PREMIER FINANCIAL CORP. Forward-Looking Information
This quarterly report, as well as other publicly available documents, including those incorporated herein by reference, may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. These statements may include, but are not limited to, statements regarding projections, forecasts, goals and plans of Premier and its management, future movements of interests, loan or deposit production levels, future credit quality ratios, future strength in the market area, and growth projections. These statements do not describe historical or current facts and may be identified by words such as "intend," "intent," "believe," "expect," "estimate," "target," "plan," "anticipate," or similar words or phrases, or future or conditional verbs such as "will," "would," "should," "could," "might," "may," "can," or similar verbs. There can be no assurances that the forward-looking statements included in this quarterly report will prove to be accurate. In light of the significant uncertainties in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Premier or any other persons, that our objectives and plans will be achieved. Forward-looking statements involve numerous risks and uncertainties, any one or more of which could affect Premier's business and financial results in future periods and could cause actual results to differ materially from plans and projections. These risks and uncertainties include, but not limited to: financial markets, our customers, and our business and results of operation; changes in interest rates; disruptions in the mortgage market; risks and uncertainties inherent in general and local banking, insurance and mortgage conditions; political uncertainty; uncertainty inU.S. fiscal or monetary policy; uncertainty concerning or disruptions relating to tensions surrounding the current socioeconomic landscape; competitive factors specific to markets in which Premier and its subsidiaries operate; increasing competition for financial products from other financial institutions and nonbank financial technology companies; future interest rate levels; legislative or regulatory rulemaking or actions; capital market conditions; security breaches or unauthorized disclosure of confidential customer or Company information; interruptions in the effective operation of information and transaction processing systems of Premier or Premier's vendors and service providers; failures or delays in integrating or adopting new technology; the impact of the cessation of LIBOR interest rates and implementation of a replacement rate; and other risks and uncertainties detailed from time to time in ourSecurities and Exchange Commission ("SEC") filings, including our Annual Report on Form 10-K for the year endedDecember 31, 2022 , (the "2022 Form 10-K") and any amendments thereto. Any one or more of these factors have affected or could in the future affect Premier's business and financial results in future periods and could cause actual results to differ materially from plans and projections.
All forward-looking statements made in this quarterly report are based on information presently available to the management of Premier and speak only as of the date on which they are made. We assume no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.
Non-GAAP Financial Measures
In addition to results presented in accordance with GAAP, this report includes
non-GAAP financial measures. The Company believes these non-GAAP financial
measures provide additional information that is useful to investors in helping
to understand the underlying performance and trends of the Company. The Company
monitors the non-GAAP financial measures and the Company's management believes
they are helpful to investors because they provide an additional tool to use in
evaluating the Company's financial and business trends
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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 months ended
Reconciliations of Net Interest Income on an FTE basis, Net Interest Margin and
Efficiency Ratio
Three Months Ended
March 31,
2023 2022
(In Thousands)
Net interest income (GAAP) $ 56,287 $ 57,894
Add: FTE adjustment 104 229
Net interest income on a FTE basis (1) $ 56,391 $ 58,123
Non-interest income-less securities gains/losses (2)
42,791 41,303
Average interest-earning assets net of average unrealized gains/losses on securities (4) 7,783,850 6,754,862 Ratios: Net interest margin (1) / (4) 2.90 % 3.44 % Efficiency ratio (3) / (1) + (2) 60.90 % 54.61 % Critical Accounting Policies Premier has established various accounting policies that govern the application of GAAP in the preparation of its consolidated financial statements. The significant accounting policies of Premier are described in the notes to the consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities and management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying value of assets and liabilities and the results of operations of Premier.
General
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Premier is a financial holding company that conducts business through its
wholly-owned subsidiaries, the Bank,
The Bank is anOhio state-chartered bank headquartered inYoungstown, Ohio . It conducts operations through 75 banking center offices, 10 loan offices and serves clients through a team of wealth professionals. These operations are located inOhio ,Michigan ,Indiana ,Pennsylvania andWest Virginia . The Bank provides a broad range of financial services including checking accounts, savings accounts, certificates of deposit, real estate mortgage loans, commercial loans, consumer loans, home equity loans and trust and wealth management services through its extensive branch network.First Insurance is a wholly-owned subsidiary of the Company.First Insurance is an insurance agency that conducts business throughout the Company's markets.First Insurance offers property and casualty insurance, life insurance and group health insurance. PFC Risk Management is a wholly-owned insurance company subsidiary of the Company that insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible, in today's insurance marketplace. PFC Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.
Regulation - The Company is subject to regulation, examination and oversight by theFederal Reserve Board ("Federal Reserve") and theSEC . The Bank is subject to regulation, examination and oversight by theFDIC and theDivision of Financial Institutions of theOhio Department of Commerce ("ODFI"). In addition, the Bank is subject to regulations of theConsumer 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 theFederal Reserve , and examinations are conducted periodically by theFederal Reserve , theFDIC 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 variousOhio laws which restrict takeover bids, tender offers and control-share acquisitions involving public companies which have significant ties toOhio .
Changes in Financial Condition
AtMarch 31, 2023 , the Company's total assets amounted to$8.6 billion compared to$8.5 billion atDecember 31, 2022 . The increase is primarily attributable to growth in net loans of$113.7 million from$6.4 billion atDecember 31, 2022 to$6.5 billion atMarch 31, 2023 . The increase was mainly due to an increase in residential loans as the Company sold fewer loans due to higher yields on holding loans than selling loans. Loans held for sale increased from$115.3 million atDecember 31, 2022 to$119.6 million atMarch 31, 2023 . The increase in net loans was funded by advances from the FHLB offset by a decline in deposits. Deposits decreased$132.7 million from$6.9 billion atDecember 31, 2022 to$6.8 billion as ofMarch 31, 2023 . Non-interest bearing deposits decreased$219.8 million sinceDecember 31, 2022 to$1.6 billion during the three months endedMarch 31, 2023 , while non-brokered interest-bearing deposits grew$75.9 million to$5.0 billion during the same period. Brokered deposits increased$11.2 million in the three months endedMarch 31, 2023 to$154.9 million compared to$143.7 million atDecember 31, 2022 . 42
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Stockholders' equity increased$26.7 million from$887.7 million atDecember 31, 2022 to$914.5 million atMarch 31, 2023 . The increase in stockholders' equity was primarily due to an increase in accumulated other comprehensive income ("AOCI"). The increase in AOCI is primarily related to an after-tax$14.5 million positive valuation adjustment on the available-for-sale securities portfolio. AtMarch 31, 2023 , 1,199,633 common shares remained available for repurchase under the Company's existing repurchase program.
Average Balances, Net Interest Income and Yields Earned and Rates Paid
The following table presents for the periods indicated the total dollar amount
of interest from average interest-earning assets and the resultant yields, as
well as the interest expense on average interest-bearing liabilities, expressed
both in thousands of dollars and rates, and the net interest margin. The table
reports interest income from tax-exempt loans and investment on a fully
tax-equivalent basis. All average balances are based upon daily balances
(dollars in thousands).
Three Months Ended March 31,
2023 2022
Average Yield/ Average Yield/
Balance Interest (1) Rate (2) Balance Interest (1) Rate (2)
Interest-earning assets:
Loans receivable $ 6,535,080 $ 76,063 4.66 % $ 5,382,825 $ 55,248 4.11 %
Securities 1,183,361 7,359 2.49 1,250,321 5,701 1.82
Interest bearing deposits 35,056 444 5.07 109,757 46 0.17
FHLB stock 30,353 394 5.19 11,959 59 1.97
Total interest-earning assets 7,783,850 84,260 4.33 6,754,862 61,054 3.62
Non-interest-earning assets 649,250 786,552
Total assets $ 8,433,100 $ 7,541,414
Interest-bearing liabilities:
Deposits $ 5,078,510 $ 21,458 1.69 % $ 4,600,801 $ 2,222 0.19 %
FHLB advances and other 467,311 5,336 4.57 16,278 13 0.32
Subordinated debentures 85,114 1,075 5.05 84,988 696 3.28
Total interest-bearing liabilities 5,630,935 27,869 1.98 4,702,067 2,931 0.25
Non-interest bearing deposits 1,755,011 - - 1,713,416 - -
Total including non-interest bearing
demand deposits 7,385,946 27,869 1.51 6,415,483 2,931 0.18
Other non-interest-bearing liabilities 145,567 92,115
Total liabilities 7,531,513 6,507,598
Stockholders' equity 901,587 1,033,816
Total liabilities and stockholders'
equity $ 8,433,100 $ 7,541,414
Net interest income; interest rate
spread $ 56,391 2.35 % $ 58,123 3.37 %
Net interest margin (3) 2.90 % 3.44 %
Average interest-earning assets to
average
interest-bearing liabilities 138 % 144 %
(1)
Interest on certain tax-exempt loans and securities is not taxable for federal
income tax purposes. In order to compare the tax-exempt yields on these assets
to taxable yields, the interest earned on these assets is adjusted to a pre-tax
equivalent amount based on the marginal corporate federal income tax rate of
21%.
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Net interest margin is net interest income divided by average interest-earning assets. See Non-GAAP Financial Measure discussion for further details.
Results of Operations
Three months ended
For the three months endedMarch 31, 2023 , the Company reported net income of$18.1 million compared to net income of$26.4 million for the three months endedMarch 31, 2022 . On a per share basis, basic and diluted earnings per common share were$0.51 for the three months endedMarch 31, 2023 and basic and diluted income per common share were$0.73 for the three months endedMarch 31, 2022 . The changes from 2022 to 2023 are primarily due to fluctuations in interest on loans and deposits, provision for credit losses, and mortgage banking income, which are described in further detail below.
Net Interest Income
The Company's net interest income is determined by its interest rate spread (i.e. the difference between the yields on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities.
Net interest income was$56.3 million for the quarter endedMarch 31, 2023 , down from$57.9 million for the same period in 2022. Average earning assets for the quarter endedMarch 31, 2023 were$7.8 billion compared to$6.8 billion for the quarter endedMarch 31, 2022 . The tax-equivalent net interest margin was 2.90% for the quarter endedMarch 31, 2023 , a decrease of 54 basis points from 3.44% for the same period in 2022. The decrease in margin between the 2023 and 2022 quarters was primarily due to funding cost increasing at a faster pace than the company earned on assets. The yield on interest-earning assets increased 71 basis points to 4.33% for the quarter endedMarch 31, 2023 compared to 3.62% for the same period in 2022. The cost of interest-bearing liabilities between the two periods increased 173 basis points to 1.98% in the first quarter of 2023 from 0.25% in the first quarter of 2022. Interest income increased$23.3 million to$84.2 million for the quarter endedMarch 31, 2023 , from$60.8 million for the quarter endedMarch 31, 2022 . This increase is primarily due to an increase in interest on loans and securities. Income from loans increased to$76.1 million for the quarter endedMarch 31, 2023 , compared to$55.2 million for the same period in 2022 due to an increase in average loan balances to$6.5 billion for the three months endedMarch 31, 2023 from$5.4 billion for the first quarter of 2022. The yield on loans increased 55 basis points in 2023 to 4.66% compared to 4.11% in the first quarter of 2022. Interest income from investments increased$1.8 million in the first quarter of 2023 to$7.3 million compared to$5.5 million in the same period in 2022 primarily due to an increase in yield on securities of 67 basis points to 2.49% for the three months endedMarch 31, 2023 , compared to 1.82% for the same period in 2022. Income from interest-earning deposits increased to$398,000 in the first quarter of 2023 compared to$46,000 for the same period in 2022. Average balances on interest-earning deposits decreased$74.7 million to$35.1 million in the first quarter of 2023 from$109.8 million for the same period in 2022. The yield earned on interest-earning deposits increased 490 basis points in the first quarter of 2023 compared to the same period in 2022. Interest expense increased$24.9 million to$27.9 million in the first quarter of 2023 compared to$2.9 million for the same period in 2022. An increase in the cost of interest-bearing liabilities of 173 basis points is the primary reason for this change. Interest expense related to interest-bearing deposits was$21.5 million in the first quarter of 2023 compared to$2.2 million for the same period in 2022. Interest expense recognized by the Company related to FHLB advances was$5.3 million in the first quarter of 2023 compared to$13,000 for the same period in 2022. Expenses on subordinated debentures and notes payable increased to$1.1 million in the first 44
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quarter of 2023 compared to
Allowance for Credit Losses
The ACL represents management's assessment of the estimated credit losses the Company will receive over the life of the loan. ACL requires a projection of credit losses over the contract lifetime of the credit adjusted for prepayment tendencies. Management analyzes the adequacy of the ACL regularly through reviews of the loan portfolio. Consideration is given to economic conditions, changes in interest rates and the effect of such changes on collateral values and borrower's ability to pay, changes in the composition of the loan portfolio and trends in past due and non-performing loan balances. The ACL is a material estimate that is susceptible to significant fluctuation and is established through a provision for credit losses based on management's evaluation of the inherent risk in the loan portfolio. In addition to extensive in-house loan monitoring procedures, the Company utilizes an outside party to conduct an independent loan review of commercial loan and commercial real estate loan relationships. The Company's goal is to have 45-50% of the portfolio reviewed annually using a risk based approach. Management utilizes the results of this outside loan review to assess the effectiveness of its internal loan grading system as well as to assist in the assessment of the overall adequacy of the ACL associated with these types of loans. The ACL is made up of two basic components. The first component of the allowance for credit loss is the specific reserve in which the Company sets aside reserves based on the analysis of individual analyzed credits. In establishing specific reserves, the Company analyzes all substandard, doubtful and loss graded loans quarterly and makes judgments about the risk of loss based on the cash flow of the borrower, the value of any collateral and the financial strength of any guarantors. If the loan is individually analyzed and cash flow dependent, then a specific reserve is established for the discount on the net present value of expected future cash flows. If the loan is individually analyzed and collateral dependent, then any shortfall is either charged off or a specific reserve is established. The Company also considers the impacts of anySmall Business Administration orFarm Service Agency guarantees. The specific reserve portion of the ACL was$1.9 million as ofMarch 31, 2023 , and$2.4 million as ofDecember 31, 2022 . The second component is a general reserve, which is used to record loan loss reserves for groups of homogeneous loans in which the Company estimates the potential losses over the contractual lifetime of the loan adjusted for prepayment tendencies. In addition, the future economic environment is incorporated in projection with loss expectations to revert to the long-run historical mean after such time as management can no longer make or obtain a reasonable and supportable forecast. For purposes of the general reserve analysis, the six loan portfolio segments are further segregated into fifteen different loan pools to allocate the ACL. Residential real estate is further segregated into owner occupied and nonowner occupied for ACL. Commercial real estate is split into owner occupied, nonowner occupied, multifamily, agriculture land and other commercial real estate. Commercial credits are comprised of commercial working capital, agriculture production and other commercial credits. Construction is broken out into construction other and residential construction and consumer is broken out into consumer direct, consumer indirect and home equity. The Company utilizes three different methodologies to analyze loan pools. The DCF methodology was selected as the appropriate method for loan segments with longer average lives and regular payment structures. This method is applied to a majority of the Company's real estate loans. DCF generates cash flow projections at the instrument level where payment expectations are adjusted for prepayment and curtailment to produce an expected cash flow stream that is net of estimated credit losses. This expected cash flow stream is compared to the contractual cash flows to establish a valuation account for these loans. The PD/LGD methodology was selected as most appropriate for loan segments with average lives of three years or less and/or irregular payment structures. This methodology was used for home equity and commercial portfolios. A loan is considered to default if one of the following is detected: 45
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•
Becomes 90 days or more past due;
•
Is placed on nonaccrual;
•
Is marked as a modification; or
•
Is partially or wholly charged-off.
The default rate is measured on the current life of the loan segment using a weighted average of the maximum possible quarters. The PD is then combined with a LGD derived from historical charge-off data to construct a default rate. This loss rate is then supplemented with adjustments for reasonable and supportable forecasts of relevant economic indicators, particularly the unemployment rate forecast from theFederal 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. 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$16.2 million atMarch 31, 2023 , up from$15.0 million atDecember 31, 2022 . As a part of the CECL model in certain calculations, especially discounted cash flows, projected loan losses are correlated to the levels of the unemployment rate over the life of the loans in addition to the fluctuation of loan balances. The increase in the quantitative general allowance during 2023 is attributed to loan growth. In addition to the quantitative analysis, a qualitative analysis is performed each quarter to provide additional general reserves on loan portfolios that are not individually analyzed for various factors. The overall qualitative factors are based on nine sub-factors. The nine sub-factors have been aggregated into three qualitative factors: economic, environment and risk.
ECONOMIC
1)
Changes in international, national and local economic business conditions and developments, including the condition of various market segments.
2)
Changes in the value of underlying collateral for collateral dependent loans.
ENVIRONMENT
3)
Changes in the nature and volume in the loan portfolio.
4)
The existence and effect of any concentrations of credit and changes in the level of such concentrations.
5)
Changes in lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices.
6)
Changes in the quality and breadth of the loan review process.
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7)
Changes in the experience, ability and depth of lending management and staff.
RISK
8)
Changes in the trends of the volume and severity of delinquent and classified loans, and changes in the volume of non-accrual loans and other loan modifications.
9)
Changes in other external factors, such as regulatory, legal and technological environments.
The qualitative analysis indicated a general reserve of$56.2 million atMarch 31, 2023 , compared to$55.4 million atDecember 31, 2022 . Overall, the factors decreased slightly in the first quarter as a result of favorable trends in the risk factors listed above and were partially offset by an increase in the economic and environmental factors.
The Company's general reserve percentages for main loan segments, not otherwise
classified, ranged from 0.66% for construction other loans to 1.52% for
commercial working capital loans at
Under ASU Topic 326, when loans are purchased with evidence of more than
insignificant deterioration of credit, they are accounted for as purchase credit
deteriorated ("PCD"). PCD loans acquired in a transaction are marked to fair
value and a mark on yield is recorded. In addition, an adjustment is made to the
ACL for the expected loss through retained earnings on the acquisition date.
These loans are assessed on a regular basis and subsequent adjustments to the
ACL are recorded on the income statement. The outstanding balance and related
allowance on these loans as of March 31, 2023 , is $20.6 million and $847,000 ,
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 months ended March 31, 2023
was an expense of $3.9 million . This is compared to an expense of $626,000 for
the three months ended March 31, 2022 . The ACL was $74.3 million at March 31,
2023 , and $67.2 million at December 31, 2022 . The ACL represented 1.13% of
loans, net of undisbursed loan funds and deferred fees and costs at March 31,
2023 , compared to 1.13% at December 31, 2022 . In management's opinion, the
overall ACL of $74.3 million as of March 31, 2023 is adequate to cover current
estimated credit losses.
Management also assesses the value of OREO as of the end of each accounting
period and recognizes write-downs to the value of that real estate in the income
statement if conditions dictate. In the three months ended March 31, 2023 , total
write-downs of real estate held for sale and other repossessed assets were
$52,000 . Management believes that the values recorded at March 31, 2023 for OREO
and repossessed assets represent the realizable value of such assets.
Total classified loans increased to $44.9 million at March 31, 2023 , compared to
$43.8 million at December 31, 2022 , an increase of $1.1 million . Management
monitors collateral values of all loans included on the watch list that are
collateral dependent and believes that allowances for such loans at March 31,
2023 were appropriate. Of the $34.4 million in non-accrual loans at March 31,
2023 , $7.9 million , or 23.0%, 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 March 31, 2023 and December 31, 2022 by category,
were as follows:
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March 31, December 31,
2023 2022
(In Thousands)
Non-performing loans:
Residential real estate $ 6,763 $ 7,724
Commercial real estate 14,187 13,396
Construction - -
Commercial 5,142 4,862
Home equity and improvement 1,879 1,637
Consumer finance 2,508 2,401
PCD 3,898 3,802
Total non-performing loans 34,377 33,822
Real estate owned 393 619
Total repossessed assets 393 619
Total nonperforming assets $ 34,770 $ 34,441 Total nonperforming assets as a percentage of total assets
0.41 % 0.41 % Total nonperforming assets as a percentage of total loans plus OREO*
0.53 % 0.53 %
ACL as a percent of total nonperforming assets 213.61 % 211.42 %
* Total loans are net of undisbursed loan funds and deferred fees and costs.
PCD loans account for 11.3% of non-performing loans atMarch 31, 2023 . Excluding non-performing PCD loans, non-performing loans in the commercial loan category represented 0.49% of the total loans in that category atMarch 31, 2023 , compared to 0.46% for the same category atDecember 31, 2022 . Non-performing loans in the non-residential and multi-family residential real estate loan category were 0.50% of the total loans in this category atMarch 31, 2023 , compared to 0.48% atDecember 31, 2022 . Non-performing loans in the residential loan category represented 0.42% of the total loans in that category atMarch 31, 2023 , compared to 0.51% for the same category atDecember 31, 2022 . The Bank's Special Assets Committee meets monthly to review the status of work-out strategies for all criticized relationships, which include all non-accrual loans. Based on such factors as anticipated collateral values in liquidation scenarios, cash flow projections, assessment of net worth of guarantors and all other factors which may mitigate risk of loss, the Special Assets Committee makes recommendations regarding proposed charge-offs which are then approved by the Committee. The following tables detail net charge-offs/recoveries and non-accrual loans by loan type. For the Three Months Ended March 31, 2023 As of March 31, 2023 Net % of % of Charge-offs Total Net Nonaccrual Total Non- (Recovery) Charge-offs Loans Accrual Loans (In Thousands) (In Thousands) Residential $ (16 ) (0.64 )%$ 6,763 19.67 % Commercial real estate 1,657 66.63 % 14,187 41.27 % Construction - - - - Commercial 402 16.16 % 5,142 14.96 % Home equity and improvement 3 0.12 % 1,879 5.47 % Consumer finance 375 15.08 % 2,508 7.30 % PCD 66 2.65 % 3,898 11.33 % Total $ 2,487 100.00 %$ 34,377 100.00 % 48
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For the Three Months Ended March 31,
2022 As of December 31, 2022
Net % of Total % of Total
Charge-offs Net Nonaccrual Non-Accrual
(Recovery) Charge-offs Loans Loans
(In Thousands) (In Thousands)
Residential $ 82 (81.19 )% $ 7,724 22.84 %
Commercial real estate (52 ) 51.49 % 13,396 39.61 %
Construction - - - -
Commercial (89 ) 88.12 % 4,862 14.37 %
Home equity and improvement (14 ) 13.86 % 1,637 4.84 %
Consumer finance 19 (18.81 )% 2,401 7.10 %
PCD (47 ) 46.53 % 3,802 11.24 %
Total $ (101 ) 100.00 % $ 33,822 100.00 %
For the Quarter Ended
1st Qtr 2023 4th Qtr 2022 3rd Qtr 2022 2nd Qtr 2022 1st Qtr 2022
(In Thousands)
Allowance at beginning of period
3,944 3,020 3,706 5,151 626
Charge-offs:
Residential 5 38 15 832 140
Commercial real estate 1,669 93 206 137 7
Construction - - - 16 -
Commercial 498 - 29 5,303 10
Home equity and improvement 24 19 47 216 20
Consumer finance 449 540 185 136 102
PCD 68 367 - 63 10
Total charge-offs 2,713 1,057 482 6,703 289
Recoveries 226 227 328 1,431 390
Net charge-offs (recoveries) 2,487 830 154 5,272 (101 )
Ending allowance $ 74,273 $ 72,816 $ 70,626 $ 67,074 $ 67,195 The following table sets forth information concerning the allocation of the Company's ACL by loan categories at the dates indicated.
March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022
Percent of Percent of Percent of Percent of Percent of
total total total total total
loans by loans by loans by loans by loans by
Amount category Amount category Amount category Amount category
Amount category
(Dollars In Thousands)
Residential $ 18,229 22.7 % $ 16,711 21.6 % $ 16,311 21.4 % $ 14,113 21.0 % $ 11,640 20.7 %
Commercial real
estate 33,831 39.3 % 34,218 38.8 % 32,712 38.6 % 34,952 40.4 % 34,201 42.3 %
Construction 3,882 16.5 % 4,025 17.9 % 3,286 17.9 % 2,999 16.7 % 2,613 15.0 %
Commercial 12,525 14.8 % 11,769 14.8 % 12,282 15.1 % 9,762 15.1 % 13,821 15.4 %
Home equity and
improvement 3,654 3.8 % 4,044 3.9 % 4,210 3.9 % 4,003 4.1 % 3,919 4.4 %
Consumer finance 2,152 3.0 % 2,049 3.0 % 1,825 3.1 % 1,245 2.7 % 1,001 2.2 %
$ 74,273 100.0 % $ 72,816 100.0 % $ 70,626 100.0 % $ 67,074 100.0 % $ 67,195 100.0 %
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Key Asset Quality Ratio Trends
1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
2023 2022 2022 2022 2022
Allowance for credit losses /
loans* 1.13 % 1.13 % 1.14 % 1.14 % 1.25 %
Allowance for credit losses /
non-performing assets 213.61 % 211.42 % 210.49 % 190.57 % 141.31 %
Allowance for credit losses /
non-performing loans 216.05 % 215.29 % 213.13 % 193.10 % 142.07 %
Non-performing assets / loans
plus OREO* 0.53 % 0.53 % 0.54 % 0.60 % 0.88 %
Non-performing assets / total
assets 0.41 % 0.41 % 0.41 % 0.44 % 0.63 %
Net charge-offs / average loans
(annualized) 0.15 % 0.05 % 0.01 % 0.37 % (0.01 )%
* Total loans are net of undisbursed funds and deferred fees and costs.
Non-Interest Income
Total non-interest income decreased
Service Fees. Service fees and other charges increased by$428,000 from$6.0 million for the three months endedMarch 31, 2022 to$6.4 million for the same period in 2023. Mortgage Banking Activity. In the first quarter of 2023 a loss of$274,000 was recorded for mortgage banking compared to income of$4.3 million in the first quarter of 2022. Mortgage banking gains decreased$3.4 million to a loss of$837,000 in the first quarter of 2023 from a gain of$2.5 million in the first quarter of 2022. This decrease was primarily from a decrease in hedge valuations as market rates decreased. Mortgage loan servicing revenue was$1.9 million in the first quarter of both 2023 and 2022. Amortization of mortgage servicing rights decreased to$1.2 million in the first quarter of 2023 from$1.4 million in the first quarter of 2022. The valuation adjustment in mortgage servicing assets was$(274,000) in the first quarter of 2023 compared with an adjustment of$1.2 million in the first quarter of 2022. These fluctuations have primarily resulted from changes in the level of interest rates and prepayment speeds.
Gain on Sale of
Gain (loss) onEquity Securities . The Company recognized an unrealized loss on equity securities of$1.4 million for the first quarter of 2023, compared to an unrealized loss of$643,000 for the first quarter of 2022. These amounts are attributable to changes in valuations in the equity securities portfolio as a result of market conditions.
Insurance Commissions. Insurance commissions were
Wealth Management Income. Income from wealth management was
Bank-Owned Life Insurance ("BOLI"). Income from BOLI increased to $1.4 million
in the first quarter of 2023 from $996,000 for the same period in 2022 due to
the recognition of claim gains in 2023. There were no claim gains recognized in
2022.
Other Non-Interest Income. Other non-interest income decreased to
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Non-interest expense increased
Compensation and Benefits. Compensation and benefits increased slightly to$25.7 million in the first quarter of 2023, compared to$25.5 million in the first quarter of 2022. Occupancy. Occupancy expense decreased to$3.6 million in the first quarter of 2023 compared to$3.7 million in the first quarter of 2022. This decrease was due to the closure of one branch in 2022. FDIC Insurance Premium. The premiums onFDIC insurance increased to$1.3 million for the three months endedMarch 31, 2023 compared to$593,000 for the first quarter of 2022 primarily resulting from growth in deposits. Financial Institutions Tax. The Company's financial institutions tax decreased to$852,000 in the first quarter of 2023 compared to$1.2 million in the first quarter of 2022 as a result of lower equity at the end of 2022.
Data Processing. Data processing costs increased to
Amortization of Intangibles. Expense from the amortization of intangibles decreased to$1.3 million in the first quarter of 2023 from$1.4 million in the first quarter of 2022. The decrease is primarily related to the amortization of core deposit intangibles over the past year. Other Non-Interest Expenses. Other non-interest expenses increased$789,000 to$6.3 million for the three months endedMarch 31, 2023 , compared to$5.5 million for the same quarter in 2022. Liquidity As a regulated financial institution, the Company is required to maintain appropriate levels of "liquid" assets to meet short-term funding requirements. The Company's liquidity, primarily represented by cash and cash equivalents, is a result of its operating, investing and financing activities. The principal source of funds for the Company are deposits, loan repayments, maturities of securities, borrowings from financial institutions and other funds provided by operations. The Bank also has the ability to borrow from the FHLB. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan repayments are more influenced by interest rates, general economic conditions and competition. Investments in liquid assets maintained by the Company and the Bank are based upon management's assessment of (i) the need for funds, (ii) expected deposit flows, (iii) yields available on short-term liquid assets, and (iv) objectives of the asset and liability management program. The Bank's Asset/Liability Committee ("ALCO") is responsible for establishing and monitoring liquidity guidelines, policies and procedures. ALCO uses a variety of methods to monitor the liquidity position of the Bank including liquidity analyses that measure potential sources and uses of funds over future periods out to one year. 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. AtMarch 31, 2023 , the Bank had$1.6 billion of on-hand liquidity, defined as cash and cash equivalents, unencumbered securities and additional FHLB borrowing capacity. Liquidity risk arises from the possibility that the Company may not be able to meet its financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, the Company's Board of Directors has established a Liquidity Policy that identifies primary sources of 51
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liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity requirements. This policy designates ALCO as the body responsible for meeting these objectives. ALCO reviews liquidity on a quarterly basis and approves significant changes in strategies that affect balance sheet or cash flow positions. Management reviews liquidity on a monthly basis. Capital Resources Capital is managed at the Bank and on a consolidated basis. Capital levels are maintained based on regulatory capital requirements and the economic capital required to support credit, market, liquidity and operational risks inherent in the business, as well as flexibility needed for future growth and new business opportunities. InJuly 2013 , theFederal Reserve andFDIC approved the final rules implementing theBasel Committee on Banking Supervision's capital guidelines forU.S. banks (commonly known as Basel III). The Company is in compliance with the Basel III guidelines. The Company met each of the well-capitalized ratio guidelines atMarch 31, 2023 . The following table indicates the capital ratios for the Company (consolidated) and the Bank atMarch 31, 2023 andDecember 31, 2022 (in thousands): March 31, 2023 Minimum Required to be Minimum Required for Well Capitalized for Actual Adequately Capitalized Prompt Corrective Action Amount Ratio Amount Ratio(1) Amount RatioCET1 Capital (to Risk-Weighted Assets) Consolidated$ 737,448 10.01 %$ 331,682 4.5 % N/A N/A Premier Bank$ 782,641 10.66 %$ 330,399 4.5 %$ 477,243 6.5 % Tier 1 Capital Consolidated$ 772,448 9.35 %$ 330,563 4.0 % N/A N/A Premier Bank$ 782,641 9.50 %$ 329,700 4.0 %$ 412,124 5.0 % Tier 1 Capital (to Risk Weighted Assets) Consolidated$ 772,448 10.48 %$ 442,242 6.0 % N/A N/A Premier Bank$ 782,641 10.66 %$ 440,532 6.0 %$ 587,376 8.0 % Total Capital (to Risk Weighted Assets) Consolidated$ 902,451 12.24 %$ 589,656 8.0 % N/A N/A Premier Bank$ 862,644 11.75 %$ 587,376 8.0 %$ 734,220 10.0 % (1)
Excludes capital conservation buffer of 2.50%
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December 31, 2022
Minimum Required
to be Well
Minimum Required Capitalized for
for Adequately Prompt Corrective
Actual Capitalized Action
Amount Ratio Amount Ratio(1) Amount Ratio
CET1 Capital (to Risk-Weighted
Assets)
Consolidated $ 728,883 9.91 % $ 331,019 4.5 % N/A N/A
Premier Bank $ 775,907 10.58 % $ 330,008 4.5 % $ 476,678 6.5 %
Tier 1 Capital
Consolidated $ 763,883 9.37 % $ 326,094 4.0 % N/A N/A
Premier Bank $ 775,907 9.55 % $ 324,949 4.0 % $ 406,187 5.0 %
Tier 1 Capital (to Risk Weighted
Assets)
Consolidated $ 763,883 10.38 % $ 441,359 6.0 % N/A N/A
Premier Bank $ 775,907 10.58 % $ 440,011 6.0 % $ 586,681 8.0 %
Total Capital (to Risk Weighted
Assets)
Consolidated $ 892,663 12.14 % $ 588,478 8.0 % N/A N/A
Premier Bank $ 854,687 11.65 % $ 586,681 8.0 % $ 733,352 10.0 %
(1)Excludes capital conservation buffer of 2.50%.
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