
||
Commercial real estate |
|
|
|
|
|
|
|
|
— |
|
||
Construction |
|
|
|
|
|
— |
|
|
|
— |
|
|
Commercial |
|
|
|
|
|
|
|
|
— |
|
||
Home equity and improvement |
|
|
— |
|
|
|
|
|
|
— |
|
|
Consumer finance |
|
|
— |
|
|
|
|
|
|
— |
|
|
Purchase credit deteriorated ("PCD") |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
||
|
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2023 |
|
Non-accrual with no allocated allowance for credit losses |
|
|
Non-accrual with allocated allowance for credit losses |
|
|
Loans past due over 90 days still accruing |
|
|||
Residential real estate |
|
$ |
|
|
$ |
|
|
$ |
— |
|
||
Commercial real estate |
|
|
|
|
|
|
|
|
— |
|
||
Construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial |
|
|
|
|
|
|
|
|
— |
|
||
Home equity and improvement |
|
|
— |
|
|
|
|
|
|
— |
|
|
Consumer finance |
|
|
— |
|
|
|
|
|
|
— |
|
|
PCD |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
||
The following table presents the aging of the amortized cost in past due and non-accrual loans as of September 30, 2024, by class of loans (in thousands):
Class |
|
Current |
|
|
30 - 59 days |
|
|
60 - 89 days |
|
|
90 + days |
|
|
Total |
|
|
Total |
|
||||||
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Home equity and improvement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consumer finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
PCD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
26
The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 2023, by class of loans (in thousands):
Class |
|
Current |
|
|
30 - 59 days |
|
|
60 - 89 days |
|
|
90 + days |
|
|
Total |
|
|
Total |
|
||||||
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Home equity and improvement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consumer finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
PCD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Loan Modifications
As of January 1, 2023, the Company adopted the modified retrospective method under ASU 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" which eliminated troubled debt restructuring accounting for entities that have adopted ASU 2016-13, the current expected credit losses model.
Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the loan is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of amortized cost basis and a corresponding adjustments to the allowance for credit losses. In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness or reduction of rate, may be granted.
Of the loans modified as of September 30, 2024, $
27
The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by loan category and type of modification granted during the three and nine months ended September 30, 2024.
|
|
Loans Modifications Made to Borrowers Experiencing Financial Difficulty Three Months Ended September 30, 2024 |
|
|
Loans Modifications Made to Borrowers Experiencing Financial Difficulty Nine Months Ended September 30, 2024 |
|
||||||||||
|
|
(Dollars in Thousands) |
|
|
(Dollars in Thousands) |
|
||||||||||
|
|
Term Extension |
|
|
Term Extension |
|
||||||||||
Loan Type |
|
Amortized Cost Basis |
|
|
Percent of total loans by |
|
|
Amortized Cost Basis |
|
|
Percent of total loans by |
|
||||
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential |
|
$ |
|
|
|
|
|
$ |
|
|
|
% |
||||
Commercial |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Home equity and improvement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer finance |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
|
Term Extension |
Loan Type |
Financial Effect |
Real Estate: |
|
Residential |
-Term extended |
Commercial |
-Term extended |
Other Loans: |
|
Commercial |
-Demand Line termed out to |
|
-Demand Line termed out to |
|
-Term extended |
|
-Term extended |
|
-Term extended |
|
|
|
Rate Reduction |
Loan Type |
Financial Effect |
Real Estate: |
|
|
|
Other Loans: |
|
Commercial |
-Interest rate reduction |
28
Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
There were no modification loans that had a payment default during the quarter ended September 30, 2024 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.
The Company closely monitors the performance of the loans that were modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.
Credit Quality Indicators
Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are analyzed individually by classifying the loans by credit risk. This analysis includes all non-homogeneous loans, such as commercial and commercial real estate loans and certain homogeneous mortgages, 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.
Class |
|
Unclassified |
|
|
Special |
|
|
Substandard |
|
|
Doubtful |
|
|
Total classified |
|
|
Total |
|
||||||
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||||
Construction |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||||
Home equity and improvement |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Consumer finance |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
PCD |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Loans (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||||
(1) Total loans are net of undisbursed funds and deferred fees and costs.
29
As of December 31, 2023, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):
Class |
|
Unclassified |
|
|
Special |
|
|
Substandard |
|
|
Doubtful |
|
|
Total classified |
|
|
Total |
|
||||||
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||||
Construction |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||||
Home equity and improvement |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Consumer finance |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
PCD |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Loans (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||||
(1) Total loans are net undisbursed loan funds and deferred fees and costs
The following tables present the amortized cost basis of loans by credit quality indicator and class of loans as of September 30, 2024 and December 31, 2023 (in thousands).
30
|
Term of loans by origination |
|
|||||||||||||||||||||||||||||
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Revolving Loans |
|
|
Total |
|
||||||||
As of September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Substandard |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||||
Special Mention |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Substandard |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Home equity and Improvement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Substandard |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Consumer Finance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
PCD: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Special Mention |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Substandard |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
31
|
Term of loans by origination |
|
|||||||||||||||||||||||||||||
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
Prior |
|
|
Revolving Loans |
|
|
Total |
|
||||||||
As of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Substandard |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||||||
Special Mention |
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Substandard |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Home equity and Improvement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Substandard |
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Consumer Finance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
PCD: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unclassified |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Special Mention |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Substandard |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Doubtful |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
32
Allowance for Credit Losses
The Company has adopted ASU 2016-13 (Topic 326 – Credit Losses) to calculate the allowance for credit loss ("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, modification status or if the loan has had a charge-off. The PD/LGD utilizes charge off data from the Federal Financial Institutions Examination Council to construct a default rate. This default rate is further segmented based on the risk of the credit assigning a higher default rate to riskier credits.
The DCF methodology was selected as the most appropriate for loan segments with longer average lives and regular payment structures. The DCF model has two key components, the loss driver analysis combined with a cash flow analysis. The contractual cash flow is adjusted for PD/LGD and prepayment speed to establish a reserve level. The prepayment studies are updated quarterly by a third-party for each applicable pool. The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.
The remaining life method was selected for the consumer direct loan segment since the pool contains loans with many different structures and payment streams and collateral. The weighted average remaining life uses an average annual charge-off rate applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate for the remaining balance of assets.
33
Portfolio Segments |
|
Loan Pool |
|
Methodology |
|
Loss Drivers |
|
|
|
||||
|
|
|
|
|||
|
|
|
||||
|
|
|
|
|||
|
|
|
|
|||
|
|
|
|
|||
|
|
|
|
|||
|
|
|
||||
|
|
|
|
|||
|
|
|
||||
|
|
|
|
|||
|
|
|
|
|||
|
|
|
||||
|
|
|
||||
|
|
|
|
According to the accounting standard, an entity may make an accounting policy election not to measure an ACL for accrued interest receivable if the entity writes off the applicable accrued interest receivable balance in a timely manner. The Company has made the accounting policy election not to measure an ACL for accrued interest receivables for all loan segments.
In addition, ASC Topic 326 requires the Company to establish a liability for anticipated credit losses for unfunded commitments. To accomplish this, the Company must first establish a loss expectation for extended (funded) commitments. This loss expectation, expressed as a ratio to the amortized cost basis, is then applied to the portion of unfunded commitments not considered unilaterally cancelable and is considered by the Company’s management as likely to fund over the life of the instrument. At September 30, 2024, the Company had $
The determination of ACL is complex and the Company makes decisions on the effects of matters that are inherently uncertain. Evaluations of the loan portfolio and individual credits require certain estimates, assumptions and judgments as to the facts and circumstances related to particular situations or credits. There may be significant changes in the ACL in future periods determined by prevailing factors at that point in time along with future forecasts.
34
The following table discloses ACL activity for the three and nine months ended September 30, 2024 and 2023 by portfolio segment (in thousands):
Three Months Ended September 30, 2024 |
|
Residential Real Estate |
|
|
Commercial |
|
|
Construction |
|
|
Commercial |
|
|
Home Equity |
|
|
Consumer |
|
|
Total |
|
|||||||
Beginning Allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Charge-Offs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provisions |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Ending Allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Nine Months Ended September 30, 2024 |
|
Residential Real Estate |
|
|
Commercial |
|
|
Construction |
|
|
Commercial |
|
|
Home Equity |
|
|
Consumer |
|
|
Total |
|
|||||||
Beginning Allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Charge-Offs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provisions |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Ending Allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Three Months Ended September 30, 2023 |
|
Residential Real Estate |
|
|
Commercial |
|
|
Construction |
|
|
Commercial |
|
|
Home Equity |
|
|
Consumer Finance |
|
|
Total |
|
|||||||
Beginning Allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Charge-Offs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provisions |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Ending Allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Nine Months Ended September 30, 2023 |
|
Residential Real Estate |
|
|
Commercial |
|
|
Construction |
|
|
Commercial |
|
|
Home Equity |
|
|
Consumer |
|
|
Total |
|
|||||||
Beginning Allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Charge-Offs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provisions |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Ending Allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|||||||||||||||||||||||||||
Purchased Credit Deteriorated Loans
Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit, they are accounted for as PCD. PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement.
35
|
As of September 30, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
|
Loan Balance |
|
|
ACL Balance |
|
|
Loan Balance |
|
|
ACL Balance |
|
||||
|
(In Thousands) |
|
|
(In Thousands) |
|
||||||||||
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
||||
Residential |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
||||
Construction |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
||||
Home equity and improvement |
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer finance |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreclosure Proceedings
Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $
9. Mortgage Banking
Net revenues from the sales and servicing of mortgage loans consisted of the following:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
Mortgage banking gain (loss), net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Mortgage loans servicing revenue (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage loans servicing revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of mortgage servicing rights |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Mortgage servicing rights valuation adjustments |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue (expense) from sale and servicing of mortgage loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The unpaid principal balance of residential mortgage loans serviced for third parties was $
36
Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and nine months ended September 30, 2024 and 2023:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
Mortgage servicing assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Loans sold, servicing retained |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Carrying value before valuation allowance at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Impairment recovery (charges) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Balance at end of period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net carrying value of MSRs at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Fair value of MSRs at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amortization of mortgage servicing rights is computed based on payments and payoffs of the related mortgage loans serviced. Estimates of future amortization expense are not easily estimable.
The Company had no accrual for secondary market buy-back activity at September 30, 2024 or December 31, 2023 based on management’s estimate of potential losses from this activity. There was
10. Leases
The Company’s lease agreements have maturity dates ranging from October 2024 to September 2044, some of which include
37
The total operating lease costs were $
Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:
(In Thousands) |
|
September 30, 2024 |
|
|
Remainder of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total undiscounted minimum lease payments |
|
|
|
|
Present value adjustment |
|
|
|
|
Total lease liabilities |
|
$ |
|
|
11. Deposits
A summary of deposit balances is as follows:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
(In Thousands) |
|
|||||
Non-interest-bearing checking accounts |
|
$ |
|
|
$ |
|
||
Interest-bearing checking and money market accounts |
|
|
|
|
|
|
||
Savings deposits |
|
|
|
|
|
|
||
Retail certificates of deposit less than $250,000 |
|
|
|
|
|
|
||
Retail certificates of deposit greater than $250,000 |
|
|
|
|
|
|
||
Brokered deposits |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
12. Borrowings
The Company's FHLB advances and junior subordinated debentures owed to unconsolidated subsidiary trusts and subordinated debentures are comprised of the following:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(In Thousands) |
|
|||||
FHLB Advances: |
|
|
|
|
|
|
||
Single maturity fixed rate advances |
|
$ |
|
|
$ |
|
||
Overnight advances |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
First Defiance Statutory Trust I due December 2035 |
|
$ |
|
|
$ |
|
||
First Defiance Statutory Trust II due June 2037 |
|
|
|
|
|
|
||
Junior subordinated debentures owed to unconsolidated subsidiary trusts |
|
$ |
|
|
$ |
|
||
Subordinated debentures |
|
$ |
|
|
$ |
|
||
At September 30, 2024, the Company had $
38
$
In September 2020, the Company completed the issuance of $
In March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (“Trust Affiliate II”) that issued $
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 Company also sponsored an affiliated trust, First Defiance Statutory Trust I (“Trust Affiliate I”) that issued $
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 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
13. Commitments, Guarantees and Contingent Liabilities
Loan commitments are made to accommodate the financial needs of Premier’s customers in the form of unfunded loans or unused lines of credit and result in market risk. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. They primarily are issued to facilitate customers’ trade transactions.
Both arrangements have credit risk, essentially the same as that involved in extending loans to customers, and are subject to the Company’s normal credit policies. Collateral (e.g., securities, receivables, inventory and equipment) is obtained based on a credit assessment of the customer.
The Company’s maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding as of the periods stated below were as follows (in thousands):
|
|
|
|
|
|
|
||
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Commitments to make loans |
|
$ |
|
|
$ |
|
||
Unused lines of credit |
|
|
|
|
|
|
||
Standby letters of credit |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Commitments to make loans are generally made for periods of
40
14. Income Taxes
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the states of Indiana and West Virginia. The Company is no longer subject to examination by income taxing authorities for years before 2020. The Company also currently operates in the states of Ohio, Michigan and Pennsylvania which tax financial institutions based on their equity rather than their income.
The components of income tax expense are as follows:
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
(In Thousands) |
|
|
(In Thousands) |
|
||||||||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
||||
Federal |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
State and local |
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The effective tax rates differ from federal statutory rate applied to income due to the following:
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
(In Thousands) |
|
|
(In Thousands) |
|
||||||||||
Tax expense at statutory rate ( |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Increases (decreases) in taxes from: |
|
|
|
|
|
|
|
|
|
|
|
||||
State income tax - net of federal tax benefit |
|
|
|
|
|
|
|
|
|
|
|
||||
Tax exempt interest income, net of TEFRA |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Bank owned life insurance |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Captive insurance |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Merger costs |
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
15. Derivative Financial Instruments
At September 30, 2024, the Company had approximately $
The fair value of these mortgage banking derivatives is reflected by a derivative asset recorded in other assets in the Consolidated Statements of Financial Condition.
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(In Thousands) |
|
|||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
||
Mortgage Banking Derivatives |
|
$ |
( |
) |
|
$ |
( |
) |
41
The table below provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments. The difference in derivative carrying value at September 30, 2024 and 2023 represents a fair value adjustment that runs through mortgage banking income.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage Banking Derivatives – (Loss) Gain |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Interest Rate Swaps
The Company maintains an interest rate protection program for commercial loan customers. Under this program, the Company provides a customer with a fixed rate loan while creating a variable rate asset for the Company by the customer entering into an interest rate swap with terms that match the loan. The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution. The Company had interest rate swaps associated with commercial loans with a notional value of $
Interest Rate Swaps Designated as Cash Flow Hedge and Fair Value Hedge
In May 2021, the Company entered into derivative instruments designated as a cash flow hedge. In June 2023, the Company entered into derivative instruments designated as a fair value hedge and another designated as a cash flow hedge. For a derivative instrument that is designated and qualifies as a cash flow hedge, the change in fair value of the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For a derivative instrument that is designated and qualified as a fair value hedge, the change in fair value is recorded to the hedged item and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
An interest rate swap with notional amount totaling $
42
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
|
|
|||||
Notional amount |
|
$ |
|
|
$ |
|
||
Weighted average fixed receive rates |
|
|
% |
|
|
% |
||
|
|
% |
|
|
% |
|||
Weighted average remaining maturity (in years) |
|
|
|
|
|
|
||
Fair value |
|
$ |
( |
) |
|
$ |
( |
) |
Three $
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
|
|
|||||
Notional amount Fair Value Hedge |
|
$ |
|
|
$ |
|
||
Weighted average fixed pay rates |
|
|
% |
|
|
% |
||
|
|
% |
|
|
% |
|||
Weighted average remaining maturity (in years) |
|
|
|
|
|
|
||
Fair value |
|
$ |
( |
) |
|
$ |
( |
) |
An interest rate swap with a notional amount totaling $
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
|
|
|||||
Notional amount Cash Flow Hedge |
|
$ |
|
|
$ |
|
||
Weighted average fixed pay rates |
|
|
% |
|
|
% |
||
|
|
% |
|
|
% |
|||
Weighted average remaining maturity (in years) |
|
|
|
|
|
|
||
Fair value |
|
$ |
( |
) |
|
$ |
|
|
43
16. Other Comprehensive Income (Loss)
The before and after tax amounts allocated to each component of other comprehensive income (loss) are presented in the table below.
|
|
Before Tax |
|
|
Tax (Expense) |
|
|
Net of Tax |
|
|||
|
|
(In Thousands) |
|
|||||||||
Three Months Ended September 30, 2024 |
|
|
|
|
|
|
|
|
|
|||
Securities available for sale and transferred securities: |
|
|
|
|
|
|
|
|
|
|||
Change in net unrealized gain/loss during the period |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Reclassification adjustment for net gain/loss included in net income |
|
|
|
|
|
|
|
|
|
|||
Cash flow hedge derivatives |
|
|
|
|
|
|
|
|
|
|||
Change in net unrealized gain/loss during the period |
|
|
|
|
|
( |
) |
|
|
|
||
Reclassification adjustment for net gain/loss included in net income |
|
|
|
|
|
( |
) |
|
|
|
||
Total other comprehensive income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
Nine Months Ended September 30, 2024 |
|
|
|
|
|
|
|
|
|
|||
Securities available for sale and transferred securities: |
|
|
|
|
|
|
|
|
|
|||
Change in net unrealized gain/loss during the period |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Reclassification adjustment for net gain/loss included in net income |
|
|
|
|
|
|
|
|
|
|||
Cash flow hedge derivatives |
|
|
|
|
|
|
|
|
|
|||
Change in net unrealized gain/loss during the period |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Reclassification adjustment for net gain/loss included in net income |
|
|
|
|
|
( |
) |
|
|
|
||
Total other comprehensive income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
Before Tax |
|
|
Tax (Expense) |
|
|
Net of Tax |
|
|||
|
|
(In Thousands) |
|
|||||||||
Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|||
Securities available for sale and transferred securities: |
|
|
|
|
|
|
|
|
|
|||
Change in net unrealized gain/loss during the period |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Reclassification adjustment for net gain/loss included in net income |
|
|
|
|
|
|
|
|
|
|||
Cash flow hedge derivatives |
|
|
|
|
|
|
|
|
|
|||
Change in net unrealized gain/loss during the period |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Reclassification adjustment for net gain/loss included in net income |
|
|
|
|
|
( |
) |
|
|
|
||
Total other comprehensive income (loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||
Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|||
Securities available for sale and transferred securities: |
|
|
|
|
|
|
|
|
|
|||
Change in net unrealized gain/loss during the period |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Reclassification adjustment for net gain/loss included in net income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Cash flow hedge derivatives |
|
|
|
|
|
|
|
|
|
|||
Change in net unrealized gain/loss during the period |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Reclassification adjustment for net gain/loss included in net income |
|
|
|
|
|
( |
) |
|
|
|
||
Total other comprehensive income (loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
44
Activity in accumulated other comprehensive income (loss), net of tax, was as follows:
|
|
Securities |
|
|
Post- |
|
|
Cash Flow Hedge Derivatives |
|
|
Accumulated |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
Balance January 1, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Amounts reclassified from accumulated other comprehensive income |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net other comprehensive income (loss) during period |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance September 30, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance January 1, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Amounts reclassified from accumulated other comprehensive income |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net other comprehensive income (loss) during period |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance September 30, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Note 17 – Business Combinations
On
45
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This Form 10-Q, particularly under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 13. Commitments, Guarantees and Contingent Liabilities” among others, may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements may include, but are not limited to, statements regarding projections, forecasts, goals and plans of Premier Financial Corp. (“Premier”) and its management, and include statements related to the expected timing, completion and benefits of the proposed merger with Wesbanco, Inc. (“Wesbanco”) (the ‘Merger”), future movements of interest rates, loan or deposit production levels, future credit quality ratios, future strength in the market area, and growth projections. These statements do not describe historical or current facts and may be identified by words such as “intend,” “intent,” “believe,” “expect,” “estimate,” “target,” “plan,” “anticipate,” or similar words or phrases, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “may,” “can,” or similar verbs. There can be no assurances that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Premier or any other persons, that our objectives and plans will be achieved, including with respect to the Merger.
Forward-looking statements involve numerous risks and uncertainties, any one or more of which could affect Premier’s business and financial results in future periods and could cause actual results to differ materially from plans and projections. Factors that could cause or contribute to such differences include, but are not limited to, (1) the businesses of Premier and Wesbanco may not be integrated successfully or such integration may take longer to accomplish than expected, (2) the expected cost savings and any revenue synergies from the proposed Merger may not be fully realized within the expected timeframes, (3) disruption from the proposed Merger may make it more difficult to maintain relationships with customers, associates, or suppliers, (4) the required governmental approvals of the proposed Merger may not be obtained on the expected terms and schedule, (5) Premier’s shareholders and/or Wesbanco’s shareholders may not approve the proposed Merger and the merger agreement, and Wesbanco’s shareholders may not approve the issuance of shares of Wesbanco common stock in the proposed Merger. Further information regarding additional factors that could affect the forward-looking statements can be found in the cautionary language included under the headings “Cautionary Note Regarding Forward-Looking Statements” (in the case of Premier), “Forward-Looking Statements” (in the case of Wesbanco), and “Risk Factors” in Premier’s and Wesbanco’s Annual Reports on Form 10-K for the year ended December 31, 2023, and other documents subsequently filed by Premier and Wesbanco with the SEC. These risks and uncertainties include other risks and uncertainties detailed from time to time in our SEC filings, including our 2023 Form 10-K for the year ended December 31, 2023 and any further amendments thereto. All forward-looking statements made in this Form 10-Q are based on information presently available to the management of Premier and speak only as of the date on which they are made. We assume no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.
Non-GAAP Financial Measures
In addition to results presented in accordance with GAAP, this report includes non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is
46
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.
Non-GAAP financial measures have inherent limitations, which are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To mitigate these limitations, the Company has practices in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and to ensure that our performance is properly reflected to facilitate consistent period-to-period comparisons. The Company’s method of calculating these non-GAAP measures may differ from methods used by other companies. Although the Company believes the non-GAAP financial measures disclosed in this report enhance investors' understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for those financial measures prepared in accordance with GAAP.
The following tables present a reconciliation of non-GAAP measures to their respective GAAP measures for the three and nine months ended September 30, 2024 and 2023.
Reconciliations of Net Interest Income on an FTE basis, Net Interest Margin and Efficiency Ratio
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(In Thousands) |
|
|||||||||||||
Net interest income (GAAP) |
|
$ |
50,181 |
|
|
$ |
54,264 |
|
|
$ |
148,980 |
|
|
$ |
164,543 |
|
Add: FTE adjustment |
|
|
74 |
|
|
|
54 |
|
|
|
221 |
|
|
|
225 |
|
Net interest income on a FTE basis (1) |
|
$ |
50,255 |
|
|
$ |
54,318 |
|
|
$ |
149,201 |
|
|
$ |
164,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-interest income-less securities gains/losses (2) |
|
$ |
12,164 |
|
|
$ |
12,997 |
|
|
|
36,951 |
|
|
$ |
80,152 |
|
Non-interest expense (3) |
|
|
41,915 |
|
|
|
38,052 |
|
|
|
120,024 |
|
|
|
125,338 |
|
Average interest-earning assets net of average |
|
|
|
|
|
|
|
|
|
|
|
|
||||
unrealized gains/losses on securities (4) |
|
|
8,036,417 |
|
|
|
7,969,363 |
|
|
|
8,003,275 |
|
|
|
7,904,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net interest margin (1) / (4) |
|
|
2.50 |
% |
|
|
2.73 |
% |
|
|
2.49 |
% |
|
|
2.78 |
% |
Efficiency ratio (3) / (1) + (2) |
|
|
67.15 |
% |
|
|
56.53 |
% |
|
|
64.48 |
% |
|
|
51.18 |
% |
Critical Accounting Policies and Estimates
Premier has established various accounting policies that govern the application of GAAP in the preparation of its consolidated condensed financial statements. Certain accounting estimates involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities and management considers such estimates to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying value of assets and liabilities and the results of operations of Premier.
47
The Company tests goodwill at least annually and, more frequently, if events or changes in circumstances indicate that it may be more likely than not that there is a possible impairment. Due to the Company’s signing of the definitive agreement for the merger transaction with Wesbanco, the Company conducted a quantitative interim goodwill impairment assessment at September 30, 2024. The impairment assessment compares the fair value of identified reporting unit with their carrying amount (including goodwill). If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. The Company's interim assessment estimated fair value on income and market approaches. The income approach incorporated a discounted cash flow model that involves management assumptions and consideration of future economic forecasts available. The market approach incorporated a combination of price to book value and price to earnings, adjusted based on companies similar to the reporting unit and adjusted for selected multiples, along with a control premium based on a review of transactions in the banking industry. Significant assumptions in the assessments were employed and included, but were not limited to, prospective financial information, growth rates, terminal value, discount rates, control premiums and comparable multiples from publicly traded companies in our industry. Results of the interim assessment was a fair value of approximately $1.2 billion compared to a carrying amount of approximately $1.0 billion indicating no goodwill impairment as of September 30, 2024. Changes in the economic environment, operations of the reporting unit or other adverse events could result in goodwill impairment as a result of a future evaluation.
Premier has core deposit and other intangible assets resulting from acquisitions which are subject to amortization. Premier determines the amount of identifiable intangible assets based upon independent core deposit and customer relationship analyses at the time of the acquisition. Intangible assets with finite useful lives are evaluated for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. No events or changes in circumstances that would indicate that the carrying amount of any identifiable intangible assets may not be recoverable had occurred during the three months ended September 30, 2024.
General
Premier is a financial holding company that conducts business through its wholly-owned subsidiaries, the Bank and PFC Capital.
The Bank is an Ohio state-chartered bank headquartered in Youngstown, Ohio. It conducts operations through 73 banking center offices, 9 loan offices and serves clients through a team of wealth professionals. These operations are located in Ohio, Michigan, Indiana and Pennsylvania. The Bank provides a broad range of financial services including checking accounts, savings accounts, certificates of deposit, real estate mortgage loans, commercial loans, consumer loans, home equity loans and trust and wealth management services through its extensive branch network.
PFC Capital was formed as an Ohio limited liability company in 2016 for the purpose of providing mezzanine funding for customers. Mezzanine loans are offered by PFC Capital to customers in the Company’s market area and are expected to be repaid from the cash flow from operations of the business.
First Insurance was an insurance agency that conducted business throughout the Company’s markets prior to July 1, 2023. First Insurance offered property and casualty insurance, life insurance and group health insurance. Substantially all the assets of First Insurance were sold to the Buyer on June 30, 2023.
On July 26, 2024, Premier and Wesbanco announced the signing of the definitive Merger Agreement under which Premier will merge into Wesbanco in a stock-for-stock transaction. Immediately thereafter, the Bank will merge into Wesbanco Bank, Inc., a wholly owned subsidiary of Wesbanco. Under the terms of the Merger
48
Agreement, shareholders of Premier will receive 0.80 shares of Wesbanco common stock for each share of Premier common stock. The transaction is expected to close in the first quarter of 2025, subject to approval of shareholders of both Premier Financial and Wesbanco, and regulatory approvals, and the satisfaction or waiver of other customary closing conditions.
Regulation – The Company is subject to regulation, examination and oversight by the Federal Reserve Board (“Federal Reserve”) and the SEC. The Bank is subject to regulation, examination and oversight by the FDIC and the Division of Financial Institutions of the Ohio Department of Commerce ("ODFI"). In addition, the Bank is subject to regulations of the Consumer Financial Protection Bureau (“CFPB”), which was established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and has broad powers to adopt and enforce consumer protection regulations. The Company and the Bank must file periodic reports with the Federal Reserve, and examinations are conducted periodically by the Federal Reserve, the FDIC and the ODFI to determine whether the Company and the Bank are in compliance with various regulatory requirements and are operating in a safe and sound manner. The Company is also subject to various Ohio laws which restrict takeover bids, tender offers and control-share acquisitions involving public companies which have significant ties to Ohio.
Changes in Financial Condition
The Company's total assets increased $103.4 million, totaling $8.7 billion at September 30, 2024 compared to $8.6 billion at December 31, 2023. The increase is primarily attributable to an increase in securities, partially offset by a decline in loans. The increase in securities was funded by increases in advances from the FHLB.
Net loans decreased $150.3 million to $6.5 billion at September 30, 2024 compared to $6.7 billion at December 31, 2023. The following table sets forth the composition of the Company's loan portfolio by type of loan at the dates indicated.
|
|
September 30, |
|
|
December 31, |
|
||||||||||
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential |
|
$ |
1,806,389 |
|
|
|
26.6 |
% |
|
$ |
1,810,265 |
|
|
|
25.8 |
% |
Commercial |
|
|
2,853,115 |
|
|
|
42.0 |
% |
|
|
2,839,905 |
|
|
|
40.5 |
% |
Construction |
|
|
703,420 |
|
|
|
10.4 |
% |
|
|
838,823 |
|
|
|
12.0 |
% |
|
|
|
5,362,924 |
|
|
|
79.0 |
% |
|
|
5,488,993 |
|
|
|
78.3 |
% |
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
|
969,817 |
|
|
|
14.3 |
% |
|
|
1,056,803 |
|
|
|
15.1 |
% |
Home equity and improvement |
|
|
271,652 |
|
|
|
4.0 |
% |
|
|
267,960 |
|
|
|
3.8 |
% |
Consumer finance |
|
|
184,573 |
|
|
|
2.7 |
% |
|
|
193,830 |
|
|
|
2.8 |
% |
|
|
|
1,426,042 |
|
|
|
21.0 |
% |
|
|
1,518,593 |
|
|
|
21.7 |
% |
Loans before deferred loan origination fees and costs |
|
|
6,788,966 |
|
|
|
100.0 |
% |
|
|
7,007,586 |
|
|
|
100.0 |
% |
Deduct: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Undisbursed construction loan funds |
|
|
(213,803 |
) |
|
|
|
|
|
(281,466 |
) |
|
|
|
||
Net deferred loan origination fees and costs |
|
|
13,565 |
|
|
|
|
|
|
13,267 |
|
|
|
|
||
Allowance for credit losses |
|
|
(76,142 |
) |
|
|
|
|
|
(76,512 |
) |
|
|
|
||
Total loans |
|
$ |
6,512,586 |
|
|
|
|
|
$ |
6,662,875 |
|
|
|
|
||
49
The following table sets forth the composition of the Company's commercial real estate portfolio.
|
|
September 30, |
|
|
December 31, |
|
||||||||||
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Non owner occupied excluding office |
|
$ |
1,061,894 |
|
|
|
37.2 |
% |
|
$ |
1,027,801 |
|
|
|
36.2 |
% |
Non owner occupied office |
|
|
184,156 |
|
|
|
6.5 |
% |
|
|
205,302 |
|
|
|
7.2 |
% |
Owner occupied excluding office |
|
|
666,454 |
|
|
|
23.4 |
% |
|
|
653,849 |
|
|
|
23.0 |
% |
Owner occupied office |
|
|
104,792 |
|
|
|
3.7 |
% |
|
|
113,679 |
|
|
|
4.0 |
% |
Multifamily |
|
|
645,628 |
|
|
|
22.6 |
% |
|
|
642,651 |
|
|
|
22.6 |
% |
Agriculture land |
|
|
120,956 |
|
|
|
4.2 |
% |
|
|
121,544 |
|
|
|
4.3 |
% |
Other commercial real estate |
|
|
69,235 |
|
|
|
2.4 |
% |
|
|
75,079 |
|
|
|
2.6 |
% |
Total commercial real estate loans |
|
$ |
2,853,115 |
|
|
|
100.0 |
% |
|
$ |
2,839,905 |
|
|
|
100.0 |
% |
The following table sets forth the composition of the Company's commercial real estate portfolio by state.
|
|
September 30, |
|
|
December 31, |
|
||||||||||
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Ohio |
|
$ |
2,038,545 |
|
|
|
71.4 |
% |
|
$ |
2,013,740 |
|
|
|
70.9 |
% |
Michigan |
|
|
292,170 |
|
|
|
10.2 |
% |
|
|
303,512 |
|
|
|
10.7 |
% |
Indiana |
|
|
261,571 |
|
|
|
9.2 |
% |
|
|
278,768 |
|
|
|
9.8 |
% |
Pennsylvania |
|
|
75,210 |
|
|
|
2.6 |
% |
|
|
73,166 |
|
|
|
2.6 |
% |
Florida |
|
|
43,580 |
|
|
|
1.5 |
% |
|
|
23,405 |
|
|
|
0.8 |
% |
All other |
|
|
142,039 |
|
|
|
5.0 |
% |
|
|
147,314 |
|
|
|
5.2 |
% |
Total commercial real estate loans |
|
$ |
2,853,115 |
|
|
|
100.0 |
% |
|
$ |
2,839,905 |
|
|
|
100.0 |
% |
Securities increased $249.6 million to $1.2 billion at September 30, 2024 from $946.7 million at December 31, 2023. Equity securities increased $197,000 to $6.0 million in the first nine months of 2024 compared to $5.8 million at December 31, 2023.
Goodwill was $295.6 million at September 30, 2024 and December 31, 2023. Intangibles decreased $2.8 million to $9.3million at September 30, 2024, compared to $12.2 million at December 31, 2023, as a result of amortization during the nine months.
Deposits decreased $410,000 totaling $7.1 billion at both December 31, 2023 and September 30, 2024. Non-interest bearing deposits decreased $166.8 million since December 31, 2023 to $1.4 billion during the nine months ended September 30, 2024, while non-brokered interest-bearing deposits grew $220.9 million to $5.4 billion during the same period. Brokered deposits decreased $54.6 million in the nine months ended September 30, 2024 to $287.4 million compared to $341.9 million at December 31, 2023.
Stockholders’ equity increased $43.4 million from $975.6 million at December 31, 2023 to $1.0 billion at September 30, 2024. At September 30, 2024, 1,199,634 common shares remained available for repurchase under the Company’s existing repurchase program. The Company does not intend to repurchase shares of outstanding common stock during the pendency of the Merger.
50
Average Balances, Net Interest Income and Yields Earned and Rates Paid
The following table presents for the periods indicated the total dollar amount of interest from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in thousands of dollars and rates, and the net interest margin. The table reports interest income from tax-exempt loans and investment on a fully tax-equivalent basis. All average balances are based upon daily balances (dollars in thousands).
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||||||||||
|
|
Average |
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
Yield/ |
|
||||||
|
|
Balance |
|
|
Interest (1) |
|
|
Rate (2) |
|
|
Balance |
|
|
Interest (1) |
|
|
Rate (2) |
|
||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans receivable |
|
$ |
6,679,329 |
|
|
$ |
88,949 |
|
|
|
5.33 |
% |
|
$ |
6,763,232 |
|
|
$ |
86,618 |
|
|
|
5.12 |
% |
Securities |
|
|
1,293,427 |
|
|
|
10,045 |
|
|
|
3.11 |
|
|
|
1,137,730 |
|
|
|
6,991 |
|
|
|
2.46 |
|
Interest bearing deposits |
|
|
37,197 |
|
|
|
654 |
|
|
|
7.03 |
|
|
|
38,210 |
|
|
|
652 |
|
|
|
6.83 |
|
FHLB stock |
|
|
26,464 |
|
|
|
595 |
|
|
|
8.99 |
|
|
|
30,191 |
|
|
|
690 |
|
|
|
9.14 |
|
Total interest-earning assets |
|
|
8,036,417 |
|
|
|
100,243 |
|
|
|
4.99 |
|
|
|
7,969,363 |
|
|
|
94,951 |
|
|
|
4.77 |
|
Non-interest-earning assets |
|
|
659,634 |
|
|
|
|
|
|
|
|
|
612,856 |
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
8,696,051 |
|
|
|
|
|
|
|
|
$ |
8,582,219 |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deposits |
|
$ |
5,780,002 |
|
|
$ |
45,529 |
|
|
|
3.15 |
% |
|
$ |
5,490,945 |
|
|
$ |
34,874 |
|
|
|
2.54 |
% |
FHLB advances and other |
|
|
266,250 |
|
|
|
3,307 |
|
|
|
4.97 |
|
|
|
355,576 |
|
|
|
4,597 |
|
|
|
5.17 |
|
Subordinated debentures |
|
|
85,306 |
|
|
|
1,152 |
|
|
|
5.40 |
|
|
|
85,179 |
|
|
|
1,162 |
|
|
|
5.46 |
|
Notes payable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
— |
|
Total interest-bearing liabilities |
|
|
6,131,558 |
|
|
|
49,988 |
|
|
|
3.26 |
|
|
|
5,931,713 |
|
|
|
40,633 |
|
|
|
2.74 |
|
Non-interest bearing deposits |
|
|
1,425,365 |
|
|
|
— |
|
|
|
— |
|
|
|
1,554,882 |
|
|
|
— |
|
|
|
— |
|
Total including non-interest bearing demand deposits |
|
|
7,556,923 |
|
|
|
49,988 |
|
|
|
2.65 |
|
|
|
7,486,595 |
|
|
|
40,633 |
|
|
|
2.17 |
|
Other non-interest-bearing liabilities |
|
|
141,283 |
|
|
|
|
|
|
|
|
|
156,168 |
|
|
|
|
|
|
|
||||
Total liabilities |
|
|
7,698,206 |
|
|
|
|
|
|
|
|
|
7,642,763 |
|
|
|
|
|
|
|
||||
Stockholders’ equity |
|
|
997,845 |
|
|
|
|
|
|
|
|
|
939,456 |
|
|
|
|
|
|
|
||||
Total liabilities and stockholders’ equity |
|
$ |
8,696,051 |
|
|
|
|
|
|
|
|
$ |
8,582,219 |
|
|
|
|
|
|
|
||||
Net interest income; interest rate spread |
|
|
|
|
$ |
50,255 |
|
|
|
1.73 |
% |
|
|
|
|
$ |
54,318 |
|
|
|
2.03 |
% |
||
Net interest margin (3) |
|
|
|
|
|
|
|
|
2.50 |
% |
|
|
|
|
|
|
|
|
2.73 |
% |
||||
Average interest-earning assets to average |
|
|
|
|
|
|
|
|
131 |
% |
|
|
|
|
|
|
|
|
134 |
% |
||||
51
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||||||||||
|
|
Average |
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
Yield/ |
|
||||||
|
|
Balance |
|
|
Interest (1) |
|
|
Rate (2) |
|
|
Balance |
|
|
Interest (1) |
|
|
Rate (2) |
|
||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans receivable |
|
$ |
6,718,474 |
|
|
$ |
265,119 |
|
|
|
5.26 |
% |
|
$ |
6,671,687 |
|
|
$ |
244,303 |
|
|
|
4.88 |
% |
Securities |
|
|
1,222,519 |
|
|
|
26,447 |
|
|
|
2.88 |
|
|
|
1,160,987 |
|
|
|
21,408 |
|
|
|
2.46 |
|
Interest bearing deposits |
|
|
36,452 |
|
|
|
1,901 |
|
|
|
6.95 |
|
|
|
36,677 |
|
|
|
1,737 |
|
|
|
6.31 |
|
FHLB stock |
|
|
25,830 |
|
|
|
1,735 |
|
|
|
8.96 |
|
|
|
35,214 |
|
|
|
1,989 |
|
|
|
7.53 |
|
Total interest-earning assets |
|
|
8,003,275 |
|
|
|
295,202 |
|
|
|
4.92 |
|
|
|
7,904,565 |
|
|
|
269,437 |
|
|
|
4.54 |
|
Non-interest-earning assets |
|
|
641,586 |
|
|
|
|
|
|
|
|
|
633,683 |
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
8,644,861 |
|
|
|
|
|
|
|
|
$ |
8,538,248 |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deposits |
|
$ |
5,700,244 |
|
|
$ |
132,023 |
|
|
|
3.09 |
% |
|
$ |
5,256,571 |
|
|
$ |
83,157 |
|
|
|
2.11 |
% |
FHLB advances and other |
|
|
280,730 |
|
|
|
10,505 |
|
|
|
4.99 |
|
|
|
491,861 |
|
|
|
18,150 |
|
|
|
4.92 |
|
Subordinated debentures |
|
|
85,274 |
|
|
|
3,473 |
|
|
|
5.43 |
|
|
|
85,147 |
|
|
|
3,362 |
|
|
|
5.26 |
|
Notes payable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
Total interest-bearing liabilities |
|
|
6,066,248 |
|
|
|
146,001 |
|
|
|
3.21 |
|
|
|
5,833,583 |
|
|
|
104,669 |
|
|
|
2.39 |
|
Non-interest bearing deposits |
|
|
1,456,235 |
|
|
|
— |
|
|
|
— |
|
|
|
1,637,191 |
|
|
|
— |
|
|
|
— |
|
Total including non-interest bearing demand deposits |
|
|
7,522,483 |
|
|
|
146,001 |
|
|
|
2.59 |
|
|
|
7,470,774 |
|
|
|
104,669 |
|
|
|
1.87 |
|
Other non-interest-bearing liabilities |
|
|
142,029 |
|
|
|
|
|
|
|
|
|
146,507 |
|
|
|
|
|
|
|
||||
Total liabilities |
|
|
7,664,512 |
|
|
|
|
|
|
|
|
|
7,617,281 |
|
|
|
|
|
|
|
||||
Stockholders' equity |
|
|
980,349 |
|
|
|
|
|
|
|
|
|
920,967 |
|
|
|
|
|
|
|
||||
Total liabilities and stockholders' equity |
|
$ |
8,644,861 |
|
|
|
|
|
|
|
|
$ |
8,538,248 |
|
|
|
|
|
|
|
||||
Net interest income; interest rate spread |
|
|
|
|
$ |
149,201 |
|
|
|
1.71 |
% |
|
|
|
|
$ |
164,768 |
|
|
|
2.15 |
% |
||
Net interest margin (3) |
|
|
|
|
|
|
|
|
2.49 |
% |
|
|
|
|
|
|
|
|
2.78 |
% |
||||
Average interest-earning assets to average |
|
|
|
|
|
|
|
|
132 |
% |
|
|
|
|
|
|
|
|
136 |
% |
||||
Results of Operations
Three months ended September 30, 2024 and 2023
For the three months ended September 30, 2024, the Company reported net income of $16.7 million compared to net income of $24.7 million for the three months ended September 30, 2023. On a per share basis, basic and diluted earnings per common share were $0.46 for the three months ended September 30, 2024 and basic and diluted earnings per common share were $0.69 for the three months ended September 30, 2023. The decrease from 2023 to 2024 is primarily due to fluctuations in net interest income, mortgage banking income and transaction costs, which are described in further detail below.
52
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 $50.2 million for the quarter ended September 30, 2024, down from $54.3 million for the same period in 2023. Average earning assets for the quarter ended September 30, 2024 were $8.0 billion the same as the quarter ended September 30, 2023. The tax-equivalent net interest margin was 2.50% for the quarter ended September 30, 2024, a decrease of 23 basis points from 2.73% for the same period in 2023. The decrease in margin between the 2024 and 2023 quarters was primarily due to funding cost increasing at a faster pace than the Company earned on assets. The yield on interest-earning assets increased 22 basis points to 4.99% for the quarter ended September 30, 2024 compared to 4.77% for the same period in 2023. The cost of interest-bearing liabilities between the two periods increased 52 basis points to 3.26% in the third quarter of 2024 from 2.74% in the third quarter of 2023.
Interest income increased $5.3 million to $100.2 million for the quarter ended September 30, 2024, from $94.9 million for the quarter ended September 30, 2023. This increase is primarily due to an increase in the yield on loans and securities. Income from loans increased to $88.9 million for the quarter ended September 30, 2024, compared to $86.6 million for the same period in 2023. Average loan balances declined to $6.7 billion for the three months ended September 30, 2024 from $6.8 billion for the third quarter of 2023, but the yield on loans increased 21 basis points in the third quarter of 2024 to 5.33% compared to 5.12% in the third quarter of 2023. Interest income from investments increased $3.0 million to $10.0 million in the third quarter of 2024 compared to $7.0 million for the same period in 2023. This is primarily due to an increase in the yield on securities of 65 basis points to 3.11% for the three months ended September 30, 2024, compared to 2.46% for the same period in 2023, and an increase in average balance of $155.7 million. Income from interest-earning deposits increased slightly to $654,000 in the third quarter of 2024 compared to $652,000 for the same period in 2023. Income from FHLB stock dividends decreased to $595,000 in the third quarter of 2024 compared to $690,000 in the same quarter of 2023 as a result of a decrease in average FHLB stock balances of $3.7 million.
Interest expense increased $9.4 million to $50.0 million in the third quarter of 2024 compared to $40.6 million for the same period in 2023. An increase in the cost of interest-bearing liabilities of 52 basis points is the primary reason for this change. Interest expense related to interest-bearing deposits was $45.5 million in the third quarter of 2024 compared to $34.9 million for the same period in 2023. Interest expense recognized by the Company related to FHLB advances was $3.3 million in the third quarter of 2024 compared to $4.6 million for the same period in 2023 due to a decrease in average balances of $89.3 million when comparing the third quarter of 2024 to the same quarter in 2023. Expenses on subordinated debentures remained steady at $1.2 million in the third quarter of 2024 compared to the same period in 2023.
Allowance for Credit Losses
The ACL represents management’s assessment of the estimated credit losses the Company will receive over the life of the loan. ACL requires a projection of credit losses over the contract lifetime of the credit adjusted for prepayment tendencies. Management analyzes the adequacy of the ACL regularly through reviews of the loan portfolio. Consideration is given to economic conditions, changes in interest rates and the effect of such changes on collateral values and borrower’s ability to pay, changes in the composition of the loan portfolio and trends in past due and non-performing loan balances. The ACL is a material estimate that is susceptible to significant fluctuation and is established through a provision for credit losses based on management’s evaluation of the inherent risk in the loan portfolio. In addition to extensive in-house loan monitoring procedures, the Company utilizes an outside party to conduct an independent loan review of commercial loan and commercial real estate loan relationships. The Company’s goal is to have 45-50% of the portfolio reviewed annually using a risk based approach. Management utilizes the results of this outside loan review to assess the effectiveness of its internal
53
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 ACL 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 $13.8 million as of September 30, 2024, and $4.3 million as of December 31, 2023.
The second component is a general reserve, which is used to record credit loss reserves for groups of homogeneous loans in which the Company estimates the potential losses over the contractual lifetime of the loan adjusted for prepayment tendencies. In addition, the future economic environment is incorporated in projection with loss expectations to revert to the long-run historical mean after such time as management can no longer make or obtain a reasonable and supportable forecast. For purposes of the general reserve analysis, the six loan portfolio segments are further segregated into fifteen different loan pools to allocate the ACL. Residential real estate is further segregated into owner occupied and nonowner occupied for ACL. Commercial real estate is split into owner occupied, nonowner occupied, multifamily, agriculture land and other commercial real estate. Commercial credits are comprised of commercial working capital, agriculture production and other commercial credits. Construction is broken out into construction other and residential construction and consumer is broken out into consumer direct, consumer indirect and home equity. The Company utilizes three different methodologies to analyze loan pools.
The DCF methodology was selected as the appropriate method for loan segments with longer average lives and regular payment structures. This method is applied to a majority of the Company’s real estate loans. DCF generates cash flow projections at the instrument level where payment expectations are adjusted for prepayment and curtailment to produce an expected cash flow stream that is net of estimated credit losses. This expected cash flow stream is compared to the contractual cash flows to establish a valuation account for these loans.
The PD/LGD methodology was selected as most appropriate for loan segments with average lives of three years or less and/or irregular payment structures. This methodology was used for home equity and commercial portfolios. A loan is considered to default if one of the following is detected:
The default rate is measured on the current life of the loan segment using a weighted average of the maximum possible quarters. The PD is then combined with a LGD derived from historical charge-off data to construct a default rate. This loss rate is then supplemented with adjustments for reasonable and supportable forecasts of relevant economic indicators, particularly the unemployment rate forecast from the Federal Open Market Committee's Summary of Economic Projections. LGD is determined on a dollar-ratio basis, measuring the ratio of net charged off principal to defaulted principal.
54
The consumer portfolio contains loans with many different payment structures, payment streams and collateral. The remaining life method was deemed most appropriate for consumer direct loans and DCF for consumer indirect. The weighted average remaining life uses an annual charge-off rate over several vintages to estimate credit losses. The average annual charge-off rate is applied to the contractual term adjusted for prepayments. The DCF method was selected for consumer indirect due to the loan segments' longer average remaining life in addition to regular payment structure.
Additionally, CECL requires a reasonable and supportable forecast when establishing the ACL. The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.
The quantitative general allowance increased to $31.2 million at September 30, 2024, up from $28.1 million at December 31, 2023. As a part of the CECL model in certain calculations, especially DCF, projected loan losses are correlated to the levels of the unemployment rate over the life of the loans in addition to the fluctuation of loan balances. The increase in the quantitative general allowance during 2024 is attributed to changes in prepayment speeds, unemployment forecasts, risk migration and loss rates.
In addition to the quantitative analysis, a qualitative analysis is performed each quarter to provide additional general reserves on loan portfolios that are not individually analyzed for various factors. The overall qualitative factors are based on nine sub-factors. The nine sub-factors have been aggregated into three qualitative factors: economic, environment and risk.
ECONOMIC
ENVIRONMENT
RISK
The qualitative analysis indicated a general reserve of $31.0 million at September 30, 2024, compared to $44.1 million at December 31, 2023. Overall, the factors decreased in the third quarter as a result of the twelve month trend showing improvement in the economic and environmental factors listed above, which offset the increase in nonaccrual loans that negatively impacted the qualitative reserves.
55
The Company’s general reserve percentages for main loan segments, not otherwise classified, ranged from 0.384% for construction other loans to 1.321% for CRE owner occupied loans at September 30, 2024.
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 through retained earnings on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. The outstanding balance and related allowance on these loans as of September 30, 2024 is $12.5 million and $211,000, respectively.
As a result of the quantitative and qualitative analyses, along with the change in specific reserves and the change in net charge-offs in the quarter, the Company’s provision for credit losses for the three and nine months ended September 30, 2024 was a reduction in expense of $475,000 and an expense of $3.3 million, respectively. This is compared to an expense of $245,000 and $5.6 million for the three and nine months ended September 30, 2023, respectively. The ACL was $76.1 million at September 30, 2024 and $76.5 million at December 31, 2023. The ACL represented 1.16% of loans, net of undisbursed loan funds and deferred fees and costs at September 30, 2024, compared to 1.14% at December 31, 2023. In management’s opinion, the overall ACL of $76.1 million as of September 30, 2024 is adequate to cover current estimated credit losses.
Management also assesses the value of OREO as of the end of each accounting period and recognizes write-downs to the value of that real estate in the income statement if conditions dictate. In the three and nine months ended September 30, 2024, total write-downs of real estate held for sale and other repossessed assets were $62,000 and $135,000, respectively. Management believes that the values recorded at September 30, 2024 for OREO and repossessed assets represent the realizable value of such assets.
Total classified loans increased to $120.2 million at September 30, 2024, compared to $69.7 million at December 31, 2023, an increase of $50.6 million, primarily due to two commercial relationships, one which is still accruing and the other which was placed on nonaccrual. Management monitors collateral values of all loans included on the watch list that are collateral dependent and believes that allowances for such loans at September 30, 2024 were appropriate. Of the $82.0 million in non-accrual loans at September 30, 2024, $49.5 million, or 60.4%, are less than 90 days past due. Non-performing assets include loans that are on non-accrual, OREO and other assets held for sale. Non-performing assets at September 30, 2024 and December 31, 2023 by category, were as follows:
56
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In Thousands) |
|
|||||
Non-performing loans: |
|
|
|
|
|
|
||
Residential real estate |
|
$ |
14,786 |
|
|
$ |
13,028 |
|
Commercial real estate |
|
|
19,548 |
|
|
|
5,971 |
|
Construction |
|
|
1,200 |
|
|
|
— |
|
Commercial |
|
|
38,910 |
|
|
|
8,649 |
|
Home equity and improvement |
|
|
1,443 |
|
|
|
1,417 |
|
Consumer finance |
|
|
4,130 |
|
|
|
3,433 |
|
PCD |
|
|
1,947 |
|
|
|
2,993 |
|
Total non-performing loans |
|
|
81,964 |
|
|
|
35,491 |
|
|
|
|
|
|
|
|
||
Real estate owned |
|
|
326 |
|
|
|
243 |
|
Total repossessed assets |
|
|
326 |
|
|
|
243 |
|
|
|
|
|
|
|
|
||
Total nonperforming assets |
|
$ |
82,290 |
|
|
$ |
35,734 |
|
|
|
|
|
|
|
|
||
Total nonperforming assets as a percentage of total assets |
|
|
0.94 |
% |
|
|
0.41 |
% |
Total nonperforming assets as a percentage of total loans plus OREO* |
|
|
1.25 |
% |
|
|
0.53 |
% |
ACL as a percent of total nonperforming assets |
|
|
92.53 |
% |
|
|
214.12 |
% |
* Total loans are net of undisbursed loan funds and deferred fees and costs.
PCD loans account for 2.4% of non-performing loans at September 30, 2024. Excluding non-performing PCD loans, non-performing loans in the commercial loan category represented 3.75% of the total loans in that category at September 30, 2024, compared to 0.82% for the same category at December 31, 2023. Non-performing loans in the non-residential and multi-family residential real estate loan category were 0.69% of the total loans in this category at September 30, 2024, compared to 0.21% at December 31, 2023. Non-performing loans in the residential loan category represented 0.82% of the total loans in that category at September 30, 2024, compared to 0.72% for the same category at December 31, 2023.
The Bank’s Special Assets Committee meets monthly to review the status of work-out strategies for all criticized relationships, which includes all non-accrual loans. Based on such factors as anticipated collateral values in liquidation scenarios, cash flow projections, assessment of net worth of guarantors and all other factors which may mitigate risk of loss, the Special Assets Committee makes recommendations regarding proposed charge-offs, which are then approved by the Special Assets Committee.
57
The following tables detail net charge-offs/recoveries and non-accrual loans by loan type.
|
|
For the Nine Months Ended September 30, 2024 |
|
|
As of September 30, 2024 |
|
||||||||||
|
|
Net |
|
|
% of |
|
|
Nonaccrual |
|
|
% of |
|
||||
|
|
(In Thousands) |
|
|
|
|
|
(In Thousands) |
|
|
|
|
||||
Residential |
|
$ |
29 |
|
|
|
0.80 |
% |
|
$ |
14,786 |
|
|
|
18.04 |
% |
Commercial real estate |
|
|
1,207 |
|
|
|
33.27 |
% |
|
|
19,548 |
|
|
|
23.85 |
% |
Construction |
|
|
— |
|
|
|
— |
|
|
|
1,200 |
|
|
|
1.46 |
% |
Commercial |
|
|
1,075 |
|
|
|
29.63 |
% |
|
|
38,910 |
|
|
|
47.47 |
% |
Home equity and improvement |
|
|
111 |
|
|
|
3.06 |
% |
|
|
1,443 |
|
|
|
1.76 |
% |
Consumer finance |
|
|
1,031 |
|
|
|
28.42 |
% |
|
|
4,130 |
|
|
|
5.04 |
% |
PCD |
|
|
175 |
|
|
|
4.82 |
% |
|
|
1,947 |
|
|
|
2.38 |
% |
Total |
|
$ |
3,628 |
|
|
|
100.00 |
% |
|
$ |
81,964 |
|
|
|
100.00 |
% |
|
|
For the Nine Months Ended September 30, 2023 |
|
|
As of December 31, 2023 |
|
||||||||||
|
|
Net |
|
|
% of |
|
|
Nonaccrual |
|
|
% of |
|
||||
|
|
(In Thousands) |
|
|
|
|
|
(In Thousands) |
|
|
|
|
||||
Residential |
|
$ |
224 |
|
|
|
11.78 |
% |
|
$ |
13,028 |
|
|
|
36.71 |
% |
Commercial real estate |
|
|
890 |
|
|
|
46.79 |
% |
|
|
5,971 |
|
|
|
16.82 |
% |
Construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial |
|
|
(216 |
) |
|
|
(11.36 |
)% |
|
|
8,649 |
|
|
|
24.37 |
% |
Home equity and improvement |
|
|
239 |
|
|
|
12.57 |
% |
|
|
1,417 |
|
|
|
4.00 |
% |
Consumer finance |
|
|
841 |
|
|
|
44.22 |
% |
|
|
3,433 |
|
|
|
9.67 |
% |
PCD |
|
|
(76 |
) |
|
|
(4.00 |
)% |
|
|
2,993 |
|
|
|
8.43 |
% |
Total |
|
$ |
1,902 |
|
|
|
100.00 |
% |
|
$ |
35,491 |
|
|
|
100.00 |
% |
|
|
3rd Qtr 2024 |
|
|
2nd Qtr 2024 |
|
|
1st Qtr 2024 |
|
|
4th Qtr 2023 |
|
|
3rd Qtr 2023 |
|
|||||
|
|
(In Thousands) |
|
|||||||||||||||||
Allowance at beginning of period |
|
$ |
77,222 |
|
|
$ |
76,679 |
|
|
$ |
76,512 |
|
|
$ |
76,513 |
|
|
$ |
75,921 |
|
Provision for credit losses |
|
|
(475 |
) |
|
|
3,173 |
|
|
|
560 |
|
|
|
2,143 |
|
|
|
245 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential |
|
|
2 |
|
|
|
3 |
|
|
|
61 |
|
|
|
20 |
|
|
|
12 |
|
Commercial real estate |
|
|
9 |
|
|
|
1,229 |
|
|
|
13 |
|
|
|
561 |
|
|
|
69 |
|
Construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial |
|
|
310 |
|
|
|
1,039 |
|
|
|
58 |
|
|
|
1,578 |
|
|
|
256 |
|
Home equity and improvement |
|
|
36 |
|
|
|
49 |
|
|
|
81 |
|
|
|
(23 |
) |
|
|
38 |
|
Consumer finance |
|
|
448 |
|
|
|
664 |
|
|
|
438 |
|
|
|
478 |
|
|
|
280 |
|
PCD |
|
|
18 |
|
|
|
105 |
|
|
|
52 |
|
|
|
32 |
|
|
|
6 |
|
Total charge-offs |
|
|
823 |
|
|
|
3,089 |
|
|
|
703 |
|
|
|
2,646 |
|
|
|
661 |
|
Recoveries |
|
|
218 |
|
|
|
459 |
|
|
|
310 |
|
|
|
502 |
|
|
|
1,008 |
|
Net charge-offs (recoveries) |
|
|
605 |
|
|
|
2,630 |
|
|
|
393 |
|
|
|
2,144 |
|
|
|
(347 |
) |
Ending allowance |
|
$ |
76,142 |
|
|
$ |
77,222 |
|
|
$ |
76,679 |
|
|
$ |
76,512 |
|
|
$ |
76,513 |
|
58
The following table sets forth information concerning the allocation of the Company’s ACL by loan categories at the dates indicated.
|
|
September 30, 2024 |
|
|
June 30, 2024 |
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
|
September 30, 2023 |
|
|||||||||||||||||||||||||
|
|
Amount |
|
|
Percent of |
|
|
Amount |
|
|
Percent of |
|
|
Amount |
|
|
Percent of |
|
|
Amount |
|
|
Percent of |
|
|
Amount |
|
|
Percent of |
|
||||||||||
|
|
|
|
|
|
|
|
(Dollars In Thousands) |
|
|||||||||||||||||||||||||||||||
Residential |
|
$ |
15,599 |
|
|
|
26.6 |
% |
|
$ |
20,241 |
|
|
|
26.4 |
% |
|
$ |
20,210 |
|
|
|
26.4 |
% |
|
$ |
17,215 |
|
|
|
25.8 |
% |
|
$ |
19,023 |
|
|
|
25.5 |
% |
Commercial real estate |
|
|
30,479 |
|
|
|
42.0 |
% |
|
|
28,971 |
|
|
|
41.6 |
% |
|
|
33,140 |
|
|
|
41.1 |
% |
|
|
36,053 |
|
|
|
40.5 |
% |
|
|
36,014 |
|
|
|
40.0 |
% |
Construction |
|
|
4,807 |
|
|
|
10.4 |
% |
|
|
2,022 |
|
|
|
10.2 |
% |
|
|
2,344 |
|
|
|
11.0 |
% |
|
|
3,159 |
|
|
|
12.0 |
% |
|
|
2,702 |
|
|
|
13.1 |
% |
Commercial |
|
|
20,953 |
|
|
|
14.3 |
% |
|
|
20,675 |
|
|
|
15.2 |
% |
|
|
15,877 |
|
|
|
15.0 |
% |
|
|
15,489 |
|
|
|
15.1 |
% |
|
|
14,135 |
|
|
|
14.7 |
% |
Home equity and improvement |
|
|
2,164 |
|
|
|
4.0 |
% |
|
|
2,844 |
|
|
|
3.9 |
% |
|
|
2,864 |
|
|
|
3.9 |
% |
|
|
2,703 |
|
|
|
3.8 |
% |
|
|
2,770 |
|
|
|
3.8 |
% |
Consumer finance |
|
|
2,140 |
|
|
|
2.7 |
% |
|
|
2,469 |
|
|
|
2.8 |
% |
|
|
2,244 |
|
|
|
2.7 |
% |
|
|
1,893 |
|
|
|
2.8 |
% |
|
|
1,869 |
|
|
|
2.9 |
% |
|
|
$ |
76,142 |
|
|
|
100.0 |
% |
|
$ |
77,222 |
|
|
|
100.0 |
% |
|
$ |
76,679 |
|
|
|
100.0 |
% |
|
$ |
76,512 |
|
|
|
100.0 |
% |
|
$ |
76,513 |
|
|
|
100.0 |
% |
Key Asset Quality Ratio Trends
|
|
3rd Qtr |
|
|
2nd Qtr |
|
|
1st Qtr |
|
|
4th Qtr |
|
|
3rd Qtr |
|
|||||
Allowance for credit losses / loans* |
|
|
1.16 |
% |
|
|
1.16 |
% |
|
|
1.15 |
% |
|
|
1.14 |
% |
|
|
1.14 |
% |
Allowance for credit losses / non-performing assets |
|
|
92.53 |
% |
|
|
119.63 |
% |
|
|
195.18 |
% |
|
|
214.12 |
% |
|
|
192.00 |
% |
Allowance for credit losses / non-performing loans |
|
|
92.90 |
% |
|
|
120.36 |
% |
|
|
196.46 |
% |
|
|
215.58 |
% |
|
|
193.89 |
% |
Non-performing assets / loans plus OREO* |
|
|
1.25 |
% |
|
|
0.97 |
% |
|
|
0.59 |
% |
|
|
0.53 |
% |
|
|
0.60 |
% |
Non-performing assets / total assets |
|
|
0.94 |
% |
|
|
0.74 |
% |
|
|
0.46 |
% |
|
|
0.41 |
% |
|
|
0.47 |
% |
Net charge-offs (recoveries) / average loans - annualized |
|
|
0.04 |
% |
|
|
0.16 |
% |
|
|
0.02 |
% |
|
|
0.13 |
% |
|
|
(0.02 |
)% |
* Total loans are net of undisbursed funds and deferred fees and costs.
Non-Interest Income
Total non-interest income was $12.6 million in the third quarter of 2024 compared to $13.3 million for the same period in 2023. The decrease is primarily a result of a decrease in mortgage banking income.
Service Fees. Service fees and other charges decreased by $809,000 from $6.9 million for the three months ended September 30, 2023 to $7.8 million for the same period in 2024.
Mortgage Banking Activity. In the third quarter of 2024, income of $1.2 million was recorded for mortgage banking compared to income of $3.3 million in the third quarter of 2023. Mortgage banking gains decreased $2.0 million to a gain of $691,000 in the third quarter of 2024 from a gain of $2.6 million in the third quarter of 2023, primarily as a result of fluctuations in gain margins and an aged loans portfolio sale in 2024. Mortgage loan servicing revenue was relatively flat at $1.8 million in the third quarter of 2024 compared to $1.9 million in the same period in 2023. Amortization of mortgage servicing rights remained steady at $1.3 million in the third quarter of 2024 and 2023. The valuation adjustment in mortgage servicing assets was a decrease of $16,000 in the third quarter of 2024 compared with an adjustment of $131,000 in the third quarter of 2023. These fluctuations have primarily resulted from changes in the level of interest rates and prepayment speeds.
Gain (loss) on Equity Securities. The Company recognized a gain on equity securities of $410,000 for the third quarter of 2024, compared to a gain of $256,000 for the third quarter of 2023. This is attributable to changes in valuations in the equity securities portfolio as a result of market conditions.
Insurance Commissions. As a result of the sale of First Insurance, the Company did not generate insurance commission income after June 30, 2023.
59
Wealth Management Income. Income from wealth management was $1.9 million and $1.5 million for the third quarter of 2024 and 2023, respectively.
Bank-Owned Life Insurance ("BOLI"). Income from BOLI increased to $1.2 million in the third quarter of 2024 from $1.10 million for the same period in 2023. The Company did not recognize proceeds from claim gains in either the third quarter of 2024 or 2023.
Other Non-Interest Income. Other non-interest income decreased to $91,000 in the third quarter of 2024 from $217,000 in the same period in 2023.
Non-Interest Expense
Non-interest expense increased $3.9 million to $41.9 million for the third quarter of 2024 compared to $38.1 million for the same period in 2023, primarily as a result of transaction costs recognized in 2024 related to the pending merger with Wesbanco.
Compensation and Benefits. Compensation and benefits remained steady at $21.8 million in the third quarter of 2024 and 2023.
Occupancy. Occupancy expense increased to $3.5 million in the third quarter of 2024 compared to $3.1 million in the third quarter of 2023.
FDIC Insurance Premium. The premiums on FDIC insurance decreased to $1.2 million for the three months ended September 30, 2024 compared to $1.3 million for the three months ended September 30, 2023.
Financial Institutions Tax. The Company’s financial institutions tax increased to $1.0 million in the third quarter of 2024 compared to $989,000 in the third quarter of 2023, as a result of higher equity at the end of 2023.
Data Processing. Data processing costs increased to $5.1 million in the third quarter of 2024 from $4.0 million in the third quarter of 2023, as a result of a new digital platform launched in the fourth quarter of 2023.
Amortization of Intangibles. Expense from the amortization of intangibles decreased to $904,000 in the third quarter of 2024 from $1.1 million in the third quarter of 2023. The decrease is primarily related to the amortization of core deposit intangibles over the past year.
Transaction Costs. The Company had $2.8 million in transaction costs in the third quarter of 2024 related to the recently announced Merger Agreement with Wesbanco. There were no transaction costs in the third quarter of 2023.
Other Non-Interest Expenses. Other non-interest expenses was steady at $5.7 million for the three months ended September 30, 2024, and 2023.
Nine Months Ended September 30, 2024 and 2023
On a consolidated basis, the Company’s net income for the nine months ended September 30, 2024 was $50.6 million compared to income of $91.2 million for the same period in 2023. On a per share basis, basic and diluted earnings per common share for the nine months ended September 30, 2024 were both $1.41, compared to basic and diluted earnings per common share of $2.55 for the same period in 2023. The decrease from 2023 to 2024 is primarily due to the sale of First Insurance on June 30, 2023 and fluctuations in interest on loans, deposits and FHLB advances and provision for credit losses, which is described in further detail below.
60
Net Interest Income
Net interest income was $149.0 million for the first nine months of 2024 compared to $164.5 million in the first nine months of 2023. Average interest-earning assets increased to $8.0 billion in the first nine months of 2024 compared to $7.9 billion in the first nine months of 2023. This increase was primarily due to organic loan growth and an increase in average securities.
For the nine months ended September 30, 2024, total interest income was $295.0 million compared to $269.2 million for the same period in 2023. Interest expense increased by $41.3 million to $146.0 million for the nine months ended September 30, 2024, compared to $104.7 million for the same period in 2023.
Net interest margin for the first nine months of 2024 was 2.49%, down 29 basis points from the 2.78% margin reported for the nine months ended September 30, 2023. The decrease in net interest margin was primarily due the increase in rates on interest-bearing liabilities outpacing the increases in repricing of interest-bearing assets.
Provision for Credit Losses
The provision for credit losses on loans and unfunded commitments was $2.5 million for the nine months ended September 30, 2024, compared to $3.5 million for the nine months ended September 30, 2023. Charge-offs for the first nine months of 2024 were $4.6 million and recoveries of previously charged off loans totaled $978,000 for net charge-offs of $3.6 million. By comparison, $4.1 million of charge-offs were recorded in the same period of 2023 and $2.2 million of recoveries were realized for net charge-offs of $1.9 million.
Non-Interest Income
Total non-interest income decreased $41.9 million to $37.1 million for the nine months ended September 30, 2024 from $79.1 million recognized for the same period in 2023, primarily as a result of the sale of First Insurance on June 30, 2023.
Service Fees. Service fees and other charges were $21.2 million for the first nine months of 2024, an increase of $667,000 from the same period in 2023.
Mortgage Banking Activity. Total revenue from the sale and servicing of mortgage loans decreased $349,000 to $5.6 million for the nine months ended September 30, 2024, up from $5.9 million for the same period in 2023, which was primarily attributable to a decline in gains due to margins. Mortgage banking gains decreased $637,000 to $3.4 million for the first nine months of 2024 from $4.0 million for the same period in 2023. Mortgage loan servicing revenue decreased slightly to $5.5 million in the first nine months of 2024compared to $5.6 million for the same period in 2023. The amortization of mortgage servicing rights were relatively flat with an expense of $3.8 million for the first nine months of 2023 to an expense of $3.9 million for the first nine months of 2024. The Company recorded a positive valuation adjustment of $594,000 in the first nine months of 2024 compared to a positive adjustment of $155,000 in the first nine months of 2023.
Gain on Sale of Insurance Agency. The Company sold First Insurance to Risk Strategies Corporation in the second quarter of 2023 and recognized a gain on the sale of $36.3 million.
Gain (loss) on Equity Securities. The Company recognized a gain on equity securities of $197,000 for the nine months ended September 30, 2024, compared to a loss of $1.1 million for the nine months ended September 30, 2023. These amounts are attributable to changes in valuations in the equity securities portfolio as a result of market conditions.
Insurance Commission Income. Income from the sale of insurance was $8.9 million in the first nine months of 2023. As a result of the sale of First Insurance, the Company did not generate insurance commission income after June 30, 2023.
61
Wealth Management Income. Income in this category was $5.4 million in the first nine months of 2024, compared to $4.5 million in the first nine months of 2023.
Income from Bank Owned Life Insurance. Income from BOLI was $4.1 million in the first nine months of 2024, compared to $3.5 million in the first nine months of 2023. The Company received $512,000 in claim gains in the first nine months of 2024, compared to $423,000 for the same period in 2023.
Other Non-Interest Income. Other non-interest income for the first nine months of 2024 was $480,000, compared to $412,000 in the first nine months of 2023.
Non-Interest Expense
Non-interest expense was $120.0 million for the first nine months of 2024, down from $125.3 million for the same period in 2023, primarily as a result of the sale of First Insurance on June 30, 2023.
Compensation and Benefits. Compensation and benefits decreased to $66.5 million for the nine months ended September 30, 2024, compared to $71.6 million for the same period in 2023, primarily due to the sale of First Insurance.
Occupancy. Occupancy expense was $10.2 million for the nine months ended September 30, 2024, compared to $10.0 million for the same period in 2023.
Data Processing. Data processing costs were $14.8 million in the first nine months of 2024, an increase of $3.3 million from $11.5 million in same period for 2023 primarily from the new digital platform launched in October 2023.
Amortization of Intangibles. Intangible amortization decreased by $731,000 to $2.8 million in the nine months ended September 30, 2024, compared to $3.6 million for the same period in 2023.
Transaction Costs. Transaction costs were $2.8 in the first nine months of 2024 as a result of the recently announced Merger Agreement with Wesbanco. Transaction costs were $3.7 million in the nine months ended September 30, 2023 as a result of the sale of First Insurance.
Other Non-Interest Expenses. Other non-interest expenses decreased $1.4 million to $16.3 million for the first nine months of 2024 from $17.7 million for the same period in 2023.
Liquidity
As a regulated financial institution, the Company is required to maintain appropriate levels of “liquid” assets to meet short-term funding requirements. The Company’s liquidity, primarily represented by cash and cash equivalents, is a result of its operating, investing and financing activities.
The principal source of funds for the Company are deposits, loan repayments, maturities of securities, borrowings from financial institutions and other funds provided by operations. The Bank also has the ability to borrow from the FHLB. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan repayments are more influenced by interest rates, general economic conditions and competition. Investments in liquid assets maintained by the Company and the Bank are based upon management’s assessment of (i) the need for funds, (ii) expected deposit flows, (iii) yields available on short-term liquid assets, and (iv) objectives of the asset and liability management program.
The Bank’s Asset/Liability Committee (“ALCO”) is responsible for establishing and monitoring liquidity guidelines, policies and procedures. ALCO uses a variety of methods to monitor the liquidity position of the Bank including liquidity analyses that measure potential sources and uses of funds over future periods out to one year. ALCO also performs contingency funding analyses to determine the Bank’s ability to meet potential liquidity needs under stress scenarios that cover varying time horizons ranging from immediate to longer term.
62
At September 30, 2024, the Company had approximately $3.1 billion of liquidity, comprised of cash and cash equivalents, unencumbered securities, additional FHLB and lines of credit borrowing capacity, brokered deposits subject to policy limits and the Federal Reserve Discount Window through the Borrower-In-Custody collateral programs.
Liquidity risk arises from the possibility that the Company may not be able to meet its financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, the Company’s Board of Directors has established a liquidity policy that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity requirements. This policy designates ALCO as the body responsible for meeting these objectives. ALCO reviews liquidity on a quarterly basis and approves significant changes in strategies that affect balance sheet or cash flow positions. Management reviews liquidity on a monthly basis.
Capital Resources
Capital is managed at the Bank and on a consolidated basis. Capital levels are maintained based on regulatory capital requirements and the economic capital required to support credit, market, liquidity and operational risks inherent in the business, as well as flexibility needed for future growth and new business opportunities.
In July 2013, the Federal Reserve and FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (commonly known as Basel III). The Company is in compliance with the Basel III guidelines.
63
The Company met each of the well-capitalized ratio guidelines at September 30, 2024. The following tables indicates the capital ratios for the Company (consolidated) and the Bank at September 30, 2024 and December 31, 2023 (in thousands):
|
|
September 30, 2024 |
|
|||||||||||||||||||||
|
|
Actual |
|
|
Minimum Required for |
|
|
Minimum Required to be |
|
|||||||||||||||
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio(1) |
|
|
Amount |
|
|
Ratio |
|
||||||
CET1 Capital (to Risk-Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
848,289 |
|
|
|
12.26 |
% |
|
$ |
311,458 |
|
|
|
4.5 |
% |
|
N/A |
|
|
N/A |
|
||
Premier Bank |
|
$ |
869,061 |
|
|
|
12.61 |
% |
|
$ |
310,207 |
|
|
|
4.5 |
% |
|
$ |
448,077 |
|
|
|
6.5 |
% |
Tier 1 Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
883,289 |
|
|
|
10.35 |
% |
|
$ |
341,253 |
|
|
|
4.0 |
% |
|
N/A |
|
|
N/A |
|
||
Premier Bank |
|
$ |
869,061 |
|
|
|
10.22 |
% |
|
$ |
339,574 |
|
|
|
4.0 |
% |
|
$ |
424,467 |
|
|
|
5.0 |
% |
Tier 1 Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
883,289 |
|
|
|
12.76 |
% |
|
$ |
415,278 |
|
|
|
6.0 |
% |
|
N/A |
|
|
N/A |
|
||
Premier Bank |
|
$ |
869,061 |
|
|
|
12.61 |
% |
|
$ |
413,610 |
|
|
|
6.0 |
% |
|
$ |
551,479 |
|
|
|
8.0 |
% |
Total Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
1,012,666 |
|
|
|
14.63 |
% |
|
$ |
553,704 |
|
|
|
8.0 |
% |
|
N/A |
|
|
N/A |
|
||
Premier Bank |
|
$ |
947,238 |
|
|
|
13.74 |
% |
|
$ |
551,479 |
|
|
|
8.0 |
% |
|
$ |
689,349 |
|
|
|
10.0 |
% |
(1) Excludes capital conservation buffer of 2.50%
|
|
December 31, 2023 |
|
|||||||||||||||||||||
|
|
Actual |
|
|
Minimum Required |
|
|
Minimum Required |
|
|||||||||||||||
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio(1) |
|
|
Amount |
|
|
Ratio |
|
||||||
CET1 Capital (to Risk-Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
826,639 |
|
|
|
11.70 |
% |
|
$ |
318,003 |
|
|
|
4.5 |
% |
|
N/A |
|
|
N/A |
|
||
Premier Bank |
|
$ |
871,342 |
|
|
|
12.38 |
% |
|
$ |
316,676 |
|
|
|
4.5 |
% |
|
$ |
457,421 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier 1 Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
861,639 |
|
|
|
10.26 |
% |
|
$ |
335,772 |
|
|
|
4.0 |
% |
|
N/A |
|
|
N/A |
|
||
Premier Bank |
|
$ |
871,342 |
|
|
|
10.42 |
% |
|
$ |
334,641 |
|
|
|
4.0 |
% |
|
$ |
418,301 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier 1 Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
861,639 |
|
|
|
12.19 |
% |
|
$ |
424,005 |
|
|
|
6.0 |
% |
|
N/A |
|
|
N/A |
|
||
Premier Bank |
|
$ |
871,342 |
|
|
|
12.38 |
% |
|
$ |
422,235 |
|
|
|
6.0 |
% |
|
$ |
562,980 |
|
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
991,873 |
|
|
|
14.04 |
% |
|
$ |
565,339 |
|
|
|
8.0 |
% |
|
N/A |
|
|
N/A |
|
||
Premier Bank |
|
$ |
951,576 |
|
|
|
13.52 |
% |
|
$ |
562,980 |
|
|
|
8.0 |
% |
|
$ |
703,725 |
|
|
|
10.0 |
% |
(1) Excludes capital conservation buffer of 2.50%.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As discussed in detail in the Company’s 2023 Form 10-K, the Company's ability to maximize net income is dependent on management’s ability to plan and control net interest income through management of the pricing and mix of assets and liabilities. Because a large portion of assets and liabilities of the Company are monetary in
64
nature, changes in interest rates and monetary or fiscal policy affect its financial condition and can have significant impact on the net income of the Company.
The Company monitors its exposure to interest rate risk on a quarterly basis through simulation analysis that measures the impact changes in interest rates can have on net interest income. The simulation technique analyzes the effect of a presumed 100 basis point shift in interest rates (which is consistent with management’s estimate of the range of potential interest rate fluctuations) and takes into account prepayment speeds on amortizing financial instruments, loan and deposit volumes and rates, borrowings, derivative positions and non-maturity deposit assumptions (such as beta and decay rates) and capital requirements. This simulation analysis incorporates key assumptions which can have a material impact on results. Sensitivity testing of these assumptions are performed to provide ALCO with the understanding of how sensitivity results differ should actual results vary from those assumed.
The table below presents, for the twelve months subsequent to September 30, 2024 and December 31, 2023, an estimate of the change in net interest income that would result from an immediate (shock) change in interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. Based on our net interest income simulation as of September 30, 2024, net interest income sensitivity to changes in interest rates for the twelve months subsequent to September 30, 2024, increased in the rising rate environment and decreased in the falling rate environment for the shock compared to the sensitivity profile for the twelve months subsequent to December 31, 2023. The change in modeling results from the prior period shown is largely due to updated deposit beta assumptions used which decreased liability sensitivity for the period.
|
|
Impact on Future Annual Net Interest Income |
||
Immediate Change in Interest Rates |
|
September 30, |
|
December 31, |
|
|
|
|
|
+ 400 |
|
(7.8)% |
|
(9.9)% |
+ 300 |
|
(5.6)% |
|
(7.3)% |
+ 200 |
|
(3.4)% |
|
(4.7)% |
+ 100 |
|
(1.4)% |
|
(2.3)% |
- 100 |
|
2.1% |
|
2.5% |
- 200 |
|
4.0% |
|
5.0% |
- 300 |
|
5.8% |
|
7.3% |
- 400 |
|
6.8% |
|
9.2% |
To analyze the impact of changes in interest rates in a more realistic manner, non-parallel interest rate scenarios are also simulated. These non-parallel interest rate scenarios indicate that net interest income may increase from the base case scenario should the yield curve change by different increments on different points on the curve. For example, in a steep down 200 basis points shock scenario where short-term rates (e.g., 1 year or less) decline while long-term rates (e.g., 7 years or more) remain generally unchanged, annual net interest income would increase by an estimated 10.91% for the twelve months subsequent to September 30, 2024.
65
In addition to the simulation analysis, Premier also uses an economic value of equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life of all balance sheet positions. The EVE analysis generally calculates the net present value of Premier’s assets and liabilities in rate shock environments that range from -400 basis points to +400 basis points. This analysis also incorporates key assumptions which can have material impacts to modeled results and are consistent with the methodologies used in the net interest income sensitivity analysis. Deposit decay (or attrition) is a key assumption in EVE analysis and is the result of the same dynamic model used to generate deposit beta assumptions. The results of this analysis are reflected in the following table for the quarter ended September 30, 2024, and the year ended December 31, 2023.
|
|
September 30, 2024 |
|
December 31, 2023 |
Change in Rates |
|
Economic Value of Equity % Change |
|
Economic Value of Equity % Change |
|
|
|
|
|
+400 bp |
|
(31.5)% |
|
(30.7)% |
+ 300 bp |
|
(22.7)% |
|
(23.4)% |
+ 200 bp |
|
(14.2)% |
|
(15.7)% |
+ 100 bp |
|
(6.3)% |
|
(7.7)% |
- 100 bp |
|
5.1% |
|
7.1% |
- 200 bp |
|
7.6% |
|
12.4% |
- 300 bp |
|
7.5% |
|
16.3% |
- 400 bp |
|
(3.1)% |
|
12.9% |
Item 4. Controls and Procedures
An evaluation of the Company's disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, the Company’s disclosure controls and procedures were effective. No changes occurred in the Company’s internal controls over financial reporting in connection with the evaluation required by Rules 13a-15(e) and 15d-15(e) during the quarter ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
Premier and its subsidiaries are involved in various legal proceedings that arise in the ordinary course of its business. While the ultimate liability with respect to litigation matters and claims cannot be determined at this time, management believes any resulting liability and other amounts relating to pending matters, individually or in the aggregate, are not likely to be material to the Company’s consolidated financial position or results of operations.
Item 1A. Risk Factors
The following revised risk factors supplement, and should be read in conjunction with, the risk factors disclosed in the 2023 Form 10-K. Any of the risks described in 2023 Form 10-K, as well as the risk described below, could materially adversely affect our business, financial condition and results of operations. Additional risks and uncertainties that are not presently known to us or that we deem immaterial may also adversely impact
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our business or financial results. Except as set forth below, there are no material changes related to risk factors from the risk factors described in Item 1A of the 2023 Form 10-K.
Premier’s loan portfolio includes a concentration of commercial real estate loans and commercial loans, which involve risks specific to real estate value and the successful operations of these businesses.
The Company’s portfolio of commercial real estate loans totaled $2.9 billion of total loans at September 30, 2024, and $2.8 billion of total loans at December 31, 2023. The Company's commercial real estate loans typically have higher principal amounts than residential real estate loans, and many of our commercial real estate borrowers have more than one loan outstanding. As a result, an adverse development on one loan can expose the Company to greater risk of loss on other loans. Additionally, repayment of the loans is generally dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic conditions and events outside of the control of the borrower or lender, including sustained inflation and rising interest rates, could negatively impact the future cash flows and market values of the affected properties. The Company underwrites commercial real estate loans primarily based upon the cash flow available to cover the debt service and secondarily based upon the value of the property securing the loan. Loan approval is primarily concentrated with credit officers or loan committee if the relationship is over $10 million. The Company maintains a robust risk identification and monitoring process of existing loans which includes portfolio concentration monitoring, stress test requirements and ongoing individual loan risk analysis. The Company's policy requires all commercial real estate loans $2.5 million and greater to be individually reviewed annually by the Company's credit department to assess risks and affirm the loan grade. Therefore, over 75% of the commercial real estate portfolio is reviewed annually by the credit department. Additionally, an independent loan review covers 40-50% of the commercial portfolio annually to validate credit risk management practices.
The Company's portfolio of commercial loans totaled $969.8 million and $1.1 billion at September 30, 2024 and December 31, 2023, respectively, of total loans. Commercial loans generally expose the Company to a greater risk of nonpayment and loss than commercial real estate or residential real estate loans since repayment of such loans often depends on the successful operations and income stream of the borrowers. The Company's commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower such as accounts receivable, inventory, machinery or real estate. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing other loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any exists.
The Company targets its business lending towards small- and medium-sized businesses, many of which have fewer financial resources than larger companies and may be more susceptible to economic downturns. If general economic conditions negatively impact these businesses, the Company's results of operations and financial condition may be adversely affected.
Risks Related to the Merger
The Company is subject to business uncertainties and contractual restrictions while the Merger Agreement is pending, which could adversely affect the Company's our business and operations.
Under the terms of the Merger Agreement, the Company is subject to certain restrictions on the conduct of its business prior to completing the transactions described in the Merger Agreement, which may adversely affect Premier's ability to execute certain of its business strategies. Such limitations could negatively affect its businesses and operations prior to the completion of the Merger.
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While the Merger Agreement is pending, parties with which the Company does business may experience uncertainty, including with respect to current or future business relationships with Premier or the combined business. It is possible that some customers, suppliers and other persons with whom Premier has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with the Company in connection with the transactions contemplated by the Merger Agreement, which could negatively affect Premier's revenues, earnings and cash flows, as well as the market price of shares of Premier's common stock, regardless of whether these transactions are completed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding Premier’s purchases of its common stock during the three-month period ended September 30, 2024:
Period |
|
Total Number |
|
|
Average |
|
|
Total Number of |
|
|
Maximum Number |
|
||||
Beginning Balance, June 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
1,199,634 |
|
|||
July 1 - July 31, 2024 |
|
|
1,608 |
|
|
$ |
20.31 |
|
|
|
— |
|
|
|
1,199,634 |
|
August 1 - August 31, 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,199,634 |
|
September 1 - September 30, 2024 |
|
|
586 |
|
|
|
23.75 |
|
|
|
— |
|
|
|
1,199,634 |
|
Total |
|
|
2,194 |
|
|
$ |
21.23 |
|
|
|
— |
|
|
|
1,199,634 |
|
(1) All of these shares were obtained in fulfillment of tax obligations from vesting of restricted stock compensation and were not part of the publicly announced repurchase program.
(2) On January 26, 2021, the Company announced that its Board of Directors authorized a program for the repurchase of up to 2,000,000 shares of outstanding common stock. On January 25, 2022, the Company announced that its Board of Directors approved an increase in the Company’s repurchasing authorization to up to 2,000,000 shares of outstanding common stock. There is no expiration date for the repurchase program. The Company does not intend to repurchase shares of outstanding common stock during the pendency of the Merger.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) None.
(b) None.
(c) During the three months ended September 30, 2024, no director or officer (as defined under Rule 16a-1 of the Exchange Act) of Premier
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Item 6. Exhibits
Exhibit 2.1 |
|
|
Exhibit 3.1 |
|
|
Exhibit 3.2 |
|
|
Exhibit 31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 101 |
|
The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 is formatted in Inline XBRL: (i) Unaudited Consolidated Condensed Statements of Financial Condition at September 30, 2024 and December 31, 2023; (ii) Unaudited Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2024 and 2023; (iii) Unaudited Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023; (iv) Unaudited Consolidated Condensed Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023; (v) Unaudited Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2024 and 2023; and (vi) Notes to Unaudited Consolidated Condensed Financial Statements. |
|
|
|
Exhibit 104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Premier Financial Corp. |
|
(Registrant) |
Date: November 12, 2024 |
|
By: |
/s/ Gary M. Small |
|
|
|
Gary M. Small |
|
|
|
President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: November 12, 2024 |
|
By: |
/s/ Paul D. Nungester, Jr. |
|
|
|
Paul D. Nungester, Jr. |
|
|
|
Executive Vice President and |
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
70